EXHIBIT 99.1
RECAPITALIZATION AGREEMENT
This Recapitalization Agreement, dated as of November 18, 2003 (this
"Agreement"), is entered into by Hanover Direct, Inc., a Delaware corporation
(the "Company"), and Xxxxxxx Direct, LLC, a Delaware limited liability company
("Xxxxxxx"). Certain terms used and not otherwise defined in the text of this
Agreement are defined in Section 10 of this Agreement.
W I T N E S S E T H:
WHEREAS, Xxxxxxx is the record owner of 29,446,888 shares of Common
Stock, par value $.66 2/3 per share (the "Common Stock"), of the Company and
1,622,111 shares of Series B Cumulative Participating Preferred Stock, par value
$.01 per share (the "Series B Preferred Stock"), of the Company, consisting of
all of the issued and outstanding shares of Series B Preferred Stock, and
representing as of the date hereof 21.3% of the issued and outstanding shares of
Common Stock; and
WHEREAS, Xxxxxxx and the Company wish to memorialize their agreement
regarding the recapitalization of the Company, the reconstitution of the Board
of Directors of the Company and the settlement of outstanding litigation between
the Company and Xxxxxxx;
NOW, THEREFORE, in consideration of the foregoing and the mutual
representations, warranties and covenants herein contained, the parties hereto
hereby agree as follows:
1. Sale and Purchase of Shares; Recapitalization. Upon the terms
and subject to the conditions herein contained, Xxxxxxx agrees to sell to the
Company, and the Company agrees to purchase from Xxxxxxx, at the Closing
1,622,111 shares of Series B Preferred Stock in return for the issuance to
Xxxxxxx of 564,819 shares (as the same may be increased pursuant to Section 5,
the "Series C Shares") of Series C Participating Preferred Stock, par value
$0.01 per share (the "Series C Preferred Stock"), and 81,857,833 shares (as the
same may be increased pursuant to Section 5, the "New Common Shares") of Common
Stock (collectively, the "Recapitalization"). The parties acknowledge that the
consideration for the Series C Shares has a value at least equal to the
aggregate par value of such Series C Shares. The Series C Preferred Stock will
have the rights, preferences, and privileges set forth in the form of
Certificate of Designations, Powers, Preferences and Rights attached hereto as
Exhibit A (the "Certificate of Designations").
2. Reconstitution of Board of Directors.
(a) As promptly as practicable following the date hereof,
the Company shall file with the Securities and Exchange Commission and transmit
to all equity holders of the Company as required by Rule 14f-1 of the Securities
Exchange Act of 1934, as amended, a statement regarding a change in majority of
directors pursuant to Rule 14f-1 (the "14F Statement"). The 14F Statement shall
report the intention of the Company to reconstitute the Board of Directors as
the "Reconstituted Board," as set forth in the following paragraph.
(b) The Board of Directors of the Company shall be
reconstituted, simultaneously with the execution of this Agreement, so that (a)
the number of directors comprising the Board of Directors of the Company shall
be fixed at eight (8) and (b) the Board of Directors of the Company shall
consist of the following individuals: Xxxxxx Xxxxxxx, Xxxxxxx Xxxxxxx, Xxxxxx
Xxxxxxx, Xxxxx Xxxxxx, Xxxxxx Xxxxx, Xxxxx Xxxxx, Xxxxx Xxxxx and Xxxxxx Xxxxxx.
Following execution of this Agreement and the expiration of the tenth (10th) day
following the filing of the 14F Statement as set forth in Section 2(a) (x) the
number of directors comprising the Board of Directors of the Company shall be
fixed at nine (9) and (y) the Board of Directors of the Company shall consist of
the individuals listed in the previous sentence plus Xxxxxx Xxxxx (the Board of
Directors, as reconstituted pursuant to clauses (x) and (y), shall be referred
to herein as the "Reconstituted Board"). Following the execution of this
Agreement and prior to Xx. Xxxxx being added to the Board of Directors as set
forth in this paragraph, if the Board of Directors shall be deadlocked on any
matter before the Board of Directors, such matter shall be decided by the
Executive Committee of the Board of Directors.
(c) The Committees of the Board of Directors shall also
be reconstituted, simultaneously with the execution of this Agreement, as
follows: the members of the Executive Committee shall be Xxxxxx Xxxxxxx
(Chairman), Xxxxxx Xxxxxxx and Xxxxx Xxxxx; the members of the Audit Committee
shall be Xxxxxx Xxxxxx (Chairman), Xxxxx Xxxxxx, Xxxxx Xxxxx and Xxxxxx Xxxxx
(Xx. Xxxxx shall be added to the Audit Committee at the same time he is added to
the Board of Directors); the members of the Compensation Committee shall be
Xxxxx Xxxxx (Chairman), Xxxxx Xxxxxx and Xxxxxx Xxxxxxx; the members of the
Nominating Committee shall be Xxxxxxx Xxxxxxx (Chairman), Xxxxx Xxxxxx and
Xxxxxx Xxxxx; and the members of the Transactions Committee shall be Xxxxxx
Xxxxxxx (Chairman), Xxxxx Xxxxx, and Xxxxx Xxxxx.
(d) Simultaneously with the execution of this Agreement,
the Board of Directors of the Company shall approve a new charter for the
Transactions Committee in the form attached hereto as Exhibit B.
3. Discontinuance of Litigation. As soon as practicable following
the Closing, each of the Company and Xxxxxxx shall use their best efforts to
discontinue, with prejudice, the pending litigation between the parties entitled
Hanover Direct, Inc. v. Richemont Finance S.A. and Xxxxxxx Direct, LLC (Supreme
Court of the State of New York, County of New York (Index No. 03/602269)(the
"Action"). Pending the Closing, neither the Company nor Xxxxxxx shall take any
action to prosecute the Action, and each of the Company and Xxxxxxx agree to
grant to the other party any extensions of time necessary to preserve the Action
through the date of the Closing.
4. Conditions to the Transactions.
(a) The obligation of the Company to proceed with the
Recapitalization, the reconstitution of the Board of Directors and the
discontinuance of the Action shall be subject to the satisfaction on or prior to
the Closing Date of each of the following conditions (any of which may be
waived, in whole or in part, by the Company).
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(i) Representations and Warranties. The
representations and warranties of Xxxxxxx contained in this Agreement shall be
true and correct in all material respects on the date hereof (except as
otherwise specifically provided in any representation and warranty) and on the
Closing Date.
(ii) Performance; No Default. Xxxxxxx shall have
performed or complied with in all material respects all agreements, covenants
and conditions contained herein required to be performed or complied with by it
prior to or on the Closing Date.
(iii) Consents. Xxxxxxx shall have given all
notices and obtained all written consents, authorizations, waivers and approvals
required by any applicable law, statute, rule or regulation of any governmental
or administrative authority, agency, commission or body or by contract or
agreement to be obtained by Xxxxxxx respecting the transactions contemplated by
this Agreement, other than any such consents, authorizations, waivers and
approvals the failure of which to obtain would not be reasonably likely to have
a material adverse effect on the ability of Xxxxxxx to perform its obligations
under this Agreement or the other Transaction Documents (a "Xxxxxxx Material
Adverse Effect").
(iv) Information Statement. The Company shall
have transmitted to all equity holders of the Company the 14F Statement and ten
(10) days shall have elapsed from the date of mailing.
(v) No Litigation or Proceedings. No action,
suit, proceeding or investigation by a Governmental Entity shall be pending or,
so far as is known to the Company or Xxxxxxx, be threatened, and no
Governmental Entity shall have enacted any order or injunction which is in
effect, which, in the case of such action, suit, proceeding, investigation,
order or injunction, challenges the transactions contemplated by this Agreement
or seeks to restrain or prevent the consummation of the transactions
contemplated by this Agreement.
(b) The obligation of Xxxxxxx to proceed with the
Recapitalization, the reconstitution of the Board of Directors and the
discontinuance of the Action shall be subject to the satisfaction on or prior to
the Closing Date of each of the following conditions (any of which may be
waived, in whole or in part, by Xxxxxxx).
(i) Representations and Warranties. The
representations and warranties of the Company contained in this Agreement shall
be true and correct in all material respects on the date hereof (except as
otherwise specifically provided in any representation and warranty) and on the
Closing Date.
(ii) Performance; No Default. The Company shall
have performed or complied with in all material respects all agreements,
covenants and conditions contained herein required to be performed or complied
with by it prior to or on the Closing Date.
(iii) Consents. The Company shall have given all
notices and obtained all written consents, authorizations, waivers and approvals
required by any applicable law,
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statute, rule or regulation of any governmental or administrative authority,
agency, commission or body or by contract or agreement to be obtained by the
Company respecting the transactions contemplated by this Agreement, other than
any such consents, authorizations, waivers and approvals the failure of which to
obtain would not be reasonably likely to have a Company Material Adverse Effect.
(iv) Information Statement. The Company shall
have transmitted to all equity holders of the Company the 14F Statement and ten
(10) days shall have elapsed from the date of mailing.
(v) No Litigation or Proceedings. No action,
suit, proceeding or investigation by a Governmental Entity shall be pending or,
so far as is known to the Company or Xxxxxxx, be threatened, and no
Governmental Entity shall have enacted any order or injunction which is in
effect, which, in the case of such action, suit, proceeding, investigation,
order or injunction, challenges the transactions contemplated by this Agreement
or seeks to restrain or prevent the consummation of the transactions
contemplated by this Agreement.
5. Closing. The closing (the "Closing") of the transactions
contemplated hereby shall occur at the offices of Xxxxx Raysman Xxxxxxxxx Xxxxxx
& Xxxxxxx LLP, 000 Xxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000, as promptly as
practicable on a date mutually agreed between the parties no later than the
close of business on December 17, 2003 except as provided below (such date, the
"Closing Date"). If the Closing has not occurred by the close of business on
November 30, 2003, then, no later than December 3, 2003, the Company shall pay
to Xxxxxxx an amount equal to $1,000,000, by wire transfer of immediately
available funds to an account designated in writing by Xxxxxxx at least one
Business Day prior to such payment date. If the Closing has not occurred by the
close of business on December 17, 2003, then this Agreement shall cease to be
effective to the extent set forth in Section 9 unless either the Company or
Xxxxxxx elects, by delivery of notice of such election to such other party prior
to such time, to extend the Closing past such date. In the event of such
election, then (i) (A) if the Company makes such election, the number of shares
of Common Stock and Series C Preferred Stock issued to Xxxxxxx shall be adjusted
so that the Company shall issue to Xxxxxxx (a) shares of Series C Preferred
Stock with an aggregate liquidation preference equal to one-half (1/2) of the
accreted liquidation preference (less $500,000) of the Series B Preferred Stock
on the date of the Closing and (b) newly issued shares of Common Stock at the
rate of $0.69 per share (300% of the market value at August 6, 2003), rounded up
to the next full share, for the balance of the accreted liquidation preference
(less $500,000) of the Series B Preferred Stock on the date of the Closing, and
(B) if Xxxxxxx makes such election, there shall be no adjustment to the number
of shares of Common Stock and Series C Preferred Stock issued to Xxxxxxx and
(ii) the Closing shall occur no later than February 29, 2004.
(a) At the Closing, Xxxxxxx shall deliver to the Company:
(i) one or more stock certificates representing
1,622,111 shares of Series B Preferred Stock, duly endorsed for transfer or
accompanied by blank stock powers;
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(ii) a General Release in favor of the Company
and its affiliates in the form attached hereto as Exhibit C;
(iii) a Stipulation of Discontinuance signed by
its counsel in the Action in the form attached hereto as Exhibit D (the
"Stipulation of Discontinuance");
(iv) a Voting Agreement between Xxxxxxx and
Xxxxxx Xxxxxxx and Xxxxx Partners, L.P., Xxxxx International Fund Limited and
Xxxxx X. Xxxxx in the form attached hereto as Exhibit E (the "Voting
Agreement"), executed by Xxxxxxx and Xx. Xxxxxxx;
(v) a Corporate Governance Agreement between
Xxxxxxx and Xxxxxx Xxxxxxx, the Company and Xxxxx Partners, L.P., Xxxxx
International Fund Limited and Xxxxx X. Xxxxx in the form attached hereto as
Exhibit F (the "Corporate Governance Agreement"), executed by Xxxxxxx and Xx.
Xxxxxxx; and
(vi) a Registration Rights Agreement between
Xxxxxxx and Xxxxxx Xxxxxxx and the Company in the form attached hereto as
Exhibit G (the "Registration Rights Agreement"), executed by Xxxxxxx and Xx.
Xxxxxxx.
(b) At the Closing, the Company will deliver to Xxxxxxx:
(i) one or more certificates evidencing the
Series C Shares (in such denominations as shall be specified in writing by
Xxxxxxx) which shall be registered in the name of Xxxxxxx or its designee, with
an appropriate Securities Act legend;
(ii) one or more certificates representing the
New Common Shares (in such denominations as shall be specified in writing by
Xxxxxxx) which shall be registered in the name of Xxxxxxx or its designee, with
an appropriate Securities Act legend;
(iii) a General Release in favor of Xxxxxxx and
its affiliates in the form attached hereto as Exhibit H (the "Hanover General
Release");
(iv) a Stipulation of Discontinuance signed by
its counsel in the Action in the form attached hereto as Exhibit D;
(v) the Voting Agreement in the form attached
hereto as Exhibit E, executed by Xxxxx Partners, L.P., Xxxxx International Fund
Limited and Xxxxx X. Xxxxx;
(vi) the Corporate Governance Agreement in the
form attached hereto as Exhibit F, executed by Company, Xxxxx Partners, L.P.,
Xxxxx International Fund Limited and Xxxxx X. Xxxxx;
(vii) the Registration Rights Agreement in the
form attached hereto as Exhibit G, executed by the Company;
(viii) a certificate evidencing the incorporation
and good standing of the Company issued by the Secretary of State of Delaware as
of a date within two Business Days of
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the Closing Date; a certificate evidencing the filing of the Certificate of
Designations with the Secretary of State of Delaware and a certificate
evidencing the filing of a Certificate of Elimination of the Series B Preferred
Stock of the Company pursuant to Section 151(g) of the General Corporation Law
of the State of Delaware (the "Certificate of Elimination");
(ix) a certificate executed by the Secretary of
the Company, attached to which shall be (A) a copy of the certificate of
incorporation ("Certificate of Incorporation"), (B) a copy of the By-laws, and
(C) copies of resolutions of the Board of Directors of the Company authorizing
and approving the filing of the Certificate of Designations and the Certificate
of Elimination and the execution, delivery and performance of the Transaction
Documents and all other documents and instruments to be delivered pursuant
thereto, and a certificate of incumbency executed by the Secretary of the
Company certifying the names, titles and signatures of the officers authorized
to execute the Transaction Documents to be executed by the Company;
(x) a copy of an opinion from Xxxxxxxx Xxxxx
Xxxxxx & Xxxxx Financial Advisors, Inc. to the Company stating that the
transactions contemplated by this Agreement are fair, from a financial point of
view, to the public stockholders of the Company other than Xxxxxxx and Xxxxxx
Xxxxxxx;
(xi) an opinion from Xxxxx Raysman Xxxxxxxxx
Xxxxxx & Xxxxxxx LLP, counsel to the Company, dated the Closing Date, in form
and substance reasonably satisfactory to counsel to Xxxxxxx, with respect to:
(A) the Company's corporate existence, power, authority and good standing; (B)
the due authorization, execution and delivery of this Agreement, the Certificate
of Designations and the Certificate of Elimination and the validity and
enforceability of this Agreement and the other Transaction Documents; (C) the
due authorization of the Series C Shares and the New Common Shares and that the
Series C Shares and the New Common Shares are validly issued, fully paid and
non-assessable; (D) no consent or approval of, authorization by, exemption from,
filing with or notice to any Governmental Entity is required to be obtained by
the Company for the execution and delivery of, or the consummation of the
transactions contemplated by, this Agreement; and (E) the filing of the
Certificate of Designations and the Certificate of Elimination and the
execution, delivery and performance of this Agreement and each other Transaction
Document not (1) resulting in a violation of the Company's Certificate of
Incorporation or By-laws, (2) conflicting with any material agreements listed
therein to which the Company is a party, (3) resulting in a material violation
of law or (4) resulting in a lien upon the material assets of the Company; and
(xii) evidence of receipt by the Company of the
consent of Congress pursuant to the Working Capital Facility Documents to the
consummation of the transactions contemplated herein, including a waiver of any
objection to restricted payments and transactions with affiliates which will
arise in connection with the Series C Preferred Stock.
6. Representations and Warranties of Xxxxxxx. Xxxxxxx represents
and warrants to the Company as follows:
6.1 Organization. Xxxxxxx is a limited liability company
duly organized, validly existing and in good standing under the laws of the
State of Delaware.
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6.2 Authorization; Enforcement. Xxxxxxx has all requisite
corporate power and authority to authorize, execute, deliver and perform this
Agreement and the other Transaction Documents to which it is a party. The
execution, delivery and performance by Xxxxxxx of this Agreement and the other
Transaction Documents to which it is a party, and the consummation by Xxxxxxx of
the transactions contemplated hereby and thereby, have been duly authorized by
all necessary corporate action on the part of Xxxxxxx and no further consent or
authorization therefor is presently required by Xxxxxxx, its board of managers
or its members. This Agreement and the other Transaction Documents to which it
is a party have been duly and validly executed and delivered by Xxxxxxx and
constitute the valid and binding obligations of Xxxxxxx, enforceable against
Xxxxxxx in accordance with their respective terms.
6.3 Consents; Approvals. Other than filings required
pursuant to the Securities Exchange Act of 1934, as amended, and the rules and
regulations thereunder, neither the execution, delivery or performance by
Xxxxxxx of this Agreement or any other Transaction Document to which it is a
party, nor the consummation by it of the obligations and transactions
contemplated hereby or thereby, requires any consent or approval of,
authorization by, exemption from, filing with or notice to any Governmental
Entity or any other Person, other than any such consents, approvals,
authorizations, exemptions, filings or notices the failure of which to obtain
would not be reasonably likely to have a Xxxxxxx Material Adverse Effect.
6.4 Brokers. There is no broker, investment banker,
financial advisor, finder or other Person which has been retained by or is
authorized to act on behalf of Xxxxxxx who might be entitled to any fee or
commission for which the Company will be liable in connection with the
execution, delivery or performance by Xxxxxxx of this Agreement or any of the
other Transaction Documents to which it is a party.
6.5 Regarding the Ownership of the Series B Preferred
Stock.
(a) The delivery by Xxxxxxx to the Company of a
certificate for the 1,622,111 shares of Series B Preferred Stock issued to it by
the Company on July 31, 2003 duly endorsed for transfer or accompanied by blank
stock powers will transfer to the Company good title to such shares, free and
clear of all liens and other encumbrances other than those arising as a result
of the delivery thereof to the Company or arising out of actions taken by the
Company.
(b) Subject to the representation and warranty set forth
in Section 7.8 being true and correct, (i) Xxxxxxx waives all rights it may have
to object to or to enforce any provision of the Certificate of Designations for
the Series B Preferred Stock as a direct result of the consummation of the
transactions contemplated by this Agreement and the other Transaction Documents
or otherwise and (ii) effective as of the Closing, the Company's obligations
under the Certificate of Designations for the Series B Preferred Stock shall be
terminated and the Company shall have no further obligations thereunder.
6.6 Unregistered Securities. Xxxxxxx understands that the
shares of Series C Preferred Stock and the New Common Shares have not been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
and that the certificates evidencing such shares shall bear a legend to that
effect.
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6.7 Acquisition for Own Account. Xxxxxxx is acquiring the
shares of Series C Preferred Stock and the New Common Shares for its own account
for investment and not with a view toward distribution in a manner which would
violate the Securities Act; provided, however, that by making the
representations herein, Xxxxxxx does not agree to hold any of the shares of
Series C Preferred Stock or the New Common Shares for any minimum or other
specific term and reserves the right to dispose of such shares at any time in
accordance with or pursuant to an effective registration statement under the
Securities Act or in a transaction exempt from or not subject to the
registration requirements of the Securities Act.
6.8 Ability to Protect Its Own Interest and Bear Economic
Risks. By reason of the business and financial experience of its management,
Xxxxxxx has the capacity to protect its own interests in connection with the
transactions contemplated by this Agreement. Xxxxxxx further represents that it
is able to bear the economic risk of an investment in the shares of Series C
Preferred Stock and the New Common Shares.
6.9 Accredited Investor. Xxxxxxx is an "accredited
investor," as that term is defined in Regulation D promulgated under the
Securities Act.
6.10 Access to Information. Xxxxxxx has had adequate
opportunity to ask questions of, and receive answers from, the Company's
officers, employees, agents, accountants, and representatives concerning the
Company's business, operations, financial condition, assets, liabilities and all
other matters relevant to its investment in the shares of Series C Preferred
Stock and the New Common Shares. Neither such inquiries nor any other due
diligence investigations conducted by Xxxxxxx or its advisors, if any, or its
representatives shall modify, amend or affect Chelsey's right to rely on the
Company's representations and warranties contained in this Agreement.
6.11 Fair Market Value. In accordance with the regulations
promulgated by the Federal Trade Commission pursuant to the Xxxx-Xxxxx-Xxxxxx
Antitrust Improvements Act of 1976, as amended, the fair market value of all
voting securities of the Company to be held by Xxxxxxx and the persons within
which it is included as a result of this transaction is not in excess of $50
million.
6.12 14F Statement. The information provided in writing by
Xxxxxxx to the Company for inclusion in the 14F Statement does not contain any
statement which, at the time and in light of the circumstances under which it is
made, is false or misleading with respect to any material fact, or omits to
state any material fact necessary in order to make the statements therein not
false or misleading.
7. Representations and Warranties of the Company. The Company
represents and warrants to Xxxxxxx as follows:
7.1 Organization. The Company (a) is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware, (b) is duly qualified to do business as a foreign corporation and is
in good standing in each jurisdiction where the nature of the property owned or
leased by it or the nature of the business conducted by it makes such
qualification necessary, except where the failure to be so qualified would not
have a Company
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Material Adverse Effect, (c) has its principal place of business and chief
executive office at 000 Xxxxx Xxxx, Xxxxxxxx 00, Xxxxxxxxx, Xxx Xxxxxx 00000,
and (d) has all requisite corporate power and authority to own or lease and
operate its assets and carry on its business as presently being conducted. For
purposes of this Agreement, "Company Material Adverse Effect" means any material
adverse effect on the ability of the Company to perform its obligations under
this Agreement or the other Transaction Documents.
7.2 Authorization; Enforcement. The Company (and, to the
extent applicable, each of its Subsidiaries) has all requisite corporate power
and authority to authorize, execute, deliver and perform this Agreement, the
Certificate of Designations, the Certificate of Elimination and the other
Transaction Documents to which it is a party. The execution, delivery and
performance by the Company (and, to the extent applicable, each of its
Subsidiaries) of this Agreement, the Certificate of Designations, the
Certificate of Elimination and the other Transaction Documents have been duly
authorized by all necessary corporate action on the part of the Company (and, to
the extent applicable, each of its Subsidiaries) and no further consent or
authorization therefor is presently required by the Company (and, to the extent
applicable, each of its Subsidiaries), their respective board of directors or
their respective shareholders, whether under the laws of their respective
jurisdictions of incorporation, the rules of the American Stock Exchange or
otherwise. The Company has taken all actions under its Certificate of
Incorporation and its by-laws ("By-laws") as may be necessary or advisable to
provide Xxxxxxx with the rights hereby contemplated. This Agreement and the
other Transaction Documents have been duly and validly executed and delivered by
the Company (and, to the extent applicable, each of its Subsidiaries) and
constitute the valid and binding obligations of the Company (and, to the extent
applicable, each of its Subsidiaries), enforceable against the Company (and, to
the extent applicable, each of its Subsidiaries) in accordance with their
respective terms.
7.3 Consents and Approvals. Neither the filing of the
Certificate of Designations and the Certificate of Elimination, nor the
execution, delivery or performance of this Agreement and any other Transaction
Document by the Company (and, to the extent applicable, each of its
Subsidiaries), nor the consummation by them of the obligations and transactions
contemplated hereby or thereby, requires any consent or approval of,
authorization by, exemption from, filing with or notice to any Governmental
Entity or any other Person, other than filings required pursuant to the
Securities Exchange Act of 1934, as amended, and the rules and regulations
thereunder and a notice to and consent of Congress Financial Corporation
pursuant to the Working Capital Facility Documents and the consent of the
American Stock Exchange (in each such case, which have been made and obtained as
of the Closing Date) and any such other consents, approvals, authorizations,
exemptions, filings or notices the failure of which to obtain would not be
reasonably likely to have a Company Material Adverse Effect.
7.4 Brokers. There is no broker, investment banker,
finder, financial advisor or other Person which has been retained by or is
authorized to act on behalf of the Company or any of its Subsidiaries who might
be entitled to any fee or commission for which Xxxxxxx or the Company is or will
be liable in connection with the execution, delivery or performance by the
Company of this Agreement, the Certificate of Designations, the Certificate of
Elimination or any of the other Transaction Documents.
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7.5 No Conflicts. The filing of the Certificate of
Designations and the Certificate of Elimination and the execution, delivery and
performance of this Agreement and each other Transaction Document and the
consummation of the transactions contemplated hereby and thereby by the Company
(and, to the extent applicable, each of its Subsidiaries) will not (a) result in
a violation of the Certificate of Incorporation or By-laws of the Company or the
comparable organizational documents of any of its Subsidiaries, (b) conflict
with or result in the breach of the terms, conditions or provisions of or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give rise to any right of termination,
acceleration or cancellation under, any agreement, lease, mortgage, license,
indenture, instrument or other contract to which the Company or any of its
Subsidiaries is a party listed on Schedule 7.5, which schedule contains a list
of all agreements, leases, mortgages, licenses, indentures, instruments or other
contracts which would be required to be filed as an exhibit to the Company's
Annual Report on Form 10-K (other than under the Working Capital Facility
Documents, as to which a consent, including a waiver of any objection to
restricted payments and transactions with affiliates which will arise in
connection with the Series C Preferred Stock, has been obtained), (c) result in
a material violation of any law, rule, regulation, order, judgment or decree
(including, without limitation, the General Corporation Law of the State of
Delaware and U.S. federal and state securities laws and regulations) applicable
to the Company or any of its Subsidiaries or by which any material property or
asset of the Company or any of its Subsidiaries is bound or affected, or (d)
result in the creation of any lien, claim, judgment, charge, security interest
or other encumbrance upon any of the material assets of the Company or any of
its Subsidiaries.
7.6 Issuance of Securities.
(a) The Series C Shares have been duly authorized and
upon such issuance in accordance with the terms of this Agreement and the
Certificate of Designations, all such Series C Shares will be duly authorized,
validly issued, fully paid and non-assessable, and free from all taxes, liens,
claims and other encumbrances, and will not be subject to preemptive rights or
other similar rights of stockholders of the Company and will not impose personal
liability upon the holder thereof.
(b) The New Common Shares have been duly authorized and
upon such issuance in accordance with the terms of this Agreement and the
Certificate of Incorporation, all such New Common Shares will be duly
authorized, validly issued, fully paid and non-assessable, and free from all
taxes, liens, claims and other encumbrances, and will not be subject to
preemptive rights or other similar rights of stockholders of the Company and
will not impose personal liability upon the holder thereof.
7.7 Real Property. The Company is not currently, and
during the five years preceding the Closing Date will not have been, a United
States real property holding corporation within the meaning of section 897 of
the Internal Revenue Code of 1986, as amended (the "Code"). In addition, the
Company shall, upon the request of Xxxxxxx or any subsequent holder of any of
the Series C Shares or the shares of Common Stock held by Xxxxxxx, certify, in
accordance with sections 1.1445-2(c)(3) and 1.897-2(h) of the Treasury
regulations, that such
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Series C Shares or shares of Common Stock are not a U.S. real property interest
within the meaning of section 897 of the Code.
7.8 No Asset Sale Transactions. Except as previously
disclosed to counsel to Xxxxxxx, on and after November 10, 2003 and through the
date hereof, the Company has not entered into any agreement with respect to any
asset sale transaction outside of the ordinary course of business other than the
transactions contemplated herein, and the Company has notified Xxxxxxx or its
representatives of the receipt of any notice, discussions or requests for
information relating to such asset sale transactions received by the Company
during such period.
7.9 14F Statement. The information contained in the 14F
Statement does not contain any statement which, at the time and in light of the
circumstances under which it is made, is false or misleading with respect to any
material fact, or omits to state any material fact necessary in order to make
the statements therein not false or misleading, except with respect to any
information contained in the 14F Statement that was provided to the Company in
writing by Xxxxxxx for inclusion in the 14F Statement.
8. Covenants and Conditions.
8.1 Title. The Company does not and will not challenge
Chelsey's ownership of 29,446,888 shares of Common Stock and 1,622,111 shares of
Series B Preferred Stock, consisting of all of the issued and outstanding shares
of Series B Preferred Stock. The Company shall take all action necessary to
effect Chelsey's ownership of such shares of Common Stock and Series B Preferred
Stock, including, without limitation, causing the removal of any restrictive
legends on such shares, other than a customary legend confirming that the
transfer of such shares is restricted by the Securities Act.
8.2 Consents. The Closing is subject to the Company
obtaining the consent of Congress Financial Corporation and the American Stock
Exchange Inc. The Company agrees to use its best efforts to obtain such consents
as promptly as practicable. Xxxxxxx shall have the opportunity to participate in
any communications or meetings with Congress or the AMEX regarding the consent
of such parties to the Recapitalization, and the Company shall advise Xxxxxxx as
promptly as practicable with respect to any developments with respect to such
consents.
8.3 Company Store Division. Prior to the expiration of
one hundred fifty (150) days from the date of this Agreement, the Company agrees
that it shall not (a) sell, other than in the ordinary course of business, the
inventory, trademarks or customer lists associated with the Company Store
division of the Company or (b) terminate the employment of the Chief Executive
Officer of the Company, unless, in either case, such action has been approved by
the Board of Directors pursuant to an affirmative vote of at least six (6)
members of the Board of Directors.
8.4 Change of Control, Etc. Xxxxxxx and the Company
recognize and agree that the Recapitalization is a "change of control" for
purposes of all of the Company's existing Compensation Continuation (Change of
Control) Plans, the Employment Agreement, dated as of
11
September 1, 2002, as amended, between the Company and Xx. Xxxxx and the
Transaction Bonus Letters between the Company and its executive officers. The
Company shall be permitted to make on or after the Closing any payments required
thereunder. Such payments are listed on Exhibit I hereto. Xxxxxxx and the
Company further recognize and agree that all options granted by the Company to
participants in the Change of Control Plans shall be fully vested on the Closing
Date pursuant to the terms of such plans.
8.5 Charter Amendments. The Company agrees that it shall,
acting through its Board of Directors and in accordance with its charter and
bylaws and applicable law, recommend in the proxy statement for the first
shareholders meeting following the Recapitalization amendments to its
Certificate of Incorporation that the following be effectuated: (a) a reduction
in the par value per share of Common Stock from $0.66-2/3 per share to $0.01 per
share, (b) a reverse split of the Common Stock in a ratio of 10 for 1 and (c) an
increase by 10 million shares of the number of authorized shares of preferred
stock of the Company, and all of such shares shall be issuable by the Board of
Directors in one or more series (i.e., blank check preferred stock).
9. Termination.
9.1 Termination by the Parties. This Agreement may be
terminated at any time (except where otherwise indicated) prior to the Closing
Date:
(a) by mutual written consent of the Company and Xxxxxxx;
(b) by either the Company or Xxxxxxx:
(i) if the transactions described herein have
not been consummated by December 17, 2003 and neither party elects to extend the
Closing past such date as set forth in Section 5, or, if either party makes such
election, February 29, 2004, or such other date, if any, as the Company and
Xxxxxxx shall agree upon; provided, however, that the right to terminate this
Agreement under this Section 9.1(b)(i) shall not be available to any party whose
failure to fulfill any obligation under this Agreement has been the cause of, or
resulted in, the failure of the transactions described herein to be consummated
on or prior to such date; or
(ii) if any order of any Governmental Entity
shall be in effect that restrains or prohibits the transactions contemplated
hereby, or if any suit, action or other proceeding by any Governmental Entity
shall have been instituted or threatened which seeks to restrain or prohibit the
transactions contemplated hereby;
(c) by the Company, if Xxxxxxx shall have breached any
representation, warranty, covenant or other agreement contained in this
Agreement which would give rise to the failure of a condition set forth in
Sections 4(a)(i) or (ii), which breach cannot be or has not been cured within
ten (10) days after the giving of written notice by the Company to Xxxxxxx; or
(d) by Xxxxxxx, if the Company shall have breached any
representation, warranty, covenant or other agreement contained in this
Agreement which would give rise to the
12
failure of a condition set forth in Sections 4(b)(i) or (ii), which breach
cannot be or has not been cured within ten (10) days after the giving of written
notice by Xxxxxxx to the Company.
9.2 Effect of Termination. Upon the termination of this
Agreement, the provisions of this Agreement shall cease to have force or effect,
other than Section 11.13, which shall survive indefinitely.
10. Definitions. Unless the context otherwise requires, the terms
defined in this Section 10 shall have the meanings specified for all purposes of
this Agreement.
"Action" has the meaning assigned to it in Section 3 hereof.
"Agreement" means this Agreement.
"Business Day" means a day other than a Saturday, Sunday or day on
which banking institutions in New York are authorized or required to remain
closed.
"By-Laws" has the meaning assigned to it in Section 7.2 hereof.
"Certificate of Designations" has the meaning assigned to such term in
Section 1 hereof.
"Certificate of Incorporation" has the meaning assigned to it in
Section 5(b)(ix) hereof.
"Xxxxxxx" has the meaning assigned it in the introductory paragraph of
this Agreement.
"Xxxxxxx Material Adverse Effect" has the meaning assigned to it in
Section 4(a)(iii).
"Closing" has the meaning assigned to it in Section 5 hereof.
"Closing Date" has the meaning assigned to it in Section 5 hereof.
"Code" has the meaning assigned to it in Section 7.7 hereof.
"Common Stock" means the Common Stock, par value $0.66-2/3 per share,
of the Company.
"Company" has the meaning assigned to it in the introductory paragraph
of this Agreement.
"Company Material Adverse Effect" has the meaning assigned to it in
Section 7.1 hereof.
"Corporate Governance Agreement" has the meaning assigned to it in
Section 5(a)(v).
"Determination" has the meaning assigned to it in Section 11.11 hereof.
"Governmental Entity" means any national, federal, state, municipal,
local, territorial, foreign or other government or any department, commission,
board, bureau, agency, exchange,
13
regulatory authority or instrumentality thereof, or any court, judicial,
administrative or arbitral body or public or private tribunal.
"Hanover General Release" has the meaning assigned to it in Section
5(b)(iii) hereof.
"New Common Shares" has the meaning assigned to it in Section 1.1
hereof.
"Person" means and includes all natural persons, corporations, business
trusts, associations, companies, partnerships, joint ventures, limited liability
companies and other entities and governments and agencies and political
subdivisions.
"Recapitalization" has the meaning assigned to it in Section 1 hereof.
"Reconstituted Board" has the meaning assigned to it in Section 2(a)
hereof.
"Registration Rights Agreement" has the meaning assigned to it in
Section 5(a)(iv) hereof.
"SBSF" has the meaning assigned to it in Section 11.13 hereof.
"Securities Act" has the meaning assigned to it in Section 6.6 hereof.
"Series B Preferred Stock" means the Series B Cumulative Participating
Preferred Stock, par value $0.01 per share, of the Company.
"Series C Preferred Stock" has the meaning assigned to such term in
Section 1 hereof.
"Series C Shares" has the meaning assigned to such term in Section 1
hereof
"Subsidiary" means any corporation, association, business trust,
limited liability company, partnership or other business entity (i) at least 50%
of the outstanding voting securities of which are at the time owned or
controlled directly or indirectly by the Company or (ii) with respect to which
the Company possesses, directly or indirectly, the power to direct or cause the
direction of the affairs or management of such Person.
"Transaction Documents" means this Agreement, the Stipulation of
Discontinuance, the Hanover General Release, the Corporate Governance Agreement
and the Registration Rights Agreement.
"Working Capital Facility Documents" means the revolving loan and term
loan facilities provided by Congress Financial Corporation (its successors and
assigns, including, without limitation, any replacement or take out lender;
collectively, the "Lender") to the Company and certain of its Subsidiaries and
affiliates as set forth in the Loan and Security Agreement, dated as of November
14, 1995, by and among the Lender, the Company and certain Subsidiaries and
affiliates of the Company, as amended, together with the other agreements,
documents and instruments referred to therein or at any time executed or
delivered in connection therewith or
14
related thereto, as the same now exist or may hereafter be amended, modified
supplemented, extended, renewed, restated or replaced.
11. Miscellaneous.
11.1 Notices. All notices, requests and other
communications to any party hereunder shall be in writing (including facsimile
or similar writing) and shall be given:
(a) If to Xxxxxxx:
Xxxxxxx Direct, LLC
000 Xxxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Mr. Xxxxxx Xxxxxxx
Facsimile No.: (000) 000-0000
with a copy to:
Xxxxxxx Berlin Shereff Xxxxxxxx, LLP
The Chrysler Building
000 Xxxxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxx Xxxxxxxx, Esq.
Facsimile No.: (000) 000-0000
or (b) If to the Company:
Hanover Direct, Inc.
000 Xxxxx Xxxx, Xxxxxxxx 00
Xxxxxxxxx, Xxx Xxxxxx 00000
Attention: Corporate Counsel
Facsimile No.: (000) 000-0000
with a copy to:
Xxxxx Raysman Xxxxxxxxx Xxxxxx & Xxxxxxx LLP
000 Xxxxx Xxxxxx
Xxx Xxxx, XX 00000
Attention: Xxxxx Xxxxxx, Esq.
Facsimile No.: (000) 000-0000
or such other address or facsimile number as such party may hereafter specify
for such purpose by notice to the other parties in the manner specified herein.
Each such notice, request or other communication shall be effective (i) if given
by facsimile, when such facsimile is transmitted to the facsimile number
specified in this Section and a facsimile confirmation is received or (ii) if
given by mail, at the earliest of its receipt or five days after the same has
been deposited in a
15
regularly maintained receptacle for the deposit of U.S. mail, addressed and
postage paid as aforesaid or (iii) if given by any other means, when delivered
at the address specified in this Section.
11.2 Survival of Representations and Warranties, etc. The
representations and warranties contained herein shall survive through the second
anniversary of the Closing Date, except that the representations and warranties
of the Company set forth in Section 7.6 shall survive indefinitely.
11.3 No Waivers. No failure or delay by any party in
exercising any right, power or privilege hereunder or seeking any remedy with
respect to a breach hereof shall operate as a waiver thereof or of any other
right, power or privilege nor shall any single or partial exercise thereof
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege. The rights and remedies herein provided shall be
cumulative and not exclusive of any rights or remedies provided by law.
11.4 Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
heirs, executors, administrators, successors and assigns.
11.5 Governing Law. This Agreement shall be construed in
accordance with and governed by the law of the State of New York, without regard
to principles of conflicts of law (other than Section 5-1401 of the General
Obligations Law of the State of New York).
11.6 Jurisdiction. Any suit, action or proceeding seeking
to enforce any provision of, or based on any matter arising out of or in
connection with, this Agreement or the transactions contemplated hereby may be
brought in any federal or state court located in the Southern District of New
York, and each of the parties hereby consents to the jurisdiction of such courts
(and of the appropriate appellate courts therefrom) in any such suit, action or
proceeding and irrevocably waives, to the fullest extent permitted by law, any
objection which it may now or hereafter have to the laying of the venue of any
such suit, action or proceeding in any such court or that any such suit, action
or proceeding which is brought in any such court has been brought in an
inconvenient forum. Process in any such suit, action or proceeding may be served
on any party anywhere in the world, whether within or without the jurisdiction
of any such court. Without limiting the foregoing, each party agrees that
service of process on such party as provided in Section 11.1 shall be deemed
effective service of process on such party.
11.7 Waiver of Jury Trial. EACH OF THE PARTIES HERETO
HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL
PROCEEDING ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE OTHER TRANSACTION
DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.
11.8 Counterparts; Effectiveness. This Agreement may be
signed in any number of counterparts, each of which shall be an original, with
the same effect as if the signatures thereto and hereto were upon the same
instrument provided no party shall be bound
16
unless and until all parties hereto have each signed a counterpart hereof.
Facsimile transmissions of any executed original documents and/or retransmission
of any executed facsimile transmission shall be deemed to be the same as the
delivery of an executed original. At the written request of any party hereto,
the other parties hereto shall confirm facsimile transmissions by executing
duplicate original documents and delivering the same to the requesting party or
parties.
11.9 Entire Agreement. This Agreement together with its
Exhibits and the other agreements executed in connection herewith constitute the
entire agreement between the parties with respect to the subject matter of this
Agreement and supersedes all prior agreements and understandings, both oral and
written, between the parties with respect to the transactions contemplated
herein, including the Memorandum of Understanding, dated November 10, 2003,
between the parties, relating to the subject matter hereof. No provision of this
Agreement or any other agreement contemplated hereby is intended to confer on
any Person other than the parties hereto any rights or remedies.
11.10 Captions. The captions herein are included for
convenience of reference only and shall be ignored in the construction or
interpretation hereof.
11.11 Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void or unenforceable (a "Determination"), the
remainder of the terms, provisions, covenants and restrictions of this Agreement
shall remain in full force and effect and shall in no way be affected, impaired
or invalidated so long as the economic or legal substance of the transactions
contemplated hereby is not affected in any manner materially adverse to any
party. Upon such a Determination, the parties shall negotiate in good faith to
modify this Agreement so as to effect the original intent of the parties as
closely as possible in an acceptable manner in order that the transactions
contemplated hereby be consummated as originally contemplated to the fullest
extent possible.
11.12 Amendments. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given without the prior written consent of the parties hereto.
11.13 Expenses. The Company shall at the Closing or as
promptly as practicable following the termination of this Agreement pursuant to
Section 9 pay (a) the reasonable legal fees and disbursements of Xxxxxxx Berlin
Shereff Xxxxxxxx, LLP ("SBSF") in connection with the preparation, review,
negotiation, executive and delivery of this Agreement and any instrument
referred to herein or therein on behalf of Xxxxxxx and (b) the reasonable fees
of any financial advisors engaged by Xxxxxxx or SBSF not to exceed $20,000 in
the aggregate relating to compliance with the Xxxx-Xxxxx-Xxxxxx Antitrust
Improvements Act of 1976, as amended, including, without limitation, a valuation
by such financial advisors of the securities to be received by Xxxxxxx pursuant
to the Recapitalization. This Section shall survive notwithstanding the
termination of this Agreement pursuant to Section 9.
17
11.14 Tax-free Reorganization. Each of the Company and
Xxxxxxx agree to regard the exchange by Xxxxxxx of its Series B Preferred Stock
for the Series C Shares and the New Common Shares from the Company as a
reorganization under Section 368(a)(1)(E) of the Code for reporting and other
positions, including tax reporting.
The remainder of this page has intentionally been left blank.
18
IN WITNESS WHEREOF, the parties hereto have caused this
Recapitalization Agreement to be duly executed as of the day and year first
above written.
HANOVER DIRECT, INC.
By: /s/ Xxxxxx X. Xxxxx
----------------------------------------------
Name: Xxxxxx X. Xxxxx
Title: President and Chief Executive Officer
XXXXXXX DIRECT, LLC
By: /s/ Xxxxxxx X. Xxxxxxxx
----------------------------------------------
Name: Xxxxxxx X. Xxxxxxx
Title: Managing Member
Signature page for Recapitalization Agreement between
Hanover Direct, Inc. and Xxxxxxx Direct, LLC
EXHIBIT A
CERTIFICATE OF THE DESIGNATIONS,
POWERS, PREFERENCES AND RIGHTS
OF
SERIES C PARTICIPATING PREFERRED STOCK
OF
HANOVER DIRECT, INC.
(Pursuant to Section 151 of the Delaware General Corporation Law)
Hanover Direct, Inc., a Delaware corporation (the "Company"), hereby
certifies that the following resolution (this "Resolution") was adopted by the
Board of Directors of the Company:
"RESOLVED, that pursuant to the authority expressly granted to and
vested in the Board of Directors of the Company (the "Board of Directors") by
the provisions of the Certificate of Incorporation of the Company (the
"Certificate of Incorporation"), there is hereby created, out of the 5,000,000
shares of preferred stock, par value $0.01 per share, of the Company authorized
in Article Fourth of the Certificate of Incorporation (the "Preferred Stock"), a
series of the Preferred Stock consisting of 564,819 shares, which series shall
have the following powers, designations, preferences and relative,
participating, optional and other rights, and the following qualifications,
limitations and restrictions (in addition to any powers, designations,
preferences and relative, participating, optional or other rights, and any
qualifications, limitations and restrictions, set forth in the Certificate of
Incorporation which are applicable to the Preferred Stock):
Section 1. Designation; Amount. The shares of Preferred Stock
created hereby shall be designated the "Series C Participating Preferred Stock"
(the "Series C Preferred Stock") and the authorized number of shares
constituting such series shall be 564,819.
Section 2. Dividends.
(a) As of January 1, 2006, the holders of Series C
Preferred Stock shall be entitled to receive cumulative dividends ("Cumulative
Dividends") which shall accrue on a daily basis in an amount equal to the
Dividend Rate (this and certain other capitalized terms used herein have the
respective meanings given in Section 9 hereof) multiplied by the Liquidation
Preference per share of Series C Preferred Stock. Cumulative Dividends shall be
payable quarterly in arrears on March 31, June 30, September 30 and December 31
of each year (each of such dates being a "Dividend Payment Date") and shall be
paid in cash out of funds legally available therefor. To the extent accrued and
unpaid Cumulative Dividends are not paid on the applicable Dividend Payment
Date, such unpaid Cumulative Dividends shall be increased on a daily basis by an
amount equal to (i) the sum of the Dividend Rate plus one percent (1%)
multiplied by (ii) the amount of such unpaid Cumulative Dividends (a "Dividend
Increase"). Each such daily Dividend Increase shall be compounded on each
subsequent Dividend Payment Date by increasing all Cumulative Dividends which
were not paid as of the end of the day of
such subsequent Dividend Payment Date by the aggregate of all Dividend Increases
which have not previously been so compounded (so that the accrued and unpaid
Cumulative Dividends shall include the amount of such Dividends Increases), and
thereafter such increased Cumulative Dividends shall further increase daily as
set forth in the previous sentence. Any calculation of the amount of Cumulative
Dividends accrued shall be made based on a 365-day year and on the number of
days actually elapsed during the applicable calendar quarter. Any payments by
the Company of Cumulative Dividends shall be applied to first pay any all
accrued and unpaid Dividend Increases (to the extent not compounded as
Cumulative Dividends), then shall pay all accrued and unpaid Cumulative
Dividends which had accrued and were unpaid as of the most recent Dividend
Payment Date, and then shall pay any remaining Cumulative Dividends. In addition
to the restrictions on dividends set forth in Section 7(c)(iii), the Company
shall not declare or pay any dividends on or with respect to any series or class
of stock other than Series C Preferred Stock unless all accrued and unpaid
Cumulative Dividends which had accrued and were unpaid as of the most recent
Dividend Payment Date and all accrued and unpaid Dividend Increases (to the
extent not compounded as Cumulative Dividends) have been declared and paid by
the Company.
(b) In the event any dividends are declared or paid or
any other distribution is made on or with respect to the Common Stock, the
holders of the Series C Preferred Stock as of the record date established by the
Board of Directors for such dividend or distribution on the Common Stock shall
be entitled to receive dividends ("Participating Dividends") per share of Series
C Preferred Stock, in an amount (whether in the form of cash, securities or
other property) determined by multiplying (i) the Liquidation Preference per
share of Series C Preferred Stock plus the amount of any declared or accrued but
unpaid Dividends thereon as of the record date of such Participating Dividend by
(ii) the Applicable Rate. Such Participating Dividends shall be payable to the
holders of the Series C Preferred Stock as of the date immediately prior to the
record date for such dividend or distribution on the Common Stock, which date
shall be the record date for the Participating Dividends, and such dividends are
to be payable on the same payment date established by the Board of Directors for
the payment of such dividend or distribution on the Common Stock to the persons
in whose name the Series C Preferred Stock is registered at the close of
business on the applicable record date.
(c) No dividend shall be paid or declared on any share of
Common Stock, unless a dividend, payable in the same consideration and manner,
is simultaneously paid or declared, as the case may be, on each share of Series
C Preferred Stock in an amount determined as set forth above. For purposes
hereof, the term "dividends" shall include any pro rata distribution by the
Company of cash, property, securities (including, but not limited to, rights,
warrants or options) or other property or assets to the holders of the Common
Stock, whether or not paid out of capital, surplus or earnings.
(d) Prior to declaring any dividend or making any
distribution on or with respect to shares of Common Stock, the Company shall
take all prior corporate action necessary to authorize the issuance of any
securities payable as a dividend in respect of the Series C Preferred Stock.
(e) The terms "declared dividends" and "dividends
declared" or any similar reference to "declared but unpaid Dividends," whenever
used in this Resolution with reference to
2
shares of Series C Preferred Stock shall be deemed to include dividends required
by Section 2(c) hereof to be declared, whether or not the same have in fact been
declared at the time in question.
(f) No dividend may be declared or paid in respect of the
shares of Series C Preferred Stock, except to the extent permitted by and in
accordance with the terms and conditions of the Working Capital Facility
Documents.
Section 3. Liquidation Preference. In the event of a
liquidation, dissolution or winding up of the Company, whether voluntary or
involuntary (a "Liquidation"), the holders of the Series C Preferred Stock then
outstanding shall, to the extent permitted by and subject to the terms and
conditions of the Working Capital Facility Documents, be entitled to receive out
of the available assets of the Company, whether such assets are stated capital
or surplus of any nature, an amount on such date equal to the Liquidation
Preference per share of Series C Preferred Stock plus the amount of any declared
or accrued but unpaid Dividends thereon as of such date. Such payment shall be
made before any payment shall be made or any assets distributed to the holders
of any class or series of the Common Stock or any other class or series of the
Company's capital stock ranking junior as to liquidation rights to the Series C
Preferred Stock. If upon any Liquidation the assets available for distribution
to the holders of the Series C Preferred Stock are insufficient to permit the
payment to the holders of the Series C Preferred Stock of the full preferential
amounts described in this paragraph, then all the remaining available assets
shall be distributed among the holders of the then outstanding shares of Series
C Preferred Stock pro rata according to the number of the then outstanding
shares of Series C Preferred Stock held by each holder thereof. A Corporate
Transaction (as defined below) of the Company (other than an Excluded
Corporation Transaction (as defined below)) shall, at the election of the
holders of a majority of the shares of Series C Preferred Stock outstanding at
the time and as a condition precedent to the consummation of the Corporate
Transaction, constitute a Liquidation for purposes of this Section 3, with the
result that the Company shall be required to redeem the Series C Preferred Stock
outstanding prior to the consummation of the Corporate Transaction applying the
redemption procedures set forth in Section 4 below as if it were a mandatory
redemption on the date of such Corporate Transaction.
Section 4. Final Redemption and Redemption at the Option of the
Company.
(a) On the first Business Day following January 1, 2009
(the "Final Redemption Date"), the Company shall, to the extent permitted by and
subject to the terms and conditions of the Working Capital Facility Documents,
redeem for cash all shares of Series C Preferred Stock that are then outstanding
at a redemption price per share equal to the Liquidation Preference thereof plus
the amount of any declared or accrued but unpaid Dividends thereon as of such
date (the "Final Redemption Price"). Not more than sixty (60) nor less than
thirty (30) days prior to the Final Redemption Date, notice by first class mail,
postage prepaid, shall be given to each holder of record of the Series C
Preferred Stock, at such holder's address as it shall appear upon the stock
register of the Company on such date. Each such notice of redemption shall be
irrevocable and shall specify the date that is the Final Redemption Date, the
Final Redemption Price, the identification of the shares to be redeemed, the
place or places of payment in New York, New York and that payment will be made
upon presentation and surrender of the certificate(s) evidencing the shares of
Series C Preferred Stock to be redeemed. On or after the Final Redemption Date,
each holder of shares of Series C Preferred Stock shall surrender the
3
certificate(s) evidencing such shares to the Company at the place designated in
such notice and shall thereupon be entitled to receive payment of the Final
Redemption Price. If, on the Final Redemption Date, funds in cash in an amount
sufficient to pay the aggregate Final Redemption Price for all outstanding
shares of Series C Preferred Stock shall be available therefor and shall have
been irrevocably set aside and deposited with a bank or trust company in trust
for purposes of payment of such Final Redemption Price, then, notwithstanding
that the certificates evidencing any shares so called for redemption shall not
have been surrendered, the shares shall no longer be deemed outstanding, the
holders thereof shall cease to be stockholders, and all rights whatsoever with
respect to the shares so called for redemption (except the right of the holders
to receive the Final Redemption Price upon surrender of their certificates
therefor) shall terminate. If, at the Final Redemption Date, the Company does
not have sufficient capital and surplus legally available to redeem all the
outstanding shares of Series C Preferred Stock, the Company shall take all
measures permitted under the Delaware General Corporation Law to increase the
amount of its capital and surplus legally available, including, without
limitation, sales of assets of the Company to the extent permitted by and
subject to the terms and conditions of the Working Capital Facility Documents,
and the Company shall redeem as many shares of Series C Preferred Stock as it
may legally redeem, ratably from the holders thereof in proportion to the number
of shares held by them, and shall thereafter from time to time, as soon as it
shall have funds available therefor, redeem as many shares of Series C Preferred
Stock as it legally may until it has redeemed all of the outstanding shares of
Series C Preferred Stock.
(b) To the extent permitted by and subject to the terms
and conditions of the Working Capital Facility Documents, the Company may, at
any time at its option, redeem all (but not less than all) of the then
outstanding shares of Series C Preferred Stock for cash at a redemption price
per share (the "Optional Redemption Price") equal to the Liquidation Preference
thereof plus the amount of all declared or accrued but unpaid Dividends thereon
as of the redemption date. In order to exercise its right of optional
redemption, the Company shall, not more than sixty (60) nor less than thirty
(30) days prior to the redemption date, give notice by first class mail, postage
prepaid, to each holder of record of the Series C Preferred Stock, at such
holder's address as it shall appear upon the stock register of the Company on
such date. Each such notice of redemption shall be irrevocable and shall specify
the redemption date (the "Optional Redemption Date"), the Optional Redemption
Price, the place or places of payment in New York, New York and that payment
will be made upon presentation and surrender of the certificate(s) evidencing
the shares of Series C Preferred Stock to be redeemed.
Section 5. Redemption at Option of Holders and Mandatory
Redemption upon Asset and Equity Sales.
(a) In the event that a Change of Control (as defined
below) shall occur at any time while any shares of Series C Preferred Stock are
outstanding, each of the holders of the then outstanding shares of Series C
Preferred Stock shall have the right to give notice that they are exercising a
Change of Control election (a "Change of Control Election") with respect to all
or any number of such holder's shares of Series C Preferred Stock, during the
period ending on the 30th day after the earlier of (i) such holder's receipt of
the notice referred to in Section 5(c) hereof or (ii) the date as of which such
holder obtains actual knowledge of such Change of Control. Upon any such
election, the Company shall, to the extent permitted by and subject to the terms
and conditions of the Working Capital Facility Documents, redeem for cash each
of
4
such holder's shares for which such an election is made at a redemption price
equal to the Liquidation Preference thereof plus the amount of any declared or
accrued but unpaid Dividends thereon as of the Change of Control Payment Date.
(b) As used herein, "Change of Control" means the
occurrence of any of the following events:
(1) the acquisition, in a transaction approved
by the Board of Directors, by any Person, other than Xxxxxxx or its affiliates,
including any "person" within the meaning of Section 13(d)(3) or 14(d)(2) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), of beneficial
ownership within the meaning of Rule 13d-3 promulgated under the Exchange Act,
of more than 50% of either
(i) the then outstanding shares of Common Stock (the
"Outstanding Company Common Stock") or
(ii) the combined voting power of the then outstanding
securities of the Company entitled to vote generally
in the election of directors (the "Outstanding
Company Voting Securities");
(2) a majority of the individuals who, as of the
date of the closing of the transactions contemplated by the Recapitalization
Agreement, dated as of November 18, 2003, between Xxxxxxx and the Company (the
"Recapitalization Agreement"), constitute the members of the Board of Directors
(the "Incumbent Board") cease for any reason to serve on such Board of
Directors; provided that any individual who becomes a director of the Company
subsequent to the date of the closing of the transactions contemplated by the
Recapitalization Agreement, whose election, or nomination for election by the
Company's stockholders, was approved by the vote of at least a majority of the
directors then comprising the Incumbent Board shall be deemed a member of the
Incumbent Board; and provided, further, that any individual who was initially
elected as a director of the Company as a result of an actual or threatened
election contest, as such terms are used in Rule 14a-11 of Regulation 14A
promulgated under the Exchange Act, or any other actual or threatened
solicitation of proxies or consents by or on behalf of any Person other than the
Board of Directors, shall not be deemed a member of the Incumbent Board; or
(3) approval by the stockholders of the Company
of a reorganization, merger or consolidation of the Company or sale or other
disposition of all or substantially all of the assets of the Company (a
"Corporate Transaction"); excluding, however, a Corporate Transaction (an
"Excluded Corporate Transaction") pursuant to which the individuals or entities
who are the beneficial owners, respectively, of the Outstanding Company Common
Stock and the Outstanding Company Voting Securities immediately prior to such
Corporate Transaction will beneficially own, directly or indirectly, more than
50% of, respectively, the outstanding shares of common stock, and the combined
voting power of the outstanding securities entitled to vote generally in the
election of directors, as the case may be, of the corporation resulting from, or
the transferee Person in, such Corporate Transaction (including, without
limitation, a corporation which as a result of such transaction owns 100% of the
Outstanding Company Common Stock or all or substantially all of the Company's
assets either directly or indirectly) in
5
substantially the same proportions relative to each other as their ownership,
immediately prior to such Corporate Transaction, of the Outstanding Company
Common Stock and the Outstanding Company Voting Securities, as the case may be.
(c) On or before the third (3rd) Business Day after a
Change of Control, the Company shall mail to all holders of record of the Series
C Preferred Stock at their respective addresses as the same shall appear on the
books of the Company as of such date, a notice disclosing (i) the Change of
Control, (ii) that, if such holder exercises the Change of Control Election, the
Company will redeem any or all of such holder's shares of Series C Preferred
Stock at a redemption price equal to the Liquidation Preference thereof plus the
amount of declared or accrued and unpaid Dividends as of the Change of Control
Payment Date and (iii) the procedure which the holder must follow to exercise
the Change of Control Election. To exercise the Change of Control Election, a
holder of the Series C Preferred Stock must deliver, during the 30-day period
referred to in Section 5(a) hereof, written notice to the Company (or an agent
designated by the Company for such purpose) of the holder's exercise of the
Change of Control Election, accompanied by each certificate evidencing shares of
the Series C Preferred Stock with respect to which the Change of Control
Election is being exercised, duly endorsed for transfer to the Company. On or
prior to the third (3rd) Business Day after the end of such 30-day period or
after such earlier date as elections are received from all holders of the Series
C Preferred Stock (the "Change of Control Payment Date") after receipt of each
such written notice, the Company shall redeem all shares of Series C Preferred
Stock properly surrendered to the Company (or an agent designated by the Company
for such purpose) during the 30-day period referred to in Section 5(a) hereof
for redemption in connection with the exercise of the Change of Control Election
and shall cause payment to be made on such day in cash for such shares of Series
C Preferred Stock. If in connection with any Change of Control Election, the
Company does not have sufficient capital and surplus legally available to redeem
all of the outstanding shares of Series C Preferred Stock with respect to which
a Change of Control Election has been made, the Company shall take all measures
permitted under the Delaware General Corporation Law to increase the amount of
its capital and surplus legally available, including, without limitation, sales
of assets of the Company to the extent permitted by and subject to the terms and
conditions of the Working Capital Facility Documents, and the Company shall
redeem as many shares of Series C Preferred Stock with respect to which the
Change of Control Election has been made as it has capital and surplus legally
available therefor, ratably from the holders thereof in proportion to the total
number of shares tendered, and shall thereafter from time to time, as soon as it
shall have capital and surplus legally available therefor, redeem as many shares
of Series C Preferred Stock as it has capital and surplus available therefor
until it has redeemed all of the outstanding shares of Series C Preferred Stock
with respect to which the Change of Control Election has been made.
(d) In the event that an Asset Disposition shall occur at
any time while any shares of Series C Preferred Stock are outstanding, the
Company shall, to the extent permitted by and subject to the terms and
conditions of the Working Capital Facility Documents, redeem for cash the
outstanding shares of each holder of Series C Preferred Stock, pro rata
according to the number of the then outstanding shares of Series C Preferred
Stock held by each holder thereof, to the extent of the remaining Net Available
Cash after application of clauses (A) and (B) below and as permitted by
applicable law, at a redemption price equal to the Liquidation Preference
thereof plus the amount of any declared or accrued but unpaid Dividends thereon
as of the Asset
6
Disposition Payment Date (as defined below) (the "Asset Disposition Redemption
Price") on the terms and subject to the conditions set forth in this Section
5(d).
The Company will not, and will not permit any of the Company's
Subsidiaries to, directly or indirectly, consummate any Specified Asset
Disposition unless the following conditions are satisfied:
(i) such Specified Asset Disposition is permitted by the
Working Capital Facility Documents;
(ii) the Company or such Subsidiary receives consideration
at the time of such Specified Asset Disposition at
least equal to the fair market value (including as to
the value of all non-cash consideration), as
determined in good faith by the Company's Board of
Directors; provided, however, that such condition
shall not be applicable if the holders of at least
two-thirds of the outstanding shares of Series C
Preferred Stock consent to the waiver of the
provisions of this clause (ii), and
(iii) an amount equal to 100% of the Net Available Cash
from such Specified Asset Disposition is applied by
the Company (or such Subsidiary, as the case may be)
as provided in subparagraphs (A) and (B) below;
provided, however, that such condition shall not be
applicable if the holders of at least two-thirds of
the outstanding shares of Series C Preferred Stock
consent to the waiver of the provisions of this
clause (iii):
(A) first, to prepay, repay, redeem or purchase indebtedness under
the Working Capital Facility Documents required by the Working
Capital Facility Documents to be prepaid, repaid or purchased;
and
(B) second, to the extent of the balance of such Net Available
Cash after application in accordance with clause (A), to
redeem the Series C Preferred Stock for cash pursuant to and
subject to the conditions contained in this Section 5;
provided, however, that (1) in connection with any prepayment,
repayment or purchase of indebtedness pursuant to clause (A),
the Company or any such Subsidiary will permanently retire
such indebtedness and will cause the related loan commitment
(if any) to be permanently reduced in an amount equal to the
principal amount so prepaid, repaid or purchased, to the
extent permitted by and subject to the terms and conditions of
the Working Capital Facility Documents, and (2) any
application of the Net Available Cash from such Asset
Disposition shall be subject to the terms and conditions of
the Working Capital Facility Documents.
7
The Company will not, and will not permit any of the Company's
Subsidiaries to, directly or indirectly, consummate any Asset Disposition other
than a Specified Asset Disposition unless the following conditions are
satisfied:
(i) the Company or such Subsidiary receives consideration
at the time of such Asset Disposition at least equal
to the fair market value (including as to the value
of all non-cash consideration), as determined in good
faith by the Company's Board of Directors; provided,
however, that such condition shall not be applicable
if the holders of at least two-thirds of the
outstanding shares of Series C Preferred Stock
consent to the waiver of the provisions of this
clause (i), and
(ii) an amount equal to 100% of the Net Available Cash
from such Asset Disposition is applied by the Company
(or such Subsidiary, as the case may be) as provided
in subparagraphs (A) and (B) below; provided,
however, that such condition shall not be applicable
if the holders of at least two-thirds of the
outstanding shares of Series C Preferred Stock
consent to the waiver of the provisions of this
clause (ii):
(A) first, to prepay, repay, redeem or purchase indebtedness under
the Working Capital Facility Documents required by the Working
Capital Facility Documents to be prepaid, repaid or purchased;
and
(B) second, to the extent of the balance of such Net Available
Cash after application in accordance with clause (A), to
redeem the Series C Preferred Stock for cash pursuant to and
subject to the conditions contained in this Section 5.
provided, however, that (1) in connection with any prepayment,
repayment or purchase of indebtedness pursuant to clause (A),
the Company or any such Subsidiary will permanently retire
such indebtedness and will cause the related loan commitment
(if any) to be permanently reduced in an amount equal to the
principal amount so prepaid, repaid or purchased, to the
extent permitted by and
8
subject to the terms and conditions of the Working Capital
Facility Documents, and (2) any application of the Net
Available Cash from such Asset Disposition shall be subject to
the terms and conditions of the Working Capital Facility
Documents.
(e) On or before the third (3rd) Business Day after an
Asset Disposition, the Company shall mail to all holders of record of the Series
C Preferred Stock at their respective addresses as the same shall appear on the
books of the Company as of such date, a notice (the "Asset Disposition Notice"),
which shall be irrevocable, disclosing (i) the Asset Disposition, (ii) the Asset
Disposition Redemption Price, (iii) the identification of the shares to be
redeemed, (iv) the date when holders of the Series C Preferred Stock may first
surrender their shares to the Company for redemption, which date shall not be
more than ten (10) Business Days after the mailing of the Asset Disposition
Notice (the "Asset Disposition Payment Date"), (v) the place or places of
payment in New York, New York and (vi) that payment will be made upon
presentation and surrender of the certificate(s) evidencing the shares of Series
C Preferred Stock to be redeemed; provided, that the Company will not be
required to mail such notice if and to the extent that there is no balance of
Net Available Cash for application in accordance with clause (iii)(B) of Section
5(d) above. On or after the Asset Disposition Payment Date, to the extent
permitted by and subject to the terms and conditions of the Working Capital
Facility Documents, the Company shall, to the extent of the balance of Net
Available Cash pursuant to clause (iii)(B) of Section 5(d) above, redeem all
shares of Series C Preferred Stock properly surrendered to the Company (or an
agent designated by the Company for such purpose) for redemption in connection
with the Asset Disposition Notice and shall cause payment to be made on such day
in cash for such shares of Series C Preferred Stock. If, in connection with any
Asset Disposition Notice, there is Net Available Cash but the Company does not
have sufficient capital and surplus legally available to redeem the shares of
Series C Preferred Stock set forth in the Asset Disposition Notice, the Company
shall, to the extent permitted by and subject to the terms and conditions of the
Working Capital Facility Documents, take all measures permitted under the
Delaware General Corporation Law to increase the amount of its capital and
surplus legally available, including, without limitation, sales of assets of the
Company to the extent permitted by and subject to the terms and conditions of
the Working Capital Facility Documents, and the Company shall redeem as many
shares of Series C Preferred Stock set forth in the Asset Disposition Notice as
it has capital and surplus legally available therefor, ratably from the holders
thereof in proportion to the total number of shares to be redeemed, and shall
thereafter from time to time, to the extent permitted by and subject to the
terms and conditions of the Working Capital Facility Documents, as soon as it
shall have capital and surplus legally available therefor, redeem as many shares
of Series C Preferred Stock as it has capital and surplus available therefor
until it has redeemed all of the shares of Series C Preferred Stock set forth in
the Asset Disposition Notice.
(f) In the event that an Equity Sale shall occur at any
time while any shares of Series C Preferred Stock are outstanding, the Company
shall, to the extent permitted by and subject to the terms and conditions of the
Working Capital Facility Documents, redeem for cash the outstanding shares of
each holder of Series C Preferred Stock, pro rata according to the number of the
then outstanding shares of Series C Preferred Stock held by each holder thereof,
to the extent of the remaining Available Cash from such Equity Sale after
application of clause (iii)(A) below and as permitted by applicable law, at a
redemption price equal to the Liquidation
9
Preference thereof plus the amount of declared or accrued and unpaid Dividends
thereon as of the Equity Sale Payment Date (as defined below) (the "Equity Sale
Redemption Price") on the terms and subject to the conditions set forth in this
Section 5(f). The Company will not, and will not permit any of the Company's
Subsidiaries to, directly or indirectly, consummate any Equity Sale unless the
following conditions are satisfied:
(i) such Equity Sale is permitted by the Working Capital
Facility Documents;
(ii) the Company or such Subsidiary receives consideration
at the time of such Equity Sale at least equal to the
fair market value (including as to the value of all
non-cash consideration) of such equtiy, as determined
in good faith by the Company's Board of Directors;
provided, however, that such condition shall not be
applicable if the holders of at least two-thirds of
the outstanding shares of Series C Preferred Stock
consent to the waiver of the provisions of this
clause (ii), and
(iii) an amount equal to 100% of the Available Cash from
such Equity Sale is applied by the Company (or such
Subsidiary, as the case may be) as provided in
subparagraphs (A) and (B) below; provided, however,
that such condition shall not be applicable if the
holders of at least two-thirds of the outstanding
shares of Series C Preferred Stock consent to the
waiver of the provisions of this clause (iii);
(A) first, to prepay, repay, redeem or purchase indebtedness under
the Working Capital Facility Documents required by the Working
Capital Facility Documents to be prepaid, repaid or purchased;
(B) second, to the extent of the balance of such Available Cash
after application in accordance with clause (A), to redeem the
Series C Preferred Stock for cash pursuant to and subject to
the conditions contained in this Certificate of Designations;
provided, however, that (1) in connection with any prepayment,
repayment or purchase of indebtedness pursuant to clause
(iii)(A) above, the Company or any such Subsidiary will
permanently retire such indebtedness and will cause the
related loan commitment (if any) to be permanently reduced in
an amount equal to the principal amount so prepaid, repaid or
purchased, to the extent permitted by and in accordance with
the terms and conditions of the Working Capital Facility
Documents, and (2) any application of the Available Cash from
such Equity Sale shall be subject to the terms and conditions
of the Working Capital Facility Documents.
(g) On or before the third (3rd) Business Day after an
Equity Sale, the Company shall mail to all holders of record of the Series C
Preferred Stock at their respective addresses as the same shall appear on the
books of the Company as of such date, a notice (the "Equity Sale Notice"), which
shall be irrevocable, disclosing (i) the Equity Sale, (ii) the Equity Sale
Redemption Price, (iii) the identification of the shares to be redeemed, (iv)
the date when
10
holders of the Series C Preferred Stock may first surrender their shares to the
Company for redemption, which date shall not be more than ten (10) Business Days
after the mailing of the Equity Sale Notice (the "Equity Sale Payment Date"),
(v) the place or places of payment in New York, New York and (vi) that payment
will be made upon presentation and surrender of the certificate(s) evidencing
the shares of Series C Preferred Stock to be redeemed; provided, that the
Company will not be required to mail such notice if and to the extent that there
is no balance of Available Cash for application in accordance with clause
(iii)(B) of Section 5(f) above. On or after the Equity Sale Payment Date, to the
extent permitted by and subject to the terms and conditions of the Working
Capital Facility Documents, the Company shall, to the extent of the balance of
Available Cash pursuant to clause (iii)(B) of Section 5(f) above, redeem all
shares of Series C Preferred Stock properly surrendered to the Company (or an
agent designated by the Company for such purpose) for redemption in connection
with the Equity Sale Notice and shall cause payment to be made on such day in
cash for such shares of Series C Preferred Stock. If, in connection with any
Equity Sale Notice, there is Available Cash but the Company does not have
sufficient capital and surplus legally available to redeem all of the
outstanding shares of Series C Preferred Stock set forth in the Equity Sale
Notice, the Company shall, to the extent permitted by and subject to the terms
and conditions of the Working Capital Facility Documents, take all measures
permitted under the Delaware General Corporation Law to increase the amount of
its capital and surplus legally available, including, without limitation, sales
of assets of the Company to the extent permitted by and subject to the terms and
conditions of the Working Capital Facility Documents, and the Company shall
redeem as many shares of Series C Preferred Stock set forth in the Equity Sale
Notice as it has capital and surplus legally available therefor, ratably from
the holders thereof in proportion to the total number of shares to be redeemed,
and shall thereafter from time to time, to the extent permitted by and subject
to the terms and conditions of the Working Capital Facility Documents, as soon
as it shall have capital and surplus legally available therefor, redeem as many
shares of Series C Preferred Stock as it has capital and surplus available
therefor until it has redeemed all of the shares of Series C Preferred Stock set
forth in the Equity Sale Notice.
(h) In the event that the Company does not have
sufficient funds to take any of the actions required by this Section 5, then the
Company shall, to the extent permitted by and subject to the terms and
conditions of the Working Capital Facility Documents, purchase, redeem or
otherwise acquire the shares of Series C Preferred Stock from the holders
thereof who make an election pursuant to this Section 5 pro rata according to
the number of then outstanding shares of Series C Preferred Stock held by each
holder thereof.
Section 6. Status of Redeemed Shares. Any shares of Series C
Preferred Stock which shall at any time have been redeemed pursuant to Sections
4 or 5 hereof shall, after such redemption, be retired and, upon the taking of
any action required by applicable law, have the status of authorized but
unissued shares of Preferred Stock, without designation as to series, and shall
not be reissued as Series C Preferred Stock.
Section 7. Voting Rights.
(a) The Series C Preferred Stock shall have the voting
rights set forth in this Section 7.
11
(b) On or before the third (3rd) day after the occurrence
of a Voting Trigger (as defined in Section 9 hereof), the Company shall mail to
all holders of record of the Series C Preferred Stock at their respective
addresses as the same shall appear on the books of the Company as of such date
(the "Voting Trigger Notice Date"), a notice disclosing (i) the Voting Trigger,
and (ii) that such holders have the exclusive right, voting separately as a
class and by taking such actions as are set forth in this Section 7(b), to elect
such number of additional directors of the Company as are equal to the number of
directors on the Board of Directors as of the Voting Trigger Notice Date (the
"Preferred Stock Directors"), the remaining directors to be elected by the other
class or classes of stock (including the Series C Preferred Stock) entitled to
vote therefor, at a meeting of stockholders held for the purpose of electing
directors (the "Director Right"); provided, that if the holders of record of a
majority of the outstanding shares of the Series C Preferred Stock do not,
within fifteen (15) days of the date on which notice of the Voting Trigger is
received by such holders notify the Company of their intent to cause the
Director Right to be vested, the Director Right shall not vest solely with
respect to the Voting Trigger of which notice was given; provided, further, that
in the event that such a notice is not received by the Company, if the event
giving rise to the relevant Voting Trigger is not cured or is still in effect,
as the case may be, on each subsequent six (6) month anniversary of the
occurrence of the Voting Trigger, the Company shall give notice to such effect
by mail to all holders of record of the Series C Preferred Stock, and the
holders of a majority of the outstanding shares of the Series C Preferred Stock
shall have an option, exercisable within fifteen (15) dates of receipt of such
notice, to cause the Director Right to be vested.
In the event that the Director Right is vested in accordance with the
preceding paragraph, such Director Right may be exercised initially either at a
special meeting of the holders of the Series C Preferred Stock, called as
hereinafter provided, or at any annual meeting of stockholders held for the
purpose of electing directors, upon the written request of holders of record of
25% of the shares of Series C Preferred Stock then outstanding addressed to the
Secretary of the Company at least 10 days prior to the meeting, and thereafter
at such annual meetings or by the written consent of the holders of the Series C
Preferred Stock pursuant to Section 228 of the Delaware General Corporation Law.
If such Director Right shall not already have been initially exercised,
a proper officer of the Company shall, upon the written request of holders of
record of 25% of the shares of the Series C Preferred Stock then outstanding
addressed to the Secretary of the Company, call a special meeting of holders of
the Series C Preferred Stock. Such meeting shall be held at the earliest
practicable date upon the notice required for annual meetings of stockholders at
the place for holding annual meetings of stockholders of the Company or, if
none, at a place in the City of New York, New York designated by the Secretary
of the Company. If such meeting shall not be called by the proper officers of
the Company within 30 days after the personal service of such written request
upon the Secretary of the Company, or within 30 days after mailing the same
within the United States, by registered mail, then the holders of record of 25%
of the shares of the Series C Preferred Stock then outstanding may designate in
writing a holder of the Series C Preferred Stock to call such meeting at the
expense of the Company.
At any meeting held for the purpose of electing directors at which the
holders of the Series C Preferred Stock shall have the right to elect a
director, the presence in person or by proxy of the holders of a majority of the
then outstanding shares of the Series C Preferred Stock shall be required and be
sufficient to constitute a quorum of such class for the election of a director
by such class. In any such election, the holders of Series C Preferred Stock
12
shall be entitled to cast one vote per share of Series C Preferred Stock held of
record on the record date for the determination of the holders of Series C
Preferred Stock entitled to vote in such election. If the directors are to be
elected at an annual meeting, the Preferred Stock Directors shall be elected at
the same time as other members of the Board of Directors. A Preferred Stock
Director may only be removed without cause by the vote of the holders of a
majority of the Series C Preferred Stock, at a vote of the then outstanding
shares of Series C Preferred Stock, voting as a single class, at a meeting
called for such purpose (or by unanimous written consent in lieu of such a
meeting) in accordance with the voting procedures set forth in Section 7(b).
The term of office of each Preferred Stock Director shall terminate
upon the election of his or her successor at any meeting of stockholders for the
purpose of electing directors (it being understood that such successor shall be
elected by the holders of the Series C Preferred Stock).
Any action permitted to be taken by the holders of the Series C
Preferred Stock pursuant to this Section 7(b) may be taken without a meeting by
the written consent of the holders of Series C Preferred Stock having not less
than the minimum number of votes necessary to authorize or take such action.
If, for any reason, a Preferred Stock Director shall resign or
otherwise be removed from the Board of Directors, then his or her replacement
shall be a person elected by the holders of the Series C Preferred Stock, in
accordance with the voting procedures set forth in Section 7(b).
From the Voting Trigger Notice Date with respect to any Voting Trigger
until the earlier to occur of (a) the failure of the Director Right to vest with
respect to the Voting Trigger on account of the holders of record of a majority
of the outstanding shares of the Series C Preferred Stock not, within fifteen
(15) days of the date on which notice of the Voting Trigger is received by such
holders, notifying the Company of their intent to cause the Director Right to be
vested, or (b) the election of the Preferred Stock Directors with respect to the
Voting Trigger, the Board of Directors shall not increase the number of
directors comprising the Board of Directors, or fill any vacancies on the Board
of Directors, such that the number of directors on the Board of Directors would
exceed the number of Preferred Stock Directors to be so elected or so elected
with respect to the Voting Trigger. After the election of the Preferred Stock
Directors, the Board of Directors shall not increase the number of directors
comprising the Board of Directors, or fill any vacancies on the Board of
Directors, created other than by a vacancy of a Preferred Stock Director, such
that the number of directors on the Board of Directors would exceed the number
of Preferred Stock Directors on the Board of Directors unless a majority of the
Preferred Stock Directors agree to such actions.
(c) So long as any shares of Series C Preferred Stock
remain outstanding, the Company shall not, without the written consent or
affirmative vote of the holders of at least two-thirds of the outstanding shares
of Series C Preferred Stock, (i) amend, alter or repeal, whether by merger,
consolidation, combination, reclassification or otherwise, the Certificate of
Incorporation or By-laws of the Company or any provisions thereof (including the
adoption of a new provision thereof), (ii) create, authorize or
13
issue any class, series or shares of Preferred Stock or any other class of
capital stock (A) ranking either as to payment of dividends or distribution of
assets upon Liquidation prior to or on a parity with the Series C Preferred
Stock and (B) if such securities may be redeemed, in any circumstance, on or
prior to the Final Redemption Date, (iii) (A) pay, declare, make or set aside
for payment any dividends or other distribution on the Common Stock or any other
capital stock of the Company ranking junior to or on a parity with the Series C
Preferred Stock as to dividends or as to distributions upon Liquidation other
than in shares of, or warrants or rights to acquire, solely Junior Stock and (B)
redeem, retire, purchase or otherwise acquire for any consideration (or any
payment made to or available for a sinking fund for the redemption of any such
shares) any shares of capital stock of the Company ranking junior to or on a
parity with the Series C Preferred Stock as to dividends or as to distributions
upon Liquidation by the Company or any Subsidiary (except by conversion into or
exchange for solely shares of Junior Stock) or (iv) create, incur, assume or
suffer to exist, or cause or permit any of its Subsidiaries to create, incur,
assume or suffer to exist, any indebtedness for borrowed money other than any
such indebtedness permitted by the Working Capital Facility Documents (without
giving effect to any waivers by the lenders under the Working Capital Facility
Documents other than for such indebtedness incurred in the ordinary course of
business not to exceed $500,000 in the aggregate). The vote of the holders of at
least two-thirds of the outstanding shares of Series C Preferred Stock, voting
separately as one class, shall be necessary to adopt any alteration, amendment
or repeal of any provision of the Certificate of Designations setting forth a
copy of this Resolution, in addition to any other vote of stockholders required
by law.
(d) The holders of the Series C Preferred Stock shall be
entitled to vote at or participate in any meeting of stockholders of the
Company, and to participate in any action proposed to be taken by written
consent, in each case together with the holders of the Common Stock voting or
consenting as a single class, and to receive notice of any such meeting or any
such proposed action in the same manner as notice is provided to holders of the
Common Stock. In any vote, whether voting or consenting with the Common Stock as
a single class, voting or consenting with the Series C Preferred Stock as a
single class or otherwise (other than as set forth in Section 7(b)), each share
of Series C Preferred Stock shall be entitled to one hundred (100) votes per
share plus such number of votes equal to the dollar value (rounded down to the
nearest dollar) as of the date of such consent or vote of any accrued and unpaid
Cumulative Dividends which had accrued and were unpaid as of the most recent
Dividend Payment Date. In addition, each share of Series C Preferred Stock will
entitle the holder thereof to vote in accordance with applicable law.
Section 8. Observer Rights.
(a) For so long as Xxxxxxx continues to own at least
twenty-five percent (25%) of the shares of Series C Preferred Stock then
outstanding (but not during any time when Xxxxxxx has the ability to designate a
majority of the directors on the Board of Directors), the Company shall invite a
representative of Xxxxxxx (the "Representative"), which Representative shall be
selected from time to time by Xxxxxxx and reasonably acceptable to the Company,
to attend and participate in, in person or by conference call, all meetings of
the Board of Directors and any committee thereof (provided that the Company
shall be entitled to exclude the Representative from a meeting of any committee
of independent directors for the purpose of considering transactions involving
Xxxxxxx or its affiliates (other than the Company and its
14
Subsidiaries) and from any meeting of the Board or a committee if the Board or
such committee determines that, in light of the business to be transacted, the
presence of the Representative would not be appropriate ) in a non-voting
observer capacity and, in this respect, shall give such Representative (at the
same time and in the same manner as given to members of the Board of Directors
or the relevant committee) copies of all notices, minutes, consents and other
Board of Directors' or committee members' materials (with the exception of
materials provided to members of any committee of independent directors with
respect to any meeting for the purpose of considering transactions involving
Xxxxxxx or its affiliates (other than the Company and its Subsidiaries) and with
the exception of materials which the Board or a committee thereof determines, in
light of the content of such materials, is not appropriate to provide the
Representative) that it provides to its directors or committee members (as
appropriate); provided, however, that in no event shall the failure to provide
the notice described above or to provide the Representative with the minutes,
consents and other materials described above invalidate in any way any action
taken at a meeting of the Board of Directors or any meeting of any committee
thereof.
(b) Xxxxxxx and the Company agree that knowledge of any
matter or information discussed or presented for discussion at any of the
Company's Board of Director's meetings, including any committees thereof, or any
portion thereof at which the Representative is not present in person or by
conference telephone will not be imputed to Xxxxxxx or its Representative to the
extent that such matter or information is not expressly set forth in notices,
minutes, consents and other written materials actually received by the
Representative. Furthermore, Xxxxxxx and the Company agree that the
Representative will be given sufficient time by the Chairperson of the Board of
Directors or the relevant committee thereof to withdraw at the Representative's
election from observation of or participation in any of the Company's Board of
Directors' meetings, including any committees thereof, prior to the commencement
of any discussion of material non-public information.
(c) In connection with attendance at any meeting of the
Company's Board of Directors, including any committees thereof, the Company
shall reimburse Xxxxxxx for any reasonable out-of-pocket expenses incurred by
the Representative.
(d) The Company represents and warrants that it has
secured all approvals and consents required to grant the contractual rights
contained in this Section 8 to Xxxxxxx and the Representative.
(e) Xxxxxxx agrees that it will execute and deliver to
the Company, and cause each Representative to execute and deliver to the Company
and Xxxxxxx, an agreement, in form and substance reasonably satisfactory to the
Company, pursuant to which Xxxxxxx or the Representative, as the case may be,
agrees to hold confidential all information which Xxxxxxx or the Representative,
as the case may be, learns as a result of the attendance by the Representative
at the Board of Director and committee meetings in person or by conference
telephone.
[In addition to and not in limitation of any foregoing
reference to the Working Capital Facility Documents, the terms and conditions of
the Series C Preferred Stock are subject to the terms and conditions of the
Working Capital Facility Documents.]
15
Section 9. Certain Definitions.
The following terms shall have the following respective meanings
herein:
"Applicable Rate" means, with respect to any dividend required to be
paid pursuant to Section 2(b) hereof due to the declaration or payment of a
dividend on the Common Stock, a fraction (x) the numerator of which is the
dividend per share of Common Stock so declared or paid and (y) the denominator
of which is the per share Fair Market Value of the Common Stock as of the close
of business on the Business Day immediately preceding the record date for such
dividend on the Common Stock.
"Approved Option Plan" means, collectively, (i) the Company's Stock
Option Plan, as amended, 1993 Restricted Stock Award Plan, All Employee Equity
Investment Plan, 1993 Executive Equity Investment Plan, as amended, 1996 Stock
Option Plan, as amended, 1999 Stock Option Plan for Directors and 2000
Management Stock Option Plan, as well as the Short-Term and Long-Term Incentive
Plans for Xxxxxx X. Xxxx and options granted pursuant to the Services Agreement
between the Company and Meridian Ventures, LLC and Xxxxxx X. Xxxxx and the
Employment Agreement between Xxxxxx X. Xxxxx and the Company together providing
for the aggregate issuance of not more than [_______] shares of Common Stock
thereunder (subject to adjustment as therein provided for certain capital
events) and (ii) a stock option plan or plans adopted after November [__], 2003
providing for the grant of options to employees and directors of the Company to
purchase not more than [________] shares of Common Stock at an exercise price
per share as of the date of the grant not less than the fair market value per
share of Common Stock as of the date of the grant.
"Asset Disposition" means any sale, lease, transfer or other
disposition (or series of related sales, leases, transfers or dispositions) by
the Company or any Subsidiary, including any disposition by means of a merger,
consolidation or similar transaction, of any of the following (in each case, to
the extent permitted by and subject to the terms and conditions of the Working
Capital Facility Documents):
(i) any shares of common stock of a Subsidiary (other
than directors' qualifying shares or shares required
by applicable law to be held by a Person other than
the Company or a Subsidiary),
(ii) all or substantially all the assets of any division
or line of business of the Company or any Subsidiary,
or
(iii) any other assets of the Company or any Subsidiary
outside of the ordinary course of business of the
Company or such Subsidiary.
Notwithstanding the preceding, the following items shall not be deemed
to be Asset Dispositions:
(i) a transfer of assets between or among the Company and
its wholly owned Subsidiaries, or
16
(ii) an issuance of Capital Stock by a wholly owned
Subsidiary to the Company or to another wholly owned
Subsidiary.
"Available Cash" from an Equity Sale means cash payments, cash
equivalents and Marketable Securities received therefrom after payment of
underwriting discounts, placement fees or similar commissions.
"Business Day" means a day other than a Saturday, Sunday or day on
which banking institutions in New York are authorized or required to remain
closed.
"Capital Stock" of any Person means any and all shares, interests,
rights to purchase, warrants, options, participations or other equivalents of or
interests in (however designated) equity of such Person, including any Preferred
Stock, but excluding any debt securities convertible into such equity.
"Xxxxxxx" means Xxxxxxx Direct, LLC and its affiliates and its and
their respective successors and assigns.
"Congress" means Congress Financial Corporation, and its affiliates and
their respective successors and assigns (including, without limitation, any
replacement or take out lender with respect to the Working Capital Facility
Documents).
"Common Stock" means the common stock, par value $0.66-2/3 per share,
of the Company or any other Capital Stock of the Company into which such stock
is reclassified or reconstituted.
"Corporate Transaction" shall have the meaning set forth in Section
5(b)(3).
"Cumulative Dividends" shall have the meaning set forth in Section
2(a).
"Dividends" shall mean, collectively, Cumulative Dividends, Dividend
Increases and Participating Dividends.
"Dividend Increases" shall have the meaning set forth in Section 2(a).
"Dividend Rate" means, with respect to a share of Series C Preferred
Stock and the dividends accrued thereon, an initial rate of six percent (6%) per
annum, commencing January 1, 2006 and increasing by one and one-half percent
(1-1/2%) each anniversary thereafter, until the redemption or other acquisition
by the Company of such share of Series C Preferred Stock.
"Equity Sale" means, to the extent permitted by and subject to the
terms and conditions of the Working Capital Facility Documents, the issuance or
sale by the Company or a Subsidiary of Capital Stock of the Company or a
Subsidiary (or any series of related issuances or sales) where the cumulative
aggregate gross proceeds to the Company and its Subsidiaries equals or exceeds
$1.0 million; provided, that there shall be excluded from the foregoing the sale
of Common Stock of the Company upon the exercise of options issued under an
Approved Option Plan and the sale of common stock of a Subsidiary which
constitutes an Asset Disposition.
17
"Fair Market Value" means, per share of Common Stock, the Twenty Day
Average of the average closing prices of the Common Stock's sales on all
domestic securities exchanges on which the Common Stock may at the time be
listed, or, if there have been no sales on any such exchange on any day, the
average of the highest bid and lowest asked prices on all such exchanges at the
end of such day, or, if on any day the Common Stock is not so listed, the
average of the representative bid and asked prices quoted in the NASDAQ National
Market System (including the NASDAQ Small Cap Market) as of 4:00 P.M., New York
City time, on such day, or, if on any day the Common Stock is not quoted in the
NASDAQ National Market System, the average of the highest bid and lowest asked
prices on such day in the domestic over-the-counter market as reported by Pink
Sheets LLC, or any similar or successor organization (and in each such case
excluding any trades that are not bona fide, arm's length transactions). If at
any time the Common Stock is not listed on any domestic securities exchange or
quoted in the NASDAQ National Market System or the domestic over-the-counter
market, the "Fair Market Value" of the Common Stock shall be the fair market
value thereof as determined (I) jointly by the Company and Xxxxxxx if Xxxxxxx
then owns a majority in aggregate liquidation preference of the shares of Series
C Preferred Stock then outstanding or (ii) if Xxxxxxx and the Company cannot so
agree, by an internationally recognized investment banking firm selected by
Xxxxxxx and reasonably acceptable to the Company or (iii) if Xxxxxxx does not
then own a majority in aggregate liquidation preference of the shares of Series
C Preferred Stock then outstanding, by an internationally recognized investment
banking firm selected by the Company and reasonably acceptable to the holder of
a majority in aggregate Liquidation Preference of the shares of Series C
Preferred Stock then outstanding.
"GAAP" means U.S. generally accepted accounting principles consistently
applied.
"Junior Stock" means capital stock of the Company ranking junior to the
Series C Preferred Stock both as to dividends and as to distributions upon
liquidation, dissolution or winding up of the Company.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien
or charge of any kind (including any conditional sale or other title retention
agreement or lease in the nature thereof).
"Liquidation Preference" means One Hundred Dollars ($100.00).
"Marketable Securities" means publicly traded debt or equity securities
that are listed for trading on a national securities exchange.
"Net Available Cash" from an Asset Disposition means cash payments,
cash equivalents and Marketable Securities received therefrom (including any
cash payments received by way of deferred payment of principal pursuant to a
note or installment receivable or otherwise and proceeds from the sale or other
disposition of any securities received as consideration, but only as and when
required, but excluding any other consideration received in the form of
assumption by the acquiring Person of indebtedness or other obligations relating
to such properties or assets or received in any other noncash form), in each
case net of
18
(i) all legal, title and recording tax expenses,
commissions and other fees and expenses incurred, and
all Federal, state, provincial, foreign and local
taxes required to be accrued as a liability under
GAAP, as a consequence of such Asset Disposition,
(ii) all payments made on any indebtedness which is
secured by any assets subject to such Asset
Disposition, in accordance with the terms of any Lien
upon or other security agreement of any kind with
respect to such assets, or which must by its terms,
or in order to obtain a necessary consent to such
Asset Disposition, or by applicable law, be repaid
out of the proceeds from such Asset Disposition,
(iii) all distributions and other payments required to be
made to minority interest holders in Subsidiaries as
a result of such Asset Disposition, and
(iv) the deduction of appropriate amounts provided by the
seller as a reserve, in accordance with GAAP, against
any liabilities associated with the property or other
assets disposed in such Asset Disposition and
retained by the Company or any Subsidiary after such
Asset Disposition.
"Original Issuance Date" means November [__], 2003.
"Outstanding Company Common Stock" shall have the meaning set forth in
Section 5.
"Outstanding Company Voting Securities" shall have the meaning set
forth in Section 5.
"Participating Dividends" shall have the meaning set forth in Section
2(b).
"Person" means and includes all natural persons, corporations, business
trusts, associations, companies, partnerships, limited liability companies and
other entities and governments and agencies and political subdivisions.
"Preferred Stock", as applied to the Capital Stock of any Person, means
Capital Stock of any class or classes (however designated) which is preferred as
to the payment of dividends, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such Person, over shares
of Capital Stock of any other class of such Person.
"Recapitalization Agreement" shall have the meaning set forth in
Section 5(b)(2).
"Specified Asset Dispositions" means the Asset Dispositions
contemplated by Section 3 of the Nineteenth Amendment to Loan Agreement.
"Subsidiary" means any corporation, partnership, limited liability
company, trust, association or other entity (i) at least 50% of the outstanding
voting securities of which are at the time owned or controlled, directly or
indirectly, by the Company or (ii) with respect to which the Company possesses,
directly or indirectly, the power to direct or cause the direction of the
affairs or management of such person.
19
"Twenty Day Average" means, with respect to any prices and in
connection with the calculation of Fair Market Value, the average of such prices
over the twenty Business Days ending on the Business Day immediately prior to
the day as of which "Fair Market Value" is being determined.
"Voting Trigger" means the first to occur of any of the following:
(i) a default by the Company in respect of any of its
obligations under the Series C Preferred Stock or the
Recapitalization Agreement;
(ii) an "Event of Default" as defined under the Working
Capital Facility Documents as in effect on the date
hereof, irrespective of any requirement of notice or
action by the lenders thereunder; and
(iii) a failure by the Company to redeem any of the
outstanding shares of Series C Preferred Stock
required to be redeemed pursuant to Sections 4(a)
and 5.
"Working Capital Facility Documents" means the revolving loan and term
loan facilities provided by Congress to the Company and certain of its
Subsidiaries and affiliates as set forth in the Loan and Security Agreement,
dated November 14, 1995, by and among the Lender, the Company and certain
Subsidiaries and affiliates of the Company, as amended, including, without
limitation, the Nineteenth Amendment to Loan and Security Agreement, dated as of
December 18, 2001 (the "Nineteenth Amendment to Loan Agreement"), together with
the other agreements, documents and instruments referred to therein or at any
time executed or delivered in connection therewith or related thereto, as the
same exist and are in effect, in each case, as of the date hereof; provided,
that the aggregate amount of indebtedness outstanding under the Working Capital
Facility Documents shall not exceed at any time $15,000,000, with respect to
amounts outstanding under any term loan facilities issued pursuant to the
Working Capital Facility Documents, and $62,150,000 in the aggregate; provided,
that the term Working Capital Facility Documents shall include subsequent
amendments, modifications, supplements, restatements and replacements thereto
(including, without limitation, with a take out or replacement lender) so long
as such amendments, modifications, supplements, restatements or replacements do
not include any terms that are less favorable to the holders of the Series C
Preferred Stock than the terms related solely (a) to the following provisions
of the following Sections of the [Nineteenth Amendment] to Loan Agreement as in
effect on the date hereof: (i) the definitions contained in Section 1, (ii) the
redemption of the Series C Preferred Stock set forth in Section 2 and the Asset
Sales provisions set forth in Section 3, (iii) the provisions related to the
application of proceeds set forth in Section 4, and (iv) the adjustments to the
lending formulas set forth in Sections 5, 6, 7 and 8 and (b) to any other
provision of the Loan Agreement as in effect on the date hereof having a
similar effect on redemption of the Series C Preferred Stock. [to be updated to
current amendment]
Section 10. Dividend Received Deduction.
20
For federal income tax purposes, the Company shall report distributions
on the Series C Preferred Stock as dividends, to the extent of the Company's
current and accumulated earnings and profits (as determined for federal income
tax purposes).
Section 11. Withholding Taxes.
All amounts payable with respect to the Series C Preferred Stock,
including without limitation actual or "deemed" dividends thereon or payments
upon redemption thereof, will be made free and clear of and without withholding
or deduction for or on account of any present or future taxes, duties, levies,
assessments or other governmental charges of whatever nature, including
interest, penalties and additions to tax, imposed or levied by or on behalf of
the United States or any political subdivision thereof or any authority or
agency thereof or therein having the power to tax payments in respect of the
Series C Preferred Stock (all such present or future taxes, duties, levies, and
assessments being hereinafter referred to as "Taxes"). If the Company shall be
required by law to withhold or deduct any Taxes from or in respect of any actual
or "deemed" dividend or any other sum payable in respect of the Series C
Preferred Stock (i) the amount required to be withheld and/or the sum payable
shall be increased as necessary so that after making all required withholdings
and deductions the holders of the then outstanding shares of Series C Preferred
Stock receive (or are treated as receiving) an amount equal to the amount they
would have received (or been treated as receiving) had no such withholdings or
deductions been made, (ii) the Company shall make such withholdings or
deductions, (iii) the Company shall pay the full amount withheld and/or deducted
to the relevant taxation authority or other authority in accordance with
applicable law, and (iv) the Company shall furnish each holder of the then
outstanding shares of Series C Preferred Stock, at its address referred to in
the Recapitalization Agreement, or as otherwise noticed with respect thereto,
with the original or a certified copy of a receipt evidencing payment thereof.
The holders of the then outstanding shares of Series C Preferred Stock shall
supply the Company with such documentation as it reasonably may request
including, without limitation, Form W-8BEN. The foregoing shall not apply to any
entity not subject to the withholding taxes set forth in this Section.
Section 12. No Reissuance.
After the Original Issuance Date, no shares of Series C Preferred Stock
shall be issued or reissued as shares of Series C Preferred Stock but shall be
restored to the status of authorized but unissued shares of Preferred Stock. All
shares of Series C Preferred Stock surrendered for redemption or otherwise
acquired by the Company or any Subsidiary shall be retired and shall not be
reissued as shares of Series C Preferred Stock.
Section 13. Severability.
To the extent that any provision hereof is found to be invalid or
unenforceable, such invalidity or unenforceability shall not affect the validity
or enforceability of any other provision of this Certificate of Designations.
Section 14. Delivery of Documents.
21
The Company will deliver to any stockholder of the Company, upon its
request, copies of the Working Capital Facility Documents and any other
agreements or documents referred to herein, as well as any amendments to the
foregoing.
IN WITNESS WHEREOF, the Company has caused this Certificate of
Designations to be signed by Xxxxxx X. Xxxxx, its President, this [__]th day of
November 2003.
HANOVER DIRECT, INC.
By: _______________________________
Name: Xxxxxx X. Xxxxx
Title: President
22
EXHIBIT B
HANOVER DIRECT, INC.
TRANSACTIONS COMMITTEE CHARTER
Organization:
There shall be a committee of the Board of Directors of Hanover Direct,
Inc. (the "Company") to be known as the Transactions Committee. Except as set
forth herein, the Transactions Committee shall be composed of three directors,
one designated by Xxxxxxx Direct, LLC ("Xxxxxxx"), who shall be the Chairman,
one designated by Xxxxx Partners, L.P. ("Xxxxx Partners") and a third member
jointly designated by Xxxxxxx and Xxxxx Partners (the "Independent Member"). The
right of Xxxxx Partners to designate a nominee to the Transactions Committee and
to jointly designate a third member shall terminate if Xxxxx Partners, Xxxxx
International Fund Limited and Xxxxx X. Xxxxx, collectively, cease to own at
least 75% of the outstanding shares of Common Stock of the Company (as adjusted
for stock splits, reverse stock splits and the like) owned by such entities on
November 10, 2003. The Independent Member of the Transactions Committee (and any
successor thereof) shall, at all times, be free of any relationship that, in the
opinion of the Board of Directors, would interfere with his or her exercise of
independent judgment as a Transactions Committee member. In the event that the
Xxxxxxx or Xxxxx Partners designee on the Transactions Committee shall cease to
serve as a director of the Company or as a member of the Transactions Committee
for any reason, the Board of Directors shall cause the vacancy resulting thereby
to be filled by a designee of Xxxxxxx or Xxxxx Partners, as applicable, as
promptly as practicable. In the event that the Independent Member of the
Transactions Committee selected jointly by Xxxxxxx and Xxxxx Partners shall
cease to serve as a director of the Company or as a member of the Transactions
Committee for any reason, the Board of Directors shall, as promptly as
practicable, cause the vacancy resulting thereby to be filled by a designee
selected jointly by Xxxxxxx and Xxxxx Partners who is free of any relationship
that, in the opinion of the Board of Directors, would interfere with his or her
exercise of independent judgment as a Transactions Committee member. In the
event that the right of Xxxxx Partners to designate a member of the Transaction
Committee terminates, (a) if the designee of Xxxxx Partners shall not have
resigned within two (2) business days of notice that such right has terminated,
the designee of Xxxxx Partners shall be removed from the Transactions Committee
and the size of the Transactions Committee shall be reduced to 2 members until
such time as a successor is designated by the Board of Directors as set forth in
clause (b) (when the size of the Transactions Committee shall be restored to 3
members) and (b) thereafter the Independent Member and a successor to the
designee of Xxxxx Partners shall each be designated by the Board of Directors
(acting without the participation of Xxxxxxx Xxxxxxx and Xxxxxx Xxxxxxx).
The Transactions Committee shall be maintained in accordance with this
Charter until the earlier to occur of: (i) such time as the Series C
Participating Preferred Stock, par value $.01 per
share, of the Company (the "Series C Preferred Stock") is redeemed in full, or
(ii) November 18, 2005.
STATEMENT OF POLICY:
The Transactions Committee shall provide assistance to the Board of
Directors in fulfilling its responsibility to the shareholders by recommending
appropriate actions to the Board of Directors, or acting on behalf of the Board
of Directors, on any matter involving (1) redemptions, in whole or in part, of
the Series C Preferred Stock, and (2) transactions that pursuant to the terms of
the Series C Preferred Stock would require the Company to redeem the Series C
Preferred Stock, in whole or in part, consistent with applicable laws or
agreements (each an "Action").
A matter shall be submitted to the Transactions Committee only if the
Board of Directors, in the reasonable exercise of its business judgment,
determines that a transaction is reasonably likely to require the Company to
redeem any shares of Series C Preferred Stock. If such matter shall be submitted
to the Transactions Committee, the Transactions Committee shall make a
recommendation to the Board of Directors regarding the advisability of pursuing
any such transaction; provided, however, if the Transactions Committee is unable
to reach a unanimous decision, such matter shall be submitted to the Board of
Directors as set forth in Procedural Matters, below.
MEETINGS:
The Transactions Committee shall meet as often as is necessary to
fulfill its obligations under this charter. The agenda of each meeting shall be
prepared by the Chairperson of the Transactions Committee and, whenever
reasonably practicable, circulated to each member prior to the date of the
meeting.
RESPONSIBILITIES:
In carrying out its responsibilities, the Transactions Committee shall
establish and maintain flexible policies and procedures, in order to best react
to changing conditions and to ensure to the directors and shareholders that the
actions recommended to the Board of Directors are in accordance with all
applicable requirements and consistent with Delaware law.
The Transactions Committee shall review all potential conflict of
interest issues and shall have the power to retain appropriate advisors
including but not limited to, legal, finance, investment banking, accounting,
technology, marketing, venture and such other professional
advisors as it determines; provided, however, that any independent legal counsel
and financial advisor or investment bank retained by the Transactions Committee
shall be agreed to unanimously by the members of the Transactions Committee;
provided, however, if the Transactions Committee is unable to reach a unanimous
decision, such matter shall be submitted to the Board of Directors as set forth
in Procedural Matters, below.
The Transactions Committee shall be authorized to direct payment by the
Company of any reasonable fees and expenses incurred for such professional
services.
PROCEDURAL MATTERS:
The three members of the Transactions Committee will constitute a
quorum for the purposes of discussing any Action (2 members at any time when the
Transactions Committee is reduced to 2 members as set forth under Organization,
above). A unanimous vote of the Transactions Committee is required to approve
any Action and to recommend such Action to the Board of Directors. A unanimous
vote of the Transactions Committee relating to any Action cannot be overturned
by the Board of Directors. If the Transactions Committee shall not be able to
decide unanimously on any matter relating to any Action before the Transactions
Committee, such matter shall referred to the Board of Directors, which shall act
in accordance with the terms of the Corporate Governance Agreement.
The Transactions Committee will meet at such times as shall be
determined by its Chairperson, or upon the request of any two of its members or
upon the request of the Board of Directors. The Transactions Committee will keep
a record of its meetings and report on them to the Board of Directors. The
Transactions Committee may meet in person, by conference telephone or by video
conference and may take action by written consent.
EXHIBIT C
GENERAL RELEASE
TO ALL TO WHOM THESE PRESENTS SHALL COME OR MAY CONCERN, KNOW THAT Xxxxxxx
Direct, LLC, a Delaware limited liability company with its principal place of
business at 000 Xxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000 ("RELEASOR"), and
RELEASOR'S parents, affiliates, subsidiaries, predecessor firms, shareholders,
officers, directors, members, managers, employees, attorneys, agents, current
and former partners, current and former principals, alliances, co-venturers,
heirs, estates, executors, personal representatives, administrators,
predecessors, successors, assigns and third-parties in consideration of the sum
of $10.00 and more, and other good and valuable consideration, receipt of which
is hereby acknowledged, release, discharge and acquit forever Hanover Direct,
Inc., a Delaware corporation with its principal place of business at 000 Xxxxx
Xxxx, Xxxxxxxxx, Xxx Xxxxxx 00000 (the "RELEASEE"), RELEASEE's parents,
affiliates, subsidiaries, predecessor firms, shareholders, officers, directors,
members, managers, employees, attorneys, agents, current and former partners,
current and former principals, alliances, co-venturers, heirs, estates,
executors, personal representatives, administrators, predecessors, successors,
assigns and third-parties from all actions, causes of action, suits, debts,
dues, sums of money, accounts, reckonings, bonds, bills, specialties, covenants,
contracts, controversies, agreements, promises, variances, trespasses, damages,
claims for attorneys' fees, claims for injunctive relief, judgments, extents,
executions, claims and demands whatsoever, whether known or unknown, in law,
admiralty or equity, which the RELEASOR and the RELEASOR'S parents, affiliates,
subsidiaries, predecessor firms, shareholders, officers, directors, members,
managers, employees, attorneys, agents, current and former partners, current and
former principals, alliances, co-venturers, heirs, estates, executors, personal
representatives, administrators, predecessors, successors, assigns and
third-parties ever had, now have or hereafter can, shall or may have, for, upon
or by reason of any matter, cause or thing whatsoever against RELEASEE from the
beginning of the world to the date of this Release.
1. Nothing in this Release is intended to, nor shall, waive or release
any of the rights or obligations of the parties under a certain
Recapitalization Agreement dated as of November 18, 2003 and executed by the
Parties hereto in connection with this Release (the "Recapitalization
Agreement") or any of the other agreements entered into in connection with the
Recapitalization Agreement.
2. The signatory to this Release hereby warrants and represents that he
is duly authorized to enter into this Release on behalf of the persons and
entities on whose behalf he purports to act.
3. This Release shall in all respects be interpreted, enforced and
governed under the laws of the State of New York without regard to New York's
conflicts of laws principles.
4. Whenever text hereof requires, the use of the singular number shall
include the appropriate plural number.
5. This Release may not be changed orally.
IN WITNESS WHEREOF, this Release has been executed as of the date set forth
below.
XXXXXXX DIRECT, LLC
By: _______________________________
Title: ____________________________
Date: November __, 0000
XXXXXXXXXXXXXX
XXXXX XX XXX XXXX )
) ss.:
COUNTY OF NEW YORK )
On the ____ day of November, 2003, before me personally came ____________,
to me known, who by me duly sworn, did depose and say that deponent resides
at ___________________, that deponent is a duly authorized representative of
Xxxxxxx Direct, LLC, the entity described herein as Releasor and which executed
the foregoing Release, and that deponent signed deponent's name thereto by
authority of Xxxxxxx Direct, LLC.
_____________________________
Notary Public
EXHIBIT D
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
---------------------------------------------- X
:
HANOVER DIRECT, INC., Index No. 03/602269
Plaintiff, :
Xxx. Xxxxxxx X. Xxxxx
-against- : (IAS Part 53)
RICHEMONT FINANCE S.A. AND XXXXXXX
DIRECT, LLC. : STIPULATION OF
DISCONTINUANCE
Defendants.
---------------------------------------------- X
IT IS HEREBY STIPULATED AND AGREED by and between plaintiff
Hanover Direct, Inc. and defendants Richemont Finance, S.A. and Xxxxxxx Direct,
LLC, through their respective undersigned attorneys of record herein, as
follows:
1. THIS ACTION, INCLUDING ALL CLAIMS AND COUNTERCLAIMS ASSERTED
HEREIN, IS HEREBY DISCONTINUED, WITH PREJUDICE, AND WITHOUT COSTS (INCLUDING
ATTORNEYS' FEES) TO ANY PARTY AS AGAINST ANY OTHER.
2. THIS STIPULATION MAY BE FILED WITH THE CLERK OF THE COURT BY
ANY PARTY WITHOUT FURTHER NOTICE TO any other party.
Dated: New York, New York
November ___, 2003
ORANS, ELSEN, & LUPERT LLP SKADDEN, ARPS, SLATE,
XXXXXXX & XXXX LLP
By: _______________________________ By: _______________________________
Xxxxxx X. Xxxxxx Xxxxxx X. Xxxxx
One Rockefeller Plaza Four Times Square
New York, New York 10022 Xxx Xxxx, Xxx Xxxx 00000
(000) 000-0000 (000) 000-0000
Attorneys for Plaintiff Attorneys for Defendant
Hanover Direct, Inc. Richemont Finance, X.X.
XXXXXXX BERLIN SHEREFF XXXXXXXX, LLP XXXXXXX & MAYSR, LLP
000 Xxxxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
(000) 000-0000 By: _______________________________
Xxxx X. Reichmant
-and- 000 Xxxx 00xx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
(000) 000-0000
Attorneys for Defendant
Xxxxxxx Direct, LLC
EXHIBIT E
VOTING AGREEMENT
VOTING AGREEMENT, dated as of November __, 2003 (this "Agreement"),
between XXXXXXX DIRECT, LLC, a Delaware limited liability company ("Xxxxxxx"),
Xxxxxx Xxxxxxx, an individual ("Xxxxxxx"), XXXXX PARTNERS, L.P., a New Jersey
limited partnership ("Xxxxx Partners"), XXXXX INTERNATIONAL FUND LIMITED, a
corporation organized under the laws of the British Virgin Islands (the "Fund"),
and Xxxxx X. Xxxxx, an individual ("Xxxxx").
R E C I T A L S:
A. On the date hereof, Xxxxxxx and Hanover Direct, Inc.,
a Delaware corporation (the "Company"), entered into a binding agreement (the
"Recapitalization Agreement"), pursuant to which, among other things, the
Company shall issue to Xxxxxxx (i) 564,819 shares of Series C Cumulative
Participating Preferred Stock, par value $.01 per share, of the Company (the
"Series C Preferred Stock"), and (ii) 81,857,833 shares of common stock, par
value $.66-2/3 per share, of the Company ("Common Stock"). Upon the closing of
the transactions contemplated in the Recapitalization Agreement, the Series C
Preferred Stock issued to Xxxxxxx shall consist of all of the issued and
outstanding shares of Series C Preferred Stock, and the shares of Common Stock
held by Xxxxxxx will represent 50.5% of the issued and outstanding shares of
Common Stock. The number and percentage of shares of stock owned by Xxxxxxx upon
consummation of the Recapitalization as set forth in this recital are subject to
adjustment as set forth in the Recapitalization Agreement.
B. As of the date hereof, Xxxxxxx is the record owner of
29,446,888 shares of Common Stock and 1,622,111 shares of Series B Cumulative
Participating Preferred Stock, par value $.01 per share, of the Company (the
"Series B Preferred Stock"), consisting of all of the issued and outstanding
shares of Series B Preferred Stock, and representing as of the date hereof 21.3%
of the issued and outstanding shares of Common Stock.
C. Upon the closing of the transactions contemplated in
the Recapitalization Agreement (the "Closing"), Xxxxxxx shall transfer the
Series B Preferred Stock to the Company in exchange for the Series C Preferred
Stock and Common Stock set forth in recital A.
D. Xxxxxxx is an affiliate of Xxxxxxx, and as of the
date hereof is the record owner of 160,900 shares of Common Stock, representing
[.1%] of the issued and outstanding shares of Common Stock.
X. Xxxxx is the general partner of Xxxxx Partners, and
the principal of Xxxxx Fund Management Ltd., the investment manager of the Fund,
and is as of the date hereof the beneficial owner of approximately [38,746,683]
shares of Common Stock, representing in the aggregate 28% of the issued and
outstanding shares of Common Stock.
F. As a condition precedent to the execution and
delivery of the Recapitalization Agreement, the parties hereto have agreed to
enter into this Agreement in order to provide each other with certain assurances
that the parties hereto will vote all of the shares of capital stock or other
equity securities of the Company beneficially owned, or owned of record, by
them, or over which they have voting control, to effectuate the transactions
contemplated by, or otherwise referenced in, the Recapitalization Agreement.
A G R E E M E N T:
In consideration of $10.00 and other good and valuable consideration,
the receipt and adequacy of which is hereby acknowledged, the parties agree as
follows:
1. Voting Agreement. Each of the parties hereto agrees
to vote all shares of Common Stock, Series B Preferred Stock, Series C Preferred
Stock or any shares of capital stock or other equity securities of the Company
held by such party (or its affiliates) at all annual or special meetings, or to
take all actions by written consent in lieu of such a meeting, in favor of:
(a) the consummation of the transactions
contemplated by the Recapitalization Agreement, if such vote is required or
submitted to the stockholders of the Company for consideration;
(b) the adoption and approval of an amendment to
the Certificate of Incorporation of the Company, which would (i) reduce the par
value of the Company's Common Stock from $.66-2/3 per share to $.01 per share;
(ii) effectuate a reverse stock split of the Common Stock in a ratio of 10 to 1;
and (iii) increase the number of authorized shares of the Company's blank check
preferred stock by ten million (10,000,000) shares;
(c) the Company maintaining a nine (9) member
board of directors; and
(d) the election as members of the board of
directors of the Company (the "Board") of those individuals nominated in the
proxy statement for each annual or special meeting of the stockholders of the
Company at which directors shall be elected, and which shall be designated by
Xxxxxxx and Xxxxx Partners, so that five (5) members of the Board will be
designated by Xxxxxxx (four (4) members of the Board during such time as the
number of directors on the Board is fixed at eight (8) as set forth in the
Recapitalization Agreement) and one (1) member of the Board will be designated
by Xxxxx Partners (the "Xxxxx Designee"), at all times for a period of two (2)
years following the Closing. It is understood and agreed that for a period of
two (2) years after the Closing, so long as the Board consists of a majority of
members designated by Chelsey, Chelsey will not seek to nominate or propose for
nomination or elect any individuals to serve as a member of the Board if the
effect thereof would be to cause
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individuals affiliated or associated with Xxxxxxx (excluding any individuals
appointed to the Board solely by the holders of the Series C Preferred Stock
pursuant to the terms thereof) to constitute more than five (5) directors of the
Board, except that the foregoing limitation shall not apply and Xxxxxxx may
nominate or propose for nomination or elect any individuals to serve as members
of the Board upon the redemption in full of the Series C Preferred Stock.
In addition, each party hereto agrees to vote the shares of Common Stock, Series
B Preferred Stock, Series C Preferred Stock or any shares of capital stock or
other equity securities of the Company over which such party has voting control,
upon any matter arising under this Agreement submitted to a vote of stockholders
of the Company in a manner so as to implement the terms of this Agreement.
2. Right of First Offer. For so long as there is a Xxxxx
Designee on the Board, each of Xxxxx Partners, the Fund and Xxxxx (collectively,
for purposes of this Section 2, the "Xxxxx Group") hereby covenants and agrees
to provide Xxxxxxx with no less than twenty-four (24) hours notice prior to any
sale, transfer or other disposition (each a "Transfer") (or the execution of any
agreement with respect to a Transfer), of any shares of capital stock of the
Company (the "Stock") held by the Xxxxx Group in the aggregate (the "First Offer
Notice"). Such notice shall include the terms of such sale, transfer or other
disposition, including the proposed purchase price. Xxxxxxx will have a
non-assignable right, for a period of 24 hours commencing on the effective date
of the First Offer Notice, to purchase such shares of Stock (the "Right of First
Offer") prior to the consummation of the Transfer of such Stock to a third party
on terms no less favorable to the Xxxxx Group than otherwise available to it
from such third party. If Xxxxxxx fails to deliver a binding written agreement
to the applicable member of the Xxxxx Group within such 24-hour period
obligating Xxxxxxx to purchase such shares and to deliver payment therefore
within one business day thereafter (the "Acceptance Agreement"), the Xxxxx Group
may thereafter sell the offered shares of Stock at a price no lower and on terms
no more favorable to the purchaser than such price and terms contained in the
First Offer Notice. If the Xxxxx Group has not sold such shares within thirty
(30) days of Xxxxxxx declining to purchase such shares of Stock (or failing to
timely deliver an Acceptance Agreement), any Transfer of Stock by the Xxxxx
Group shall again be subject to a Right of First Offer to Xxxxxxx. The Right of
First Offer granted hereunder shall apply to all Transfers by any member or
members of the Xxxxx Group, other than any fund balancing transactions entered
into among members of the Xxxxx Group, or any of their respective affiliates.
3. No Voting Trusts. Each of the parties hereto agrees
that it will not, nor will it permit any affiliate to, deposit any shares of
Common Stock, Series B Preferred Stock, Series C Preferred Stock or any shares
of capital stock or other equity securities of the Company held by such party
(or its affiliates) in a voting trust or subject any of such shares to any
arrangement with respect to the voting of such shares which voting trust or
arrangement is inconsistent with the terms of this Agreement.
4. Limitation on Sales. Each of the parties hereto
agrees not to sell, assign, transfer, donate, give, or otherwise dispose of to
any of its affiliates (as such term is defined in Rule 144 promulgated under the
Securities Act of 1933, as amended) (collectively, a "Transfer") any shares of
Common Stock, Series B Preferred Stock, Series C Preferred Stock or any shares
of capital stock or other equity securities of the Company held by such party
(or its affiliates), unless the proposed
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transferee, donee or pledgee, as the case may be, agrees in writing to be bound
by the terms of this Agreement, and any pledge or other encumbrance of such
shares shall at all times include a retention of the voting rights with respect
thereto.
5. Specific Performance. The parties hereto stipulate
that the remedies at law available to the parties in the event of any default or
threatened default in the performance of or compliance with any of the terms of
this Agreement are not and will not be adequate, and that, to the extent
permitted by applicable law, such terms may be specifically enforced by a decree
for the specific performance of any agreement contained herein or by an
injunction against a violation of any of the terms hereof or otherwise.
6. Termination. This Agreement shall terminate upon the
earlier of (a) a Transfer by Xxxxx Partners, the Fund and/or Xxxxx of shares of
Common Stock representing in excess of 25% of the outstanding shares of Common
Stock owned in the aggregate by Xxxxx Partners, the Fund and/or Xxxxx as of
November 10, 2003 ([9,686,671] shares of Common Stock) (as adjusted for any
stock dividends, combinations, splits, recapitalizations and the like with
respect to such shares), or (b) the second anniversary of the Closing, or (c) a
written agreement signed by all of the parties hereto.
7. Notices. All notices, requests and other
communications to any party hereunder shall be in writing (including facsimile)
and shall be given:
In the case of Xxxxx Partners, the Fund and Xxxxx:
Xxxxx Partners, L.P.
00 Xxxx 00xx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Facsimile No.: (000) 000-0000
with a copy to:
Xxxxxx & Xxxxxx LLP
Xxx Xxxxxxx Xxxx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxx X. Xxxxx, Esq.
Facsimile No.: (000) 000-0000
In the case of Xxxxxxx and Xxxxxxx:
Xxxxxxx Direct, LLC
000 Xxxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxx Xxxxxxx
Facsimile No.: (000) 000-0000
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with a copy to:
Xxxxxxx Berlin Shereff Xxxxxxxx, LLP
The Chrysler Building
000 Xxxxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxx Xxxxxxxx, Esq.
Facsimile No.: (000) 000-0000
or such other address or facsimile number as such party (or transferee) may
hereafter specify for such purpose by notice to the other parties in the manner
specified herein. Each such notice, request or other communication shall be
effective (a) if given by facsimile, when such facsimile is transmitted to the
facsimile number specified in this Section and the appropriate facsimile
confirmation is received or (b) if given by mail, at the earliest of its receipt
or five days after the same has been deposited in a regularly maintained
receptacle for the deposit of U.S. mail, addressed and postage paid as aforesaid
or (c) if given by any other means, when delivered at the address specified in
this Section.
8. No Waivers. No failure or delay by any party in
exercising any right, power or privilege hereunder or seeking any remedy with
respect to a breach hereof shall operate as a waiver thereof or of any other
right, power or privilege nor shall any single or partial exercise thereof
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege. The rights and remedies herein provided shall be
cumulative and not exclusive of any rights or remedies provided by law.
9. Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of the parties hereto and their
respective, heirs, executors, administrators, successors and assigns.
10. Governing Law. This Agreement shall be construed in
accordance with and governed by the law of the State of New York, without regard
to principles of conflicts of law (other than Section 5-1401 of the General
Obligations Law of the State of New York).
11. Jurisdiction. Any suit, action or proceeding seeking
to enforce any provision of, or based on any matter arising out of or in
connection with, this Agreement or the transactions contemplated hereby may be
brought in any federal or state court located in the Southern District of New
York, and each of the parties hereby consents to the jurisdiction of such courts
(and of the appropriate appellate courts therefrom) in any such suit, action or
proceeding and irrevocably waives, to the fullest extent permitted by law, any
objection which it may now or hereafter have to the laying of the venue of any
such suit, action or proceeding in any such court or that any such suit, action
or proceeding which is brought in any such court has been brought in an
inconvenient forum. Process in any such suit, action or proceeding may be served
on any party anywhere in the world, whether within or without the jurisdiction
of any such court. Without limiting the foregoing, each party agrees that
service of process on such party as provided in Section 7 shall be deemed
effective service of process on such party.
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12. Waiver of Jury Trial. EACH OF THE PARTIES HERETO
HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL
PROCEEDING ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY.
13. Counterparts; Effectiveness. This Agreement may be
signed in any number of counterparts, each of which shall be an original, with
the same effect as if the signatures thereto and hereto were upon the same
instrument provided no party shall be bound unless and until the parties hereto
have each signed a counterpart hereof. Facsimile transmissions of any executed
original documents and/or retransmission of any executed facsimile transmission
shall be deemed to be the same as the delivery of an executed original. At the
written request of any party hereto, the other parties hereto shall confirm
facsimile transmissions by executing duplicate original documents and delivering
the same to the requesting party or parties.
14. Entire Agreement. This Agreement constitutes the
entire agreement between the parties with respect to the subject matter of this
Agreement and supersedes all prior agreements and understandings, both oral and
written, between the parties with respect to the transactions contemplated
herein. No provision of this Agreement or any other agreement contemplated
hereby is intended to confer on any person or entity other than the parties
hereto any rights or remedies.
15. Captions. The captions herein are included for
convenience of reference only and shall be ignored in the construction or
interpretation hereof.
16. Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void or unenforceable (a "Determination"), the
remainder of the terms, provisions, covenants and restrictions of this Agreement
shall remain in full force and effect and shall in no way be affected, impaired
or invalidated so long as the economic or legal substance of the transactions
contemplated hereby is not affected in any manner materially adverse to any
party. Upon such a Determination, the parties shall negotiate in good faith to
modify this Agreement so as to effect the original intent of the parties as
closely as possible in an acceptable manner in order that the transactions
contemplated hereby be consummated as originally contemplated to the fullest
extent possible.
17. Amendments. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given without the prior written consent of the parties hereto.
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IN WITNESS WHEREOF, this Agreement has been executed as of the date
first above written.
XXXXXXX DIRECT, LLC
By: __________________________________
Name:
Title:
___________________
Xxxxxx Xxxxxxx
XXXXX PARTNERS, L.P.
By: _________________________________
Name: Xxxxx X. Xxxxx
Title: General Partner
XXXXX INTERNATIONAL FUND LIMITED
By: Xxxxx Fund Management Ltd.
By: _________________________________
Name: Xxxxx X. Xxxxx
Title: President
___________________
Xxxxx X. Xxxxx
EXHIBIT F
HANOVER DIRECT, INC.
CORPORATE GOVERNANCE AGREEMENT
THIS CORPORATE GOVERNANCE AGREEMENT ("AGREEMENT") is entered into as of
the ___ day of November, 2003, by and among HANOVER DIRECT, INC., a Delaware
corporation (the "COMPANY"), XXXXXXX DIRECT, LLC, a Delaware limited liability
company ("XXXXXXX"), XXXXXX XXXXXXX, an individual ("XXXXXXX"), XXXXX PARTNERS,
L.P., a New Jersey limited partnership ("XXXXX PARTNERS"), XXXXX INTERNATIONAL
FUND LIMITED, a corporation organized under the laws of the British Virgin
Islands (the "FUND"), and XXXXX X. XXXXX, an individual ("XXXXX") (Xxxxxxx,
Xxxxxxx, Xxxxx Partners, the Fund and Xxxxx are sometimes hereinafter referred
to individually as a "STOCKHOLDER" and collectively as the "STOCKHOLDERS").
W I T N E S S E T H:
WHEREAS, concurrently with the execution and delivery of this
Agreement, the Company is consummating the transactions contemplated by that
certain Recapitalization Agreement, dated as of November 18, 2003, by and
between the Company and Xxxxxxx (the "RECAPITALIZATION AGREEMENT");
WHEREAS, after giving effect to the Recapitalization Agreement, the
capital stock of the Company (the "STOCK") shall be held by the Stockholders in
the amounts and percentages set forth on Exhibit A attached hereto; and
WHEREAS, the Stockholders and the Company desire to promote their
mutual interests by agreeing to certain matters relating to the operations of
the Company and the disposition of shares of Stock owned by any member of the
Xxxxx Group (as such term is hereinafter defined).
NOW, THEREFORE, in consideration of the mutual promises herein
exchanged, together with other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto, intending to be
legally bound, hereby agree as follows:
ARTICLE I
DEFINITIONS
1.1 Certain Definitions. In addition to the terms defined
elsewhere in this Agreement, the following terms shall have the following
meanings:
(a) "Affiliates" shall mean with respect to a Person, any
other Person controlling, controlled by or under common control with, such
Person, and the term "affiliated with" shall have a meaning correlative with the
foregoing.
(b) "Board" shall mean the board of directors of the
Company.
(c) "Closing" shall mean the consummation of the
transactions contemplated by the Recapitalization Agreement.
(d) "Common Stock" shall mean the shares of common stock,
par value $.66-2/3 per share, of the Company, and/or any other security issued
in exchange or substitution therefore, and any security issued as a dividend or
distribution with respect thereto.
(e) "Person" or "person" shall mean an individual,
partnership, limited liability company, joint venture, corporation, trust,
association, unincorporated organization or other entity and any government or
governmental body.
(f) "Xxxxx Group" shall mean Xxxxx Partners, the Fund,
and Xxxxx, and each of their respective Affiliates.
(g) "Series C Preferred Stock" shall mean the shares of
Series C Cumulative Participating Preferred Stock, par value $.01 per share, of
the Company.
ARTICLE II
CORPORATE GOVERNANCE
2.1 Management. The management of the Company shall be conducted
in accordance with the provisions of this Agreement, which are intended to be
reflected, to the extent required by applicable law, in the Amended Certificate
of Incorporation (the "Certificate of Incorporation") and the By-laws (the
"By-laws") of the Company.
2.2 Board of Directors. From and after the date hereof and
continuing for a period of two (2) years after the Closing, each of the
Stockholders agrees to take all action necessary, including, but not limited to,
the nomination and recommendation as part of the management or nominating
committee slate for election of directors, the voting of all of the Stock over
which such Stockholder has voting control, the execution of written consents,
the calling of special meetings, the removal of directors, the filling of
vacancies on the Board, the waiving of notice and the attending of meetings, so
as to effect the following:
(a) prior to the expiration of the tenth (10th) day
following the filing and transmission by the Company of a statement regarding a
change in majority of directors pursuant to Rule 14f-1 (the "14F Statement") by
the Company with the Securities and Exchange Commission and the transmission to
all equity holders of the Company as required by Rule 14f-1 of the Securities
Exchange of 1934, as amended, as set forth in the Recapitalization Agreement,
the Board shall consist of the following eight (8) members: Xxxxxx Xxxxxxx,
Xxxxx Xxxxxx, Xxxxxx Xxxxxxx, Xxxxxxx Xxxxxxx, Xxxxx X. Xxxxx, Xxxxxx Xxxxx,
Xxxxx Xxxxx and Xxxxxx Xxxxxx.
(b) after the tenth (10th) day following the filing and
transmission of the 14F Statement as set forth in Section 2.2(a), the Board
shall consist of nine (9) members (subject to increase pursuant to the terms of
the Series C Preferred Stock), designated as follows:
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(i) Xxxxxxx shall designate five (5) members of
the Board (each a "XXXXXXX DESIGNEE"). On the date hereof, Xxxxxxx has
designated Xxxxxx Xxxxxxx, Xxxxx Xxxxxx, Xxxxxx Xxxxxxx, Xxxxxxx Xxxxxxx and
Xxxxxx Xxxxx as the initial Xxxxxxx Designees. It is understood and agreed that
for a period of two (2) years after the Closing, so long as the Board consists
of a majority of members designated by Chelsey, Chelsey will not seek to
nominate or propose for nomination or elect any individuals to serve as a member
of the Board if the effect thereof would be to cause individuals affiliated or
associated with Xxxxxxx (excluding any individuals appointed to the Board solely
by the holders of the Series C Preferred Stock pursuant to the terms thereof) to
constitute more than five (5) directors of the Board, except that the foregoing
limitation shall not apply and Xxxxxxx may nominate or propose for nomination or
elect any individuals to serve as members of the Board upon the redemption in
full of the Series C Preferred Stock.
(ii) for so long as the Xxxxx Group collectively
owns at least 75% of the outstanding shares of Common Stock owned in the
aggregate by such parties ([29,060,012] shares of Common Stock) (as adjusted for
any stock dividends, combinations, splits, recapitalizations and the like with
respect to such shares), as of November 10, 2003 (the "OWNERSHIP REQUIREMENT"),
Xxxxx Partners shall designate one (1) member of the Board (the "XXXXX
DESIGNEE"). On the date hereof, Xxxxx Partners has designated Xxxxx X. Xxxxx as
the initial Xxxxx Designee. In the event that the Xxxxx Group collectively fails
to meet the Ownership Requirement, then if the Xxxxx Designee shall not have
resigned within two (2) business days of notice to such effect, the Xxxxx
Designee shall be removed from the Board of Directors and the number of
directors comprising the Board of Directors shall be set at eight (8).
(iii) the Board shall designate the Chief
Executive Officer of the Company to serve as a member of the Board. On the date
hereof, Xxxxxx Xxxxx, the current Chief Executive Officer of the Company, is
hereby designated to serve as a director of the Company.
(iv) the Board (acting without the participation
of Messrs. Xxxxxxx and Xxxxxxx) shall designate two (2) members of the Board
(the "BOARD DESIGNEES"). On the date hereof, the Board has designated Xxxxx
Xxxxx and Xxxxxx Xxxxxx as the initial Board Designees.
2.3 Removal. Any director (and/or committee member) designated
hereunder shall only be removed from the Board at the written request of the
Person (or their successors in interest) that designated such director (and/or
committee member) in accordance with Sections 2.2 and 2.4, as the case may be,
or if any such director is required to be removed in the exercise of the
fiduciary duty of the Board and, in either such event, or in the event any
Person for any reason ceases to serve as a member of the Board (and/or any
committee) during such director's term of office, the resulting vacancy shall be
filled as promptly as practicable by an individual designated by the Person (or
their successors in interest) that designated such vacating director (and/or
committee member), subject to the approval of the Board, not to be unreasonably
withheld or delayed.
2.4 Designation of Transactions Committee. Concurrent with the
execution of the Recapitalization Agreement, the Board approved a new charter
for the Transactions Committee.
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The Board shall maintain the Transactions Committee at least until the earlier
to occur of: (a) the redemption in full of the Series C Preferred Stock, or (b)
two (2) years after the Closing. The Transactions Committee shall consist of
three (3) members, one (1) of whom shall be designated by Xxxxxxx; one (1) of
whom shall be designated by Xxxxx Partners, and one (1) of whom shall be
designated jointly by Xxxxxxx and Xxxxx Partners. On the date hereof, Xxxxxx
Xxxxxxx (Xxxxxxx designee), Xxxxx X. Xxxxx (Xxxxx designee) and Xxxxx Xxxxx
(designated jointly) shall serve as the initial members of the Transactions
Committee. In the event any Person designated in accordance with this Section
2.4 to serve as a member of the Transactions Committee for any reason ceases to
serve as a member of the Board or a member of the Transactions Committee, the
resulting vacancy on the Transactions Committee shall be filled as promptly as
practicable by an individual designated by the Person(s) (or their successors in
interest) which designated such vacating member of the Transactions Committee.
The unanimous consent of all members of the Transactions Committee is required
for any and all actions to be taken thereby, which consent may not under any
circumstances be overturned by the Board. In the event that the members of the
Transactions Committee are unable to unanimously agree on any matter presented
to them for consideration during the first five (5) months following the
execution of the Recapitalization Agreement, such matter shall be determined by
the affirmative vote of no less than six (6) members of the Board for so long
as the Board consists of nine (9) members, and thereafter such matter shall be
determined by the affirmative vote of a majority of the Board. The right of
Xxxxx Partners to designate a member of the Transactions Committee shall
terminate if the Xxxxx Group collectively fails to meet the Ownership
Requirement. In the event that the right of Xxxxx Partners to designate a
member of the Transaction Committee terminates, (a) if the designee of Xxxxx
Partners shall not have resigned within two (2) business days of notice that
such right has terminated, the designee of Xxxxx Partners shall be removed from
the Transactions Committee and the size of the Transactions Committee shall be
reduced to two (2) members until such time as a successor is designated by the
Board as set forth in clause (b) (when the size of the Transactions Committee
shall be restored to three (3) members) and (b) thereafter the member formerly
designated jointly by Xxxxxxx and Xxxxx Partners and a successor to the
designee of Xxxxx Partners shall each be designated by the Board (acting
without the participation of Xxxxxxx Xxxxxxx and Xxxxxx Xxxxxxx).
2.5 Constitution of Other Committees. For so long as each of the
following continues to serve as a member of the Board, he shall serve as a
member of the Committee(s) of the Board, as follows: the members of the
Executive Committee shall be Xxxxxx Xxxxxxx (Chairman), Xxxxxx Xxxxxxx and Xxxxx
X. Xxxxx; the members of the Audit Committee shall be Xxxxxx Xxxxxx (Chairman),
Xxxxx Xxxxxx, Xxxxx Xxxxx and Xxxxxx Xxxxx; the members of the Compensation
Committee shall be Xxxxx Xxxxx (Chairman), Xxxxx Xxxxxx and Xxxxxx Xxxxxxx; the
members of the Nominating Committee shall be Xxxxxxx Xxxxxxx (Chairman), Xxxxx
Xxxxxx and Xxxxxx Xxxxx; and the members of the Transactions Committee shall be
as set forth in Section 2.4 above, with Xxxxxx Xxxxxxx serving as the Chairman
of such committee.
2.6 Expense Reimbursement. The out-of-pocket expenses actually
incurred by the Persons serving as directors of the Company that are not
employees of the Company in
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connection with attending any meetings of the Board or any committee thereof
(including the Transactions Committee) shall be paid by the Company.
2.7 Officers. (a) The Chief Executive Officer of the Company shall
be Xxxxxx Xxxxx until his successor shall have been duly elected and shall have
qualified in accordance with Section 2.7(b).
(b) The Board may appoint such additional officers as it
may from time to time determine. Officers shall serve at the pleasure of the
Board and the Board may remove any officer with or without cause at any time,
and from time to time, subject to the provisions of the employment agreement (if
any) of such officer, and any vacancy shall be filled by the Board, except that
prior to the expiration of one-hundred fifty (150) days after November 18, 2003,
the Board shall not terminate the employment of the Chief Executive Officer of
the Company, unless such termination is approved by the affirmative vote of at
least six (6) members of the Board.
ARTICLE III
MISCELLANEOUS
3.1 Termination. This Agreement shall terminate upon the
dissolution of the Company or upon the unanimous agreement in writing of all the
Stockholders. Notwithstanding the death of any Stockholder or the disposition by
a Stockholder of all shares of Stock owned by such Stockholder, this Agreement
shall nonetheless continue and remain in full force and effect in accordance
with its terms and conditions between and among the remaining Stockholders, the
heirs of the deceased Stockholder and the Company. A person shall cease to be a
"Stockholder" hereunder at such time as the Stockholder disposes of all his
Stock.
3.2 Notices. All notices, requests and other communications to any
party hereunder shall be in writing (including facsimile or similar writing) and
shall be given to the appropriate parties at the addresses set forth on Exhibit
A attached hereto or such other address or facsimile number as such party may
hereafter specify for such purpose by notice to the other parties in the manner
specified herein. Each such notice, request or other communication shall be
effective (i) if given by facsimile, when such facsimile is transmitted to the
facsimile number specified on Exhibit A and a facsimile confirmation is received
or (ii) if given by mail, at the earliest of its receipt or five (5) days after
the same has been deposited in a regularly maintained receptacle for the
deposit of U.S. mail, addressed and postage paid as aforesaid or (iii) if given
by any other means, when delivered at the address specified in this Section.
3.3 Gender and Use of Singular and Plural. All pronouns shall be
deemed to refer to the masculine, feminine, neuter, singular or plural, as the
identity of the party or parties, or their personal representatives, successors
and assigns may require.
3.4 Further Assurances. The parties hereto will execute and
deliver such further instruments and do such further acts and things as may be
reasonably required to carry out the intent and purposes of this Agreement.
5
3.5 No Waivers. No failure or delay by any party in exercising any
right, power or privilege hereunder or seeking any remedy with respect to a
breach hereof shall operate as a waiver thereof or of any other right, power or
privilege nor shall any single or partial exercise thereof preclude any other or
further exercise thereof or the exercise of any other right, power or privilege.
The rights and remedies herein provided shall be cumulative and not exclusive of
any rights or remedies provided by law.
3.6 Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective heirs,
executors, administrators, successors and assigns.
3.7 Governing Law. This Agreement shall be construed in accordance
with and governed by the law of the State of New York, without regard to
principles of conflicts of law (other than Section 5-1401 of the General
Obligations Law of the State of New York).
3.8 Jurisdiction. Any suit, action or proceeding seeking to
enforce any provision of, or based on any matter arising out of or in connection
with, this Agreement or the transactions contemplated hereby may be brought in
any federal or state court located in the Southern District of New York, and
each of the parties hereby consents to the jurisdiction of such courts (and of
the appropriate appellate courts therefrom) in any such suit, action or
proceeding and irrevocably waives, to the fullest extent permitted by law, any
objection which it may now or hereafter have to the laying of the venue of any
such suit, action or proceeding in any such court or that any such suit, action
or proceeding which is brought in any such court has been brought in an
inconvenient forum. Process in any such suit, action or proceeding may be served
on any party anywhere in the world, whether within or without the jurisdiction
of any such court. Without limiting the foregoing, each party agrees that
service of process on such party as provided in Section 3.2 shall be deemed
effective service of process on such party.
3.9 Waiver of Jury Trial. EACH OF THE PARTIES HERETO HEREBY
IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY.
3.10 Counterparts; Effectiveness. This Agreement may be signed in
any number of counterparts, each of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument
provided no party shall be bound unless and until the Stockholders and the
Company have each signed a counterpart hereof. Facsimile transmissions of any
executed original documents and/or retransmission of any executed facsimile
transmission shall be deemed to be the same as the delivery of an executed
original. At the written request of any party hereto, the other parties hereto
shall confirm facsimile transmissions by executing duplicate original documents
and delivering the same to the requesting party or parties.
3.11 Entire Agreement. This Agreement and the Recapitalization
Agreement and the agreements contemplated thereby constitute the entire
agreement between the parties with respect to the subject matter of this
Agreement and supersedes all prior agreements and understandings, both oral and
written, between the parties with respect to the transactions
6
contemplated herein. No provision of this Agreement or any other agreement
contemplated hereby is intended to confer on any Person other than the parties
hereto any rights or remedies.
3.12 Captions. The captions herein are included for convenience of
reference only and shall be ignored in the construction or interpretation
hereof.
3.13 Severability. If any term, provision, covenant or restriction
of this Agreement is held by a court of competent jurisdiction or other
authority to be invalid, void or unenforceable (a "Determination"), the
remainder of the terms, provisions, covenants and restrictions of this Agreement
shall remain in full force and effect and shall in no way be affected, impaired
or invalidated so long as the economic or legal substance of the transactions
contemplated hereby is not affected in any manner materially adverse to any
party. Upon such a Determination, the parties shall negotiate in good faith to
modify this Agreement so as to effect the original intent of the parties as
closely as possible in an acceptable manner in order that the transactions
contemplated hereby be consummated as originally contemplated to the fullest
extent possible.
3.14 Amendments. The provisions of this Agreement, including the
provisions of this sentence, may not be amended, modified or supplemented, and
waivers or consents to departures from the provisions hereof may not be given
without the prior written consent of the Stockholders.
[REMAINDER OF PAGE INTENTIONALLY BLANK]
7
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
COMPANY:
HANOVER DIRECT, INC.
By: ____________________________________
Name:
Title:
STOCKHOLDERS:
XXXXXXX DIRECT, LLC
By: ____________________________________
Name:
Title:
________________________________________
Xxxxxx Xxxxxxx
XXXXX PARTNERS, L.P.
By: ____________________________________
Name:
Title:
XXXXX INTERNATIONAL FUND LIMITED
By: Xxxxx Fund Management Ltd.
By: ______________________________
Xxxxx X. Xxxxx
President
__________________________________
Xxxxx X. Xxxxx
8
EXHIBIT A
Number of Percentage
Stockholders Address Class of Stock Shares Owned of Class
------------ ------- -------------- ------------ --------
9
EXHIBIT G
================================================================================
REGISTRATION RIGHTS AGREEMENT
BY AND BETWEEN
HANOVER DIRECT, INC.,
XXXXXXX DIRECT, LLC
AND
XXXXXX XXXXXXX
----------------------------------
DATED AS OF NOVEMBER __, 2003
----------------------------------
================================================================================
TABLE OF CONTENTS
Page
----
1. Certain Definitions 2
2. Demand Registrations. 3
(a) Right to Request Registration 3
(b) Number of Demand Registrations 3
(c) Priority on Demand Registrations 4
(d) Restrictions on Demand Registrations 4
(e) Selection of Underwriters 5
(f) Registration Statement Form 5
(g) Other Registration Rights 5
3. Piggyback Registrations 5
(a) Right to Piggyback 5
(b) Priority on Primary Registrations 6
(c) Priority on Secondary Registrations 6
(d) Selection of Underwriters 6
(e) Other Registrations 6
4. Holdback Agreements 6
5. Registration Procedures 7
6. Registration Expenses. 11
7. Indemnification 11
8. Rule 144 14
9. Miscellaneous 14
(a) Notices 14
(b) No Waivers 16
(c) Successors and Assigns 16
(d) Governing Law 16
(e) Jurisdiction 16
(f) Waiver of Jury Trial 16
(g) Counterparts; Effectiveness 16
(h) Entire Agreement 17
(i) Captions 17
(j) Severability 17
(k) Amendments 17
i
REGISTRATION RIGHTS AGREEMENT, dated as of November __, 2003, between
HANOVER DIRECT, INC., a Delaware corporation (the "Company"), XXXXXXX DIRECT,
LLC, a Delaware limited liability company ("Xxxxxxx"), and Xxxxxx Xxxxxxx
(together with Xxxxxxx, the "Stockholders").
In consideration of the mutual covenants and agreements herein
contained and other good and valid consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties to this Agreement hereby agree as
follows:
1. Certain Definitions. In addition to the terms defined
elsewhere in this Agreement, the following terms shall have the following
meanings:
"Affiliate" means, with respect to the Company, a Person (a) directly
or indirectly controlling, controlled by or under common control with the
Company or (b) directly or indirectly owning or holding ten percent (10%) or
more of any Common Stock. For purposes of this definition, "control" (including
correlative meanings, the terms "controlling," "controlled by" and "under common
control with") means the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of the Company,
whether through the ownership of voting securities, by contract or otherwise.
Notwithstanding the purposes of the foregoing, none of the Stockholders shall be
deemed to be an Affiliate of the Company.
"Agreement" means this Registration Rights Agreement, including all
amendments, modifications and supplements and any exhibits or schedules to any
of the foregoing, and shall refer to this Registration Rights Agreement as the
same may be in effect at the time such reference becomes operative.
"Business Day" means any day on which commercial banks are open for
business in New York, New York.
"Common Stock" means common stock, par value $0.66-2/3 per share, of
the Company or any other capital stock of the Company into which such stock is
reclassified or reconstituted.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Holder" means the Stockholders, and any successors or assigns of the
Stockholders pursuant to Section 9(c) hereof who acquires Registrable
Securities, directly or indirectly, from the Stockholders, or such transferee or
assignee. For purposes of this Agreement, the Company may deem and treat the
registered holder of Registrable Securities as the Holder and absolute owner
thereof, and the Company shall not be affected by any notice to the contrary.
"Person" means an individual, partnership, corporation, trust, limited
liability company, or unincorporated organization, or a government or agency or
political subdivision thereof.
"Prospectus" means the prospectus or prospectuses included in any
Registration Statement, as amended or supplemented by any prospectus supplement
with respect to the terms of the offering of any portion of the Registrable
Securities covered by such Registration
Statement and by all other amendments and supplements to the prospectus,
including post-effective amendments and all material incorporated by reference
in such prospectus or prospectuses.
"Registrable Securities" means any of the Common Stock held by the
Holders from time to time. As to any particular Registrable Securities, such
securities will cease to be Registrable Securities when (a) a Registration
Statement covering the offer and sale of such securities has been declared
effective by the SEC and such securities have been disposed of in accordance
with such Registration Statement or (b) they are sold pursuant to Rule 144 of
the Securities Act (or any similar provisions then in force).
"Registration Statement" means any registration statement of the
Company which covers any of the Registrable Securities pursuant to the
provisions of this Agreement, including the Prospectus, amendments and
supplements to such Registration Statement, including post-effective amendments,
all exhibits and all materials incorporated by reference in such Registration
Statement.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"underwritten registration or underwritten offering" means a
registration in which securities of the Company are sold to underwriters for
reoffering to the public.
2. Demand Registrations.
(a) Right to Request Registration. Any time
after the date hereof, any Holder or Holders of more than fifty percent (50%) of
the Registrable Securities in the aggregate (the "Initiating Holders") may,
subject to the provisions of Section 2(b) hereof, request registration under the
Securities Act of all or part of the Registrable Securities ("Demand
Registration"); provided, that each Demand Registration shall be for not less
than $5 million of Registrable Securities unless such Demand Registration is the
second permitted Demand Registration pursuant to Section 2(b) hereof.
Within 10 days after receipt of any such request for Demand
Registration, the Company shall give written notice of such request to all other
Holders of Registrable Securities and shall, subject to the provisions of
Section 2(d) hereof, include in such registration all such Registrable
Securities with respect to which the Company has received written requests for
inclusion therein within 15 days after the receipt of the Company's notice.
(b) Number of Demand Registrations. The Holders
of Registrable Securities shall be entitled to request an aggregate of two (2)
Demand Registrations. A registration shall not count as one of the permitted
Demand Registrations (i) until it has become effective, (ii) in the case of the
first permitted Demand Registration requested hereunder, if the Initiating
Holder requesting such registration is not able to register and sell (other than
as a result
2
of market conditions or any other events not within the Company's control) at
least 50% of the Registrable Securities requested by such Initiating Holder to
be included in such registration, (iii) in the case of the second permitted
Demand Registration requested hereunder, if the Initiating Holder requesting
such registration is not able to register and sell all of the Registrable
Securities requested to be included by such Initiating Holder in such
registration or (iv) if, after the registration becomes effective, such
registration is interfered with by any stop order, injunction or other order or
requirement of the SEC or other governmental agency or court for any reason.
(c) Priority on Demand Registrations. The
Company shall not include in any Demand Registration any securities which are
not Registrable Securities without the written consent of the Holders of a
majority of the Registrable Securities to be included in such registration, or,
if such Demand Registration is an underwritten offering, without the written
consent of the managing underwriters. If the managing underwriters of the
requested Demand Registration advise the Company in writing that in their
opinion the number of Registrable Securities proposed to be included in any such
registration exceeds the number of securities which can be sold in such
offering, the Company shall include in such registration only the number of
Registrable Securities which in the opinion of such managing underwriters can be
sold; provided, however, that no shares of Registrable Securities shall be
excluded in any registration if any shares of Common Stock of holders who have
registration rights pursuant to other agreements with the Company are included
in such registration pursuant to the exercise of such registration rights. If
the number of shares which can be sold is less than the number of Registrable
Securities proposed to be registered, the amount of Registrable Securities to be
so sold shall be allocated pro rata among the Holders of Registrable Securities
desiring to participate in such registration on the basis of the amount of such
Registrable Securities proposed to be registered by such Holders. If the number
of shares which can be sold exceeds the number of Registrable Securities
proposed to be sold, such excess shall be allocated pro rata among the other
holders of Common Stock, if any, desiring to participate in such registration
based on the amount of such Common Stock initially requested to be registered by
such holders or as such holders may otherwise agree.
(d) Restrictions on Demand Registrations. The
Company shall not be obligated to effect any Demand Registration within three
months after the effective date of a previous Demand Registration, a
registration statement under the Securities Act on Form S-3, or any successor
form thereto, or a previous registration under which the Initiating Holders had
piggyback rights pursuant to Section 3 hereof wherein the Initiating Holders
were permitted to register, all of the Registrable Securities requested to be
included therein. The Company may (i) postpone for up to ninety (90) days the
filing or the effectiveness of a Registration Statement for a Demand
Registration if, based on the good faith judgment of the Company's board of
directors, such postponement is necessary in order to avoid premature disclosure
of a matter the board has determined would not be in the best interest of the
Company to be disclosed at such time; provided, however, that the Company may
not utilize this right more than once in any twelve (12)-month period, or (ii)
postpone the filing of a Demand Registration in the event the Company shall be
required to prepare audited financial statements as of a date other than its
3
fiscal year end (unless the stockholders requesting such registration agree to
pay the expenses of such an audit); provided, however, that in any of the events
described in clause (i) or (ii) above, the Initiating Holders requesting such
Demand Registration shall be entitled to withdraw such request and, if such
request is withdrawn, such Demand Registration shall not count as one of the
permitted Demand Registrations. The Company shall provide written notice to the
Initiating Holders requesting such Demand Registration of (x) any postponement
or withdrawal of the filing or effectiveness of a Registration Statement
pursuant to this subparagraph (d), (y) the Company's decision to file or seek
effectiveness of such Registration Statement following such withdrawal or
postponement and (z) the effectiveness of such Registration Statement.
(e) Selection of Underwriters. If any of the
Registrable Securities covered by a Demand Registration is to be sold in an
underwritten offering, the Initiating Holders shall have the right to select the
managing underwriter(s) to administer the offering subject to the approval of
the Company, which will not be unreasonably withheld.
(f) Registration Statement Form. Registrations
under this Section 2 shall be on such appropriate registration form of the SEC
as shall permit the disposition of such Registrable Securities in accordance
with the intended method or methods of disposition specified by the Initiating
Holders in their request for such registration.
(g) Other Registration Rights. The Company shall
not grant to any Person the right, other than as set forth herein and except to
employees or directors of the Company with respect to registrations on Form S-8
(or any successor form thereto), to request the Company to register any
securities of the Company (including, without limitation, demand and piggyback
registration rights) except such rights as are not more favorable than or
inconsistent with the rights granted to the Holders herein and which would not
cause any securities to such Person to be included in a Demand Registration to
the exclusion of Registrable Securities.
3. Piggyback Registrations.
(a) Right to Piggyback. Whenever the Company
proposes to register any of its Common Stock (other than Registrable Securities)
under the Securities Act (other than a registration statement on Form S-8 or on
Form S-4 or any similar successor forms thereto), whether for its own account or
for the account of one or more shareholders of the Company, and the registration
form to be used may be used for any registration of Registrable Securities (a
"Piggyback Registration"), the Company shall give prompt written notice (in any
event within 10 business days after its receipt of notice of any exercise of
other demand registration rights) to all Holders of its intention to effect such
a registration at least thirty (30) days before the initial filing of such
registration and, subject to Sections 3(b) and 3(c), shall include in such
registration all Registrable Securities with respect to which the Company has
received written requests for inclusion therein within 15 days after the receipt
of the Company's notice. The Company may postpone or withdraw the filing of a
Piggyback Registration at any time in its sole discretion prior to the time it
becomes effective. Except as may otherwise be provided in this Agreement,
4
Registrable Securities with respect to which such a request for registration has
been received will be registered by the Company and offered to the public in a
Piggyback Registration pursuant to this Section 3 on the terms and conditions at
least as favorable as those applicable to the registration of shares of Common
Stock to be sold by the Company and by any other Person under such Registration
Statement.
(b) Priority on Primary Registrations. If a
Piggyback Registration is an underwritten primary registration on behalf of the
Company, and the managing underwriters advise the Company in writing that in
their opinion the number of securities requested to be included in such
registration exceeds the number which can be sold in such offering and/or that
the number of securities requested to be included in such registration would
adversely affect the price per share of the Company's securities to be sold in
such offering, the Company shall include in such registration (i) first, the
securities the Company proposes to sell, (ii) second, the Registrable Securities
requested to be included therein by the Holders, pro rata among the Holders of
such Registrable Securities on the basis of the number of shares requested to be
registered by such Holders and (iii) third, the Common Stock of any other
holders of Common Stock who have requested to be included in such registration.
(c) Priority on Secondary Registrations. If a
Piggyback Registration is an underwritten secondary registration on behalf of a
holder of the Common Stock other than Registrable Securities (an "Other
Holder"), and the managing underwriters advise the Company in writing that in
their opinion the number of securities requested to be included in such
registration exceeds the number which can be sold in such offering and/or that
the number of securities requested to be included in such registration would
adversely affect the price per share of the Company's securities to be sold in
such offering, the Company shall include in such registration the securities
requested to be included therein by the Other Holders requesting such
registration and the Registrable Securities requested to be included in such
registration by the Holders, pro rata among the Other Holders and the Holders on
the basis of the number of shares requested to be registered by such holders or
as such holders may otherwise agree.
(d) Selection of Underwriters. If any Piggyback
Registration is an underwritten primary offering, the Company shall have the
right to select the managing underwriter or underwriters to administer any such
offering.
(e) Other Registrations. If the Company has
previously filed a Registration Statement with respect to Registrable Securities
pursuant to Section 2 hereof or pursuant to this Section 3, and if such previous
registration has not been withdrawn or abandoned, the Company shall not be
obligated to cause to become effective any other registration of any of its
securities under the Securities Act, until a period of at least three (3) months
has elapsed from the effective date of such previous registration.
4. Holdback Agreements. Each of the Company and Holders
owning, directly or beneficially, at least five percent (5%) of the Common Stock
agrees not to effect any sale or distribution of any of its equity securities
during the 10 days prior to and during the ninety
5
(90) days beginning on the effective date of any underwritten Demand
Registration or any underwritten Piggyback Registration (except as part of such
underwritten registration or pursuant to registrations on Form S-8 or S-4 or any
successor forms thereto or pursuant to the exercise of options by employees)
unless the underwriters managing the offering otherwise agree; provided,
however, that no Holders shall be so obligated unless each of the Affiliates of
the Company who are either parties to registration rights agreements with the
Company or members of management enter into the same or comparable lock-up
agreements for the same period.
5. Registration Procedures. Whenever the Holders request
that any Registrable Securities be registered pursuant to this Agreement, the
Company shall use its best efforts to effect the registration and the sale of
such Registrable Securities in accordance with the intended methods of
disposition thereof, and pursuant thereto the Company shall as expeditiously as
possible:
(a) prepare and file with the SEC a Registration
Statement with respect to such Registrable Securities and use its best efforts
to cause such Registration Statement to become effective as soon as practicable
thereafter; and before filing a Registration Statement or Prospectus or any
amendments or supplements thereto, furnish to the Holders of Registrable
Securities covered by such Registration Statement and the underwriter or
underwriters, if any, copies of all such documents proposed to be filed,
including documents incorporated by reference in the Prospectus and, if
requested by such Holders, the exhibits incorporated by reference, and such
Holders shall have the opportunity to object to any information pertaining to
such Holders that is contained therein and the Company will make the corrections
reasonably requested by such Holders with respect to such information prior to
filing any Registration Statement or amendment thereto or any Prospectus or any
supplement thereto;
(b) use best efforts to cause such Registration
Statement to remain effective, including, without limitation, by preparing and
filing with the SEC such amendments and supplements to such Registration
Statement and the Prospectus used in connection therewith, until the completion
of the distribution contemplated thereby; provided, however, that the Company
shall not be required to keep such Registration Statement effective for more
than, if such Registration Statement is on Form S-1, a period of more than 180
consecutive days, and if such Registration Statement is on Form S-3, two (2)
years (or, in each case, such shorter period as is necessary to complete the
distribution of the securities covered by such Registration Statement and comply
with the provisions of the Securities Act with respect to the disposition of all
securities covered by such Registration Statement during such period in
accordance with the intended methods of disposition by the sellers thereof set
forth in such Registration Statement, but not prior to the expiration of the
applicable period referred to in Section 4(3) of the Securities Act and Rule 174
thereunder, if applicable);
(c) use best efforts to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such Registration Statement during such period as the
Registration Statement is effective in accordance with the intended methods of
disposition by the Holders set forth in such Registration Statement;
6
(d) furnish to each seller of Registrable
Securities such number of copies of such Registration Statement, each amendment
and supplement thereto, the Prospectus included in such Registration Statement
(including each preliminary Prospectus) and such other documents as such seller
may reasonably request in order to facilitate the disposition of the Registrable
Securities owned by such seller;
(e) use its best efforts to register or qualify
such Registrable Securities under such other securities or blue sky laws of such
U.S. jurisdictions as any seller reasonably requests, keep such registrations or
qualifications in effect for so long as such Registration Statement remains in
effect and do any and all other acts and things which may be reasonably
necessary or advisable to enable such seller to consummate the disposition in
such U.S. jurisdictions of the Registrable Securities owned by such seller
(provided, that the Company will not be required to (i) qualify generally to do
business in any jurisdiction where it would not otherwise be required to qualify
but for this subparagraph (d), (ii) subject itself to taxation in any such
jurisdiction or (iii) consent to general service of process in any such
jurisdiction);
(f) notify each seller of such Registrable
Securities, at any time when a Prospectus relating thereto is required to be
delivered under the Securities Act, of the occurrence of any event as a result
of which the Prospectus included in such Registration Statement contains an
untrue statement of a material fact or omits any fact necessary to make the
statements therein not misleading, and at the Company's option, the Company
shall either (i) prepare a supplement or amendment to such Prospectus (and if an
amendment to the Registration Statement is required, promptly file and cause
such amendment to become effective), or (ii) suspend the disposition of
Registrable Securities pursuant to such Prospectus, until such time as each
seller of Registrable Securities is advised by the Company that the use of the
Prospectus may be resumed, and thereafter use its best efforts to promptly
prepare a supplement or amendment to such Prospectus (and if an amendment to the
Registration Statement is required, promptly file and cause such amendment to
become effective), so that, as thereafter delivered to the purchasers of such
Registrable Securities, such Prospectus and Registration Statement shall not
contain an untrue statement of a material fact or omit to state any material
fact necessary to make the statements therein not misleading;
(g) in the case of an underwritten offering,
enter into such customary agreements (including underwriting agreements in
customary form) and take all such other actions as the Holders of a majority of
number of the Registrable Securities being sold or the underwriters, if any,
reasonably request in order to expedite or facilitate the disposition of such
Registrable Securities (including, without limitation, using its good faith
commercially reasonable efforts to cause members of management of the Company to
participate in customary "road-show" activities to the extent required by the
underwriters) and cause to be delivered to the underwriters and the sellers, if
any, opinions of counsel to the Company in customary form, covering such matters
as are customarily covered by opinions for an underwritten public offering as
the underwriters may reasonably request and addressed to the underwriters and
the sellers;
7
(h) make available, for inspection by any seller
of Registrable Securities, any underwriter participating in any disposition
pursuant to such Registration Statement, and any attorney, accountant or other
agent retained by any such seller or underwriter, all financial and other
records, pertinent corporate documents and properties of the Company, and cause
the Company's officers, directors, employees and independent accountants to
supply all information reasonably requested by any such seller, underwriter,
attorney, accountant or agent in connection with such Registration Statement,
subject to the execution of customary confidentiality agreements;
(i) use its best efforts to cause all such
Registrable Securities to be (A) listed on each securities exchange on which
securities of the same class issued by the Company are then listed or, if the
Common Stock is not then listed, on Nasdaq or a national securities exchange
selected by the Company and (B) registered with or approved by such other
governmental agencies or authorities or self-regulatory organizations as may be
necessary to enable the Stockholders to consummate the disposition of such
Registrable Securities;
(j) provide a transfer agent and registrar
selected by the Company for all such Registrable Securities not later than the
effective date of such Registration Statement;
(k) if requested, cause to be delivered,
immediately prior to the effectiveness of the Registration Statement (and, in
the case of an underwritten offering, at the time of delivery of any Registrable
Securities sold pursuant thereto), letters from the Company's independent
certified public accountants addressed to each selling Holder (unless such
selling Holder does not provide to such accountants the appropriate
representation letter required by rules governing the accounting profession) and
each underwriter, if any, stating that such accountants are independent public
accountants within the meaning of the Securities Act and the applicable rules
and regulations adopted by the SEC thereunder, and otherwise in customary form
and covering such financial and accounting matters as are customarily covered by
letters of the independent certified public accountants delivered in connection
with primary or secondary underwritten public offerings, as the case may be;
(l) make generally available to its shareholders
a consolidated earnings statement (which need not be audited) for the 12 months
beginning after the effective date of a registration statement as soon as
reasonably practicable after the end of such period, which earnings statement
shall satisfy the requirements of an earning statement under Section 11(a) of
the Securities Act;
(m) promptly notify each seller of Registrable
Securities and the underwriter or underwriters, if any:
(i) when the Registration Statement,
any pre-effective amendment, the Prospectus or any Prospectus supplement or
post-effective amendment to the Registration Statement has been filed and, with
respect to the Registration Statement or any post-effective amendment, when the
same has become effective;
8
(ii) of any written request by the SEC
for amendments or supplements to the Registration Statement or Prospectus;
(iii) of the notification to the Company
by the SEC threatening to initiate or the initiation of any proceeding with
respect to the issuance by the SEC of any stop order suspending the
effectiveness of the Registration Statement; and
(iv) of the receipt by the Company of
any notification with respect to the threatened suspension or suspension of the
qualification of any Registrable Securities for sale under the applicable
securities or blue sky laws of any U.S. jurisdiction;
(n) use its best efforts to prevent the entry of
any threatened stop order or suspension of qualification referred to in Sections
5(m)(iii) and (iv) and to obtain the lifting at the earliest possible time of
any stop order suspending the effectiveness of any Registration Statement or of
any order preventing or suspending the use of any preliminary Prospectus; and
(o) take all actions necessary to facilitate the
timely preparation and delivery of certificates (not bearing any legend
restricting the sale or transfer of such securities) representing the
Registrable Securities to be sold pursuant to the Registration Statement and to
enable such certificates to be in such denominations and registered in such
names as the Holders or any underwriter may request.
The Company may require each seller of Registrable Securities as to
which any registration is being effected to furnish to the Company any other
information regarding such seller and the distribution of such securities as the
Company may from time to time reasonably request in writing. The Holders
covenant and agree to timely and truthfully provide such information upon
request.
Each seller of Registrable Securities agrees by having its stock
treated as Registrable Securities hereunder that, upon notice of the happening
of any event as a result of which the Prospectus included in such Registration
Statement contains an untrue statement of a material fact or omits any material
fact necessary to make the statements therein not misleading, such seller will
forthwith discontinue disposition of Registrable Securities until such seller is
advised in writing by the Company that the use of the Prospectus may be resumed
and, if applicable, is furnished with a supplemented or amended Prospectus as
contemplated by Section 5(f) hereof, and, if so directed by the Company, such
seller will deliver to the Company (at the Company's expense) all copies, other
than permanent file copies then in such seller's possession, of the Prospectus
covering such Registrable Securities current at the time of receipt of such
notice. If the Company shall give any notice to suspend the disposition of
Registrable Securities pursuant to a Prospectus, the Company shall extend the
period of time during which the Company is required to maintain the Registration
Statement effective pursuant to this Agreement by the number of days during the
period from and including the date of the giving of such notice to and including
the date such seller either is advised by the Company that the use of the
Prospectus
9
may be resumed or receives the copies of the supplemented or amended Prospectus
contemplated by Section 5(f).
6. Registration Expenses.
(a) All expenses incident to the Company's
performance of or compliance with this Agreement, including, without limitation,
all registration and filing fees, fees and expenses of compliance with
securities or blue sky laws, listing application fees, printing expenses,
transfer agent's and registrar's fees, cost of distributing prospectuses in
preliminary and final form as well as any supplements thereto, and fees and
disbursements of counsel for the Company and all independent certified public
accountants and other Persons retained by the Company (all such expenses being
herein called "Registration Expenses") (but not including any underwriting
discounts or commissions attributable to the sale of Registrable Securities),
shall be borne by the Company. In addition, the Company shall pay (i) the fees
and expenses of a single firm of counsel to the Holders (designated by the
holders of a majority of the Registrable Securities requested to be registered
in such registration) and (ii) its internal expenses (including, without
limitation, all salaries and expenses of its officers and employees performing
legal or accounting duties), the expense of any annual audit or quarterly
review, the expense of any liability insurance and the expenses and fees for
listing the securities to be registered on each securities exchange on which
they are to be listed.
(b) The obligation of the Company to bear the
expenses described in Section 6(a) shall apply irrespective of whether a
registration, once properly demanded, if applicable, becomes effective, is
withdrawn or suspended, is converted to another form of registration and
irrespective of when any of the foregoing shall occur.
7. Indemnification. In the event any Registrable
Securities are included in a Registration Statement under this Agreement:
(a) To the fullest extent permitted by law, the
Company will, and hereby does, indemnify, hold harmless and defend each Holder,
the directors, officers, partners, employees, agents, advisors, representatives
of, and each Person, if any, who controls any Holder within the meaning of the
Securities Act or the Exchange Act (each, an "Indemnified Person"), against any
losses, claims, damages, liabilities, judgments, fines, penalties, charges,
costs, reasonable attorneys' fees, amounts paid in settlement or expenses, joint
or several, (collectively, "Claims") incurred in investigating, preparing or
defending any action, claim, suit, inquiry, proceeding, investigation or appeal
taken from the foregoing by or before any court or governmental, administrative
or other regulatory agency, body or the SEC, whether pending or threatened,
whether or not an Indemnified Person is or may be a party thereto ("Indemnified
Damages"), to which any of them may become subject insofar as such Claims (or
actions or proceedings, whether commenced or threatened, in respect thereof)
arise out of or are based upon: (i) any untrue statement or alleged untrue
statement of a material fact in a Registration Statement or any post-effective
amendment thereto or in any filing made in connection with the qualification of
the offering under the securities or other "blue sky" laws of any jurisdiction
in
10
which Registrable Securities are offered ("Blue Sky Filing"), or the omission or
alleged omission to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, (ii) any untrue
statement or alleged untrue statement of a material fact contained in any
preliminary Prospectus if used prior to the effective date of such Registration
Statement (unless superceded by a final Prospectus), or contained in the final
Prospectus (as amended or supplemented, if the Company files any amendment
thereof or supplement thereto with the SEC), or the omission or alleged omission
to state therein any material fact necessary to make the statements made
therein, in light of the circumstances under which the statements therein were
made, not misleading or (iii) any violation or alleged violation by the Company
of the Securities Act or the Exchange Act or any rule or regulation promulgated
thereunder relating to the offer or sale of the Registrable Securities pursuant
to a Registration Statement (the matters in the foregoing clauses (i) through
(iii) being, collectively, "Violations"); provided, however, that the foregoing
indemnity agreement shall not apply to any Claim to the extent that such Claim
arises out of or is based upon a Violation which occurs in reliance upon and in
conformity with information relating to such Indemnified Person furnished in
writing to the Company by such Indemnified Person expressly for inclusion in the
Registration Statement or any such amendment thereof or supplement thereto.
Subject to Section 7(c), the Company shall reimburse the Indemnified Persons,
for any reasonable legal fees or other reasonable expenses reasonably incurred
by them in connection with investigating or defending any such Claim; provided,
however, that the indemnity agreement contained in this Section 7(a) and the
agreement with respect to contribution contained in Section 7(f) shall not apply
to amounts paid in settlement of any Claim if such settlement is effected
without the prior written consent of the Company, which consent shall not be
unreasonably withheld, delayed or conditioned. Such indemnity shall remain in
full force and effect regardless of any investigation made by or on behalf of
the Indemnified Person and shall survive any transfer of the Registrable
Securities by the Holders.
(b) In connection with any Registration
Statement in which a Holder is participating, each such Holder agrees to
severally and not jointly indemnify, hold harmless and defend, to the same
extent and in the same manner as is set forth in Section 7(a), the Company, each
of its directors, each of its officers who signs the Registration Statement,
each Person, if any, who controls the Company within the meaning of the
Securities Act or the Exchange Act (each an "Indemnified Party"), against any
Claim or Indemnified Damages to which any of them may become subject, under the
Securities Act, the Exchange Act or otherwise, insofar as such Claim or
Indemnified Damages arise out of or are based upon any Violation, in each case
to the extent, and only to the extent, that such Violation occurs in reliance
upon and in conformity with written information relating to such Holder
furnished to the Company by such Holder expressly for inclusion in such
Registration Statement; and, subject to Section 7(c), such Holder will reimburse
any reasonable legal fees or other reasonable expenses reasonably incurred by an
Indemnified Party in connection with investigating or defending any such Claim;
provided, however, that the indemnity agreement contained in this Section 7(b)
and the agreement with respect to contribution contained in Section 7(f) shall
not apply to amounts paid in settlement of any Claim if such settlement is
effected without the prior written consent of such Holder, which consent shall
not be unreasonably withheld, delayed or conditioned; provided, further,
however, that the Holders shall be liable under this Section 7(b) for only that
amount of a Claim or
11
Indemnified Damages as does not exceed the net proceeds to such Holder as a
result of the sale of Registrable Securities pursuant to such Registration
Statement. Such indemnity shall remain in full force and effect regardless of
any investigation made by or on behalf of such Indemnified Party and shall
survive any transfer of the Registrable Securities by the Holders.
(c) Promptly after receipt by an Indemnified
Person or Indemnified Party under this Section 7 of notice of the commencement
of any action or proceeding (including any governmental action or proceeding)
involving a Claim, such Indemnified Person or Indemnified Party, as the case may
be, shall, if a Claim in respect thereof is to be made against any indemnifying
party under this Section 7, deliver to the indemnifying party a written notice
of the commencement thereof, and the indemnifying party shall have the right to
participate in, and, to the extent the indemnifying party so desires, jointly
with any other indemnifying party similarly noticed, to assume control of the
defense thereof with counsel mutually satisfactory to the indemnifying party and
the Indemnified Person or the Indemnified Party, as the case may be; provided,
however, that an Indemnified Person or Indemnified Party shall have the right to
retain its own counsel with the fees and expenses of not more than one counsel
(plus additional local counsel, as required) for such Indemnified Person or
Indemnified Party to be paid by the indemnifying party, if, in the reasonable
opinion of counsel retained by the indemnifying party, the representation by
such counsel of the Indemnified Person or Indemnified Party and the indemnifying
party would be inappropriate due to actual or potential differing interests
between such Indemnified Person or Indemnified Party and any other party
represented by such counsel in such proceeding. In the case of an Indemnified
Person, legal counsel referred to in the immediately preceding sentence shall be
selected by the Holders holding at least two-thirds (2/3) in interest of the
Registrable Securities included in the Registration Statement to which the Claim
relates. The Indemnified Party or Indemnified Person, as the case may be, shall
cooperate fully with the indemnifying party in connection with any negotiation
or defense of any such action or Claim by the indemnifying party and shall
furnish to the indemnifying party all information reasonably available to the
Indemnified Party or Indemnified Person which relates to such action or Claim.
The indemnifying party shall keep the Indemnified Party or Indemnified Person
fully apprised as to the status of the defense or any settlement negotiations
with respect thereto. No indemnifying party shall be liable for any settlement
of any action, claim or proceeding effected without its prior written consent;
provided, however, that the indemnifying party shall not unreasonably withhold,
delay or condition its consent. No indemnifying party shall, without the prior
written consent of the Indemnified Party or Indemnified Person, as the case may
be, consent to entry of any judgment or enter into any settlement or other
compromise which does not include as an unconditional term thereof the giving by
the claimant or plaintiff to such Indemnified Party or Indemnified Person, as
the case may be, of a release from all liability in respect to such Claim or
litigation. Following indemnification as provided for hereunder, the
indemnifying party shall be subrogated to all rights of the Indemnified Party or
Indemnified Person, as the case may be, with respect to all third parties, firms
or corporations relating to the matter for which indemnification has been made.
The failure to deliver written notice to the indemnifying party within a
reasonable time of the commencement of any such action shall not relieve such
indemnifying party of any liability to the Indemnified Person or Indemnified
Party
12
under this Section 7, except to the extent that the indemnifying party is
prejudiced in its ability to defend such action.
(d) The indemnification required by this Section
7 shall be made by periodic payments of the amount thereof during the course of
the investigation or defense, as and when bills are received or Indemnified
Damages are incurred.
(e) The indemnity agreements contained herein
shall be in addition to (i) any cause of action or similar right of the
Indemnified Party or Indemnified Person, as the case may be, against the
indemnifying party or others, and (ii) any liabilities the indemnifying party
may be subject to pursuant to the law.
(f) To the extent any indemnification by an
indemnifying party is prohibited or limited by law, the indemnifying party
agrees to make the maximum contribution with respect to any amounts for which it
would otherwise be liable under Section 7 to the fullest extent permitted by
law; provided, however, that: (i) no person involved in the sale of Registrable
Securities which person is guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) in connection with such sale,
shall be entitled to contribution from any person involved in such sale of
Registrable Securities who was not guilty of fraudulent misrepresentation; and
(ii) contribution by any seller of Registrable Securities shall be limited in
amount to the net amount of proceeds received by such seller from the sale of
such Registrable Securities pursuant to such Registration Statement.
8. Rule 144. The Company covenants that it will file the
reports required to be filed by it under the Securities Act and the Exchange Act
and the rules and regulations adopted by the SEC thereunder, and it will take
such further action as any Holder may reasonably request to make available
adequate current public information with respect to the Company meeting the
current public information requirements of Rule 144(c) under the Securities Act,
to the extent required to enable such Holder to sell Registrable Securities
without registration under the Securities Act within the limitation of the
exemptions provided by (i) Rule 144 under the Securities Act, as such Rule may
be amended from time to time, or (ii) any similar Rule or regulation hereafter
adopted by the SEC. Upon the request of any Holder, the Company will deliver to
such Holder such information as may be necessary to enable such Holder to effect
sales of Common Stock pursuant to Rule 144 of the Securities Act and a written
statement as to whether it has complied with such information and requirements.
9. Miscellaneous.
(a) Notices. All notices, requests and other
communications to any party hereunder shall be in writing (including facsimile
or similar writing) and shall be given:
13
If to the Company:
Hanover Direct, Inc.
000 Xxxxx Xxxx, Xxxxxxxx 00
Xxxxxxxxx, Xxx Xxxxxx 00000
Attention: Secretary
Facsimile No.: (000) 000-0000
with a copy to:
Xxxxx Raysman Xxxxxxxxx Xxxxxx & Xxxxxxx LLP
000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxx Xxxxxx, Esq.
Facsimile No.: (000) 000-0000
If to the Stockholders:
Xxxxxxx Direct, LLC
000 Xxxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxx Xxxxxxx
Facsimile No.: (000) 000-0000
If to a transferee Holder, to the address of such Holder set forth in
the transfer documentation provided to the Company;
in each case with copies to:
Xxxxxxx Berlin Shereff Xxxxxxxx, LLP
The Chrysler Building
000 Xxxxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxx Xxxxxxxx, Esq.
Facsimile No.: (000) 000-0000
or such other address or facsimile number as such party (or transferee) may
hereafter specify for such purpose by notice to the other parties in the manner
specified herein. Each such notice, request or other communication shall be
effective (i) if given by facsimile, when such facsimile is transmitted to the
facsimile number specified in this Section and the appropriate facsimile
confirmation is received or (ii) if given by mail, at the earliest of its
receipt or five days after the same has been deposited in a regularly maintained
receptacle for the deposit of U.S. mail, addressed and postage paid as aforesaid
or (iii) if given by any other means, when delivered at the address specified in
this Section.
14
(b) No Waivers. No failure or delay by any party
in exercising any right, power or privilege hereunder or seeking any remedy with
respect to a breach hereof shall operate as a waiver thereof or of any other
right, power or privilege nor shall any single or partial exercise thereof
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege. The rights and remedies herein provided shall be
cumulative and not exclusive of any rights or remedies provided by law.
(c) Successors and Assigns. This Agreement shall
be binding upon and inure to the benefit of the parties hereto and their
respective heirs, executors, administrators, successors and assigns, it being
understood that subsequent Holders of the Registrable Securities are intended
third party beneficiaries hereof. The Stockholders shall provide written notice
to the Company pursuant to Section 9(a) hereof, of any transfers or assignments
of Registrable Securities, promptly after such transfer or assignment. Such
notice shall include the name and other contact information relating to such
transferee or assignee.
(d) Governing Law. This Agreement shall be
construed in accordance with and governed by the law of the State of New York,
without regard to principles of conflicts of law (other than Section 5-1401 of
the General Obligations Law of the State of New York).
(e) Jurisdiction. Any suit, action or proceeding
seeking to enforce any provision of, or based on any matter arising out of or in
connection with, this Agreement or the transactions contemplated hereby may be
brought in any federal or state court located in the Southern District of New
York, and each of the parties hereby consents to the jurisdiction of such courts
(and of the appropriate appellate courts therefrom) in any such suit, action or
proceeding and irrevocably waives, to the fullest extent permitted by law, any
objection which it may now or hereafter have to the laying of the venue of any
such suit, action or proceeding in any such court or that any such suit, action
or proceeding which is brought in any such court has been brought in an
inconvenient forum. Process in any such suit, action or proceeding may be served
on any party anywhere in the world, whether within or without the jurisdiction
of any such court. Without limiting the foregoing, each party agrees that
service of process on such party as provided in Section 9(a) shall be deemed
effective service of process on such party.
(f) Waiver of Jury Trial. EACH OF THE PARTIES
HERETO HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL
PROCEEDING ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY.
(g) Counterparts; Effectiveness. This Agreement
may be signed in any number of counterparts, each of which shall be an original,
with the same effect as if the signatures thereto and hereto were upon the same
instrument provided no party shall be bound unless and until the Stockholders
and the Company have each signed a counterpart hereof. Facsimile transmissions
of any executed original documents and/or retransmission of any executed
facsimile transmission shall be deemed to be the same as the delivery of an
executed original. At the written request of any party hereto, the other parties
hereto shall confirm
15
facsimile transmissions by executing duplicate original documents and delivering
the same to the requesting party or parties.
(h) Entire Agreement. This Agreement constitutes
the entire agreement between the parties with respect to the subject matter of
this Agreement and supercedes all prior agreements and understandings, both oral
and written, between the parties with respect to the transactions contemplated
herein. No provision of this Agreement or any other agreement contemplated
hereby is intended to confer on any Person other than the parties hereto any
rights or remedies.
(i) Captions. The captions herein are included
for convenience of reference only and shall be ignored in the construction or
interpretation hereof.
(j) Severability. If any term, provision,
covenant or restriction of this Agreement is held by a court of competent
jurisdiction or other authority to be invalid, void or unenforceable (a
"Determination"), the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect and shall
in no way be affected, impaired or invalidated so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any party. Upon such a Determination, the parties shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in an acceptable manner in order
that the transactions contemplated hereby be consummated as originally
contemplated to the fullest extent possible.
(k) Amendments. The provisions of this
Agreement, including the provisions of this sentence, may not be amended,
modified or supplemented, and waivers or consents to departures from the
provisions hereof may not be given without the prior written consent of the
holders of a majority of the Registrable Securities outstanding at the time;
provided, however, that the consent or agreement of the Company shall be
required with regard to any termination, amendment, modification or supplement
of, or waivers or consents to departures from, the terms hereof, which affect
the Company's obligations hereunder.
16
IN WITNESS WHEREOF, this Registration Rights Agreement has been duly
executed by each of the parties hereto as of the date first written above.
XXXXXXX DIRECT, LLC
By: _______________________________
Name:
Title:
HANOVER DIRECT, INC.
By: _______________________________
Name:
Title:
___________________________________
Xxxxxx Xxxxxxx
17
EXHIBIT H
GENERAL RELEASE
TO ALL TO WHOM THESE PRESENTS SHALL COME OR MAY CONCERN, KNOW THAT Hanover
Direct, Inc., a Delaware corporation with its principal place of business at 000
Xxxxx Xxxx, Xxxxxxxxx, Xxx Xxxxxx 00000 ("RELEASOR"), and RELEASOR'S parents,
affiliates, subsidiaries, predecessor firms, shareholders, officers, directors,
members, managers, employees, attorneys, agents, current and former partners,
current and former principals, alliances, co-venturers, heirs, estates,
executors, personal representatives, administrators, predecessors, successors,
assigns and third-parties in consideration of the sum of $10.00 and more, and
other good and valuable consideration, receipt of which is hereby acknowledged,
release, discharge and acquit forever Xxxxxxx Direct, LLC, a Delaware limited
liability company with its principal place of business at 000 Xxxxx Xxxxxx, Xxx
Xxxx, Xxx Xxxx 00000 (the "RELEASEE"), RELEASEE's parents, affiliates,
subsidiaries, predecessor firms, shareholders, officers, directors, members,
managers, employees, attorneys, agents, current and former partners, current and
former principals, alliances, co-venturers, heirs, estates, executors, personal
representatives, administrators, predecessors, successors, assigns and
third-parties from all actions, causes of action, suits, debts, dues, sums of
money, accounts, reckonings, bonds, bills, specialties, covenants, contracts,
controversies, agreements, promises, variances, trespasses, damages, claims for
attorneys' fees, claims for injunctive relief, judgments, extents, executions,
claims and demands whatsoever, whether known or unknown, in law, admiralty or
equity, which the RELEASOR and the RELEASOR'S parents, affiliates, subsidiaries,
predecessor firms, shareholders, officers, directors, members, managers,
employees, attorneys, agents, current and former partners, current and former
principals, alliances, co-venturers, heirs, estates, executors, personal
representatives, administrators, predecessors, successors, assigns and
third-parties ever had, now have or hereafter can, shall or may have, for, upon
or by reason of any matter, cause or thing whatsoever against RELEASEE from the
beginning of the world to the date of this Release.
1. Nothing in this Release is intended to, nor shall, waive or
release any of the rights or obligations of the parties under a certain
Recapitalization Agreement dated as of November 18, 2003 and executed by the
Parties hereto in connection with this Release (the "Recapitalization
Agreement") or any of the other agreements entered into in connection with the
Recapitalization Agreement.
2. The signatory to this Release hereby warrants and represents
that he is duly authorized to enter into this Release on behalf of the persons
and entities on whose behalf he purports to act.
3. This Release shall in all respects be interpreted, enforced
and governed under the laws of the State of New York without regard to New
York's conflicts of laws principles.
4. Whenever text hereof requires, the use of the singular number
shall include the appropriate plural number.
5. This Release may not be changed orally.
IN WITNESS WHEREOF, this Release has been executed as of the date set forth
below.
HANOVER DIRECT, INC.
By: ________________________________
Title: _____________________________
Date: November __, 0000
XXXXXXXXXXXXXX
XXXXX XX XXX XXXX )
) ss.:
COUNTY OF NEW YORK )
On the ____ day of November, 2003, before me personally came ____________,
to me known, who by me duly sworn, did depose and say that deponent resides at
___________________, that deponent is a duly authorized representative of
Hanover Direct, Inc., the entity described herein as Releasor and which
executed the foregoing Release, and that deponent signed deponent's name
thereto by authority of Hanover Direct, Inc.
__________________________
Notary Public
EXHIBIT I
CHANGE OF CONTROL PAYMENTS
--------------------------
Xxxxx Employment Agreement:
X. Xxxxx $1,350,000 Change of Control Payment
X. Xxxxx $ 225,000 Acceleration of Stay Bonus
Transaction Bonus Agreements:
X. Xxxxx $450,000
X. Xxxxxxx $168,500
X. Xxxxxxx $193,500
Director Change in Control Plan:
X. Xxxxx $87,000
X. Xxxxxxx $87,000
X. Xxxxxx $87,000
X. Xxxxx $87,000
X. Xxxxxxx $87,000
X. Xxxxxx $87,000
X. Xxxxx $87,000
X. Xxxxxxxxxx $87,000
