-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Vn0vn7D942ujiWxQN+abaRN0gaVtNagLEljmGvChLAchBINA/qz/a6EZLX5SIgxv yl00qKm+Z0GT0f1eIwgyeg== 0000950123-01-509413.txt : 20020413 0000950123-01-509413.hdr.sgml : 20020413 ACCESSION NUMBER: 0000950123-01-509413 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 20011219 ITEM INFORMATION: Changes in control of registrant ITEM INFORMATION: Other events ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 20011220 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HANOVER DIRECT INC CENTRAL INDEX KEY: 0000320333 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-CATALOG & MAIL-ORDER HOUSES [5961] IRS NUMBER: 138053260 STATE OF INCORPORATION: DE FISCAL YEAR END: 1227 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-08056 FILM NUMBER: 1818792 BUSINESS ADDRESS: STREET 1: 1500 HARBOR BLVD CITY: WEEHAWKEN STATE: NJ ZIP: 07087 BUSINESS PHONE: 2018653800 MAIL ADDRESS: STREET 1: 1500 HARBOR BLVD CITY: WEEHAWKEN STATE: NJ ZIP: 07087 FORMER COMPANY: FORMER CONFORMED NAME: HORN & HARDART CO /NV/ DATE OF NAME CHANGE: 19920703 8-K 1 y55962e8-k.txt HANOVER DIRECT, INC. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): DECEMBER 19, 2001 HANOVER DIRECT, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER) 1-12082 (COMMISSION FILE NUMBER) DELAWARE 13-0853260 (STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER OF INCORPORATION) IDENTIFICATION NUMBER) 115 RIVER ROAD, BUILDING 10 EDGEWATER, NEW JERSEY 07020 (ADDRESS OF PRINCIPAL (ZIP CODE) EXECUTIVE OFFICES) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (201) 863-7300 1500 HARBOR BOULEVARD, WEEHAWKEN, NEW JERSEY 07087 (FORMER NAME OR FORMER ADDRESS, IF CHANGED SINCE LAST REPORT) ITEM 1. CHANGE OF CONTROL. ITEM 5. OTHER EVENTS. Transaction with Richemont Finance S.A. On December 19, 2001, Hanover Direct, Inc. (the "Company") consummated a transaction with Richemont Finance S.A. ("Richemont"). In the transaction, the Company repurchased from Richemont all of the outstanding shares of the Series A Cumulative Participating Preferred Stock of the Company (the "Series A Preferred Stock") and 74,098,769 shares of the Common Stock of the Company (the "Common Stock") held by Richemont in return for the issuance to Richemont of 1,622,111 shares of newly-created Series B Participating Preferred Stock (the "Series B Preferred Stock") and the reimbursement of expenses of $1 million to Richemont. The shares of Series B Preferred Stock are entitled to vote with the shares of Common Stock on all matters on which the Common Stock votes and are entitled to ten votes per share. The transaction was made pursuant to an Agreement (the "Agreement"), dated as of December 19, 2001, between the Company and Richemont. As part of the transaction, the Company (i) released Richemont, the individuals appointed by Richemont to the Board of Directors of the Company and certain of their respective affiliates and representatives (collectively, the "Richemont Group") from any claims by or in the right of the Company against any member of the Richemont Group which arise out of Richemont's acts or omissions as a stockholder of or lender to the Company or the acts or omissions of any Richemont board designee in his capacity as such and (ii) entered into an Indemnification Agreement (the "Indemnification Agreement") with Richemont pursuant to which the Company agreed to indemnify each member of the Richemont Group from any losses suffered as a result of any third party claim which is based upon Richemont's acts as a stockholder or lender of the Company or the acts or omissions of any Richemont board designee in his capacity as such. As part of the transaction, Richemont revoked the proxy that it held to vote 4,289,000 shares of Common Stock. In addition, the two designees of Richemont to the Board of Directors of the Company, Eloy Michotte and Alan Grieve, resigned from the Board. The shares of Series A Preferred Stock that were repurchased from Richemont represent all of the outstanding shares of such series. The Company has filed a certificate in Delaware eliminating such series from its certificate of incorporation. Through September 29, 2001, the Company had accrued, but not paid, dividends aggregating $12,389,700, consisting of an additional 188,235 shares of Series A Preferred Stock, on the shares of Series A Preferred Stock held by Richemont. Richemont agreed, as part of the transaction, to forego any claim it had to the accrued but unpaid dividends on the Series A Preferred Stock. Immediately prior to the consummation of the transaction, Richemont was the holder of 102,790,657 shares of Common Stock and 1,400,000 shares of non-voting Series A Preferred 2 Stock. Richemont also held a proxy to vote 4,289,000 shares of Common Stock. Thus, based on 212,468,208 shares of Common Stock outstanding immediately prior to the consummation of the transaction, Richemont was the beneficial owner of approximately 50.4% of the Company's outstanding voting securities. Immediately after the consummation of the transaction, Richemont was the holder of 28,691,888 shares of Common Stock (representing approximately 20.7% of the outstanding shares) and 1,622,111 shares of the ten-votes-per-share Series B Preferred Stock. Thus, based on 138,369,439 shares of Common Stock and 1,622,111 shares of Series B Preferred Stock outstanding immediately after the consummation of the transaction, Richemont was entitled to cast 44,912,998 votes on all matters on which the stockholders vote, or approximately 29.1% of the total number of votes entitled to be cast. The transaction with Richemont, including the issuance of the Series B Preferred Stock to Richemont, was approved by all of the members of the Board of Directors of the Company (other than Richemont's designees to the Board, who did not attend the meeting at which the vote was taken) and all of the members of the Transactions Committee of the Board of Directors. In addition, Congress Financial Corporation ("Congress Financial"), which provides a revolving line of credit to the Company, executed an amendment to its Loan and Security Agreement with the Company and its subsidiaries in which it consented to the transaction between the Company and Richemont and received a fee of $500,000. Terms of the Series B Preferred Stock The holders of the Series B Preferred Stock are entitled to ten votes per share on any matter on which the Common Stock votes. In addition, in the event that the Company defaults in its obligations under the Agreement, the Certificate of Designations of the Series B Preferred Stock or its agreements with Congress Financial, or in the event that the Company fails to redeem at least 811,056 shares of Series B Preferred Stock by August 31, 2003, then the holders of the Series B Preferred Stock, voting as a class, shall be entitled to elect two members to the Board of Directors of the Company. In the event of the liquidation, dissolution or winding up of the Company, the holders of the Series B Preferred Stock are entitled to a liquidation preference (the "Liquidation Preference") which is initially $47.36 per share and which increases quarterly, commencing March 1, 2002. Attached hereto as Annex A is a schedule of the Liquidation Preferences as of the dates specified therein. Dividends on the Series B Preferred Stock are required to be paid whenever a dividend is declared on the Common Stock. The amount of any dividend on the Series B Preferred Stock shall be determined by multiplying (i) the amount obtained by dividing the amount of the dividend on the Common Stock by the then current fair market value of a share of Common Stock and (ii) the Liquidation Preference of the Series B Preferred Stock. The Series B Preferred Stock must be redeemed by the Company on August 23, 2005. The Company may redeem all or less than all of the then outstanding shares of Series B Preferred Stock at any time prior to that date. At the option of the holders thereof, the Company must 3 redeem the Series B Preferred Stock upon a Change of Control or upon the consummation of an Asset Disposition or Equity Sale (all as defined in the Certificate of Designations of the Series B Preferred Stock). The redemption price for the Series B Preferred Stock upon a Change of Control or upon the consummation of an Asset Disposition or Equity Sale is the then applicable Liquidation Preference of the Series B Preferred Stock plus the amount of any declared but unpaid dividends on the Series B Preferred Stock. The Company's obligation to redeem the Series B Preferred Stock upon an Asset Disposition or an Equity Sale is subject to the satisfaction of certain conditions set forth in the Certificate of Designations. The Certificate of Designations of the Series B Preferred Stock provides that, for so long as Richemont is the holder of at least 25% of the then outstanding shares of Series B Preferred Stock, it shall be entitled to appoint a non-voting observer to attend all meetings of the Board of Directors and any committees thereof. Pursuant to the terms of the Certificate of Designations of the Series B Preferred Stock, the Company's obligation to pay dividends on or redeem the Series B Preferred Stock is subject to its compliance with its agreements with Congress Financial. Miscellaneous By filing this Form 8-K under Item 1, the Company does not concede that a change of control of the Company has occurred under any agreement to which it is a party or for any other purpose. The foregoing description of the Agreement and the other agreements and documents described herein does not purport to be complete and is qualified in its entirety by reference to the copies thereof attached hereto as exhibits, which are incorporated herein by reference. ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION, AND EXHIBITS. (a) Financial Statements of Businesses Acquired. Not applicable. (b) Pro Forma Financial Information. Not applicable. (c) Exhibits. 4.1 Certificate of the Designations, Powers, Preferences and Rights of Series B Participating Preferred Stock of Hanover Direct, Inc., as filed with the Delaware Secretary of State on December 19, 2001. 4.2 Certificate of Elimination of the Series A Cumulative Participating Preferred Stock of Hanover Direct, Inc., as filed with the Delaware Secretary of State on 4 December 19, 2001. 10.1 Agreement, dated as of December 19, 2001, between Hanover Direct Inc. and Richemont Finance S.A. (The disclosure schedules to this agreement are not being filed herewith. The Company shall furnish a copy of such disclosure schedules to the Commission upon its request.) 10.2 Release, dated December 19, 2001, executed by Hanover Direct, Inc. in favor of Richemont Finance S.A. and others. 10.3 Indemnification Agreement, dated as of December 19, 2001, between Hanover Direct, Inc. and Richemont Finance S.A. 10.4 Nineteenth Amendment to Loan and Security Agreement, dated as of December 18, 2001, by and among Congress Financial Corporation and the subsidiaries of Hanover Direct, Inc. identified therein. 99.1 Form of press release of the Company announcing a transaction with Richemont Finance S.A., to be issued December 20, 2001. 5 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. HANOVER DIRECT, INC. (Registrant) By: /s/ Brian C. Harriss ----------------------------------------- Name: Brian C. Harriss Title: Executive Vice President and Chief Financial Officer Date: December 19, 2001 6 ANNEX A Liquidation Preference of the Series B Preferred Stock
Period Liquidation Preference ------ ---------------------- December 19, 2001 - February 28, 2002 $47.36 March 1, 2002 - May 31, 2002 $49.15 June 1, 2002 - August 31, 2002 $51.31 September 1, 2002 - November 30, 2002 $53.89 December 1, 2002 - February 28, 2003 $56.95 March 1, 2003 - May 31, 2003 $60.54 June 1, 2003 - August 31, 2003 $64.74 September 1, 2003 - November 30, 2003 $69.64 December 1, 2003 - February 29, 2004 $72.25 March 1, 2004 - May 31, 2004 $74.96 June 1, 2004 - August 31, 2004 $77.77 September 1, 2004 - November 30, 2004 $80.69 December 1, 2004 - February 28, 2005 $83.72 March 1, 2005 - May 31, 2005 $86.85 June 1, 2005 - August 23, 2005 $90.11
7 EX-4.1 3 y55962ex4-1.txt CERTIFICATE OF DESIGNATION, POWERS AND PREFERENCES Exhibit 4.1 CERTIFICATE OF THE DESIGNATIONS, POWERS, PREFERENCES AND RIGHTS OF SERIES B 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 1,622,111 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 B Participating Preferred Stock" (the "Series B Preferred Stock") and the authorized number of shares constituting such series shall be 1,622,111. Section 2. Dividends. (a) In the event any dividends are declared or paid or any other distribution is made on or with respect to the common stock, par value $0.66-2/3 per share ("Common Stock"), of the Company, the holders of the Series B 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 B Preferred Stock, in an amount (whether in the form of cash, securities or other property) determined by multiplying the Liquidation Preference (as defined below) per share of Series B Preferred Stock by the Applicable Rate (this and certain other initially capitalized terms used herein have the meanings given in Section 9 hereof). Such Participating Dividends shall be payable to the holders of the Series B 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 B Preferred Stock is registered at the close of business on the applicable record date. (b) 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 B 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. (c) 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 B Preferred Stock. (d) The terms "declared dividends" and "dividends declared" or any similar reference to "declared but unpaid Participating Dividends," whenever used in this Resolution with reference to shares of Series B Preferred Stock shall be deemed to include dividends required by Section 2(b) hereof to be declared, whether or not the same have in fact been declared at the time in question. (e) No dividend may be declared or paid in respect of the shares of Series B 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 B Preferred Stock then outstanding shall, to the extent permitted by and subject to the terms and conditions of the Working Capital Facility Documents, be 2 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 B Preferred Stock plus the amount of any declared but unpaid Participating 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 B Preferred Stock. If upon any Liquidation the assets available for distribution to the holders of the Series B Preferred Stock are insufficient to permit the payment to the holders of the Series B 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 B Preferred Stock pro rata according to the number of the then outstanding shares of Series B 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 B Preferred Stock outstanding at the time and as a condition precedent to the consummation of the merger, consolidation or sale, constitute a Liquidation for purposes of this Section 3, with the result that the Company shall be required to redeem, the Series B Preferred Stock outstanding prior to the consummation of the merger, consolidation or sale applying the redemption procedures set forth in Section 4 below (other than as to price) as if it were a mandatory redemption on the date of such merger, consolidation or sale. Section 4. Redemption by the Company. (a) On August 23, 2005 (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 B Preferred Stock that are then outstanding at a redemption price per share equal to the Liquidation Preference thereof plus the amount of any declared but unpaid Participating Dividends thereon as of such date ("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 B 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 B Preferred Stock to be redeemed. On or after the Final Redemption Date, each holder of shares of Series B Preferred Stock shall surrender the certificate 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 B 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 3 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 B 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, and the Company shall redeem as many shares of Series B 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 B Preferred Stock as it legally may until it has redeemed all of the outstanding shares of Series B 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 or any number of the then outstanding shares of Series B 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 but unpaid Participating 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 B 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 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 B Preferred Stock to be redeemed. Section 5. Redemption at Option of Holders. (a) In the event that a Change of Control (as defined below) shall occur at any time while any shares of Series B Preferred Stock are outstanding, each of the holders of the then outstanding shares of Series B 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 B 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 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 but unpaid Participating 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: 4 (1) the acquisition, in a transaction approved by the Board of Directors, by any Person, other than Richemont Finance S.A. ("Richemont"), 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 Closing Date, constitute the members of the Board of Directors not elected by the holders of Series B Preferred Stock or Richemont or its affiliates (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 Closing Date, 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 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. 5 (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 B 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 B Preferred Stock at a redemption price equal to the Liquidation Preference thereof plus the amount of accrued and unpaid Participating 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 B 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 B 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 B Preferred Stock (the "Change of Control Payment Date") after receipt of each such written notice, the Company shall redeem all shares of Series B 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 B 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 B 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, and the Company shall redeem as many shares of Series B 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 B Preferred Stock as it has capital and surplus available therefor until it has redeemed all of the outstanding shares of Series B 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 B Preferred Stock are outstanding, each of the holders of the then outstanding shares of Series B Preferred Stock shall have the right to give notice that they are exercising an Asset Disposition election (an "Asset Disposition Election") with respect to all or any number of such holder's shares of Series B 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(e) hereof or (ii) the date as of which such holder obtains actual knowledge of such Asset Disposition. Upon any such election, subject to the last sentence of the last paragraph of this Section 5(d), 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 such holder's shares for which such an election is made, to the extent of the remaining Net Available Cash after application of clauses (A) 6 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 but unpaid Participating Dividends thereon as of the Asset Disposition Payment Date (as defined below) ("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 B 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), (B) and (C) below; provided, however, that such condition shall not be applicable if the holders of at least two-thirds of the outstanding shares of Series B Preferred Stock consent to the waiver of the provisions of this clause (iii): (A) first, to prepay, repay, redeem or purchase its indebtedness under the Working Capital Facility Documents; (B) second, at the election of the Company, to retain an amount such that the sum of Excess Availability (as defined in the Working Capital Facility Documents in effect on the date thereof) and cash, cash equivalents and marketable securities of the Company and its Subsidiaries, after giving effect to the prepayment under clause (A) above, is not more than $22,000,000; and (C) third, to the extent of the balance of such Net Available Cash after application in accordance with clauses (A) and (B), to make an offer to the holders of the Series B Preferred Stock to redeem the Series B 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 7 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. If and to the extent any Net Available Cash from any Specified Asset Disposition is retained by the Company in accordance with clause (ii)(B) of the preceding paragraph (any such amount so retained, the "Shortfall"), the Company shall, not later than fifty (50) days following the date of such Specified Asset Disposition, be required to calculate its average Excess Availability for the forty-five (45) days following the date of such Specified Asset Disposition ("Average Excess Availability") and deliver a notice executed by the Company's principal financial officer to the holders of record of the Series B Preferred Stock certifying the calculation of the Average Excess Availability. To the extent the Average Excess Availability exceeds $22,000,000 (such amount, the "Excess"), the Company shall, to the extent permitted by and subject to the terms and conditions of the Working Capital Facility Documents, be required to use any amount of such Excess (up to the amount of the Shortfall) to make a further offer to the holders of the Series B Preferred Stock to redeem additional shares of the Series B Preferred Stock for cash pursuant to and subject to the conditions contained in this Section 5 (except that references to the date of the Specified Asset Disposition shall instead refer to the final day of the 45-day period referred to above). 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 B 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 B Preferred Stock consent to the waiver of the provisions of this clause (ii): 8 (A) first, to repay in full and indefeasibly satisfy all Obligations (as defined therein) under the Working Capital Facility Documents; and (B) second, to the extent of the balance of such Net Available Cash after application in accordance with clause (A), to make an offer to the holders of the Series B Preferred Stock to redeem the Series B Preferred Stock for cash pursuant to and subject to the conditions contained in this Section 5. The Company shall not be obligated to redeem any shares of Series B Preferred Stock pursuant to this Section 5(d) unless and until the holders of two-thirds of the then outstanding shares of Series B Preferred Stock (the "Requisite Holders") have made an Asset Disposition Election. (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 B 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 Asset Disposition, (ii) that, if such holder exercises an Asset Disposition Election, the Company will redeem any or all of such holder's shares of Series B Preferred Stock at the Asset Disposition Redemption Price and (iii) the procedure which the holder must follow to exercise the Asset Disposition Election; 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 (ii)(C) of Section 5(d) above. To exercise the Asset Disposition Election, a holder of the Series B Preferred Stock must deliver during the 30-day period referred to in Section 5(d) written notice to the Company (or an agent designated by the Company for such purpose) of the holder's exercise of the Asset Disposition Election, accompanied by each certificate evidencing shares of the Series B Preferred Stock with respect to which the Asset Disposition 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 B Preferred Stock (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 (ii)(C) of Section 5(d) above and subject to the last sentence of the last paragraph of Section 5(d) above redeem all shares of Series B 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(d), for redemption in connection with the exercise of the Asset Disposition Election and shall cause payment to be made on such day in cash for such shares of Series B Preferred Stock. If, in connection with any Asset Disposition Election, there is Net Available Cash but the Company does not have sufficient capital and surplus legally available to redeem all of the outstanding shares of Series B Preferred Stock with respect to which an Asset Disposition Election has been made, 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, and the Company shall redeem as many shares of Series B Preferred Stock with respect to which the Asset Disposition Election has been made as it has capital and surplus legally 9 available therefor, ratably from the holders thereof in proportion to the total number of shares tendered, 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 B Preferred Stock as it has capital and surplus available therefor until it has redeemed all of the outstanding shares of Series B Preferred Stock with respect to which the Asset Disposition Election has been made. (f) In the event that an Equity Sale shall occur at any time while any shares of Series B Preferred Stock are outstanding, each of the holders of the then outstanding shares of Series B Preferred Stock shall have the right to give notice that they are exercising an Equity Sale election ("Equity Sale Election") with respect to all or any number of such holder's shares of Series B 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(g) or (ii) the date as of which such holder obtains actual knowledge of such Equity Sale. 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 such holder's shares for which such an election is made, to the extent of the remaining Available Cash after application of clause (A) below and as permitted by applicable law, at a redemption price equal to the Liquidation Preference thereof plus the amount of accrued and unpaid Participating Dividends thereon as of the Equity Sale Payment Date (as defined below) ("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), 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 B 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 B Preferred Stock consent to the waiver of the provisions of this clause (iii); 10 (A) first, to prepay, repay, redeem or purchase its indebtedness under the Working Capital Facility Documents; and (B) second, to the extent of the balance of such Available Cash after application in accordance with clause (A), to make an offer to the holders of the Series B Preferred Stock to redeem the Series B 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 (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. The Company shall not be obligated to redeem any shares of Series B Preferred Stock pursuant to this Section 5(f) unless and until the Requisite Holders have made an Equity Sale Election. (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 B 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 Equity Sale, (ii) that, if such holder exercises an Equity Sale Election, the Company will, to the extent permitted by applicable law, redeem any or all of such holder's shares of Series B Preferred Stock at the Equity Sale Redemption Price and (iii) the procedure which the holder must follow to exercise the Equity Sale Election; 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 (ii)(B) of Section 5(f) above. To exercise the Equity Sale Election, a holder of the Series B Preferred Stock must deliver during the 30-day period referred to in Section 5(f), written notice to the Company (or an agent designated by the Company for such purpose) of the holder's exercise of the Equity Sale Election, accompanied by each certificate evidencing shares of the Series B Preferred Stock with respect to which the Equity Sale 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 B Preferred Stock (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 (ii)(B) of Section 5(f) above and subject to the last sentence of the last paragraph of Section 5(f) above, redeem all shares of Series B Preferred Stock properly surrendered to the Company (or an agent designated by the 11 Company for such purpose) during the 30-day period referred to in Section 5(f), for redemption in connection with the exercise of the Equity Sale Election and shall cause payment to be made on such day in cash for such shares of Series B Preferred Stock. If, in connection with any Equity Sale Election, 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 B Preferred Stock with respect to which an Equity Sale Election has been made, 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, and the Company shall redeem as many shares of Series B Preferred Stock with respect to which the Equity Sale 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, 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 B Preferred Stock as it has capital and surplus available therefor until it has redeemed all of the outstanding shares of Series B Preferred Stock with respect to which the Equity Sale Election has been made. (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 B 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 B Preferred Stock held by each holder thereof. Section 6. Restricted Payments; Status of Redeemed Shares. (a) After any Optional Redemption Date, Change of Control Payment Date, Equity Sale Payment Date, Asset Disposition Payment Date or the Final Redemption Date (each, a "Redemption Date"), unless and until the full redemption price for the shares of Series B Preferred Stock to be redeemed has been paid to, or set aside in trust with a bank or a trust company for the benefit of, the holders of the Series B Preferred Stock, (i) no dividends or other distribution shall be paid, declared, made or set aside for payment on the Common Stock or any other capital stock of the Company ranking junior to or on a parity with the Series B 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 (ii) no shares of capital stock of the Company ranking junior to or on a parity with the Series B Preferred Stock as to dividends or as to distributions upon Liquidation shall be redeemed, retired, purchased or otherwise acquired for any consideration (or any payment made to or available for a sinking fund for the redemption of any such shares) by the Company or any Subsidiary (except by conversion into or exchange for solely shares of Junior Stock). (b) Any shares of Series B Preferred Stock which shall at any time have been redeemed pursuant to Sections 4 or 5 hereof shall, after such redemption, be 12 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 B Preferred Stock. Section 7. Voting Rights. (a) The Series B Preferred Stock shall have the voting rights set forth in this Section 7. (b) On or before the third (3rd) day after the occurrence of a Voting Trigger (as defined in Section 10 hereof), the Company shall mail to all holders of record of the Series B 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 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 two directors of the Company (the "Preferred Stock Directors"), the remaining directors to be elected by the other class or classes of 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 B 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 B Preferred Stock, and the holders of a majority of the outstanding shares of the Series B 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 B 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 B 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 B 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 B Preferred Stock then outstanding addressed to the Secretary of the Company, call a special meeting of holders of the Series B 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 13 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 B Preferred Stock then outstanding may designate in writing a holder of the Series B 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 B 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 B 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 B Preferred Stock shall be entitled to cast one vote per share of Series B Preferred Stock held of record on the record date for the determination of the holders of Series B 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 B Preferred Stock, at a vote of the then outstanding shares of Series B 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 B Preferred Stock). Any action permitted to be taken by the holders of the Series B Preferred Stock pursuant to this Section 7(b) may be taken without a meeting by the written consent of the holders of Series B 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 B Preferred Stock, in accordance with the voting procedures set forth in Section 7(b). (c) So long as any shares of Series B 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 B 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) if such amendment, alteration or repeal would adversely alter or change the rights, preferences or privileges of the Series B Preferred Stock or (ii) create, authorize or issue any class, series or shares of Preferred Stock or any other class of capital stock ranking either as to payment of 14 dividends or distribution of assets upon Liquidation (x) prior to or on a parity with the Series B Preferred Stock or (y) junior to the Series B Preferred Stock, if such junior securities may be redeemed, in any circumstance, on or prior to the Final Redemption Date. The vote of the holders of at least two-thirds of the outstanding shares of Series B 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 B 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. Each share of Series B Preferred Stock shall be entitled to ten (10) votes per share when so voting or consenting with the Common Stock as a single class. In addition, each share of Series B Preferred Stock will entitle the holder thereof to vote in accordance with applicable law. Section 8. Observer Rights. (a) For so long as Richemont continues to own at least twenty-five percent (25%) of the shares of Series B Preferred Stock then outstanding, the Company shall invite a representative of Richemont (the "Representative"), which Representative shall be selected from time to time by Richemont and reasonably acceptable to the Company, to attend, 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 Richemont or its affiliates (other than the Company and its 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 Richemont 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) Richemont and the Company agree that knowledge of any matter or information discussed or presented for discussion at any of the Company's Board of 15 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 Richemont 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, Richemont 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 Richemont 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 Richemont and the Representative. (e) Richemont agrees that it will execute and deliver to the Company, and cause each Representative to execute and deliver to the Company and Richemont, an agreement, in form and substance reasonably satisfactory to the Company, pursuant to which Richemont or the Representative, as the case may be, agrees to hold confidential all information which Richemont 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 addition to and not in limitation of any foregoing reference to the Working Capital Facility Documents, the terms and conditions of the Series B Preferred Stock are subject to the terms and conditions of the Working Capital Facility Documents. 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(a) 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 Rakesh K. Kaul and options granted pursuant to the Services Agreement between the Company and Meridian 16 Ventures, LLC and Thomas C. Shull together providing for the aggregate issuance of not more than 53,630,000 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 August 23, 2000 providing for the grant of options to employees and directors of the Company to purchase not more than 1,000,000 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 (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. "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). 17 "Common Stock" means the common stock, par value $0.66-2/3 per share, of the Company. "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. "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 Richemont if Richemont then owns a majority in aggregate liquidation preference of the shares of Series B Preferred Stock then outstanding or (ii) if Richemont and the Company cannot so agree, by an internationally recognized investment banking firm selected by Richemont and reasonably acceptable to the Company or (iii) if Richemont does not then own a majority in aggregate liquidation preference of the shares of Series B 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 B 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 B 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). 18 "Liquidation Preference" means initially $47.36; provided, however, that during each period set forth on the table below, the Liquidation Preference shall equal the amount set forth opposite such period:
Period Liquidation Preference ------ ---------------------- Original Issuance Date - February 28, 2002 $47.36 March 1, 2002 - May 31, 2002 $49.15 June 1, 2002 - August 31, 2002 $51.31 September 1, 2002 - November 30, 2002 $53.89 December 1, 2002 - February 28, 2003 $56.95 March 1, 2003 - May 31, 2003 $60.54 June 1, 2003 - August 31, 2003 $64.74 September 1, 2003 - November 30, 2003 $69.64 December 1, 2003 - February 29, 2004 $72.25 March 1, 2004 - May 31, 2004 $74.96 June 1, 2004 - August 31, 2004 $77.77 September 1, 2004 - November 30, 2004 $80.69 December 1, 2004 - February 28, 2005 $83.72 March 1, 2005 - May 31, 2005 $86.85 June 1, 2005 - August 23, 2005 $90.11
"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 (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, 19 (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 December 19, 2001. "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. "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. "Richemont" means Richemont Finance S.A. and its affiliates and its and their respective successors and assigns. "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. "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: 20 (i) a default by the Company in respect of any of its obligations under the Series B Preferred Stock or the Agreement, dated as of December 19, 2001, between Richemont and the Company; (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 at least 811,056 shares of Series B Preferred Stock on or prior to August 31, 2003. "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 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 B Participating Preferred Stock than the terms related solely to the following provisions of the following Sections of the Nineteenth Amendment to Loan Agreement as in effect on the date hereof: (a) the definitions contained in Section 1, (b) the redemption of the Series B Participating Preferred Stock set forth in Section 2 and the Asset Sales provisions set forth in Section 3, (c) the provisions related to the application of proceeds set forth in Section 4, and (d) the adjustments to the lending formulas set forth in Sections 5, 6, 7 and 8. Section 10. Dividend Received Deduction. For federal income tax purposes, the Company shall report distributions on the Series B 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 B 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 21 agency thereof or therein having the power to tax payments in respect of the Series B 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 B 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 B 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 B Preferred Stock, at its address referred to in Section 7.2 of that certain Agreement, dated as of December 19, 2001 between the Company and Richemont Finance S.A., 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 B Preferred Stock shall supply the Company with such documentation as it reasonably may request including, without limitation, Form W-8BEN. Section 12. No Reissuance. After the Original Issuance Date, no shares of Series B Preferred Stock shall be issued or reissued as shares of Series B Preferred Stock. All shares of Series B 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 B 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. 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. 22 IN WITNESS WHEREOF, the Company has caused this Certificate of Designations to be signed by Thomas C. Shull, its President, this 19th day of December, 2001. By: /s/ Thomas C. Shull ------------------- Name: Thomas C. Shull Title: President 23 EX-4.2 4 y55962ex4-2.txt CERTIFICATE OF ELIMINATION OF SERIES A EXHIBIT 4.2 CERTIFICATE OF ELIMINATION OF THE SERIES A CUMULATIVE PARTICIPATING PREFERRED STOCK OF HANOVER DIRECT, INC. Pursuant to Section 151(g) of the General Corporation Law of the State of Delaware Hanover Direct, Inc., a corporation organized and existing under the laws of the State of Delaware (the "Company"), in accordance with the provisions of Section 151(g) of the General Corporation Law of the State of Delaware, hereby certifies as follows: 1. That, pursuant to Section 151 of the General Corporation Law of the State of Delaware and authority granted in the Restated Certificate of Incorporation of the Company, the Board of Directors of the Company, by resolution duly adopted, established the powers, designations, preferences and relative, participating, optional or other rights of, and the qualifications, limitations or restrictions of, a series of 2,345,000 shares of Series A Cumulative Participating Preferred Stock, par value $.01 per share (the "Series A Preferred Stock"), and, on August 22, 2000, filed a Certificate of the Designations, Powers, Preferences, and Rights (the "Certificate of Designations") with respect to the Series A Preferred Stock in the office of the Secretary of State of the State of Delaware. 2. That all shares of the Series A Preferred Stock have been reacquired by the Company. No shares of Series A Preferred Stock remain outstanding and no shares thereof will be issued subject to the Certificate of Designations. 3. That the Board of Directors of the Company has adopted the following resolutions: WHEREAS, pursuant to the Certificate of Designations, Powers, Preferences and Rights of the Series A Cumulative Participating Preferred Stock (the "Certificate of Designations") filed in the office of the Secretary of State of the State of Delaware on August 22, 2000, the Company established the powers, designations, preferences and relative, participating, optional or other rights of, and the qualifications, limitations or restrictions of, a series of 2,345,000 shares of Series A Cumulative Participating Preferred Stock, par value $.01 per share (the "Series A Preferred Stock"); and WHEREAS, the Company proposes to acquire all outstanding shares of the Series A Preferred Stock. Upon such acquisition, no shares of Series A Preferred Stock shall remain outstanding and no shares thereof will be issued subject to the Certificate of Designations; and WHEREAS, subject to the acquisition by the Company of all of the outstanding shares of Series A Preferred Stock, it is desirable that all matters set forth in the Certificate of Designation with respect to the Series A Preferred Stock be eliminated from the Restated Certificate of Incorporation of the Company. NOW, THEREFORE, IT IS HEREBY RESOLVED, that, subject to the acquisition by the Company of all of the outstanding shares of Series A Preferred Stock, all matters set forth in the Certificate of Designation with respect to the Series A Preferred Stock be eliminated from the Restated Certificate of Incorporation of the Company; and it is further RESOLVED, that, subject to the acquisition by the Company of all of the outstanding shares of Series A Preferred Stock, the officers of the Company be, and hereby are, authorized and directed to file a Certificate of Elimination with the office of the Secretary of State of Delaware setting forth a copy of these resolutions whereupon all matters set forth in the Certificate of Designation with respect to the Series A Preferred Stock shall be eliminated from the Restated Certificate of Incorporation of the Company. 4. That, accordingly, all matters set forth in the Certificate of Designations with respect to the Series A Preferred Stock be, and they hereby are, eliminated from the Restated Certificate of Incorporation of the Company. IN WITNESS WHEREOF, the Company has caused this Certificate of Elimination to be signed by a duly authorized officer as of this 19th day of December, 2001. HANOVER DIRECT, INC. By: /s/ Thomas C. Shull ----------------------------- Name: Thomas C. Shull Title: President EX-10.1 5 y55962ex10-1.txt AGREEMENT WITH RICHEMONT FINANCE S.A. EXHIBIT 10.1 AGREEMENT This Agreement, dated as of December 19, 2001 (this "Agreement"), is entered into by Hanover Direct, Inc., a Delaware corporation (the "Company"), and Richemont Finance S.A., a societe anonyme organized under the laws of the Grand Duchy of Luxembourg ("Richemont"). Certain terms used and not otherwise defined in the text of this Agreement are defined in Section 6 of this Agreement. W I T N E S S E T H: WHEREAS, Richemont is the owner of 102,790,657 shares of Common Stock and 1,400,000 shares of Series A Preferred Stock of the Company and holds an irrevocable proxy to vote an additional 4,289,000 shares of Common Stock held by a third party; and WHEREAS, Richemont and the Company wish to memorialize their agreement regarding the repurchase by the Company of certain shares of its Common Stock and Series A Preferred Stock from Richemont and their agreement regarding certain other matters set forth herein; 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 the Shares. Upon the terms and subject to the conditions herein contained, Richemont agrees to sell to the Company, and the Company agrees to purchase from Richemont, at the Closing 1,400,000 shares of Series A Preferred Stock and 74,098,769 shares of Common Stock in return for the issuance to Richemont of 1,622,111 shares (the "Series B Shares") of Series B Participating Preferred Stock, par value $0.01 per share (the "Series B Preferred Stock"), the execution by the Company in favor of Richemont and certain other Persons specified therein of a Release in substantially the form attached hereto as Exhibit A and the execution by the Company and Richemont of an Indemnification Agreement in substantially the form attached hereto as Exhibit B. The parties acknowledge that the consideration for the Series B Shares has a value at least equal to the aggregate par value of such Series B Shares. The Series B 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 C (the "Certificate of Designations"). 2. Closing. The closing (the "Closing") of the transactions contemplated hereby shall occur at the offices of Brown Raysman Millstein Felder & Steiner LLP, 900 Third Avenue, New York, New York 10022, simultaneously with the execution of this Agreement (such date, the "Closing Date"). (a) At the Closing, Richemont shall deliver to the Company: (i) a stock certificate representing 1,400,000 shares of Series A Preferred Stock, duly endorsed for transfer or accompanied by blank stock powers; (ii) one or more stock certificates representing, in the aggregate, 102,790,657 shares of Common Stock, duly endorsed for transfer or accompanied by blank stock powers; (iii) evidence that the proxy that Richemont holds to vote 4,289,000 shares of Common Stock has been revoked and is no longer of any force or effect; and (iv) the written resignation of each of Eloy Michotte and Alan Grieve from the Board of Directors of the Company. (b) At the Closing, the Company will deliver to Richemont: (i) an amount equal to $1,000,000, paid 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, if any, imposed or levied by or on behalf of the United States or any political division thereof, including interest, penalties and additions to tax (collectively, "Taxes"), to reimburse Richemont for transaction fees and expenses incurred by Richemont, payable by wire transfer of immediately available funds to an account designated in writing by Richemont at least two Business Days prior to the Closing Date. In the event that any such Taxes are required to be withheld or paid with respect to the fee reimbursement described above, the Company shall (x) pay any such Taxes to the relevant taxation authority in accordance with applicable law plus an additional amount so that after making any such payment to such authority, Richemont shall have no liability with respect to such Taxes and (y) furnish Richemont with the original or certified copy of a receipt evidencing payment thereof; (ii) one or more certificates evidencing the Series B Shares (in such denominations as shall be specified in writing by Richemont) which shall be registered in the name of Richemont or its designee; (iii) an executed copy of the Release (the "Release") in substantially the form attached hereto as Exhibit A; (iv) an executed copy of the Indemnification Agreement (the "Indemnification Agreement") in substantially the form attached hereto as Exhibit B; (v) 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 the Closing Date and a certificate evidencing the filing of the Certificate of Designations with the Secretary of State of Delaware; (vi) 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 execution, delivery and performance of the Transaction Documents and all other documents and instruments 2 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; (vii) a copy of (x) an opinion from Houlihan Lokey Howard & Zukin Financial Advisors, Inc. ("Houlihan Lokey") 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 and (y) an opinion from Houlihan Lokey addressed to the Company and Richemont that both immediately before the consummation of the transactions contemplated by this Agreement and, assuming the transactions contemplated by this Agreement have been consummated as described herein, immediately after and giving effect to the transactions contemplated by this Agreement (i) the fair value of the Company's assets exceeds (as to immediately before the transactions contemplated by this Agreement) and would exceed (as to immediately after the transactions contemplated by this Agreement) its stated liabilities (including identified contingent liabilities), (ii) the fair saleable value of the Company's assets would exceed the amount that will be required to pay Company's probable liability on its existing stated liabilities (including identified contingent liabilities) as they become absolute and matured; (iii) the Company does not have (as to immediately before the transactions contemplated by this Agreement) and would not have (as to immediately after the transactions contemplated by this Agreement) unreasonably small capital for the business in which it is engaged; and (iv) the Company would be able to pay its debts as they mature; (viii) a stock certificate representing 28,691,888 shares of Common Stock, which shall be identical in form to, and shall bear the same legends as, the stock certificate(s) representing the 102,790,657 shares of Common Stock which Richemont is delivering at the Closing (except that the certificate number, the date thereof and number of shares of Common Stock represented thereby shall be different); (ix) a favorable opinion from Brown Raysman Millstein Felder & Steiner LLP, counsel to the Company, dated the Closing Date, with respect to: (A) the Company's corporate existence, power, authority and good standing; (B) the due authorization, execution and delivery of this Agreement and the Certificate of Designations; (C) the due authorization of the Series B Shares and that the Series B Shares are validly issued, fully paid and non-assessable; and (D) no Governmental Approvals required to be obtained by the Company for the execution and delivery of, or the consummation of the transactions contemplated by, this Agreement, and a favorable opinion from Morris, Nichols, Arsht & Tunnell, Delaware counsel to the Company, dated the Closing Date, with respect to the validity and enforceability of this Agreement; and (x) a letter from Arthur Andersen LLP, independent certified public accountants, dated December 17, 2001, setting forth certain information regarding the outstanding Common Stock of the Company, and a certificate of the Chief Financial Officer of the Company to the effect that the 28,691,888 shares of Common Stock to be returned by Richemont pursuant hereto shall represent 20% of the outstanding Common Stock of the Company on an "as adjusted fully-diluted" basis (as defined therein). 3 3. Representations and Warranties of Richemont. Richemont represents and warrants to the Company as follows: 3.1 Organization. Richemont is a societe anonyme duly organized, validly existing and in good standing under the laws of the Grand Duchy of Luxembourg. 3.2 Authorization; Enforcement. Richemont has all requisite corporate power and authority to authorize, execute, deliver and perform this Agreement and the other Transaction Documents. The execution, delivery and performance by Richemont of this Agreement and the other Transaction Documents to which it is a party, and the consummation by Richemont of the transactions contemplated hereby and thereby, have been duly authorized by all necessary corporate action on the part of Richemont and no further consent or authorization therefor is presently required by Richemont, its board of directors or its shareholders. This Agreement and the other Transaction Documents to which it is a party have been duly and validly executed and delivered by Richemont and constitute the valid and binding obligations of Richemont, enforceable against Richemont in accordance with their respective terms. 3.3 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 Richemont 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. 3.4 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 Richemont 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 Richemont of this Agreement or any of the other Transaction Documents to which it is a party. 3.5 Litigation. To the actual knowledge of Richemont, there are no pending or threatened legal proceedings involving Richemont before a court of competent jurisdiction regarding matters which would be subject to the release provisions set forth in clauses (A) or (B) of the first paragraph of the Release or indemnification pursuant to clauses (i), (ii), (iii) or (vi) (in the case of (vi), solely to the extent it relates to clauses (i), (ii) and (iii)) of Section 1 of the Indemnification Agreement, except in each case for the Action (as defined below) and any other claims, actions or proceedings related thereto. 3.6 Regarding the Ownership of the Series A Preferred Stock. (a) The delivery by Richemont to the Company of a certificate for the 1,400,000 shares of Series A Preferred Stock issued to it by the Company on August 24, 2000 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. 4 (b) Richemont waives all rights it may have to object to or to enforce the provisions contained in paragraph (e) of Section 4 of Article Fourth of the Company's Certificate of Incorporation or any provision of the Certificate of Designations for the Series A Preferred Stock including with respect to accrued and unpaid dividends and as a direct result of the consummation of the transactions contemplated by this Agreement and the other Transaction Documents and the documents and agreements relating to the transactions contemplated by that certain Asset Purchase Agreement, dated as of June 13, 2001, as amended, among the Company, LWI Holdings, Inc., HSN LP, HSN Improvements, LLC and HSN Catalog Services, Inc. Effective as of the Closing, the Company's obligations under the Certificate of Designations for the Series A Preferred Stock shall be terminated and the Company shall have no further obligations thereunder. 3.7 Unregistered Securities. Richemont understands that the shares of Series B Preferred Stock have not been registered under the Securities Act of 1933, as amended (the "Securities Act"), and that the certificate or certificates evidencing such shares shall bear a legend to that effect. 3.8 Acquisition for Own Account. Richemont is acquiring the shares of Series B Preferred Stock 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, Richemont does not agree to hold any of the shares of Series B Preferred Stock 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. 3.9 Ability to Protect Its Own Interest and Bear Economic Risks. By reason of the business and financial experience of its management, Richemont has the capacity to protect its own interests in connection with the transactions contemplated by this Agreement. Richemont further represents that it is able to bear the economic risk of an investment in the shares of Series B Preferred Stock. 3.10 Accredited Investor. Richemont is an "accredited investor," as that term is defined in Regulation D promulgated under the Securities Act. 3.11 Access to Information. Richemont 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 B Preferred Stock. Neither such inquires nor any other due diligence investigations conducted by Richemont or its advisors, if any, or its representatives shall modify, amend or affect Richemont's right to rely on the Company's representations and warranties contained in this Agreement. 4. Representations and Warranties of the Company. The Company represents and warrants to Richemont as follows: 5 4.1 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 Material Adverse Effect, (c) has its principal place of business and chief executive office at 115 River Road, Building 10, Edgewater, New Jersey 07020, 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, "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. 4.2 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 and the other Transaction Documents. The execution, delivery and performance by the Company (and, to the extent applicable, each of its Subsidiaries) of this Agreement 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 Richemont 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. 4.3 Consents and Approvals. Neither 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 a notice to and consent of Congress Financial Corporation pursuant to the Working Capital Facility Documents (which has been made and obtained). 4.4 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 Richemont is or will be liable in connection with the execution, delivery or performance by the Company of this Agreement or any of the other Transaction Documents. 6 4.5 No Conflicts. 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 4.5, 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 B 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. 4.6 Solvency. Immediately before the transactions contemplated by this Agreement and the other Transaction Documents and immediately after giving effect to the transactions contemplated by this Agreement and the other Transaction Documents (a) the fair value of the Company's assets exceeds (as to immediately before the transactions contemplated by this Agreement and the other Transaction Documents) and would exceed (as to immediately after the transactions contemplated by this Agreement and the other Transaction Documents) its stated liabilities (including identified contingent liabilities), (b) the fair saleable value of the Company's assets would exceed the amount that will be required to pay the Company's probable liability on its existing stated liabilities (including identified contingent liabilities) as they become absolute and matured, (c) the Company does not have (as to immediately before the transactions contemplated by this Agreement and the other Transaction Documents) and would not have (as to immediately after the transactions contemplated by this Agreement and the other Transaction Documents) unreasonably small capital for the business in which it is engaged, and (d) the Company would be able to pay its debts as they mature. 4.7 Issuance of Securities. The Series B 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 B 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 4.8 Sale Agreements. Neither the Company nor any of its Subsidiaries or representatives is (a) a party to any agreement or understanding or (b) engaged in or contemplating engaging in discussions or negotiations that could result in the merger, sale or business combination of the Company or in the sale or disposition of a material portion of the Company's assets, business or properties, other than in the ordinary course of business, except as has previously been disclosed to Richemont and its representatives. 4.9 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 Richemont or any subsequent holder of any of the Series B Shares or the 28,691,888 shares of Common Stock referred to in Section 2(b)(viii) above, certify, in accordance with sections 1.1445-2(c)(3) and 1.897-2(h) of the Treasury regulations, that such Series B Shares or shares of Common Stock are not a U.S. real property interest within the meaning of section 897 of the Code. 4.10 Other Agreements of the Parties. (a) During the Company's 2001 and 2002 fiscal years, neither the Company nor any of its Subsidiaries shall (i) acquire assets or stock of any Person, other than purchases of assets in the ordinary course of business, or (ii) incur any capital expenditures in excess of $5 million in the aggregate for each such fiscal year. (b) Richemont covenants and agrees to reasonably cooperate with the Company and its counsel in the defense of the action commenced by Rakesh K. Kaul against the Company in the Supreme Court of the State of New York, New York County with Index No. 01-603240 subsequently removed to United States District Court for the Southern District of New York with Claim No. 01 Civ. 6810 (DC) (the "Action"), without charge to the Company (except for the reasonable expenses of directors, officers and employees and their respective attorneys' fees). In addition, Richemont covenants and agrees to generally cooperate with the Company and its counsel (at the Company's sole expense) in response to any other reasonable request made by them to Richemont in connection with the defense of the Action. 5. Definitions. Unless the context otherwise requires, the terms defined in this Section 6 shall have the meanings specified for all purposes of this Agreement. "Action" has the meaning assigned to it in Section 5(b) 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 4.2 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 4.2 hereof. 8 "Closing" has the meaning assigned to it in Section 2 hereof. "Closing Date" has the meaning assigned to it in Section 2 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. "Determination" has the meaning assigned to it in Section 6.11 hereof. "Governmental Entity" means any national, federal, state, municipal, local, territorial, foreign or other government or any department, commission, board, bureau, agency, regulatory authority or instrumentality thereof, or any court, judicial, administrative or arbitral body or public or private tribunal. "Material Adverse Effect" has the meaning assigned to it in Section 4.1 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. "Purchase Price" has the meaning assigned to it in Section 1 hereof. "Richemont" has the meaning assigned it in the introductory paragraph of this Agreement. "Series A Preferred Stock" means the Series A Cumulative Participating Preferred Stock, par value $0.01 per share, of the Company. "Series B Preferred Stock" has the meaning assigned to such term in Section 1 hereof. "Series B 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 Release, and the Indemnification 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 9 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 related thereto, as the same now exist or may hereafter be amended, modified supplemented, extended, renewed, restated or replaced. 6. Miscellaneous. 6.1 Amendments. Neither this Agreement, nor any provision hereof, may be amended, changed, waived, discharged or terminated orally or by course of dealing, but only by a statement in writing signed by the party against which enforcement of the amendment, change, waiver, discharge or termination is sought 6.2 Notices. All notices, requests, consents and other communications required or permitted hereunder shall be in writing and shall be hand delivered or mailed postage prepaid by registered or certified mail or transmitted by facsimile transmission (with immediate telephonic confirmation thereafter), (a) If to Richemont: Richemont Finance S.A. 35 Boulevard Prince Henri L 1724 Luxembourg Attention: Mr. Alan Grieve Facsimile No.: 011-4141-711-7138 with a copy to: Skadden, Arps, Slate, Meagher & Flom LLP Four Times Square New York, NY 10036-6522 Attention: Gregory A. Fernicola, Esq. Facsimile No.: (212) 735-2000 or (b) If to the Company: Hanover Direct, Inc. 115 River Road, Building 10 Edgewater, New Jersey 07020 Attention: Corporate Counsel Facsimile No.: (201) 272-3199 10 with a copy to: Brown Raysman Millstein Felder & Steiner LLP 900 Third Avenue New York, NY 10022 Attention: Sarah Hewitt, Esq. Facsimile No.: (212) 895-2900 or at such other address as the Company or Richemont each may specify by written notice to the others in the manner specified herein, and each such notice, request, consent and other communication (including service of process pursuant to Section 6.8 hereof) shall for all purposes of the Agreement be treated as being effective or having been given when delivered if delivered personally, upon receipt of facsimile confirmation if transmitted by facsimile, or, if sent by mail, at the earlier of its receipt or 72 hours after the same has been deposited in a regularly maintained receptacle for the deposit of United States mail, addressed and postage prepaid as aforesaid. 6.3 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 Sections 4.6 and 4.7 shall survive indefinitely. 6.4 No Implied 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. 6.5 Successors and Assigns. All the terms and provisions of this Agreement shall be binding upon and inure to the benefit of and be enforceable by the respective parties hereto, the successors and assigns of Richemont and the successors of the Company, whether so expressed or not. 6.6 Headings. The headings of the Sections and paragraphs of this Agreement have been inserted for convenience of reference only and do not constitute a part of this Agreement. 6.7 Governing Law. The internal laws, and not the laws of conflicts, of Delaware shall govern the enforceability and validity of this Agreement, the construction of its terms and the interpretation of the rights and duties of the parties. 6.8 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 only in the courts of the State of Delaware, and each of the parties hereby consents to the jurisdiction of such courts in any such suit, action or 11 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 such courts or that any such suit, action or proceeding which is brought in such courts 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 such courts. Without limiting the foregoing, each party agrees that service of process on such party as provided in Section 6.2 shall be deemed effective service of process on such party. 6.9 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 OTHER TRANSACTION DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. 6.10 Counterparts; Effectiveness. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, with the same effect as if all parties had signed the same document. All such counterparts shall be deemed an original, shall be construed together and shall constitute one and the same instrument. This Agreement shall become effective when each party hereto shall have received counterparts hereof signed by all of the other parties hereto; provided, no party shall be bound unless and until all parties have signed a counterpart hereof. 6.11 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. 6.12 Payment Set Aside. To the extent that the Company makes a payment or payments to Richemont hereunder or Richemont enforces or exercises its rights hereunder or thereunder, and such payment or payments or the proceeds of such enforcement or exercise or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside, recovered from, disgorged by or are required to be refunded, repaid or otherwise restored to the Company, by a trustee, receiver or any other Person under any law (including, without limitation, any bankruptcy law, state or federal law, common law or equitable cause of action), then to the extent of any such restoration the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such enforcement or setoff had not occurred. 12 6.13 Acknowledgement. The parties hereby expressly acknowledge that the provisions of Sections 4, 5, 8, 11, 12 and 13 of that certain Securities Purchase Agreement, dated as of August 23, 2000, between the Company and Richemont, shall continue and remain in full force and effect in accordance with their terms; it being further agreed that for so long as Richemont owns shares of Series B Preferred Stock, the covenants of the Company set forth in Section 7 of that Securities Purchase Agreement, with the exception of Sections 7.1, 7.3(b) and 7.8, shall remain in full force and effect, notwithstanding that Richemont no longer owns shares of Series A Preferred Stock. Richemont represents and warrants to the Company, without having made any special investigation, that it does not have actual knowledge of any claims it may have under the Securities Purchase Agreement as of the date hereof. The remainder of this page has intentionally been left blank. 13 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the day and year first above written. HANOVER DIRECT, INC. By: /s/ Thomas C. Shull ----------------------------------------- Name: Thomas C. Shull Title: President and Chief Executive Officer RICHEMONT FINANCE S.A. By: /s/ Eloy Michotte ----------------------------------------- Name: Eloy Michotte Title: Signature page for Agreement between Hanover Direct, Inc. and Richemont Finance S.A. 14 EX-10.2 6 y55962ex10-2.txt RELEASE EXECUTED BY HANOVER DIRECT EXHIBIT 10.2 RELEASE TO ALL TO WHOM THESE PRESENTS SHALL COME OR MAY CONCERN, KNOW THAT Hanover Direct, Inc., a Delaware corporation (the "Company"), on behalf of itself, its subsidiaries, affiliates and their respective successors and assigns (such persons and entities, the "RELEASOR"), in consideration of the sum of $1.00 and other good and valuable consideration, receipt of which is hereby acknowledged, hereby releases, discharges and acquits forever (i) Richemont Finance S.A., a societe anonyme organized under the laws of the Grand Duchy of Luxembourg ("Richemont"), and all individuals heretofore or hereafter appointed or designated by Richemont to serve as an officer, employee or member of the Board of Directors of the Company (the "Richemont Designees"), (ii) the stockholders, controlling persons, affiliates, agents, attorneys, representatives, employees, officers and directors of Richemont, and (iii) the heirs, executors, administrators, stockholders, controlling persons, affiliates, agents, attorneys, representatives, employees, officers, directors, successors and assigns of each of the foregoing (collectively, the "RELEASEES"), from all actions, causes of action, suits, debts, dues, sums of money, accounts, reckonings, bonds, bills, specialties, covenants, contracts, liabilities, obligations, controversies, agreements, promises, variances, trespasses, damages, judgments, extents, executions, claims and demands whatsoever, whether known or unknown, in law, admiralty or equity, which the RELEASOR or the RELEASOR's subsidiaries, affiliates and their respective successors and assigns, or any one claiming through or under any of them, ever had, now have or hereafter can, shall or may have, for, upon, by reason of, related to, arising out of, or connected in any way with, directly or indirectly (A) Richemont's acts or omissions as a holder of capital stock of, or as a lender to, the Company or (B) each Richemont Designee's acts or omissions in his or her capacity as such. Nothing in this Release is intended to, nor shall, release or waive any obligation of any RELEASEE under that certain Securities Purchase Agreement dated August 23, 2000, between the Company and Richemont, the Agreement, dated as of December 19, 2001, between the Company and Richemont, executed in connection with this Release, or the Indemnification Agreement, dated as of December 19, 2001, between the Company and Richemont, executed in connection with this Release. To ensure that this Release is enforced in accordance with its terms, the RELEASOR hereby acknowledges that it is familiar with Section 1542 of the Civil Code of California and knowingly and voluntarily waives any rights or protections afforded by that Section, which provides as follows: A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor. The RELEASOR also knowingly and voluntarily waives all rights and benefits it may have under comparable or similar statutes and principles of common law of any and all states of the United States or of the United States. 1 The signatory to this Release hereby warrants and represents that he is duly authorized to enter into this Release on behalf of the RELEASOR. This Release shall in all respects be interpreted, enforced and governed under the laws of the State of Delaware without regard to Delaware's conflicts of laws principles. Whenever text hereof requires, the use of the singular number shall include the appropriate plural number. 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: /s/ Thomas C. Shull ----------------------------------------- Name: Thomas C. Shull Title: President and Chief Executive Officer Date: December 19, 2001 2 ACKNOWLEDGMENT STATE OF NEW YORK ) ) ss.: COUNTY OF NEW YORK) On the 19th day of December, 2001, before me personally came Thomas C. Shull, to me known, who by me duly sworn, did depose and say that deponent resides at 28 Leeward Lane, Riverside, Connecticut, that deponent is a duly authorized officer 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. /s/ Sarah Hewitt -------------------------------- Notary Public 3 EX-10.3 7 y55962ex10-3.txt INDEMNIFICATION AGREEMENT EXHIBIT 10.3 INDEMNIFICATION AGREEMENT This Indemnification Agreement (this "Indemnification Agreement"), dated as of December 19, 2001, is entered into by Hanover Direct, Inc., a Delaware corporation (the "Company"), and Richemont Finance S.A., a societe anonyme organized under the laws of the Grand Duchy of Luxembourg ("Richemont"). WHEREAS, the parties hereto have entered into that certain Agreement, dated as of December 19, 2001 (the "Agreement"), providing for, among other things, the repurchase by the Company of shares of its Common Stock from Richemont in consideration for, among other things, the execution of this Indemnification Agreement by the Company; WHEREAS, as an inducement to Richemont to enter into the Agreement, the parties have mutually agreed to enter into this Indemnification Agreement; and WHEREAS, without this Indemnification Agreement, Richemont would not have entered into the Agreement; NOW, THEREFORE, in consideration of the Agreement and other good and valuable consideration, the receipt and legal sufficiency of which are hereby acknowledged, the parties hereby agree as follows: 1. Indemnification and Payment of Damages by the Company. The Company will indemnify and hold harmless (a) Richemont and any individual appointed or designated by Richemont to serve as an officer, employee or member of the Board of Directors of the Company (the "Richemont Designees"), (b) the stockholders, controlling persons, Affiliates (as such term is defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended), agents, attorneys, representatives, employees, officers and directors of Richemont, and (c) the heirs, executors, administrators, stockholders, controlling persons, Affiliates, officers and directors of each of the foregoing, and will pay to such parties the amount of any loss, liability, claim, damage, expense (including costs of investigation and defense and reasonable attorneys' fees), reduced by the net amounts actually received from proceeds of insurance by the indemnified party under insurance policies previously in effect, currently in effect or hereafter in effect, for, upon, by reason of, related to, arising out of, or connected in any way with, directly or indirectly (i) any third party claim (including a stockholder's derivative claim) in connection with Richemont's ownership of, or acts or omissions as an owner and holder of, capital stock in, or acts or omissions as a lender to, the Company (including claims asserting breach of any duties that Richemont may have as stockholder or creditor of the Company), (ii) any third party claim (including a stockholder's derivative claim) as a result of any acts or omissions of any Richemont Designee (including claims asserting breach of any duties by any Richemont Designee in his capacity as an officer, employee or member of the Board of Directors of the Company), (iii) any third party claim (including a stockholder's 1 derivative claim) in connection with the Agreement and the transactions contemplated thereby, (iv) any breach of any representation or warranty made by the Company in the Agreement or this Indemnification Agreement, (v) any breach of any covenant, agreement or obligation of the Company in the Agreement or this Indemnification Agreement, and (vi) any and all actions, claims, suits, proceedings, demands, assessments, judgments, recoveries, damages, deficiencies, interest, penalties, costs end expenses, including reasonable attorneys' fees, incident to the disposing of any matter which is the subject of the foregoing clauses (i) through (v) ("Claims"); provided, however, that there shall be no indemnification under this Section 1 for any acts or omissions which constitute gross negligence or willful misconduct by an indemnified party. An indemnified party shall repay to the Company any amounts (less any expenses incurred by the indemnified party in connection therewith) actually recovered by the indemnified party to the extent that such later recovery relates directly to a Claim as to which the Company has previously actually indemnified such indemnified party pursuant to this Section 1, such repayment obligation to be limited to a maximum of the amount previously paid by the Company in connection with the relevant Claim. 2. Procedure for Indemnification - Third Party Claims. 2.1 (a) Promptly after receipt by an indemnified party under Section 1 of this Indemnification Agreement of notice of any claim or the commencement of any proceeding against such indemnified party (in either case a "Proceeding"), such indemnified party will, if a claim is to be made against an indemnifying party under such Section, give notice to the indemnifying party of the commencement of such claim, but the failure to promptly notify the indemnifying party will not relieve the indemnifying party of any liability that it may have to any indemnified party, except and solely to the extent that the indemnifying party demonstrates that the defense of such action is prejudiced by the indemnified party's failure to give such prompt notice. The indemnified party will cooperate with the indemnifying party (and its counsel and other agents and representatives), upon request and, to the extent reasonable, on an ongoing basis beginning from the date the indemnified party first receives notice (whether formal or otherwise) of an actual or potential third party claim. The indemnified party's duty of reasonable cooperation includes assisting in its own defense and the indemnifying party's defense (if applicable); providing pertinent information to the indemnifying party as reasonably requested; and providing the indemnifying party with access, upon reasonable request, to pertinent witnesses, documents, real property, tangible things, and evidence; provided that such access is used in a way to minimize disruption to the indemnified party and its business. (b) If any Proceeding referred to in Section 2.1(a) is brought against an indemnified party and such party gives notice to the indemnifying party of the commencement of such Proceeding, the indemnifying party will be entitled to participate in such Proceeding and, to the extent that the indemnifying party wishes (unless the indemnifying party is also a party to such Proceeding and the indemnified party determines in good faith that joint representation would be inappropriate), to assume the defense of such Proceeding with counsel satisfactory to the indemnified party and, after notice from the indemnifying party to the indemnified party of the indemnifying party's election to assume the defense of such Proceeding, the indemnifying party will not, as long as such defense is diligently conducted, be liable to the indemnified party under this Indemnification Agreement for any fees of other counsel or any other expenses with respect to the defense of such Proceeding, in each case subsequently incurred by the indemnified 2 party in connection with the defense of such Proceeding, other than reasonable costs of investigation. If the indemnifying party assumes the defense of a Proceeding, (i) it will be conclusively established for purposes of this Indemnification Agreement that the claims made in that Proceeding are within the scope of and subject to indemnification (provided, however, that the indemnifying party may assume the defense with a reservation of its rights under this Indemnification Agreement for a period not to exceed sixty (60) days); (ii) no compromise or settlement of such claims may be effected by the indemnifying party without the indemnified party's consent unless (A) there is no finding or admission of any violation of law or any violation of the rights of any individual or entity and no effect on any other claims that may be made against the indemnified party, and (B) the sole relief provided is monetary damages that are paid in full by the indemnifying party; (iii) the indemnified party will have no liability with respect to any compromise or settlement of such claims effected without its consent; and (iv) if the indemnified party refuses to consent to a bonafide offer to compromise or settle such claims which meets the conditions of clauses (A) and (B) of subsection (ii) above and the indemnifying party chooses not to agree to such bonafide offer without the indemnified party's consent, then the indemnifying party's liability with respect to such a Proceeding will be limited to the amount of the bonafide offer to compromise or settle. If notice is given to the indemnifying party of the commencement of any Proceeding and the indemnifying party does not, within fifteen (15) days after the indemnified party's notice is given, give notice to the indemnified party of its election to assume the defense of such Proceeding, the indemnifying party will be bound by any determination made in such Proceeding or any good faith compromise or settlement effected by the indemnified party. A failure to provide notice within fifteen (15) days shall not, however, prejudice the indemnifying party's right to assume the defense at a later time. (c) Notwithstanding the foregoing, if an indemnified party determines in good faith that there is a reasonable possibility that a Proceeding may adversely affect such indemnified party or the indemnified party's Affiliates other than as a result of monetary damages for which the indemnified party would be entitled to indemnification under this Indemnification Agreement, the indemnified party may, by notice to the indemnifying party, assume the exclusive right to defend, compromise, or settle such Proceeding, but the indemnifying party will not be bound by any determination of a Proceeding so defended or any compromise or settlement effected without the indemnifying party's consent (which may not be unreasonably withheld). (d) Each of the parties hereto hereby consents to the non-exclusive jurisdiction of any court in which a Proceeding is brought against any indemnified party for purposes of any claim that an indemnified party may have under this Indemnification Agreement with respect to such Proceeding or the matters alleged therein, and agrees that process may be served on it with respect to such a claim in the manner set forth in Section 4.4 of this Indemnification Agreement. 3. Procedure for Indemnification - Other Claims. A claim for indemnification for any matter not involving a third-party claim may be asserted by notice to the party from whom indemnification is sought. 4. General. 3 4.1 Amendments. Neither this Indemnification Agreement, nor any provision hereof, may be amended, changed, waived, discharged or terminated orally or by course of dealing, but only by a statement in writing signed by the party against which enforcement of the amendment, change, waiver, discharge or termination is sought. 4.2 Notices. All notices, requests, consents and other communications required or permitted hereunder shall be in writing and shall be hand delivered or mailed postage prepaid by registered or certified mail or transmitted by facsimile transmission (with immediate telephonic confirmation thereafter). (a) If to Richemont: Richemont Finance S.A. 35 Boulevard Prince Henri L 1724 Luxembourg Attention: Mr. Alan Grieve Facsimile No.: 011-4141-711-7138 with a copy to: Skadden, Arps, Slate, Meagher & Flom LLP Four Times Square New York, NY 10036-6522 Attention: Gregory A. Fernicola, Esq. Facsimile No.: (212) 735-2000 or (b) If to the Company: Hanover Direct, Inc. 115 River Road, Building 10 Edgewater, New Jersey 07020 Attention: Corporate Counsel Facsimile No.: (201) 272-3199 with a copy to: Brown Raysman Millstein Felder & Steiner LLP 900 Third Avenue New York, NY 10022 Attention: Sarah Hewitt, Esq. Facsimile No.: (212) 895-2900 or at such other address as the Company or Richemont each may specify by written notice to the others in the manner specified herein, and each such notice, request, consent and other communication (including service of process pursuant to Section 4.4 hereof) shall for all purposes of the Agreement be treated as being effective or having been given when delivered if delivered personally, upon receipt of facsimile confirmation if transmitted by facsimile, or, if sent by mail, at the earlier of its receipt or 72 hours after the same has been deposited in a 4 regularly maintained receptacle for the deposit of United States mail, addressed and postage prepaid as aforesaid. 4.3 Governing Law. The internal laws, and not the laws of conflicts, of Delaware shall govern the enforceability and validity of this Indemnification Agreement, the construction of its terms and the interpretation of the rights and duties of the parties. 4.4 Jurisdiction. Except as set forth in Section 2.1(d) hereof, any suit, action or proceeding seeking to enforce any provision of, or based on any matter arising out of or in connection with, this Indemnification Agreement may be brought only in the courts of the State of Delaware, and each of the parties hereby consents to the jurisdiction of such courts 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 such courts or that any such suit, action or proceeding which is brought in such courts 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 such courts. Without limiting the foregoing, each party agrees that service of process on such party as provided in Section 4.2 shall be deemed effective service of process on such party. 4.5 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 INDEMNIFICATION AGREEMENT. 4.6 Entire Agreement. This Indemnification Agreement supersedes all prior agreements between the parties with respect to its subject matter and constitutes a complete and exclusive statement of the terms of the agreement between the parties with respect to its subject matter. This Indemnification Agreement may not be amended except by a written agreement executed by the party to be charged with the amendment. 4.7 Waivers. The rights and remedies of the parties to this Indemnification Agreement are cumulative and not alternative. Neither the failure nor any delay by any party in exercising any right, power, or privilege under this Indemnification Agreement will operate as a waiver of such right, power, or privilege, and no single or partial exercise of any such right, power, or privilege will preclude any other or further exercise of such right, power, or privilege or the exercise of any other right, power, or privilege. To the maximum extent permitted by applicable law, (i) no claim or right arising out of this Indemnification Agreement can be discharged by one party, in whole or in part, by a waiver or renunciation of the claim or right unless in writing signed by the other party; (ii) no waiver that may be given by a party will be applicable except in the specific instance for which it is given; and (iii) no notice to or demand on one party will be deemed to be a waiver of any obligation of such party or of the right of the party giving such notice or demand to take further action without notice or demand as provided in this Indemnification Agreement. 4.8 Further Assurances. The parties agree (i) to furnish upon request to each other such further information, (ii) to execute and deliver to each other such other documents, 5 and (iii) to do such other acts and things, all as the other party may reasonably request for the purpose of carrying out the intent of this Indemnification Agreement. 4.9 Severability. If any provision of this Indemnification Agreement is held invalid or unenforceable by any court of competent jurisdiction, the other provisions of this Indemnification Agreement will remain in full force and effect. Any provision of this Indemnification Agreement held invalid or unenforceable only in part or degree will remain in full force and effect to the extent not held invalid or unenforceable. 4.10 Counterparts. This Indemnification Agreement may be executed in one or more counterparts, each of which will be deemed to be an original copy of this Indemnification Agreement and all of which, when taken together, will be deemed to constitute one and the same agreement. 4.11 Section Headings; Construction. The headings of Sections in this Indemnification Agreement are provided for convenience only and will not affect its construction or interpretation. All references to "Section" or "Sections" refer to the corresponding Section or Sections of this Indemnification Agreement. All words used in this Indemnification Agreement will be construed to be of such gender or number as the circumstances require. Unless otherwise expressly provided, the word "including" does not limit the preceding words or terms. 4.12 Successors and Assigns. All the terms and provisions of this Indemnification Agreement shall be binding upon and inure to the benefit of and be enforceable by the respective parties hereto, and their respective successors and assigns. 4.13 Third Party Beneficiaries. It is expressly agreed that each of the indemnified parties named in Section 1 hereof (other than Richemont) shall be third party beneficiaries of this Indemnification Agreement and shall be entitled to enforce it in accordance with its terms. 4.14 Non-Exclusive Remedy. Nothing set forth in this Indemnification Agreement shall be deemed to be exclusive of any other rights or remedies that any of the parties may have in respect of the subject matter of this Indemnification Agreement, whether by law, contract or otherwise. The remainder of this page has intentionally been left blank. 6 IN WITNESS WHEREOF, the parties have executed and delivered this Indemnification Agreement as of the date first written above. HANOVER DIRECT, INC. By: /s/ Thomas C. Shull ------------------------------------------ Name: Thomas C. Shull Title: President and Chief Executive Officer RICHEMONT FINANCE S.A. By: /s/ Eloy Michotte ----------------------------------------- Name: Eloy Michotte Title: [Signature page for Indemnification Agreement] 7 EX-10.4 8 y55962ex10-4.txt 19TH. AGREEMENT TO LOAN AND SECURITY AGREEMENT EXHIBIT 10.4 [Execution Version] NINETEENTH AMENDMENT TO LOAN AND SECURITY AGREEMENT THIS NINETEENTH AMENDMENT TO LOAN AND SECURITY AGREEMENT, dated as of December 18, 2001, is entered into by and among CONGRESS FINANCIAL CORPORATION, a Delaware corporation ("Lender"), HANOVER DIRECT PENNSYLVANIA, INC., a Pennsylvania corporation ("HDPI"), BRAWN OF CALIFORNIA, INC., a California corporation ("Brawn"), GUMP'S BY MAIL, INC., a Delaware corporation ("GBM"), GUMP'S CORP., a California corporation ("Gump's"), LWI HOLDINGS, INC., a Delaware corporation ("LWI"), HANOVER DIRECT VIRGINIA INC., a Delaware corporation ("HDV"), HANOVER REALTY, INC., a Virginia corporation ("Hanover Realty"), THE COMPANY STORE FACTORY, INC., a Delaware corporation ("TCS Factory"), THE COMPANY OFFICE, INC., a Delaware corporation ("TCS Office"), TWEEDS, LLC, a Delaware limited liability company ("Tweeds LLC"), SILHOUETTES, LLC, a Delaware limited liability company ("Silhouettes LLC"), HANOVER COMPANY STORE, LLC, a Delaware limited liability company ("HCS LLC"), DOMESTICATIONS, LLC, a Delaware limited liability company ("Domestications LLC") and KEYSTONE INTERNET SERVICES, INC., a Delaware corporation ("Keystone Internet"; and together with HDPI, Brawn, GBM, Gump's, LWI, HDV, Hanover Realty, TCS Factory, TCS Office, Tweeds LLC, Silhouettes, HCS LLC and Domestications, each individually referred to herein as a "Borrower" and collectively, as "Borrowers"), and HANOVER DIRECT, INC., a Delaware corporation, ("Hanover"), AMERICAN DOWN & TEXTILE COMPANY, a Wisconsin corporation ("American Down"), D.M. ADVERTISING, INC., a New Jersey corporation ("DM Advertising"), SCANDIA DOWN CORPORATION, a Delaware corporation ("Scandia"), KEYSTONE LIQUIDATIONS, INC., a Delaware corporation, formerly known as Tweeds of Vermont, Inc., HANOVER HOME FASHIONS GROUP, LLC, a Delaware limited liability company ("HHFG LLC"), KITCHEN & HOME, LLC, a Delaware limited liability company ("Kitchen & Home, LLC"), DOMESTICATIONS KITCHEN & GARDEN, LLC, a Delaware limited liability company ("Domestications K&G, LLC"), ENCORE CATALOG, LLC, a Delaware limited liability company ("Encore LLC"), CLEARANCE WORLD OUTLETS, LLC, a Delaware limited liability company ("Clearance World"), SCANDIA DOWN, LLC, a Delaware limited liability company ("Scandia Down, LLC"), ERIZON, INC., a Delaware corporation ("erizon, inc."), HANOVER BRANDS, INC., a Delaware corporation ("Hanover Brands"), ERIZON.COM, INC., a Delaware corporation ("erizon.com"), LACROSSE FULFILLMENT, LLC, a Delaware limited liability company ("LaCrosse, LLC") and SAN DIEGO TELEMARKETING, LLC, a Delaware limited liability company ("San Diego LLC"; each individually a "Guarantor" and collectively "Guarantor"). 1 W I T N E S S E T H: WHEREAS, Borrowers, Guarantors and Lender are parties to the Loan and Security Agreement, dated November 14, 1995, as amended by First Amendment to Loan and Security Agreement, dated February 22, 1996, Second Amendment to Loan and Security Agreement, dated April 16, 1996, Third Amendment to Loan and Security Agreement, dated May 24, 1996, Fourth Amendment to Loan and Security Agreement, dated May 31, 1996, Fifth Amendment to Loan and Security Agreement, dated September 11, 1996, Sixth Amendment to Loan and Security Agreement, dated as of December 5, 1996, Seventh Amendment to Loan and Security Agreement, dated as of December 18, 1996, Eighth Amendment to Loan and Security Agreement, dated as of March 26, 1997, Ninth Amendment to Loan and Security Agreement, dated as of April 18, 1997, Tenth Amendment to Loan and Security Agreement, dated as of October 31, 1997, Eleventh Amendment to Loan and Security Agreement, dated as of March 25, 1998, Twelfth Amendment to Loan and Security Agreement, dated as of September 30, 1998, Thirteenth Amendment to Loan and Security Agreement, dated as of September 30, 1998, Fourteenth Amendment to Loan and Security Agreement, dated as of February 28, 2000, Fifteenth Amendment to Loan and Security Agreement, dated as of March 24, 2000, Sixteenth Amendment to Loan and Security Agreement, dated as of August 8, 2000, Seventeenth Amendment to Loan and Security Agreement, dated as of January 5, 2001, and Eighteenth Amendment to Loan and Security Agreement (the "Eighteenth Amendment to Loan Agreement"), dated as of November 12, 2001 (as so amended, the "Loan Agreement"), pursuant to which Lender has made loans and advances to Borrowers; and WHEREAS, Borrowers and Guarantors and Lender have agreed that Hanover may, subject to the terms and conditions contained herein, repurchase, redeem or retire approximately 1,400,000 shares of its Series A Participating Preferred Stock and approximately 74,098,769 shares of its Common Stock from Richemont in consideration of the issuance by Hanover of approximately 1,622,111 shares of its Series B Participating Preferred Stock to Richemont, Lender may implement the Asset Sale Lending Adjustments (as hereinafter defined) in respect of the amounts that may be made available to Borrowers under the Revolving Loan Formulas upon the consummation of Asset Sales (as hereinafter defined) as set forth herein, and after Lender has implemented all Asset Sale Lending Adjustments, Hanover may, subject to the terms and conditions contained herein, repurchase, redeem or retire shares of its Series B Participating Preferred Stock owned by Richemont using a portion of the Net Proceeds (as hereinafter defined) from any Asset Sales consummated after the implementation of all Asset Sale Lending Adjustments; WHEREAS, the parties to the Loan Agreement desire to enter into this Nineteenth Amendment to Loan and Security Agreement (this "Amendment") to evidence and effectuate such consents, amendments and agreements, and certain other amendments to the Financing Agreements relating thereto, in each case subject to the terms and conditions and to the extent set forth herein; NOW, THEREFORE, in consideration of the premises and covenants set forth herein and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: 2 1. Definitions. (a) Additional Definitions. As used herein or in any of the other Financing Agreements, the following terms shall have the meanings given to them below, and the Loan Agreement shall be deemed and is hereby amended to include, in addition and not in limitation, the following definitions: (i) "Asset Sale" shall mean, as to Gump's, GBM, Brawn, San Diego LLC, Silhouettes LLC, American Down, Scandia, Scandia Down LLC and Hanover Brands, any sale, conveyance or other disposition (including, without limitation, any sale or other disposition of Capital Stock of Gump's, GBM, Brawn, San Diego LLC, Silhouettes LLC, American Down, Scandia or Scandia Down LLC or disposition by way of merger or consolidation) of the Gump's Main Store Assets, the GBM Catalog Assets, the International Male Catalog Assets, the San Diego Telemarketing Center Assets, the Silhouettes Catalog Assets, the Scandia Down Assets, and the General Intangibles related to the Gump's Main Store Assets, the GBM Catalog Assets, the International Male Catalog Assets, the San Diego Telemarketing Center Assets, the Silhouettes Catalog Assets and the Scandia Down Assets, except in each case, for transactions in the ordinary course of business consistent with past practices previously disclosed to Lender. (ii) "Asset Sale Lending Adjustments" shall mean the reductions in the amount of Revolving Loans available to Revolving Loan Borrowers by applying the Net Proceeds to repay any outstanding Obligations of Borrowers or Guarantors at the time of an Asset Sale pursuant to Section 4(a) hereof and then effectively reducing the amount of Revolving Loans that would have otherwise been available to Revolving Loan Borrowers by such amount of Net Proceeds so applied pursuant to the adjustments to the Inventory Loan Formulas as provided in Section 5 hereof, the adjustments to the Accounts Loan Formulas provided for in Section 6 hereof, the establishment of the Asset Sale Reserves as provided by Section 7 hereof and the establishment of the Special Asset Sale Reserve as provided by Section 8 hereof. (iii) "Asset Sale Reserve" shall have the meaning given in Section 7 hereof. (iv) "Certificate of Designation of the Series B Preferred Stock" shall mean the Certificate of the Designations, Powers, Preferences and Rights of Series B Participating Preferred Stock of Hanover Direct, Inc. to be filed with the Delaware Secretary of State in connection with the Series B Participating Preferred Offering, as the same will exist on the execution and delivery date thereof or may thereafter be amended, modified, supplemented, extended, renewed, restated or replaced. (v) "GBM Catalog Assets" shall mean all of the assets and properties of GBM and the General Intangibles of Hanover Brands, in each case, that are primarily related to or primarily used in connection with or arise from the sale of merchandise or services through the "Gump's By Mail" mail order catalog business, including, without limitation, all Accounts, Inventory, Customer Lists and other General Intangibles so related, used or sold. 3 (vi) "Gump's Main Store Assets" shall mean all of the assets and properties of Gump's and the General Intangibles of Hanover Brands, in each case, that are primarily related to or primarily used in connection with or arise from the retail business and operations of the Gump's Main Store, including, without limitation, all Accounts, Inventory, and other General Intangibles so related, used or sold. (vii) "International Male Catalog Assets" shall mean all of the assets and properties of Brawn and the General Intangibles of Hanover Brands, in each case, that are primarily related to or primarily used in connection with or arise from the sale of merchandise or services through the "International Male" mail order catalog business, including, without limitation, all Accounts, Inventory, Customer Lists and other General Intangibles so related, used or sold. (viii)"Net Proceeds" shall mean the aggregate cash proceeds received by any of Borrowers or Guarantors in respect of any Asset Sale, less the amount of any sales or transfer taxes and other direct expenses of such Borrowers or Guarantors relating to such Asset Sale. (ix) "Scandia Down Assets" shall mean all of the assets and properties of Scandia Down LLC, Scandia and American Down and the General Intangibles of Hanover Brands, in each case, that are primarily related to or primarily used in connection with or arise from the sale of merchandise or services through license arrangements with retail stores and through the Scandia Down mail order catalog business, including, without limitation, all Accounts, Inventory, Customer Lists and other General Intangibles so related, used or sold. (x) "Series B Participating Preferred Agreements" shall mean, collectively (as the same will exist on the execution and delivery date thereof and as may thereafter be amended, modified, supplemented, extended, renewed, restated or replaced): the Certificate of Designation for the Series B Participating Preferred Stock, the Series B Participating Preferred Purchase Agreement between Richemont and Hanover, and all related agreements, documents and instruments to be executed, delivered or filed in connection with, or otherwise evidencing, the Series B Participating Preferred Offering. (xi) "Series B Participating Preferred Offering" shall mean the proposed repurchase, redemption or retirement of approximately 1,400,000 shares of its Series A Participating Preferred Stock and approximately 74,098,769 shares of its Common Stock from Richemont in consideration of the issuance by Hanover to Richemont of approximately 1,622,111 shares of Series B Participating Preferred Stock of Hanover in accordance with the terms and conditions of the Series B Participating Preferred Agreements. (xii) "Series B Participating Preferred Purchase Agreement" shall mean the Agreement, to be dated as of the effective date of the Series B Participating Preferred Offering, between Richemont and Hanover, as the same will exist on the execution and delivery date thereof or may thereafter be amended, modified, supplemented, extended, renewed, restated or replaced. 4 (xiii)"Special Asset Sale Reserve" shall have the meaning given in Section 8 hereof. (b) Amendments to Definitions. (i) Net Orderly Liquidation Value. Effective the first time that Lender implements an Asset Sale Lending Adjustment pursuant to Section 5 of this Amendment, all references to the term "Net Orderly Liquidation Value" in the Loan Agreement and the other Financing Agreements shall be deemed and each such reference is hereby amended to mean, (A) as to Eligible Inventory other than Gump's Eligible Inventory or TCS Eligible Inventory consisting of raw materials, an amount equal to eighty (80%) percent of the gross proceeds that could be realized in cash if such Inventory were sold within a six (6) to nine (9) month period in an orderly liquidation sale, and (B) as to TCS Eligible Inventory consisting of raw materials, an amount equal to seventy (70%) percent of the gross proceeds that could be realized in cash if such Inventory were sold within a six (6) to nine (9) month period in an orderly liquidation sale minus, in each case under clauses (A) and (B), the estimated costs, expenses, fees, including reasonable attorneys fees, taxes and other charges which would be incurred in connection with such sales, and estimated returns, all as set forth in, or calculated using, the most recent Appraisal. (ii) Net GOB Value. Effective the first time that Lender implements an Asset Sale Lending Adjustment pursuant to Section 5 of this Amendment, all references to the term "Net GOB Value" in the Loan Agreement and the other Financing Agreements shall be deemed and each such reference is hereby amended to mean, as to Gump's Eligible Inventory, an amount equal to eighty percent (80%) of the gross proceeds that could be realized in cash if such Inventory were sold within a ninety (90) day period in a going out of business liquidation sale, as set forth or calculated in the most recent Appraisal, minus the estimated costs, expenses, fees, including reasonable attorneys fees, taxes and other charges which would be incurred in connection with such sale, and estimated returns, all as set forth in, or calculated using, the most recent Appraisal. (iii) San Diego Telemarketing Center Assets. All references to the term "San Diego Telemarketing Center Assets" in the Loan Agreement and the other Financing Agreements shall be deemed and each such reference is hereby amended to mean (A) all of the fixed assets of San Diego LLC primarily related to or primarily used in connection with the business and operations of the telemarketing and call center located at 741 "F" Street, San Diego, California and (B) the lease by Brawn of the premises located at 741 "F" Street, San Diego, California. (iv) Silhouettes Catalog Assets. All references to the term "Silhouettes Catalog Assets" in the Loan Agreement and the other Financing Agreements shall be deemed and each such reference is hereby amended to mean all of the assets and properties of Silhouettes LLC and the General Intangibles of Hanover Brands, in each case, that are primarily related to or primarily used in connection with or arise from the sale of merchandise or services through the "Silhouettes" mail order catalog business, including, without limitation, all Accounts, Inventory, Customer Lists and other General Intangibles so related, used or sold. 5 (c) Interpretation. All capitalized terms used herein and not defined herein shall have the meanings given to such terms in the Loan Agreement. 2. Series B Participating Preferred Offering. (a) Lender hereby, subject to the terms and conditions contained in this Amendment, consents to the redemption by Hanover of its Series A Participating Preferred Stock held by Richemont in consideration of the issuance by Hanover to Richemont of the Series B Participating Preferred Stock of Hanover pursuant to the Series B Participating Preferred Offering, so long as each of the following conditions shall have been satisfied as determined by Lender: (i) the terms and conditions of the Series B Participating Preferred Offering shall be satisfactory to Lender and all the Series B Participating Preferred Agreements shall be in form and substance satisfactory to Lender; (ii) Lender shall have received, in form and substance satisfactory to Lender, true, correct and complete photocopies of all of the Series B Participating Preferred Agreements; (iii) Neither the execution and delivery of the Series B Participating Preferred Agreements or any other agreements, documents or instruments in connection therewith, nor the consummation of the transactions therein contemplated, nor compliance with the provisions thereof shall violate any Federal or State securities laws or any other law or regulation or any order or decree of any court or governmental instrumentality in any respect, or shall conflict with or result in the breach of, or constitute a default in any respect under any mortgage, deed of trust, security agreement, agreement or instrument to which any Borrower or Guarantor is a party or may be bound, or shall violate any provision of the Certificate of Incorporation or By-Laws of any Borrower or Guarantor; (iv) Lender shall have received, in form and substance satisfactory to Lender Secretary's or Assistant Secretary's Certificates of Directors' Resolutions evidencing the adoption and subsistence of corporate resolutions approving the execution, delivery and performance by Hanover with respect to the Series B Participating Preferred Offering and the Series B Participating Preferred Offering Agreements and the opinion of counsel to Hanover delivered to Richemont with respect to the Series B Participating Preferred Offering and the Series B Participating Preferred Offering Agreements, upon which Lender shall be expressly permitted to rely; (v) each of Borrowers and Guarantors shall have delivered, or have caused to be delivered, to Lender a true and correct copy of any consent, waiver or approval to or of the Series B Participating Preferred Offering, which any Borrower or Guarantor is required to obtain from any other Person, and such consent, approval or waiver shall be in a form reasonably acceptable to Lender; 6 (vi) as of the date of the closing of Series B Participating Preferred Offering and after giving effect thereto, no Event of Default or Incipient Default shall exist or have occurred and be continuing; and (vii) the closing of Series B Participating Preferred Offering shall have occurred on or before December 31, 2001, or such later date as Lender may agree to in writing. (b) Effective on the effective date Lender determines that conditions set forth in Section 2(a) hereof have been satisfied, Borrowers and Guarantors hereby acknowledge, confirm and agree that, notwithstanding anything to the contrary that may be contained in Sections 6.3, 6.5 and 6.6 of the Loan Agreement or in any other provisions of the Loan Agreement or in any of the other Financing Agreements, or in any of the Series B Participating Preferred Agreements, without the prior written consent of Lender, Borrowers and Guarantors shall not, and shall not permit any of their Subsidiaries, directly or indirectly, to make any loans, advances, dividends, redemptions or other payments in respect of the Capital Stock of Hanover consisting of the Series B Participating Preferred Stock, whether in cash, property or otherwise; provided, that, (i) Hanover may, on the effective date that Lender determines the conditions set forth in Section 2(a) hereof have been satisfied, make a one time payment for transaction fees and expenses in the amount of $1,000,000 to Richemont in accordance with Section 2(b) of the Series B Participating Preferred Purchase Agreement. (ii) Hanover may make dividend payments in Capital Stock, but not cash, to the holders of the Series B Participating Preferred Stock, so long as each of the following conditions shall have been satisfied as determined by Lender: (A) the declaration and payment of such dividends (1) shall not violate any Federal or State securities laws or any other law or regulation or any order or decree of any court or governmental authority, (2) shall not conflict with or result in the breach of, or constitute a default under any mortgage, deed of trust, security agreement, agreement or instrument to which any Borrower or Guarantor is a party or may be bound, or (3) shall not violate any provision of the Certificate of Incorporation or By-Laws of any Borrower or Guarantor; and (B) as of the date of the declaration and payment of such dividends and after giving effect thereto, no Event of Default or Incipient Default shall exist or have occurred and be continuing. (iii) Hanover may, subject to the terms and conditions contained herein, repurchase, redeem or retire in cash, Capital Stock consisting of the Series B Participating Preferred Stock, so long as each of the following conditions shall have been satisfied as determined by Lender: (A) Lender shall have received at least thirty (30) days' prior written notice of the intention of Hanover to repurchase, redeem or retire any of the Series B Participating Preferred Stock, which notice shall set forth the proposed number of shares 7 Hanover intends to repurchase, redeem or retire, the price per share, the aggregate purchase price of such shares and such other information related thereto that Lender may reasonably request; (B) no such repurchases, redemptions or retirements of Series B Participating Preferred Stock shall be permitted until all of the Asset Sale Lending Adjustments have been implemented by Lender; (C) Excess Availability of Borrowers for each of the immediately preceding thirty (30) days before any such repurchase, redemption or retirement shall have been not less than $10,000,000 and on the date of any such repurchase, redemption or retirement and after giving effect thereto, Excess Availability of Borrowers shall be not less than $10,000,000; (D) Borrowers and Guarantors shall furnish to Lender, upon Lender's request, any agreements, documents or instruments evidencing or relating to any such repurchases, redemptions or retirements of Series B Participating Preferred Stock; (E) any such repurchase, redemption or retirement of Series B Participating Preferred Stock shall be paid using only Net Proceeds of Asset Sales and not any other funds of Borrower or Guarantor and shall be paid with legally available funds therefor; (F) the aggregate amount of all repurchases, redemptions and retirements of such Capital Stock shall not exceed the amount of the Net Proceeds derived from the Asset Sales after application of the Net Proceeds as provided in Section 4 hereof and the implementation of all Asset Sale Lending Adjustments by Lender; (G) any such repurchase, redemption or retirement (1) shall not violate any Federal or State securities laws or any other law or regulation or any order or decree of any court or governmental authority, (2) shall not conflict with or result in the breach of, or constitute a default under any mortgage, deed of trust, security agreement, agreement or instrument to which any Borrower or Guarantor is a party or may be bound, or (3) shall not violate any provision of the Certificate of Incorporation or By-Laws of any Borrower or Guarantor; and (H) as of the date of any such repurchase, redemption or retirement of such Capital Stock and after giving effect thereto, no Event of Default or Incipient Default shall exist or have occurred and be continuing. (iv) Borrowers, Hanover and the other Guarantors shall not amend, modify or supplement any of the Series B Participating Preferred Agreements without the prior written consent of Lender. 3. Asset Sales. Notwithstanding anything to the contrary contained in Section 6.9 of the Loan Agreement, Gump's, GBM, Brawn, San Diego LLC, Silhouettes LLC, Scandia, American Down, Scandia Down LLC and Hanover Brands may consummate an Asset Sale, so long as each of the following conditions shall have been satisfied as determined by Lender as to any such Asset Sale: 8 (a) Lender shall have received not less than fifteen (15) days' prior written notice of the intention of such Borrower or Guarantor to enter into a letter of intent in respect of an Asset Sale, which letter of intent shall expressly provide that the closing of any such Asset Sale shall be conditioned upon the prior written consent of Lender, and which notice shall set forth in reasonable detail satisfactory to Lender, the parties to such Asset Sale, the assets and related assets to be sold, the purchase price and the manner of payment thereof and such other information with respect thereto as Lender may request, and not less than thirty (30) days' prior written notice of the date of the closing of any such Asset Sale; (b) any such Asset Sale shall be on terms and conditions satisfactory to Lender, and all agreements, documents and instruments related to such Asset Sale shall be in form and substance satisfactory to Lender; (c) the Net Proceeds of any such Asset Sale shall be paid directly to Lender and shall be applied as provided in Section 4 hereof; (d) to the extent that Lender in good faith determines any amendments, modifications or changes may be necessary to any of the Financing Agreements in connection with Lender's consent to any such Asset Sale or with Lender's implementation of an Asset Sale Lending Adjustment, including, without limitation, the right of Lender to adjust any of the financial covenants as Lender in good faith deems necessary to take into account the effect of such Asset Sale, Borrowers and Guarantors shall execute and deliver to Lender on or before the consummation of any such Asset Sale or the implementation of an Asset Sale Lending Adjustment, such amendments to the Loan Agreement or any of the other Financing Agreements as Lender may in good faith request; and (e) as of the date of such Asset Sale and after giving effect thereto, no Incipient Default or Event of Default shall exist or have occurred and be continuing. 4. Application of Proceeds. (a) Upon receipt of the Net Proceeds of any Asset Sale, Lender shall prior to an Event of Default that has occurred and is continuing apply such Net Proceeds as follows: (i) first, to pay the Obligations of the Borrower or Guarantor whose assets are being sold pursuant to such Asset Sale in the amount equal to the amount of the Obligations consisting of Revolving Loans then outstanding of such Borrower or Guarantor and to hold as cash collateral for the Obligations of such Borrower or Guarantor an amount equal to one hundred and ten percent (110%) (or such greater amount in accordance with Lender's policies and practices) of the Letter of Credit Accommodations then outstanding of such Borrower or Guarantor; (ii) second, to pay the Obligations of Borrowers and Guarantors in such order and manner as Lender may determine in its sole discretion to give effect to any Asset Sale Lending Adjustment; and 9 (iii) third, after all Asset Sale Lending Adjustments have been implemented by Lender, to pay the Obligations of Borrowers and Guarantors in such order and manner as Lender may determine in its sole discretion (other than a prepayment of any of the Term Loans), and immediately thereafter, the full remaining amount of such proceeds after application pursuant to clauses (i) and (ii) of this Section 4(a) shall be credited on a dollar for dollar basis to the loan account(s) of Revolving Loan Borrowers for purposes of determining the amount of Revolving Loans that may be made available to Revolving Loan Borrowers in accordance with the terms and conditions of the Loan Agreement to then be used, subject to the conditions set forth in Section 2 hereof and in the Loan Agreement and the other Financing Agreements, for the purpose of repurchasing, redeeming or retiring shares of the Series B Participating Preferred Stock held by Richemont to the extent that Hanover may be required to repurchase, redeem or retire such shares in accordance with the terms and conditions of the Series B Participating Preferred Agreements as in effect on the date of execution and delivery thereof. (b) After an Event of Default that has occurred and is continuing, Lender may apply Net Proceeds of any Asset Sales to any of the Obligations of Borrowers and Guarantors in whatever order and manner Lender may in its discretion determine. 5. Asset Sale Lending Adjustments to Revolving Inventory Loans. (a) Effective on the effective date of an Asset Sale, Lender may pursuant to Section 4(a) hereof apply a portion of the Net Proceeds from such Asset Sale to repay Obligations of Borrowers and Guarantors consisting of Revolving Inventory Loans. Lender may thereafter in its discretion reduce the amounts available under the Inventory Loan Formulas by an amount equal to all or a portion of the Net Proceeds of such Asset Sale applied to repay the Obligations of Borrowers and Guarantors as provided in Section 4(a) hereof as determined by Lender in its sole discretion. (b) In addition to and not in limitation of Lender's rights in Section 5(a) hereof, Lender may implement a reduction in the Inventory Loan Formulas by first determining the amount of Revolving Inventory Loans that would be available to Revolving Loan Borrowers at the time of such Asset Sale and then reducing the amount of such Revolving Inventory Loans by the amount of the Net Proceeds that Lender applies to repay a portion of the outstanding amount of Obligations pursuant to Section 4(a) hereof (such amount, the "Reduced Amount of Revolving Inventory Loans"). Lender will then determine what the advance rates under the Inventory Loan Formulas would be by taking into account the amendment to the Net Orderly Liquidation Value and the Net GOB Value in order to yield the Reduced Amount of Revolving Inventory Loans. The then existing advance rates with respect to Revolving Inventory Loans pursuant to Section 2.1(b) of the Loan Agreement will be reduced to such advance rates that will yield such Reduced Amount of Revolving Inventory Loans; provided, that, such Inventory Loan Formulas shall not be reduced such that the advance rates would be lower than the rates set forth in Section 5(c) hereof. (c) Lender may implement Asset Sale Lending Adjustments in respect of the Inventory Loan Formulas until the advance rates are reduced to the advance rates set forth below 10 and at such time Section 2.1(b) of the Loan Agreement will be amended and replaced with the following: "(b) Revolving Inventory Loans. Subject to, and upon the terms and conditions contained herein and in the other Financing Agreements, Lender shall, from time to time, make Revolving Inventory Loans: (i) to each Revolving Loan Borrower, other than Gump's, and other than TCS with respect to TCS Eligible Inventory consisting of raw materials, at such Revolving Loan Borrower's request, of up to the lesser of (A) fifty-four percent (54%) of the Value of the Eligible Inventory of such Revolving Loan Borrower or (B) the Net OLV Percentage of the Value of such Eligible Inventory; (ii) to Gump's, at its request, of up to the lesser of (A) thirty-eight percent (38%) of the Value of Eligible Inventory of Gump's or (B) the Net GOB Percentage of the Value of Eligible Inventory of Gump's; and (iii) to TCS, at its request, of up to the lesser of (A) thirty percent (30%) of the Value of TCS Eligible Inventory consisting of raw materials or (B) the Net OLV Percentage of the Value of such Eligible Inventory; or, (iv) in the case of each of clauses (b)(i), (b)(ii), and (b)(iii) of this Section 2.1(b), such greater or lesser percentages thereof as Lender shall, in its sole discretion, determine from time to time (the "Inventory Loan Formulas"). Without limiting the foregoing, the fifty-four (54%) percent lending formula component referred to in clause (b)(i)(A), the thirty-eight (38%) percent lending formula component referred to in clause (b)(ii)(A), and the thirty percent (30%) lending formula component referred to in clause (b)(iii)(A) may be adjusted downward by Lender based upon any adverse change, individually or in the aggregate, in the turnover of Eligible Inventory or deterioration in mix, nature or quality of Eligible Inventory in the respective categories of Eligible Inventory, and any such downward adjustment made for such reason(s) (or on the basis of the lending formula component(s) set forth in clauses (b)(i)(B), (b)(ii)(B), or (b)(iii)(B) above) shall not be considered solely discretionary for purposes of the provision contained in the definition of Interest Rate and Section 2.7(c) hereof." (d) If sufficient Net Proceeds are available upon the consummation of an Asset Sale to effect the adjustments to the Inventory Loan Formulas provided for in the amendments to the definitions of "Net Orderly Liquidation Value" provided for in Section 1(b)(ii) hereof and "Net GOB Value" provided for in Section 1(b)(iii) hereof, then the first time that Lender implements an Asset Sale Lending Formula Adjustment provided for in Section 5(a) hereof, the amendments to those definitions shall be deemed to have occurred and be in full force and effect. (e) Nothing contained in this Amendment shall in any way limit or affect Lender's rights or remedies to adjust the Inventory Loan Formulas for any reason, other than in connection with an Asset Sale Lending Adjustment to the extent provided in Sections 5(a) and (b) hereof, or limit or affect Lender's rights or remedies upon an Event of Default or Incipient Default. 11 6. Asset Sale Lending Adjustments to Revolving Accounts Loans. (a) Effective on the date of an Asset Sale, Lender may pursuant to Section 4(a) hereof apply a portion of the Net Proceeds from such Asset Sale to repay Obligations of Borrowers and Guarantors consisting of Revolving Accounts Loans made against the Net Amount of Eligible Fulfillment Contract Receivables. Lender may thereafter in its discretion adjust the Accounts Loan Formulas such that the amount of Revolving Accounts Loans that may be made available to Revolving Loan Borrowers shall be reduced by the amount of Revolving Accounts Loans then outstanding attributable to Revolving Loans made against the Net Amount of Eligible Fulfillment Contract Receivables repaid pursuant to Section 4(a) hereof. Adjustments to the Accounts Loan Formulas may be made only in respect of the Eligible Fulfillment Contract Receivables component and may be made until all Revolving Loans made against the Net Amount of Eligible Fulfillment Contract Receivables have been paid in full and the effective amount of Revolving Loans available in respect of Eligible Fulfillment Contract Receivables is $-0- pursuant to Section 4(a) hereof. (b) Upon implementation of the adjustments to the Accounts Loan Formulas under Section 6(a) hereof, (i) No more Revolving Accounts Loans consisting of Revolving Loans against the Net Amount of Eligible Fulfillment Contract Receivables shall be made available to any Borrowers. (ii) Section 2.1(a)(iv) of the Loan Agreement shall be deleted in its entirety and replaced with the following: "(iv) [Intentionally Omitted]" (iii) Section 2.2(j) of the Loan Agreement is hereby deleted in its entirety and replaced with the following: "(j) Without limiting the foregoing lending sublimits, (i) the aggregate amount of Revolving Loans shall not at any one time outstanding exceed the Revolving Loan Limit for all Revolving Loan Borrowers and (ii) the aggregate amount of Revolving Accounts Loans for all Deferred Billing Borrowers, Installment Billing Borrowers and any other applicable Revolving Loan Borrowers shall not at any one time outstanding exceed $15,000,000. Lender shall have the right, from time to time, to establish and revise Revolving Accounts Loan sublimits for each Deferred Billing Borrower, Installment Billing Borrower and each other applicable Revolving Loan Borrower within the overall $15,000,000 sublimit applicable to all Revolving Accounts Loans." (c) Nothing contained in this Amendment shall in any way limit or affect Lender's rights or remedies to adjust the Accounts Loan Formulas for any reason, other than in connection with an Asset Sale Lending Adjustment to the extent provided in Sections 6(a) and (b) hereof, or limit or affect Lender's rights or remedies upon an Event of Default or Incipient Default. 12 7. Asset Sale Loan Availability Reserve. (a) Effective on the date of an Asset Sale Lending Adjustment, Lender may pursuant to Section 4(a) hereof apply a portion of the Net Proceeds from such Asset Sale to repay Obligations of Borrowers and Guarantors consisting of Revolving Loans. Lender shall then establish and maintain at all times thereafter an availability reserve in such amount against the amount of Revolving Loans and Letter of Credit Accommodations otherwise determined by Lender to be available to Revolving Loan Borrowers under the Loan Agreement and the other Financing Agreements (the "Asset Sale Reserve"); provided, that the amount of such Asset Sale Reserves shall not exceed $7,500,000 in the aggregate. (b) Lender agrees upon implementation of all of the Asset Sale Lending Adjustments to release $2,500,000 of the Asset Sale Reserve to the extent that Lender determines in its sole discretion the market value of the Real Property covered by the Mortgages as set forth in one or more new written appraisals delivered to Lender (collectively, the "Real Estate Appraisal"), are equal to or greater than market value of $17,000,000 based on a marketing time of six to twelve months in respect of the Real Property located in Roanoke, Virginia covered by the Mortgage by Hanover Realty in favor of Congress as set forth in the Appraisal dated December 10, 1999 by Richard Ellis, market value of $4,650,000 based on a marketing time of six to twelve months in respect of the Real Property located at 2929 Airport Road, LaCrosse, Wisconsin covered by the Mortgage by TCS Factory in favor of Congress as set forth in the Appraisal dated December 8, 1999 by Richard Ellis and $1,575,000 based on a marketing time of six to twelve months in respect of the Real Property located at 455 Park Plaza, LaCrosse, Wisconsin covered by the Mortgage by TCS Office in favor of Congress as set forth in the Appraisal dated December 8, 1999 by Richard Ellis. The Real Estate Appraisal shall be in form, scope and methodology acceptable to Lender, conducted by an appraiser acceptable to Lender and which is addressed to Lender or upon which Lender is expressly permitted to rely. The Real Estate Appraisal shall be in addition to any appraisals of the Real Property delivered pursuant to Section 6.15 of the Loan Agreement. (c) The availability reserve established in accordance with this Section 7 is in addition to, and not in limitation of, all other existing availability reserves and the rights of Lender from time to time to establish other and further reserves against the availability of Revolving Loans and Letter of Credit Accommodations under the Loan Agreement and the other Financing Agreements, including, without limitation, the Special Asset Sale Reserve and the availability reserve in the amount of $500,000 established in accordance with Section 3 of the Eighteenth Amendment to Loan Agreement. 8. Special Asset Sale Loan Availability Reserve. (a) Effective on the date of an Asset Sale Lending Adjustment, in addition to any then existing availability reserves that may be in effect at such time, including, without limitation, any Asset Sale Reserve, Lender may establish and maintain an availability reserve against the amount of Revolving Loans and Letter of Credit Accommodations otherwise determined by Lender to be available to Revolving Loan Borrowers under the Loan Agreement 13 and the other Financing Agreements in the amount equal to all or any portion of the Net Proceeds of such Asset Sale that Lender determines in good faith is equivalent at such time to the amount of any Asset Sale Lending Adjustment implemented pursuant to Section 5, 6 or 7 hereof (the "Special Asset Sale Reserve"). (b) The Special Asset Sale Reserve may be established by Lender upon consummation of any Asset Sale in lieu of implementing any Asset Sale Lending Adjustments pursuant to Section 5, 6 or 7 hereof at the time such Asset Sale is consummated. Lender may from time to time release any Special Asset Sale Reserve upon implementation of any such Asset Sale Lending Adjustment pursuant to Section 5, 6 or 7 hereof. Upon the implementation of all Asset Sale Lending Adjustments pursuant to Sections 5, 6 and 7 hereof, Lender agrees that any Special Asset Sale Reserve being maintained by Lender at such time shall be released. (c) The availability reserve established in accordance with this Section 8 is in addition to, and not in limitation of, all other existing availability reserves and the rights of Lender from time to time to establish other and further reserves against the availability of Revolving Loans and Letter of Credit Accommodations under the Loan Agreement and the other Financing Agreements, including, without limitation, any Asset Sale Reserve and the availability reserve in the amount of $500,000 established in accordance with Section 3 of the Eighteenth Amendment to Loan Agreement. 9. Effect of Certain Amendments to Financing Agreements. (a) Solely in connection with the right of Hanover to redeem, repurchase or retire the Series B Participating Preferred Stock as set forth in Section 2 hereof, Lender agrees that any amendment or modification to the Loan Agreement and the other Financing Agreements after the date hereof that amends or modifies the definitions contained in Section 1 hereof, the terms and conditions in respect of any redemptions of the Series B Participating Preferred Agreements set forth in Section 2 hereof, the terms and conditions of any Asset Sales set forth in Section 3 hereof, the terms and conditions of the application of the proceeds set forth in Section 4 hereof, and the terms and conditions of the adjustments to the lending formulas set forth in Sections 5, 6, 7 and 8 hereof shall not apply to any rights of Hanover in respect of any redemption, repurchase, or retirement of the Series B Participating Preferred Stock permitted in this Amendment as in effect on the date hereof to the extent that any such amendment or modification would have the effect of making the conditions to the right of Hanover to redeem, repurchase or retire the Series B Participating Preferred Stock less favorable to the holders of the Series B Participating Preferred Stock than the terms as in effect on the date hereof. (b) Except as set forth in Section 9(a) hereof, nothing contained herein shall in any way limit or affect Lender's right to amend, modify, supplement, extend, renew, restate or replace any of the provisions of the Financing Agreements or the exercise of Lender's rights or remedies in accordance with the Financing Agreements, applicable law or otherwise. Lender is agreeing to the terms of this Section 9 solely as an accommodation to Borrowers and Guarantors and no other Person shall be, or be deemed to be a third party beneficiary of the provisions of this Amendment. 14 10. Costs and Expenses. The per diem charge per person for periodic field examinations of the Collateral in clause (vi) of Section 9.2(a) of the Loan Agreement is hereby amended by replacing the amount "Six Hundred Dollars ($600)" with the amount "Seven Hundred Fifty Dollars ($750)". 11. Waiver of Event of Default. (a) Lender hereby waives, subject to the terms and conditions contained in this Amendment, the Event of Default arising under Section 7.1(j) of the Loan Agreement as a result of the cessation of NAR, directly or through its Subsidiaries, to be the direct or indirect beneficial owner of a sufficient number of issued and outstanding shares of Capital Stock of Hanover and its Subsidiaries on a fully diluted basis, to elect a majority of the members of the respective Boards of Directors of Hanover and each member of the Affiliated Borrower Group. (b) The waiver contained in Section 11(a) hereof is conditioned upon Lender obtaining, in form and substance satisfactory to Lender, an amendment to Section 7.1(j) of the Loan Agreement by no later than January 21, 2002. Lender has not waived and is not by this Amendment waiving, and has no intention of waiving, any other Event of Default, which may have occurred before the date hereof, or may be continuing on the date hereof or any Event of Default that may occur after the date hereof, whether the same or similar to the Event of Default described in Section 11(a) hereof or otherwise, other than the Event of Default described in Section 11(a) hereof. Lender reserves the right, in its discretion, to exercise its rights and remedies arising under the Financing Agreements, applicable law or otherwise as a result of any other Events of Default that may have occurred before the date hereof, or are continuing on the date hereof, or any Event of Default that may occur after the date hereof, whether the same or similar to the Event of Default described in Section 11(a) hereof or otherwise. 12. Fees. In addition to all other fees, charges, interest and expenses payable by Borrowers to Lender under the Loan Agreement and the other Financing Agreements, Borrowers shall pay to Lender the following additional fees: (a) Borrowers shall pay to Lender, contemporaneously herewith, a closing fee in the amount of $375,000, which fee is fully earned as of the date hereof and may be charged into the loan account(s) of any Borrower. (b) Tranche B Term Loan Borrowers shall pay to Lender, contemporaneously herewith, a closing fee in the amount of $125,000, which fee is fully earned as of the date hereof and may be charged into the loan account(s) of any Tranche B Term Loan Borrower. 13. Representations, Warranties and Covenants. Borrowers and Guarantors represent, warrant and covenant with and to Lender as follows, which representations, warranties and covenants are continuing and shall survive the execution and delivery hereof, the truth and accuracy of, or compliance with each, together with the representations, warranties and covenants in the other Financing Agreements, being a condition of the effectiveness of this Amendment and a continuing condition of the making or providing of any Revolving Loans or Letter of Credit Accommodations by Lender to Borrowers: 15 (a) This Amendment and each other agreement or instrument to be executed and delivered by each Borrower or Guarantor hereunder have been duly authorized, executed and delivered by all necessary action on the part of each of Borrower and each Guarantor which is a party hereto and thereto and, if necessary, their respective stockholders (with respect to any corporation) or members (with respect to any limited liability company), and is in full force and effect as of the date hereof, as the case may be, and the agreements and obligations of each Borrower and Guarantor, as the case may be, contained herein and therein constitute legal, valid and binding obligations of each Borrower and Guarantor, as the case may be, enforceable against them in accordance with their terms. (b) No action of, or filing with, or consent of any governmental or public body or authority, and no consent of any other party, is required to authorize, or is otherwise required in connection with, the execution, delivery and performance of this Amendment and each other agreement or instrument to be executed and delivered pursuant to this Amendment. (c) Neither the execution and delivery of this Agreement or any other agreements, documents or instruments in connection therewith, nor the consummation of the transactions therein contemplated, nor compliance with the provisions thereof has violated or shall violate any Federal or State securities laws or any other law or regulation or any order or decree of any court or governmental instrumentality in any respect, or does, or shall conflict with or result in the breach of, or constitute a default in any respect under any mortgage, deed of trust, security agreement, agreement or instrument to which any Borrower or Guarantor is a party or may be bound, or does or shall violate any provision of the Certificate of Incorporation or By-Laws of any Borrower or Guarantor. (d) All of the representations and warranties set forth in the Loan Agreement as amended hereby, and the other Financing Agreements, are true and correct in all material respects after giving effect to the provisions of this Amendment, except to the extent any such representation or warranty is made as of a specified date, in which case such representation or warranty shall have been true and correct as of such date. (e) After giving effect to the provisions of this Amendment, no Event of Default or Incipient Default exists or has occurred and is continuing. (f) Any event of default or default under any of the Series B Preferred Participating Preferred Agreements shall constitute an Event of Default under the Financing Agreements. 14. Conditions Precedent. Concurrently with the execution and delivery hereof (except to the extent otherwise indicated below), and as a further condition to the effectiveness of this Amendment and the agreement of Lender to the modifications and amendments set forth in this Amendment: (a) Lender shall have received a photocopy of an executed original or executed original counterparts of this Amendment by facsimile (with the originals to be delivered within 16 five (5) Banking Days after the date hereof), as the case may be, duly authorized, executed and delivered by Borrowers and Guarantors; (b) Lender shall have received, in form and substance satisfactory to Lender, Secretary's or Assistant Secretary's Certificates of Directors' Resolutions with Shareholders' Consent evidencing the adoption and subsistence of corporate resolutions approving the execution, delivery and performance by Borrowers and Guarantors that are corporations of this Amendment and the agreements, documents and instruments to be delivered pursuant to this Amendment; and (c) each of Borrowers and Guarantors shall deliver, or cause to be delivered, to Lender a true and correct copy of any consent, waiver or approval to or of this Amendment, which any Borrower or Guarantor is required to obtain from any other Person, and such consent, approval or waiver shall be in a form reasonably acceptable to Lender. 15. Effect of this Amendment. This Amendment constitutes the entire agreement of the parties with respect to the subject matter hereof, and supersedes all prior oral or written communications, memoranda, proposals, negotiations, discussions, term sheets and commitments with respect to the subject matter hereof. Except as expressly provided herein, no other changes or modifications to the Loan Agreement or any of the other Financing Agreements, or waivers of or consents under any provisions of any of the foregoing, are intended or implied by this Amendment, and in all other respects the Financing Agreements are hereby specifically ratified, restated and confirmed by all parties hereto as of the effective date hereof. To the extent that any provision of the Loan Agreement or any of the other Financing Agreements conflicts with any provision of this Amendment, the provision of this Amendment shall control. 16. Further Assurances. Borrowers and Guarantors shall execute and deliver such additional documents and take such additional action as may be reasonably requested by Lender to effectuate the provisions and purposes of this Amendment. 17. Governing Law. The validity, interpretation and enforcement of this Amendment in any dispute arising out of the relationship between the parties hereto, whether in contract, tort, equity or otherwise shall be governed by the internal laws of the State of New York, without regard to any principle of conflict of laws or other rule of law that would result in the application of the law of any jurisdiction other than the State of New York. 18. Binding Effect. This Amendment shall be binding upon and inure to the benefit of each of the parties hereto and their respective successors and assigns. 19. Counterparts. This Amendment may be executed in any number of counterparts, but all of such counterparts shall together constitute but one and the same agreement. In making proof of this Amendment, it shall not be necessary to produce or account for more than one counterpart thereof signed by each of the parties hereto. 17 [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 18 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed on the day and year first written. CONGRESS FINANCIAL CORPORATION By:/s/ Janet Last --------------------------- Title: First Vice President ------------------------ HANOVER DIRECT PENNSYLVANIA, INC. BRAWN OF CALIFORNIA, INC. GUMP'S BY MAIL, INC. GUMP'S CORP. LWI HOLDINGS, INC. HANOVER DIRECT VIRGINIA INC. HANOVER REALTY, INC. THE COMPANY STORE FACTORY, INC. THE COMPANY OFFICE, INC. KEYSTONE INTERNET SERVICES, INC. TWEEDS, LLC SILHOUETTES, LLC HANOVER COMPANY STORE, LLC DOMESTICATIONS, LLC By: /s/ Brian Harriss --------------------------------- Title: Vice President ------------------------------ By their signatures below, the undersigned Guarantors acknowledge and agree to be bound by the applicable provisions of this Amendment: HANOVER DIRECT, INC. By: /s/ Brian Harriss -------------------------------- Title: EVP & Chief Financial Officer ----------------------------- [SIGNATURES CONTINUE ON NEXT PAGE] 19 [SIGNATURES CONTINUED FROM PREVIOUS PAGE] AMERICAN DOWN & TEXTILE COMPANY D.M. ADVERTISING, INC. SCANDIA DOWN CORPORATION KEYSTONE LIQUIDATIONS, INC. HANOVER HOME FASHIONS GROUP, LLC KITCHEN & HOME, LLC DOMESTICATIONS KITCHEN & GARDEN, LLC ENCORE CATALOG, LLC CLEARANCE WORLD OUTLETS, LLC SCANDIA DOWN, LLC ERIZON, INC. HANOVER BRANDS, INC. ERIZON.COM, INC. LA CROSSE FULFILLMENT, LLC SAN DIEGO TELEMARKETING, LLC By: /s/ Brian Harriss -------------------------------- Title: Vice President ----------------------------- 20 EX-99.1 9 y55962ex99-1.txt FORM OF PRESS RELEASE EXHIBIT 99.1 FOR IMMEDIATE RELEASE CONTACT: Hanover Direct, Inc. The MWW Group Brian C. Harriss Jamie Schwartz E.V.P. & Chief Financial Officer Rich Tauberman Tel: (201) 272-3224 Tel: (201) 507-9500 HANOVER DIRECT ANNOUNCES COMMON STOCK AND PREFERRED STOCK RESTRUCTURING TRANSACTION WITH RICHEMONT FINANCE S.A. AND AMENDMENT OF CONGRESS FINANCIAL CREDIT AGREEMENT WEEHAWKEN, NJ, December 20, 2001 - Hanover Direct, Inc. (AMEX: HNV) today announced it had consummated a Common and Preferred Stock transaction with Richemont Finance S.A. and amended its Credit Agreement with Congress Financial Corporation. With the transaction, disclosed in documents recently filed with the Securities and Exchange Commission, the Company purchased 74,098,769 shares of Common Stock and 1,400,000 shares of Series A Preferred Stock and all accrued and unpaid dividends from Richemont Finance S.A. in exchange for the issuance by the Company of 1,622,111 shares of Series B Preferred Stock, reimbursement of expenses of $1 million, and a release and indemnification agreement. The new Series B Preferred Stock does not have a dividend and is redeemable by the Company at increasing redemption values, from $47.36 per share as of the issuance date to a final amount of $90.11 per share at the final redemption date of August 23, 2005. The Series B Preferred Stock has ten votes per share voting together with the Common Stock as a single class. If all the Series B Preferred Stock is redeemed at final maturity, the cost to the Company would be equal to the total issue value and dividends that would have been payable on the Series A Preferred Stock being purchased. As part of the transaction, Chairman Eloy Michotte and Mr. Alan Grieve have resigned from the Hanover Direct, Inc. Board of Directors. As a result of the transaction, outstanding shares of the Common Stock of Hanover Direct will decrease approximately 35%, from 212,468,208 to 138,369,439. At year-end 2001, the Company will have approximately $77.3 million in outstanding Series B Preferred Stock compared to an approximate pro forma balance of $84.5 million had the Series A Preferred Stock remained outstanding. Additionally, the Company and Congress Financial Corporation amended the Company's Credit Agreement to provide for the prospective application of the proceeds from any future asset transactions to: first, adjust the Company's borrowings, borrowing base advance rates and credit availability under the Credit Agreement with Congress Financial Corporation, and second, if permitted under the terms of the amendment, provide for the potential redemption of Series B Preferred Stock. The Company paid Congress Financial Corporation a fee of $500,000 in connection with the amendment. A conference call with the management of Hanover Direct, Inc. to review these financial restructuring transactions and agreements and the ongoing strategic business realignment program will be held on Thursday, December 20, 2001 at 11 a.m. Eastern Time. If you would like to participate in the call, please call 415-537-1898 between 10:50 a.m. and 10:55 a.m. Eastern Time. The call will begin promptly at 11:00 a.m. Eastern Time. A re-play of the conference will be available from 1:00 p.m. Eastern Time on December 20, 2001 until 11:59 p.m. Eastern Time on December 21, 2001 and can be accessed by calling 800-633-8284 (Domestic) and 858-812-6440 (International) and entering the Reservation Code 20129898#. 1 ABOUT HANOVER DIRECT, INC. Hanover Direct, Inc. (AMEX: HNV) and its business units provide quality, branded merchandise through a portfolio of catalogs and e-commerce platforms to consumers, as well as a comprehensive range of Internet, e-commerce, and fulfillment services to businesses. Hanover Brands, Inc. is comprised of the Company's catalog and e-commerce web site portfolio of home fashions, apparel and gift brands, including Domestications, The Company Store, Company Kids, Silhouettes, International Male, Undergear, Scandia Down, and Gump's By Mail. The Company owns Gump's, a retail store based in San Francisco. Each brand can be accessed on the Internet individually by name. erizon, Inc. is comprised of Keystone Internet Services, Inc. (www.keystoneinternet.com), the Company's third party fulfillment operation, and also provides the logistical, IT and fulfillment needs of Hanover Brands, Inc. Information on Hanover Direct, including each of its subsidiaries, can be accessed on the Internet at www.hanoverdirect.com. 2 -----END PRIVACY-ENHANCED MESSAGE-----