EXHIBIT 3.1
CERTIFICATE OF THE DESIGNATIONS,
POWERS, PREFERENCES AND RIGHTS
OF
SERIES C PARTICIPATING PREFERRED STOCK
OF
HANOVER DIRECT, INC.
(Pursuant to Section 151 of the Delaware General Corporation Law)
Hanover Direct, Inc., a Delaware corporation (the "Company"), hereby
certifies that the following resolution (this "Resolution") was adopted by the
Board of Directors of the Company:
"RESOLVED, that pursuant to the authority expressly granted to and
vested in the Board of Directors of the Company (the "Board of Directors") by
the provisions of the Certificate of Incorporation of the Company (the
"Certificate of Incorporation"), there is hereby created, out of the 5,000,000
shares of preferred stock, par value $0.01 per share, of the Company authorized
in Article Fourth of the Certificate of Incorporation (the "Preferred Stock"), a
series of the Preferred Stock consisting of 564,819 shares, which series shall
have the following powers, designations, preferences and relative,
participating, optional and other rights, and the following qualifications,
limitations and restrictions (in addition to any powers, designations,
preferences and relative, participating, optional or other rights, and any
qualifications, limitations and restrictions, set forth in the Certificate of
Incorporation which are applicable to the Preferred Stock):
Section 1. Designation; Amount. The shares of Preferred Stock
created hereby shall be designated the "Series C Participating Preferred Stock"
(the "Series C Preferred Stock") and the authorized number of shares
constituting such series shall be 564,819.
Section 2. Dividends.
(a) As of January 1, 2006, the holders of Series C
Preferred Stock shall be entitled to receive cumulative dividends ("Cumulative
Dividends") which shall accrue on a daily basis in an amount equal to the
Dividend Rate (this and certain other capitalized terms used herein have the
respective meanings given in Section 9 hereof) multiplied by the Liquidation
Preference per share of Series C Preferred Stock. Cumulative Dividends shall be
payable quarterly in arrears on March 31, June 30, September 30 and December 31
of each year (each of such dates being a "Dividend Payment Date") and shall be
paid in cash out of funds legally available therefor. To the extent accrued and
unpaid Cumulative Dividends are not paid on the applicable Dividend Payment
Date, such unpaid Cumulative Dividends shall be increased on a daily basis by an
amount equal to (i) the sum of the Dividend Rate plus one percent (1%)
multiplied by (ii) the amount of such unpaid Cumulative Dividends (a "Dividend
Increase"). Each such daily Dividend Increase shall be compounded on each
subsequent Dividend Payment Date by increasing all Cumulative Dividends which
were not paid as of the end of the day of
such subsequent Dividend Payment Date by the aggregate of all Dividend Increases
which have not previously been so compounded (so that the accrued and unpaid
Cumulative Dividends shall include the amount of such Dividends Increases), and
thereafter such increased Cumulative Dividends shall further increase daily as
set forth in the previous sentence. Any calculation of the amount of Cumulative
Dividends accrued shall be made based on a 365-day year and on the number of
days actually elapsed during the applicable calendar quarter. Any payments by
the Company of Cumulative Dividends shall be applied to first pay any all
accrued and unpaid Dividend Increases (to the extent not compounded as
Cumulative Dividends), then shall pay all accrued and unpaid Cumulative
Dividends which had accrued and were unpaid as of the most recent Dividend
Payment Date, and then shall pay any remaining Cumulative Dividends. In addition
to the restrictions on dividends set forth in Section 7(c)(iii), the Company
shall not declare or pay any dividends on or with respect to any series or class
of stock other than Series C Preferred Stock unless all accrued and unpaid
Cumulative Dividends which had accrued and were unpaid as of the most recent
Dividend Payment Date and all accrued and unpaid Dividend Increases (to the
extent not compounded as Cumulative Dividends) have been declared and paid by
the Company.
(b) In the event any dividends are declared or paid or
any other distribution is made on or with respect to the Common Stock, the
holders of the Series C Preferred Stock as of the record date established by the
Board of Directors for such dividend or distribution on the Common Stock shall
be entitled to receive dividends ("Participating Dividends") per share of Series
C Preferred Stock, in an amount (whether in the form of cash, securities or
other property) determined by multiplying (i) the Liquidation Preference per
share of Series C Preferred Stock plus the amount of any declared or accrued but
unpaid Dividends thereon as of the record date of such Participating Dividend by
(ii) the Applicable Rate. Such Participating Dividends shall be payable to the
holders of the Series C Preferred Stock as of the date immediately prior to the
record date for such dividend or distribution on the Common Stock, which date
shall be the record date for the Participating Dividends, and such dividends are
to be payable on the same payment date established by the Board of Directors for
the payment of such dividend or distribution on the Common Stock to the persons
in whose name the Series C Preferred Stock is registered at the close of
business on the applicable record date.
(c) No dividend shall be paid or declared on any share of
Common Stock, unless a dividend, payable in the same consideration and manner,
is simultaneously paid or declared, as the case may be, on each share of Series
C Preferred Stock in an amount determined as set forth above. For purposes
hereof, the term "dividends" shall include any pro rata distribution by the
Company of cash, property, securities (including, but not limited to, rights,
warrants or options) or other property or assets to the holders of the Common
Stock, whether or not paid out of capital, surplus or earnings.
(d) Prior to declaring any dividend or making any
distribution on or with respect to shares of Common Stock, the Company shall
take all prior corporate action necessary to authorize the issuance of any
securities payable as a dividend in respect of the Series C Preferred Stock.
(e) The terms "declared dividends" and "dividends
declared" or any similar reference to "declared but unpaid Dividends," whenever
used in this Resolution with reference to
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shares of Series C Preferred Stock shall be deemed to include dividends required
by Section 2(c) hereof to be declared, whether or not the same have in fact been
declared at the time in question.
(f) No dividend may be declared or paid in respect of the
shares of Series C Preferred Stock, except to the extent permitted by and in
accordance with the terms and conditions of the Working Capital Facility
Documents.
Section 3. Liquidation Preference. In the event of a
liquidation, dissolution or winding up of the Company, whether voluntary or
involuntary (a "Liquidation"), the holders of the Series C Preferred Stock then
outstanding shall, to the extent permitted by and subject to the terms and
conditions of the Working Capital Facility Documents, be entitled to receive out
of the available assets of the Company, whether such assets are stated capital
or surplus of any nature, an amount on such date equal to the Liquidation
Preference per share of Series C Preferred Stock plus the amount of any declared
or accrued but unpaid Dividends thereon as of such date. Such payment shall be
made before any payment shall be made or any assets distributed to the holders
of any class or series of the Common Stock or any other class or series of the
Company's capital stock ranking junior as to liquidation rights to the Series C
Preferred Stock. If upon any Liquidation the assets available for distribution
to the holders of the Series C Preferred Stock are insufficient to permit the
payment to the holders of the Series C Preferred Stock of the full preferential
amounts described in this paragraph, then all the remaining available assets
shall be distributed among the holders of the then outstanding shares of Series
C Preferred Stock pro rata according to the number of the then outstanding
shares of Series C Preferred Stock held by each holder thereof. A Corporate
Transaction (as defined below) of the Company (other than an Excluded
Corporation Transaction (as defined below)) shall, at the election of the
holders of a majority of the shares of Series C Preferred Stock outstanding at
the time and as a condition precedent to the consummation of the Corporate
Transaction, constitute a Liquidation for purposes of this Section 3, with the
result that the Company shall be required to redeem the Series C Preferred Stock
outstanding prior to the consummation of the Corporate Transaction applying the
redemption procedures set forth in Section 4 below as if it were a mandatory
redemption on the date of such Corporate Transaction.
Section 4. Final Redemption and Redemption at the Option of the
Company.
(a) On the first Business Day following January 1, 2009
(the "Final Redemption Date"), the Company shall, to the extent permitted by and
subject to the terms and conditions of the Working Capital Facility Documents,
redeem for cash all shares of Series C Preferred Stock that are then outstanding
at a redemption price per share equal to the Liquidation Preference thereof plus
the amount of any declared or accrued but unpaid Dividends thereon as of such
date (the "Final Redemption Price"). Not more than sixty (60) nor less than
thirty (30) days prior to the Final Redemption Date, notice by first class mail,
postage prepaid, shall be given to each holder of record of the Series C
Preferred Stock, at such holder's address as it shall appear upon the stock
register of the Company on such date. Each such notice of redemption shall be
irrevocable and shall specify the date that is the Final Redemption Date, the
Final Redemption Price, the identification of the shares to be redeemed, the
place or places of payment in New York, New York and that payment will be made
upon presentation and surrender of the certificate(s) evidencing the shares of
Series C Preferred Stock to be redeemed. On or after the Final Redemption Date,
each holder of shares of Series C Preferred Stock shall surrender the
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certificate(s) evidencing such shares to the Company at the place designated in
such notice and shall thereupon be entitled to receive payment of the Final
Redemption Price. If, on the Final Redemption Date, funds in cash in an amount
sufficient to pay the aggregate Final Redemption Price for all outstanding
shares of Series C Preferred Stock shall be available therefor and shall have
been irrevocably set aside and deposited with a bank or trust company in trust
for purposes of payment of such Final Redemption Price, then, notwithstanding
that the certificates evidencing any shares so called for redemption shall not
have been surrendered, the shares shall no longer be deemed outstanding, the
holders thereof shall cease to be stockholders, and all rights whatsoever with
respect to the shares so called for redemption (except the right of the holders
to receive the Final Redemption Price upon surrender of their certificates
therefor) shall terminate. If, at the Final Redemption Date, the Company does
not have sufficient capital and surplus legally available to redeem all the
outstanding shares of Series C Preferred Stock, the Company shall take all
measures permitted under the Delaware General Corporation Law to increase the
amount of its capital and surplus legally available, including, without
limitation, sales of assets of the Company to the extent permitted by and
subject to the terms and conditions of the Working Capital Facility Documents,
and the Company shall redeem as many shares of Series C Preferred Stock as it
may legally redeem, ratably from the holders thereof in proportion to the number
of shares held by them, and shall thereafter from time to time, as soon as it
shall have funds available therefor, redeem as many shares of Series C Preferred
Stock as it legally may until it has redeemed all of the outstanding shares of
Series C Preferred Stock.
(b) To the extent permitted by and subject to the terms
and conditions of the Working Capital Facility Documents, the Company may, at
any time at its option, redeem all (but not less than all) of the then
outstanding shares of Series C Preferred Stock for cash at a redemption price
per share (the "Optional Redemption Price") equal to the Liquidation Preference
thereof plus the amount of all declared or accrued but unpaid Dividends thereon
as of the redemption date. In order to exercise its right of optional
redemption, the Company shall, not more than sixty (60) nor less than thirty
(30) days prior to the redemption date, give notice by first class mail, postage
prepaid, to each holder of record of the Series C Preferred Stock, at such
holder's address as it shall appear upon the stock register of the Company on
such date. Each such notice of redemption shall be irrevocable and shall specify
the redemption date (the "Optional Redemption Date"), the Optional Redemption
Price, the place or places of payment in New York, New York and that payment
will be made upon presentation and surrender of the certificate(s) evidencing
the shares of Series C Preferred Stock to be redeemed.
Section 5. Redemption at Option of Holders and Mandatory
Redemption upon Asset and Equity Sales.
(a) In the event that a Change of Control (as defined
below) shall occur at any time while any shares of Series C Preferred Stock are
outstanding, each of the holders of the then outstanding shares of Series C
Preferred Stock shall have the right to give notice that they are exercising a
Change of Control election (a "Change of Control Election") with respect to all
or any number of such holder's shares of Series C Preferred Stock, during the
period ending on the 30th day after the earlier of (i) such holder's receipt of
the notice referred to in Section 5(c) hereof or (ii) the date as of which such
holder obtains actual knowledge of such Change of Control. Upon any such
election, the Company shall, to the extent permitted by and subject to the terms
and conditions of the Working Capital Facility Documents, redeem for cash each
of
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such holder's shares for which such an election is made at a redemption price
equal to the Liquidation Preference thereof plus the amount of any declared or
accrued but unpaid Dividends thereon as of the Change of Control Payment Date.
(b) As used herein, "Change of Control" means the
occurrence of any of the following events:
(1) the acquisition, in a transaction approved
by the Board of Directors, by any Person, other than Chelsey or its affiliates,
including any "person" within the meaning of Section 13(d)(3) or 14(d)(2) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), of beneficial
ownership within the meaning of Rule 13d-3 promulgated under the Exchange Act,
of more than 50% of either
(i) the then outstanding shares of Common Stock (the
"Outstanding Company Common Stock") or
(ii) the combined voting power of the then outstanding
securities of the Company entitled to vote generally
in the election of directors (the "Outstanding
Company Voting Securities");
(2) a majority of the individuals who, as of the
date of the closing of the transactions contemplated by the Recapitalization
Agreement, dated as of November 18, 2003, between Chelsey and the Company (the
"Recapitalization Agreement"), constitute the members of the Board of Directors
(the "Incumbent Board") cease for any reason to serve on such Board of
Directors; provided that any individual who becomes a director of the Company
subsequent to the date of the closing of the transactions contemplated by the
Recapitalization Agreement, whose election, or nomination for election by the
Company's stockholders, was approved by the vote of at least a majority of the
directors then comprising the Incumbent Board shall be deemed a member of the
Incumbent Board; and provided, further, that any individual who was initially
elected as a director of the Company as a result of an actual or threatened
election contest, as such terms are used in Rule 14a-11 of Regulation 14A
promulgated under the Exchange Act, or any other actual or threatened
solicitation of proxies or consents by or on behalf of any Person other than the
Board of Directors, shall not be deemed a member of the Incumbent Board; or
(3) approval by the stockholders of the Company
of a reorganization, merger or consolidation of the Company or sale or other
disposition of all or substantially all of the assets of the Company (a
"Corporate Transaction"); excluding, however, a Corporate Transaction (an
"Excluded Corporate Transaction") pursuant to which the individuals or entities
who are the beneficial owners, respectively, of the Outstanding Company Common
Stock and the Outstanding Company Voting Securities immediately prior to such
Corporate Transaction will beneficially own, directly or indirectly, more than
50% of, respectively, the outstanding shares of common stock, and the combined
voting power of the outstanding securities entitled to vote generally in the
election of directors, as the case may be, of the corporation resulting from, or
the transferee Person in, such Corporate Transaction (including, without
limitation, a corporation which as a result of such transaction owns 100% of the
Outstanding Company Common Stock or all or substantially all of the Company's
assets either directly or indirectly) in
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substantially the same proportions relative to each other as their ownership,
immediately prior to such Corporate Transaction, of the Outstanding Company
Common Stock and the Outstanding Company Voting Securities, as the case may be.
(c) On or before the third (3rd) Business Day after a
Change of Control, the Company shall mail to all holders of record of the Series
C Preferred Stock at their respective addresses as the same shall appear on the
books of the Company as of such date, a notice disclosing (i) the Change of
Control, (ii) that, if such holder exercises the Change of Control Election, the
Company will redeem any or all of such holder's shares of Series C Preferred
Stock at a redemption price equal to the Liquidation Preference thereof plus the
amount of declared or accrued and unpaid Dividends as of the Change of Control
Payment Date and (iii) the procedure which the holder must follow to exercise
the Change of Control Election. To exercise the Change of Control Election, a
holder of the Series C Preferred Stock must deliver, during the 30-day period
referred to in Section 5(a) hereof, written notice to the Company (or an agent
designated by the Company for such purpose) of the holder's exercise of the
Change of Control Election, accompanied by each certificate evidencing shares of
the Series C Preferred Stock with respect to which the Change of Control
Election is being exercised, duly endorsed for transfer to the Company. On or
prior to the third (3rd) Business Day after the end of such 30-day period or
after such earlier date as elections are received from all holders of the Series
C Preferred Stock (the "Change of Control Payment Date") after receipt of each
such written notice, the Company shall redeem all shares of Series C Preferred
Stock properly surrendered to the Company (or an agent designated by the Company
for such purpose) during the 30-day period referred to in Section 5(a) hereof
for redemption in connection with the exercise of the Change of Control Election
and shall cause payment to be made on such day in cash for such shares of Series
C Preferred Stock. If in connection with any Change of Control Election, the
Company does not have sufficient capital and surplus legally available to redeem
all of the outstanding shares of Series C Preferred Stock with respect to which
a Change of Control Election has been made, the Company shall take all measures
permitted under the Delaware General Corporation Law to increase the amount of
its capital and surplus legally available, including, without limitation, sales
of assets of the Company to the extent permitted by and subject to the terms and
conditions of the Working Capital Facility Documents, and the Company shall
redeem as many shares of Series C Preferred Stock with respect to which the
Change of Control Election has been made as it has capital and surplus legally
available therefor, ratably from the holders thereof in proportion to the total
number of shares tendered, and shall thereafter from time to time, as soon as it
shall have capital and surplus legally available therefor, redeem as many shares
of Series C Preferred Stock as it has capital and surplus available therefor
until it has redeemed all of the outstanding shares of Series C Preferred Stock
with respect to which the Change of Control Election has been made.
(d) In the event that an Asset Disposition shall occur at
any time while any shares of Series C Preferred Stock are outstanding, the
Company shall, to the extent permitted by and subject to the terms and
conditions of the Working Capital Facility Documents, redeem for cash the
outstanding shares of each holder of Series C Preferred Stock, pro rata
according to the number of the then outstanding shares of Series C Preferred
Stock held by each holder thereof, to the extent of the remaining Net Available
Cash after application of clauses (A) and (B) below and as permitted by
applicable law, at a redemption price equal to the Liquidation Preference
thereof plus the amount of any declared or accrued but unpaid Dividends thereon
as of the Asset
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Disposition Payment Date (as defined below) (the "Asset Disposition Redemption
Price") on the terms and subject to the conditions set forth in this Section
5(d).
The Company will not, and will not permit any of the Company's
Subsidiaries to, directly or indirectly, consummate any Specified Asset
Disposition unless the following conditions are satisfied:
(i) such Specified Asset Disposition is permitted by the
Working Capital Facility Documents;
(ii) the Company or such Subsidiary receives consideration
at the time of such Specified Asset Disposition at
least equal to the fair market value (including as to
the value of all non-cash consideration), as
determined in good faith by the Company's Board of
Directors; provided, however, that such condition
shall not be applicable if the holders of at least
two-thirds of the outstanding shares of Series C
Preferred Stock consent to the waiver of the
provisions of this clause (ii), and
(iii) an amount equal to 100% of the Net Available Cash
from such Specified Asset Disposition is applied by
the Company (or such Subsidiary, as the case may be)
as provided in subparagraphs (A) and (B) below;
provided, however, that such condition shall not be
applicable if the holders of at least two-thirds of
the outstanding shares of Series C Preferred Stock
consent to the waiver of the provisions of this
clause (iii):
(A) first, to prepay, repay, redeem or purchase indebtedness under
the Working Capital Facility Documents required by the Working
Capital Facility Documents to be prepaid, repaid or purchased;
and
(B) second, to the extent of the balance of such Net Available
Cash after application in accordance with clause (A), to
redeem the Series C Preferred Stock for cash pursuant to and
subject to the conditions contained in this Section 5;
provided, however, that (1) in connection with any prepayment,
repayment or purchase of indebtedness pursuant to clause (A),
the Company or any such Subsidiary will permanently retire
such indebtedness and will cause the related loan commitment
(if any) to be permanently reduced in an amount equal to the
principal amount so prepaid, repaid or purchased, to the
extent permitted by and subject to the terms and conditions of
the Working Capital Facility Documents, and (2) any
application of the Net Available Cash from such Asset
Disposition shall be subject to the terms and conditions of
the Working Capital Facility Documents.
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The Company will not, and will not permit any of the Company's
Subsidiaries to, directly or indirectly, consummate any Asset Disposition other
than a Specified Asset Disposition unless the following conditions are
satisfied:
(i) the Company or such Subsidiary receives consideration
at the time of such Asset Disposition at least equal
to the fair market value (including as to the value
of all non-cash consideration), as determined in good
faith by the Company's Board of Directors; provided,
however, that such condition shall not be applicable
if the holders of at least two-thirds of the
outstanding shares of Series C Preferred Stock
consent to the waiver of the provisions of this
clause (i), and
(ii) an amount equal to 100% of the Net Available Cash
from such Asset Disposition is applied by the Company
(or such Subsidiary, as the case may be) as provided
in subparagraphs (A) and (B) below; provided,
however, that such condition shall not be applicable
if the holders of at least two-thirds of the
outstanding shares of Series C Preferred Stock
consent to the waiver of the provisions of this
clause (ii):
(A) first, to prepay, repay, redeem or purchase indebtedness under
the Working Capital Facility Documents required by the Working
Capital Facility Documents to be prepaid, repaid or purchased;
and
(B) second, to the extent of the balance of such Net Available
Cash after application in accordance with clause (A), to
redeem the Series C Preferred Stock for cash pursuant to and
subject to the conditions contained in this Section 5.
provided, however, that (1) in connection with any prepayment,
repayment or purchase of indebtedness pursuant to clause (A),
the Company or any such Subsidiary will permanently retire
such indebtedness and will cause the related loan commitment
(if any) to be permanently reduced in an amount equal to the
principal amount so prepaid, repaid or purchased, to the
extent permitted by and
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subject to the terms and conditions of the Working Capital
Facility Documents, and (2) any application of the Net
Available Cash from such Asset Disposition shall be subject to
the terms and conditions of the Working Capital Facility
Documents.
(e) On or before the third (3rd) Business Day after an
Asset Disposition, the Company shall mail to all holders of record of the Series
C Preferred Stock at their respective addresses as the same shall appear on the
books of the Company as of such date, a notice (the "Asset Disposition Notice"),
which shall be irrevocable, disclosing (i) the Asset Disposition, (ii) the Asset
Disposition Redemption Price, (iii) the identification of the shares to be
redeemed, (iv) the date when holders of the Series C Preferred Stock may first
surrender their shares to the Company for redemption, which date shall not be
more than ten (10) Business Days after the mailing of the Asset Disposition
Notice (the "Asset Disposition Payment Date"), (v) the place or places of
payment in New York, New York and (vi) that payment will be made upon
presentation and surrender of the certificate(s) evidencing the shares of Series
C Preferred Stock to be redeemed; provided, that the Company will not be
required to mail such notice if and to the extent that there is no balance of
Net Available Cash for application in accordance with clause (iii)(B) of Section
5(d) above. On or after the Asset Disposition Payment Date, to the extent
permitted by and subject to the terms and conditions of the Working Capital
Facility Documents, the Company shall, to the extent of the balance of Net
Available Cash pursuant to clause (iii)(B) of Section 5(d) above, redeem all
shares of Series C Preferred Stock properly surrendered to the Company (or an
agent designated by the Company for such purpose) for redemption in connection
with the Asset Disposition Notice and shall cause payment to be made on such day
in cash for such shares of Series C Preferred Stock. If, in connection with any
Asset Disposition Notice, there is Net Available Cash but the Company does not
have sufficient capital and surplus legally available to redeem the shares of
Series C Preferred Stock set forth in the Asset Disposition Notice, the Company
shall, to the extent permitted by and subject to the terms and conditions of the
Working Capital Facility Documents, take all measures permitted under the
Delaware General Corporation Law to increase the amount of its capital and
surplus legally available, including, without limitation, sales of assets of the
Company to the extent permitted by and subject to the terms and conditions of
the Working Capital Facility Documents, and the Company shall redeem as many
shares of Series C Preferred Stock set forth in the Asset Disposition Notice as
it has capital and surplus legally available therefor, ratably from the holders
thereof in proportion to the total number of shares to be redeemed, and shall
thereafter from time to time, to the extent permitted by and subject to the
terms and conditions of the Working Capital Facility Documents, as soon as it
shall have capital and surplus legally available therefor, redeem as many shares
of Series C Preferred Stock as it has capital and surplus available therefor
until it has redeemed all of the shares of Series C Preferred Stock set forth in
the Asset Disposition Notice.
(f) In the event that an Equity Sale shall occur at any
time while any shares of Series C Preferred Stock are outstanding, the Company
shall, to the extent permitted by and subject to the terms and conditions of the
Working Capital Facility Documents, redeem for cash the outstanding shares of
each holder of Series C Preferred Stock, pro rata according to the number of the
then outstanding shares of Series C Preferred Stock held by each holder thereof,
to the extent of the remaining Available Cash from such Equity Sale after
application of clause (iii)(A) below and as permitted by applicable law, at a
redemption price equal to the Liquidation
9
Preference thereof plus the amount of declared or accrued and unpaid Dividends
thereon as of the Equity Sale Payment Date (as defined below) (the "Equity Sale
Redemption Price") on the terms and subject to the conditions set forth in this
Section 5(f). The Company will not, and will not permit any of the Company's
Subsidiaries to, directly or indirectly, consummate any Equity Sale unless the
following conditions are satisfied:
(i) such Equity Sale is permitted by the Working Capital
Facility Documents;
(ii) the Company or such Subsidiary receives consideration
at the time of such Equity Sale at least equal to the
fair market value (including as to the value of all
non-cash consideration) of such equtiy, as determined
in good faith by the Company's Board of Directors;
provided, however, that such condition shall not be
applicable if the holders of at least two-thirds of
the outstanding shares of Series C Preferred Stock
consent to the waiver of the provisions of this
clause (ii), and
(iii) an amount equal to 100% of the Available Cash from
such Equity Sale is applied by the Company (or such
Subsidiary, as the case may be) as provided in
subparagraphs (A) and (B) below; provided, however,
that such condition shall not be applicable if the
holders of at least two-thirds of the outstanding
shares of Series C Preferred Stock consent to the
waiver of the provisions of this clause (iii);
(A) first, to prepay, repay, redeem or purchase indebtedness under
the Working Capital Facility Documents required by the Working
Capital Facility Documents to be prepaid, repaid or purchased;
(B) second, to the extent of the balance of such Available Cash
after application in accordance with clause (A), to redeem the
Series C Preferred Stock for cash pursuant to and subject to
the conditions contained in this Certificate of Designations;
provided, however, that (1) in connection with any prepayment,
repayment or purchase of indebtedness pursuant to clause
(iii)(A) above, the Company or any such Subsidiary will
permanently retire such indebtedness and will cause the
related loan commitment (if any) to be permanently reduced in
an amount equal to the principal amount so prepaid, repaid or
purchased, to the extent permitted by and in accordance with
the terms and conditions of the Working Capital Facility
Documents, and (2) any application of the Available Cash from
such Equity Sale shall be subject to the terms and conditions
of the Working Capital Facility Documents.
(g) On or before the third (3rd) Business Day after an
Equity Sale, the Company shall mail to all holders of record of the Series C
Preferred Stock at their respective addresses as the same shall appear on the
books of the Company as of such date, a notice (the "Equity Sale Notice"), which
shall be irrevocable, disclosing (i) the Equity Sale, (ii) the Equity Sale
Redemption Price, (iii) the identification of the shares to be redeemed, (iv)
the date when
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holders of the Series C Preferred Stock may first surrender their shares to the
Company for redemption, which date shall not be more than ten (10) Business Days
after the mailing of the Equity Sale Notice (the "Equity Sale Payment Date"),
(v) the place or places of payment in New York, New York and (vi) that payment
will be made upon presentation and surrender of the certificate(s) evidencing
the shares of Series C Preferred Stock to be redeemed; provided, that the
Company will not be required to mail such notice if and to the extent that there
is no balance of Available Cash for application in accordance with clause
(iii)(B) of Section 5(f) above. On or after the Equity Sale Payment Date, to the
extent permitted by and subject to the terms and conditions of the Working
Capital Facility Documents, the Company shall, to the extent of the balance of
Available Cash pursuant to clause (iii)(B) of Section 5(f) above, redeem all
shares of Series C Preferred Stock properly surrendered to the Company (or an
agent designated by the Company for such purpose) for redemption in connection
with the Equity Sale Notice and shall cause payment to be made on such day in
cash for such shares of Series C Preferred Stock. If, in connection with any
Equity Sale Notice, there is Available Cash but the Company does not have
sufficient capital and surplus legally available to redeem all of the
outstanding shares of Series C Preferred Stock set forth in the Equity Sale
Notice, the Company shall, to the extent permitted by and subject to the terms
and conditions of the Working Capital Facility Documents, take all measures
permitted under the Delaware General Corporation Law to increase the amount of
its capital and surplus legally available, including, without limitation, sales
of assets of the Company to the extent permitted by and subject to the terms and
conditions of the Working Capital Facility Documents, and the Company shall
redeem as many shares of Series C Preferred Stock set forth in the Equity Sale
Notice as it has capital and surplus legally available therefor, ratably from
the holders thereof in proportion to the total number of shares to be redeemed,
and shall thereafter from time to time, to the extent permitted by and subject
to the terms and conditions of the Working Capital Facility Documents, as soon
as it shall have capital and surplus legally available therefor, redeem as many
shares of Series C Preferred Stock as it has capital and surplus available
therefor until it has redeemed all of the shares of Series C Preferred Stock set
forth in the Equity Sale Notice.
(h) In the event that the Company does not have
sufficient funds to take any of the actions required by this Section 5, then the
Company shall, to the extent permitted by and subject to the terms and
conditions of the Working Capital Facility Documents, purchase, redeem or
otherwise acquire the shares of Series C Preferred Stock from the holders
thereof who make an election pursuant to this Section 5 pro rata according to
the number of then outstanding shares of Series C Preferred Stock held by each
holder thereof.
Section 6. Status of Redeemed Shares. Any shares of Series C
Preferred Stock which shall at any time have been redeemed pursuant to Sections
4 or 5 hereof shall, after such redemption, be retired and, upon the taking of
any action required by applicable law, have the status of authorized but
unissued shares of Preferred Stock, without designation as to series, and shall
not be reissued as Series C Preferred Stock.
Section 7. Voting Rights.
(a) The Series C Preferred Stock shall have the voting
rights set forth in this Section 7.
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(b) On or before the third (3rd) day after the occurrence
of a Voting Trigger (as defined in Section 9 hereof), the Company shall mail to
all holders of record of the Series C Preferred Stock at their respective
addresses as the same shall appear on the books of the Company as of such date
(the "Voting Trigger Notice Date"), a notice disclosing (i) the Voting Trigger,
and (ii) that such holders have the exclusive right, voting separately as a
class and by taking such actions as are set forth in this Section 7(b), to elect
such number of additional directors of the Company as are equal to the number of
directors on the Board of Directors as of the Voting Trigger Notice Date (the
"Preferred Stock Directors"), the remaining directors to be elected by the other
class or classes of stock (including the Series C Preferred Stock) entitled to
vote therefor, at a meeting of stockholders held for the purpose of electing
directors (the "Director Right"); provided, that if the holders of record of a
majority of the outstanding shares of the Series C Preferred Stock do not,
within fifteen (15) days of the date on which notice of the Voting Trigger is
received by such holders notify the Company of their intent to cause the
Director Right to be vested, the Director Right shall not vest solely with
respect to the Voting Trigger of which notice was given; provided, further, that
in the event that such a notice is not received by the Company, if the event
giving rise to the relevant Voting Trigger is not cured or is still in effect,
as the case may be, on each subsequent six (6) month anniversary of the
occurrence of the Voting Trigger, the Company shall give notice to such effect
by mail to all holders of record of the Series C Preferred Stock, and the
holders of a majority of the outstanding shares of the Series C Preferred Stock
shall have an option, exercisable within fifteen (15) dates of receipt of such
notice, to cause the Director Right to be vested.
In the event that the Director Right is vested in accordance with the
preceding paragraph, such Director Right may be exercised initially either at a
special meeting of the holders of the Series C Preferred Stock, called as
hereinafter provided, or at any annual meeting of stockholders held for the
purpose of electing directors, upon the written request of holders of record of
25% of the shares of Series C Preferred Stock then outstanding addressed to the
Secretary of the Company at least 10 days prior to the meeting, and thereafter
at such annual meetings or by the written consent of the holders of the Series C
Preferred Stock pursuant to Section 228 of the Delaware General Corporation Law.
If such Director Right shall not already have been initially exercised,
a proper officer of the Company shall, upon the written request of holders of
record of 25% of the shares of the Series C Preferred Stock then outstanding
addressed to the Secretary of the Company, call a special meeting of holders of
the Series C Preferred Stock. Such meeting shall be held at the earliest
practicable date upon the notice required for annual meetings of stockholders at
the place for holding annual meetings of stockholders of the Company or, if
none, at a place in the City of New York, New York designated by the Secretary
of the Company. If such meeting shall not be called by the proper officers of
the Company within 30 days after the personal service of such written request
upon the Secretary of the Company, or within 30 days after mailing the same
within the United States, by registered mail, then the holders of record of 25%
of the shares of the Series C Preferred Stock then outstanding may designate in
writing a holder of the Series C Preferred Stock to call such meeting at the
expense of the Company.
At any meeting held for the purpose of electing directors at which the
holders of the Series C Preferred Stock shall have the right to elect a
director, the presence in person or by proxy of the holders of a majority of the
then outstanding shares of the Series C Preferred Stock shall be required and be
sufficient to constitute a quorum of such class for the election of a director
by such class. In any such election, the holders of Series C Preferred Stock
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shall be entitled to cast one vote per share of Series C Preferred Stock held of
record on the record date for the determination of the holders of Series C
Preferred Stock entitled to vote in such election. If the directors are to be
elected at an annual meeting, the Preferred Stock Directors shall be elected at
the same time as other members of the Board of Directors. A Preferred Stock
Director may only be removed without cause by the vote of the holders of a
majority of the Series C Preferred Stock, at a vote of the then outstanding
shares of Series C Preferred Stock, voting as a single class, at a meeting
called for such purpose (or by unanimous written consent in lieu of such a
meeting) in accordance with the voting procedures set forth in Section 7(b).
The term of office of each Preferred Stock Director shall terminate
upon the election of his or her successor at any meeting of stockholders for the
purpose of electing directors (it being understood that such successor shall be
elected by the holders of the Series C Preferred Stock).
Any action permitted to be taken by the holders of the Series C
Preferred Stock pursuant to this Section 7(b) may be taken without a meeting by
the written consent of the holders of Series C Preferred Stock having not less
than the minimum number of votes necessary to authorize or take such action.
If, for any reason, a Preferred Stock Director shall resign or
otherwise be removed from the Board of Directors, then his or her replacement
shall be a person elected by the holders of the Series C Preferred Stock, in
accordance with the voting procedures set forth in Section 7(b).
From the Voting Trigger Notice Date with respect to any Voting Trigger
until the earlier to occur of (a) the failure of the Director Right to vest with
respect to the Voting Trigger on account of the holders of record of a majority
of the outstanding shares of the Series C Preferred Stock not, within fifteen
(15) days of the date on which notice of the Voting Trigger is received by such
holders, notifying the Company of their intent to cause the Director Right to be
vested, or (b) the election of the Preferred Stock Directors with respect to the
Voting Trigger, the Board of Directors shall not increase the number of
directors comprising the Board of Directors, or fill any vacancies on the Board
of Directors, such that the number of directors on the Board of Directors would
exceed the number of Preferred Stock Directors to be so elected or so elected
with respect to the Voting Trigger. After the election of the Preferred Stock
Directors, the Board of Directors shall not increase the number of directors
comprising the Board of Directors, or fill any vacancies on the Board of
Directors, created other than by a vacancy of a Preferred Stock Director, such
that the number of directors on the Board of Directors would exceed the number
of Preferred Stock Directors on the Board of Directors unless a majority of the
Preferred Stock Directors agree to such actions.
(c) So long as any shares of Series C Preferred Stock
remain outstanding, the Company shall not, without the written consent or
affirmative vote of the holders of at least two-thirds of the outstanding shares
of Series C Preferred Stock, (i) amend, alter or repeal, whether by merger,
consolidation, combination, reclassification or otherwise, the Certificate of
Incorporation or By-laws of the Company or any provisions thereof (including the
adoption of a new provision thereof), (ii) create, authorize or
13
issue any class, series or shares of Preferred Stock or any other class of
capital stock (A) ranking either as to payment of dividends or distribution of
assets upon Liquidation prior to or on a parity with the Series C Preferred
Stock and (B) if such securities may be redeemed, in any circumstance, on or
prior to the Final Redemption Date, (iii) (A) pay, declare, make or set aside
for payment any dividends or other distribution on the Common Stock or any other
capital stock of the Company ranking junior to or on a parity with the Series C
Preferred Stock as to dividends or as to distributions upon Liquidation other
than in shares of, or warrants or rights to acquire, solely Junior Stock and (B)
redeem, retire, purchase or otherwise acquire for any consideration (or any
payment made to or available for a sinking fund for the redemption of any such
shares) any shares of capital stock of the Company ranking junior to or on a
parity with the Series C Preferred Stock as to dividends or as to distributions
upon Liquidation by the Company or any Subsidiary (except by conversion into or
exchange for solely shares of Junior Stock) or (iv) create, incur, assume or
suffer to exist, or cause or permit any of its Subsidiaries to create, incur,
assume or suffer to exist, any indebtedness for borrowed money other than any
such indebtedness permitted by the Working Capital Facility Documents (without
giving effect to any waivers by the lenders under the Working Capital Facility
Documents other than for such indebtedness incurred in the ordinary course of
business not to exceed $500,000 in the aggregate). The vote of the holders of at
least two-thirds of the outstanding shares of Series C Preferred Stock, voting
separately as one class, shall be necessary to adopt any alteration, amendment
or repeal of any provision of the Certificate of Designations setting forth a
copy of this Resolution, in addition to any other vote of stockholders required
by law.
(d) The holders of the Series C Preferred Stock shall be
entitled to vote at or participate in any meeting of stockholders of the
Company, and to participate in any action proposed to be taken by written
consent, in each case together with the holders of the Common Stock voting or
consenting as a single class, and to receive notice of any such meeting or any
such proposed action in the same manner as notice is provided to holders of the
Common Stock. In any vote, whether voting or consenting with the Common Stock as
a single class, voting or consenting with the Series C Preferred Stock as a
single class or otherwise (other than as set forth in Section 7(b)), each share
of Series C Preferred Stock shall be entitled to one hundred (100) votes per
share plus such number of votes equal to the dollar value (rounded down to the
nearest dollar) as of the date of such consent or vote of any accrued and unpaid
Cumulative Dividends which had accrued and were unpaid as of the most recent
Dividend Payment Date. In addition, each share of Series C Preferred Stock will
entitle the holder thereof to vote in accordance with applicable law.
Section 8. Observer Rights.
(a) For so long as Chelsey continues to own at least
twenty-five percent (25%) of the shares of Series C Preferred Stock then
outstanding (but not during any time when Chelsey has the ability to designate a
majority of the directors on the Board of Directors), the Company shall invite a
representative of Chelsey (the "Representative"), which Representative shall be
selected from time to time by Chelsey and reasonably acceptable to the Company,
to attend and participate in, in person or by conference call, all meetings of
the Board of Directors and any committee thereof (provided that the Company
shall be entitled to exclude the Representative from a meeting of any committee
of independent directors for the purpose of considering transactions involving
Chelsey or its affiliates (other than the Company and its
14
Subsidiaries) and from any meeting of the Board or a committee if the Board or
such committee determines that, in light of the business to be transacted, the
presence of the Representative would not be appropriate ) in a non-voting
observer capacity and, in this respect, shall give such Representative (at the
same time and in the same manner as given to members of the Board of Directors
or the relevant committee) copies of all notices, minutes, consents and other
Board of Directors' or committee members' materials (with the exception of
materials provided to members of any committee of independent directors with
respect to any meeting for the purpose of considering transactions involving
Chelsey 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) Chelsey and the Company agree that knowledge of any
matter or information discussed or presented for discussion at any of the
Company's Board of Director's meetings, including any committees thereof, or any
portion thereof at which the Representative is not present in person or by
conference telephone will not be imputed to Chelsey 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, Chelsey 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 Chelsey 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 Chelsey and the Representative.
(e) Chelsey agrees that it will execute and deliver to
the Company, and cause each Representative to execute and deliver to the Company
and Chelsey, an agreement, in form and substance reasonably satisfactory to the
Company, pursuant to which Chelsey or the Representative, as the case may be,
agrees to hold confidential all information which Chelsey or the Representative,
as the case may be, learns as a result of the attendance by the Representative
at the Board of Director and committee meetings in person or by conference
telephone.
In addition to and not in limitation of any foregoing
reference to the Working Capital Facility Documents, the terms and conditions of
the Series C Preferred Stock are subject to the terms and conditions of the
Working Capital Facility Documents.
15
Section 9. Certain Definitions.
The following terms shall have the following respective meanings
herein:
"Applicable Rate" means, with respect to any dividend required to be
paid pursuant to Section 2(b) hereof due to the declaration or payment of a
dividend on the Common Stock, a fraction (x) the numerator of which is the
dividend per share of Common Stock so declared or paid and (y) the denominator
of which is the per share Fair Market Value of the Common Stock as of the close
of business on the Business Day immediately preceding the record date for such
dividend on the Common Stock.
"Approved Option Plan" means, collectively, (i) the 1996 Stock Option
Plan, as amended, 1999 Stock Option Plan for Directors, 2002 Stock Option Plan
for Directors and 2000 Management Stock Option Plan, and options granted
pursuant to the Services Agreement between the Company and Meridian Ventures,
LLC and Thomas C. Shull and the Employment Agreements, as amended, between
Thomas C. Shull and the Company, together providing for the aggregate issuance
of not more than 33,200,000 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 November 10, 2003 providing for the grant of
options to employees and directors of the Company to purchase not more than
1,800,000 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
16
(ii) an issuance of Capital Stock by a wholly owned
Subsidiary to the Company or to another wholly owned
Subsidiary.
"Available Cash" from an Equity Sale means cash payments, cash
equivalents and Marketable Securities received therefrom after payment of
underwriting discounts, placement fees or similar commissions.
"Business Day" means a day other than a Saturday, Sunday or day on
which banking institutions in New York are authorized or required to remain
closed.
"Capital Stock" of any Person means any and all shares, interests,
rights to purchase, warrants, options, participations or other equivalents of or
interests in (however designated) equity of such Person, including any Preferred
Stock, but excluding any debt securities convertible into such equity.
"Chelsey" means Chelsey Direct, LLC and its affiliates and its and
their respective successors and assigns.
"Congress" means Congress Financial Corporation, and its affiliates and
their respective successors and assigns (including, without limitation, any
replacement or take out lender with respect to the Working Capital Facility
Documents).
"Common Stock" means the common stock, par value $0.66-2/3 per share,
of the Company or any other Capital Stock of the Company into which such stock
is reclassified or reconstituted.
"Corporate Transaction" shall have the meaning set forth in Section
5(b)(3).
"Cumulative Dividends" shall have the meaning set forth in Section
2(a).
"Dividends" shall mean, collectively, Cumulative Dividends, Dividend
Increases and Participating Dividends.
"Dividend Increases" shall have the meaning set forth in Section 2(a).
"Dividend Rate" means, with respect to a share of Series C Preferred
Stock and the dividends accrued thereon, an initial rate of six percent (6%) per
annum, commencing January 1, 2006 and increasing by one and one-half percent
(1-1/2%) each anniversary thereafter, until the redemption or other acquisition
by the Company of such share of Series C Preferred Stock.
"Equity Sale" means, to the extent permitted by and subject to the
terms and conditions of the Working Capital Facility Documents, the issuance or
sale by the Company or a Subsidiary of Capital Stock of the Company or a
Subsidiary (or any series of related issuances or sales) where the cumulative
aggregate gross proceeds to the Company and its Subsidiaries equals or exceeds
$1.0 million; provided, that there shall be excluded from the foregoing the sale
of Common Stock of the Company upon the exercise of options issued under an
Approved Option Plan and the sale of common stock of a Subsidiary which
constitutes an Asset Disposition.
17
"Fair Market Value" means, per share of Common Stock, the Twenty Day
Average of the average closing prices of the Common Stock's sales on all
domestic securities exchanges on which the Common Stock may at the time be
listed, or, if there have been no sales on any such exchange on any day, the
average of the highest bid and lowest asked prices on all such exchanges at the
end of such day, or, if on any day the Common Stock is not so listed, the
average of the representative bid and asked prices quoted in the NASDAQ National
Market System (including the NASDAQ Small Cap Market) as of 4:00 P.M., New York
City time, on such day, or, if on any day the Common Stock is not quoted in the
NASDAQ National Market System, the average of the highest bid and lowest asked
prices on such day in the domestic over-the-counter market as reported by Pink
Sheets LLC, or any similar or successor organization (and in each such case
excluding any trades that are not bona fide, arm's length transactions). If at
any time the Common Stock is not listed on any domestic securities exchange or
quoted in the NASDAQ National Market System or the domestic over-the-counter
market, the "Fair Market Value" of the Common Stock shall be the fair market
value thereof as determined (I) jointly by the Company and Chelsey if Chelsey
then owns a majority in aggregate liquidation preference of the shares of Series
C Preferred Stock then outstanding or (ii) if Chelsey and the Company cannot so
agree, by an internationally recognized investment banking firm selected by
Chelsey and reasonably acceptable to the Company or (iii) if Chelsey does not
then own a majority in aggregate liquidation preference of the shares of Series
C Preferred Stock then outstanding, by an internationally recognized investment
banking firm selected by the Company and reasonably acceptable to the holder of
a majority in aggregate Liquidation Preference of the shares of Series C
Preferred Stock then outstanding.
"GAAP" means U.S. generally accepted accounting principles consistently
applied.
"Junior Stock" means capital stock of the Company ranking junior to the
Series C Preferred Stock both as to dividends and as to distributions upon
liquidation, dissolution or winding up of the Company.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien
or charge of any kind (including any conditional sale or other title retention
agreement or lease in the nature thereof).
"Liquidation Preference" means One Hundred Dollars ($100.00).
"Marketable Securities" means publicly traded debt or equity securities
that are listed for trading on a national securities exchange.
"Net Available Cash" from an Asset Disposition means cash payments,
cash equivalents and Marketable Securities received therefrom (including any
cash payments received by way of deferred payment of principal pursuant to a
note or installment receivable or otherwise and proceeds from the sale or other
disposition of any securities received as consideration, but only as and when
required, but excluding any other consideration received in the form of
assumption by the acquiring Person of indebtedness or other obligations relating
to such properties or assets or received in any other noncash form), in each
case net of
18
(i) all legal, title and recording tax expenses,
commissions and other fees and expenses incurred, and
all Federal, state, provincial, foreign and local
taxes required to be accrued as a liability under
GAAP, as a consequence of such Asset Disposition,
(ii) all payments made on any indebtedness which is
secured by any assets subject to such Asset
Disposition, in accordance with the terms of any Lien
upon or other security agreement of any kind with
respect to such assets, or which must by its terms,
or in order to obtain a necessary consent to such
Asset Disposition, or by applicable law, be repaid
out of the proceeds from such Asset Disposition,
(iii) all distributions and other payments required to be
made to minority interest holders in Subsidiaries as
a result of such Asset Disposition, and
(iv) the deduction of appropriate amounts provided by the
seller as a reserve, in accordance with GAAP, against
any liabilities associated with the property or other
assets disposed in such Asset Disposition and
retained by the Company or any Subsidiary after such
Asset Disposition.
"Original Issuance Date" means November 30, 2003.
"Outstanding Company Common Stock" shall have the meaning set forth in
Section 5.
"Outstanding Company Voting Securities" shall have the meaning set
forth in Section 5.
"Participating Dividends" shall have the meaning set forth in Section
2(b).
"Person" means and includes all natural persons, corporations, business
trusts, associations, companies, partnerships, limited liability companies and
other entities and governments and agencies and political subdivisions.
"Preferred Stock", as applied to the Capital Stock of any Person, means
Capital Stock of any class or classes (however designated) which is preferred as
to the payment of dividends, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such Person, over shares
of Capital Stock of any other class of such Person.
"Recapitalization Agreement" shall have the meaning set forth in
Section 5(b)(2).
"Specified Asset Dispositions" means the Asset Dispositions
contemplated by Section 3 of the Nineteenth Amendment to Loan Agreement.
"Subsidiary" means any corporation, partnership, limited liability
company, trust, association or other entity (i) at least 50% of the outstanding
voting securities of which are at the time owned or controlled, directly or
indirectly, by the Company or (ii) with respect to which the Company possesses,
directly or indirectly, the power to direct or cause the direction of the
affairs or management of such person.
19
"Twenty Day Average" means, with respect to any prices and in
connection with the calculation of Fair Market Value, the average of such prices
over the twenty Business Days ending on the Business Day immediately prior to
the day as of which "Fair Market Value" is being determined.
"Voting Trigger" means the first to occur of any of the following:
(i) a default by the Company in respect of any of its
obligations under the Series C Preferred Stock or the
Recapitalization Agreement;
(ii) an "Event of Default" as defined under the Working
Capital Facility Documents as in effect on the date
hereof, irrespective of any requirement of notice or
action by the lenders thereunder; and
(iii) a failure by the Company to redeem any of the
outstanding shares of Series C Preferred Stock
required to be redeemed pursuant to Sections 4(a)
and 5.
"Working Capital Facility Documents" means the revolving loan and term
loan facilities provided by Congress to the Company and certain of its
Subsidiaries and affiliates as set forth in the Loan and Security Agreement,
dated November 14, 1995, by and among the Lender, the Company and certain
Subsidiaries and affiliates of the Company, as amended, including, without
limitation, the Nineteenth Amendment to Loan and Security Agreement, dated as of
December 18, 2001 (the "Nineteenth Amendment to Loan Agreement"), together with
the other agreements, documents and instruments referred to therein or at any
time executed or delivered in connection therewith or related thereto, as the
same exist and are in effect, in each case, as of the date hereof; provided,
that the aggregate amount of indebtedness outstanding under the Working Capital
Facility Documents shall not exceed at any time $15,000,000, with respect to
amounts outstanding under any term loan facilities issued pursuant to the
Working Capital Facility Documents, and $62,150,000 in the aggregate; provided,
that the term Working Capital Facility Documents shall include subsequent
amendments, modifications, supplements, restatements and replacements thereto
(including, without limitation, with a take out or replacement lender) so long
as such amendments, modifications, supplements, restatements or replacements (a)
do not include any terms that are less favorable to the holders of the Series C
Preferred Stock than the terms related solely to the following provisions of the
following Sections of the Nineteenth Amendment and Twenty-Ninth Amendment to the
Loan Agreement as in effect on the date hereof: (i) the definitions contained in
Section 1 of each of the Nineteenth Amendment and Twenty-Ninth Amendment, (ii)
the redemption of the Series C Preferred Stock set forth in Section 2 of the
Twenty-Ninth Amendment and the Asset Sales provisions set forth in Section 3 of
the Nineteenth Amendment, (iii) the provisions related to the application of
proceeds set forth in Section 3 of the Twenty-Ninth Amendment, (iv) the
adjustments to the lending formulas set forth in Sections 5, 6, 7 and 8 of the
Nineteenth Amendment, (v) the provisions related to the Special Series C
Availability Reserve set forth in Section 4 of the Twenty-Ninth Amendment and
(vi) Section 8 of the Twenty-Ninth Amendment and (b) do not modify the financial
covenants contained in the Working Capital Facility Documents in a manner which
would have a material adverse effect on the redemption of the Series C Preferred
Stock, other than the amendments to the financial covenants, if any, which may
be made pursuant to Section 1(c) of the Twenty-Ninth Amendment.
Section 10. Dividend Received Deduction.
20
For federal income tax purposes, the Company shall report distributions
on the Series C Preferred Stock as dividends, to the extent of the Company's
current and accumulated earnings and profits (as determined for federal income
tax purposes).
Section 11. Withholding Taxes.
All amounts payable with respect to the Series C Preferred Stock,
including without limitation actual or "deemed" dividends thereon or payments
upon redemption thereof, will be made free and clear of and without withholding
or deduction for or on account of any present or future taxes, duties, levies,
assessments or other governmental charges of whatever nature, including
interest, penalties and additions to tax, imposed or levied by or on behalf of
the United States or any political subdivision thereof or any authority or
agency thereof or therein having the power to tax payments in respect of the
Series C Preferred Stock (all such present or future taxes, duties, levies, and
assessments being hereinafter referred to as "Taxes"). If the Company shall be
required by law to withhold or deduct any Taxes from or in respect of any actual
or "deemed" dividend or any other sum payable in respect of the Series C
Preferred Stock (i) the amount required to be withheld and/or the sum payable
shall be increased as necessary so that after making all required withholdings
and deductions the holders of the then outstanding shares of Series C Preferred
Stock receive (or are treated as receiving) an amount equal to the amount they
would have received (or been treated as receiving) had no such withholdings or
deductions been made, (ii) the Company shall make such withholdings or
deductions, (iii) the Company shall pay the full amount withheld and/or deducted
to the relevant taxation authority or other authority in accordance with
applicable law, and (iv) the Company shall furnish each holder of the then
outstanding shares of Series C Preferred Stock, at its address referred to in
the Recapitalization Agreement, or as otherwise noticed with respect thereto,
with the original or a certified copy of a receipt evidencing payment thereof.
The holders of the then outstanding shares of Series C Preferred Stock shall
supply the Company with such documentation as it reasonably may request
including, without limitation, Form W-8BEN. The foregoing shall not apply to any
entity not subject to the withholding taxes set forth in this Section.
Section 12. No Reissuance.
After the Original Issuance Date, no shares of Series C Preferred Stock
shall be issued or reissued as shares of Series C Preferred Stock but shall be
restored to the status of authorized but unissued shares of Preferred Stock. All
shares of Series C Preferred Stock surrendered for redemption or otherwise
acquired by the Company or any Subsidiary shall be retired and shall not be
reissued as shares of Series C Preferred Stock.
Section 13. Severability.
To the extent that any provision hereof is found to be invalid or
unenforceable, such invalidity or unenforceability shall not affect the validity
or enforceability of any other provision of this Certificate of Designations.
Section 14. Delivery of Documents.
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The Company will deliver to any stockholder of the Company, upon its
request, copies of the Working Capital Facility Documents and any other
agreements or documents referred to herein, as well as any amendments to the
foregoing.
IN WITNESS WHEREOF, the Company has caused this Certificate of
Designations to be signed by Thomas C. Shull, its President, this 26th day of
November 2003.
HANOVER DIRECT, INC.
By: /s/ Thomas C. Shull
-------------------------------
Name: Thomas C. Shull
Title: President
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