EXHIBIT 99.2
HANOVER DIRECT, INC.
CORPORATE GOVERNANCE AGREEMENT
THIS CORPORATE GOVERNANCE AGREEMENT ("AGREEMENT") is entered into as of
the 30th day of November, 2003, by and among HANOVER DIRECT, INC., a Delaware
corporation (the "COMPANY"), CHELSEY DIRECT, LLC, a Delaware limited liability
company ("CHELSEY"), STUART FELDMAN, an individual ("FELDMAN"), REGAN PARTNERS,
L.P., a New Jersey limited partnership ("REGAN PARTNERS"), REGAN INTERNATIONAL
FUND LIMITED, a corporation organized under the laws of the British Virgin
Islands (the "FUND"), and BASIL P. REGAN, an individual ("REGAN") (Chelsey,
Feldman, Regan Partners, the Fund and Regan are sometimes hereinafter referred
to individually as a "STOCKHOLDER" and collectively as the "STOCKHOLDERS").
W I T N E S S E T H:
WHEREAS, concurrently with the execution and delivery of this
Agreement, the Company is consummating the transactions contemplated by that
certain Recapitalization Agreement, dated as of November 18, 2003, by and
between the Company and Chelsey (the "RECAPITALIZATION AGREEMENT");
WHEREAS, after giving effect to the Recapitalization Agreement, the
capital stock of the Company (the "STOCK") shall be held by the Stockholders in
the amounts and percentages set forth on Exhibit A attached hereto; and
WHEREAS, the Stockholders and the Company desire to promote their
mutual interests by agreeing to certain matters relating to the operations of
the Company and the disposition of shares of Stock owned by any member of the
Regan Group (as such term is hereinafter defined).
NOW, THEREFORE, in consideration of the mutual promises herein
exchanged, together with other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto, intending to be
legally bound, hereby agree as follows:
ARTICLE I
DEFINITIONS
1.1 Certain Definitions. In addition to the terms defined
elsewhere in this Agreement, the following terms shall have the following
meanings:
(a) "Affiliates" shall mean with respect to a Person, any
other Person controlling, controlled by or under common control with, such
Person, and the term "affiliated with" shall have a meaning correlative with the
foregoing.
(b) "Board" shall mean the board of directors of the
Company.
(c) "Closing" shall mean the consummation of the
transactions contemplated by the Recapitalization Agreement.
(d) "Common Stock" shall mean the shares of common stock,
par value $.66-2/3 per share, of the Company, and/or any other security issued
in exchange or substitution therefore, and any security issued as a dividend or
distribution with respect thereto.
(e) "Person" or "person" shall mean an individual,
partnership, limited liability company, joint venture, corporation, trust,
association, unincorporated organization or other entity and any government or
governmental body.
(f) "Regan Group" shall mean Regan Partners, the Fund,
and Regan, and each of their respective Affiliates.
(g) "Series C Preferred Stock" shall mean the shares of
Series C Cumulative Participating Preferred Stock, par value $.01 per share, of
the Company.
ARTICLE II
CORPORATE GOVERNANCE
2.1 Management. The management of the Company shall be conducted
in accordance with the provisions of this Agreement, which are intended to be
reflected, to the extent required by applicable law, in the Amended Certificate
of Incorporation (the "Certificate of Incorporation") and the By-laws (the
"By-laws") of the Company.
2.2 Board of Directors. From and after the date hereof and
continuing for a period of two (2) years after the Closing, each of the
Stockholders agrees to take all action necessary, including, but not limited to,
the nomination and recommendation as part of the management or nominating
committee slate for election of directors, the voting of all of the Stock over
which such Stockholder has voting control, the execution of written consents,
the calling of special meetings, the removal of directors, the filling of
vacancies on the Board, the waiving of notice and the attending of meetings, so
as to effect the following:
(a) prior to the expiration of the tenth (10th) day
following the filing and transmission by the Company of a statement regarding a
change in majority of directors pursuant to Rule 14f-1 (the "14F Statement") by
the Company with the Securities and Exchange Commission and the transmission to
all equity holders of the Company as required by Rule 14f-1 of the Securities
Exchange of 1934, as amended, as set forth in the Recapitalization Agreement,
the Board shall consist of the following eight (8) members: Martin Edelman,
Wayne Garten, Stuart Feldman, William Wachtel, Basil P. Regan, Thomas Shull,
David Brown and Robert Masson.
(b) after the tenth (10th) day following the filing and
transmission of the 14F Statement as set forth in Section 2.2(a), the Board
shall consist of nine (9) members (subject to increase pursuant to the terms of
the Series C Preferred Stock), designated as follows:
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(i) Chelsey shall designate five (5) members of
the Board (each a "CHELSEY DESIGNEE"). On the date hereof, Chelsey has
designated Martin Edelman, Wayne Garten, Stuart Feldman, William Wachtel and
Donald Hecht as the initial Chelsey Designees. It is understood and agreed that
for a period of two (2) years after the Closing, so long as the Board consists
of a majority of members designated by Chelsey, Chelsey will not seek to
nominate or propose for nomination or elect any individuals to serve as a member
of the Board if the effect thereof would be to cause individuals affiliated or
associated with Chelsey (excluding any individuals appointed to the Board solely
by the holders of the Series C Preferred Stock pursuant to the terms thereof) to
constitute more than five (5) directors of the Board, except that the foregoing
limitation shall not apply and Chelsey may nominate or propose for nomination or
elect any individuals to serve as members of the Board upon the redemption in
full of the Series C Preferred Stock.
(ii) for so long as the Regan Group collectively
owns at least 75% of the outstanding shares of Common Stock owned in the
aggregate by such parties (29,128,762 shares of Common Stock) (as adjusted for
any stock dividends, combinations, splits, recapitalizations and the like with
respect to such shares), as of November 10, 2003 (the "OWNERSHIP REQUIREMENT"),
Regan Partners shall designate one (1) member of the Board (the "REGAN
DESIGNEE"). On the date hereof, Regan Partners has designated Basil P. Regan as
the initial Regan Designee. In the event that the Regan Group collectively fails
to meet the Ownership Requirement, then if the Regan Designee shall not have
resigned within two (2) business days of notice to such effect, the Regan
Designee shall be removed from the Board of Directors and the number of
directors comprising the Board of Directors shall be set at eight (8).
(iii) the Board shall designate the Chief
Executive Officer of the Company to serve as a member of the Board. On the date
hereof, Thomas Shull, the current Chief Executive Officer of the Company, is
hereby designated to serve as a director of the Company.
(iv) the Board (acting without the participation
of Messrs. Wachtel and Feldman) shall designate two (2) members of the Board
(the "BOARD DESIGNEES"). On the date hereof, the Board has designated David
Brown and Robert Masson as the initial Board Designees.
2.3 Removal. Any director (and/or committee member) designated
hereunder shall only be removed from the Board at the written request of the
Person (or their successors in interest) that designated such director (and/or
committee member) in accordance with Sections 2.2 and 2.4, as the case may be,
or if any such director is required to be removed in the exercise of the
fiduciary duty of the Board and, in either such event, or in the event any
Person for any reason ceases to serve as a member of the Board (and/or any
committee) during such director's term of office, the resulting vacancy shall be
filled as promptly as practicable by an individual designated by the Person (or
their successors in interest) that designated such vacating director (and/or
committee member), subject to the approval of the Board, not to be unreasonably
withheld or delayed.
2.4 Designation of Transactions Committee. Concurrent with the
execution of the Recapitalization Agreement, the Board approved a new charter
for the Transactions Committee.
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The Board shall maintain the Transactions Committee at least until the earlier
to occur of: (a) the redemption in full of the Series C Preferred Stock, or (b)
two (2) years after the Closing. The Transactions Committee shall consist of
three (3) members, one (1) of whom shall be designated by Chelsey; one (1) of
whom shall be designated by Regan Partners, and one (1) of whom shall be
designated jointly by Chelsey and Regan Partners. On the date hereof, Martin
Edelman (Chelsey designee), Basil P. Regan (Regan designee) and David Brown
(designated jointly) shall serve as the initial members of the Transactions
Committee. In the event any Person designated in accordance with this Section
2.4 to serve as a member of the Transactions Committee for any reason ceases to
serve as a member of the Board or a member of the Transactions Committee, the
resulting vacancy on the Transactions Committee shall be filled as promptly as
practicable by an individual designated by the Person(s) (or their successors in
interest) which designated such vacating member of the Transactions Committee.
The unanimous consent of all members of the Transactions Committee is required
for any and all actions to be taken thereby, which consent may not under any
circumstances be overturned by the Board. In the event that the members of the
Transactions Committee are unable to unanimously agree on any matter presented
to them for consideration during the first five (5) months following the
execution of the Recapitalization Agreement, such matter shall be determined by
the affirmative vote of no less than six (6) members of the Board for so long
as the Board consists of nine (9) members, and thereafter such matter shall be
determined by the affirmative vote of a majority of the Board. The right of
Regan Partners to designate a member of the Transactions Committee shall
terminate if the Regan Group collectively fails to meet the Ownership
Requirement. In the event that the right of Regan Partners to designate a
member of the Transaction Committee terminates, (a) if the designee of Regan
Partners shall not have resigned within two (2) business days of notice that
such right has terminated, the designee of Regan Partners shall be removed from
the Transactions Committee and the size of the Transactions Committee shall be
reduced to two (2) members until such time as a successor is designated by the
Board as set forth in clause (b) (when the size of the Transactions Committee
shall be restored to three (3) members) and (b) thereafter the member formerly
designated jointly by Chelsey and Regan Partners and a successor to the
designee of Regan Partners shall each be designated by the Board (acting
without the participation of William Wachtel and Stuart Feldman).
2.5 Constitution of Other Committees. For so long as each of the
following continues to serve as a member of the Board, he shall serve as a
member of the Committee(s) of the Board, as follows: the members of the
Executive Committee shall be Stuart Feldman (Chairman), Martin Edelman and Basil
P. Regan; the members of the Audit Committee shall be Robert Masson (Chairman),
Wayne Garten, David Brown and Donald Hecht; the members of the Compensation
Committee shall be David Brown (Chairman), Wayne Garten and Stuart Feldman; the
members of the Nominating Committee shall be William Wachtel (Chairman), Wayne
Garten and Thomas Shull; and the members of the Transactions Committee shall be
as set forth in Section 2.4 above, with Martin Edelman serving as the Chairman
of such committee.
2.6 Expense Reimbursement. The out-of-pocket expenses actually
incurred by the Persons serving as directors of the Company that are not
employees of the Company in
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connection with attending any meetings of the Board or any committee thereof
(including the Transactions Committee) shall be paid by the Company.
2.7 Officers. (a) The Chief Executive Officer of the Company shall
be Thomas Shull until his successor shall have been duly elected and shall have
qualified in accordance with Section 2.7(b).
(b) The Board may appoint such additional officers as it
may from time to time determine. Officers shall serve at the pleasure of the
Board and the Board may remove any officer with or without cause at any time,
and from time to time, subject to the provisions of the employment agreement (if
any) of such officer, and any vacancy shall be filled by the Board, except that
prior to the expiration of one-hundred fifty (150) days after November 18, 2003,
the Board shall not terminate the employment of the Chief Executive Officer of
the Company, unless such termination is approved by the affirmative vote of at
least six (6) members of the Board.
ARTICLE III
MISCELLANEOUS
3.1 Termination. This Agreement shall terminate upon the
dissolution of the Company or upon the unanimous agreement in writing of all the
Stockholders. Notwithstanding the death of any Stockholder or the disposition by
a Stockholder of all shares of Stock owned by such Stockholder, this Agreement
shall nonetheless continue and remain in full force and effect in accordance
with its terms and conditions between and among the remaining Stockholders, the
heirs of the deceased Stockholder and the Company. A person shall cease to be a
"Stockholder" hereunder at such time as the Stockholder disposes of all his
Stock.
3.2 Notices. All notices, requests and other communications to any
party hereunder shall be in writing (including facsimile or similar writing) and
shall be given to the appropriate parties at the addresses set forth on Exhibit
A attached hereto or such other address or facsimile number as such party may
hereafter specify for such purpose by notice to the other parties in the manner
specified herein. Each such notice, request or other communication shall be
effective (i) if given by facsimile, when such facsimile is transmitted to the
facsimile number specified on Exhibit A and a facsimile confirmation is received
or (ii) if given by mail, at the earliest of its receipt or five (5) days after
the same has been deposited in a regularly maintained receptacle for the
deposit of U.S. mail, addressed and postage paid as aforesaid or (iii) if given
by any other means, when delivered at the address specified in this Section.
3.3 Gender and Use of Singular and Plural. All pronouns shall be
deemed to refer to the masculine, feminine, neuter, singular or plural, as the
identity of the party or parties, or their personal representatives, successors
and assigns may require.
3.4 Further Assurances. The parties hereto will execute and
deliver such further instruments and do such further acts and things as may be
reasonably required to carry out the intent and purposes of this Agreement.
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3.5 No Waivers. No failure or delay by any party in exercising any
right, power or privilege hereunder or seeking any remedy with respect to a
breach hereof shall operate as a waiver thereof or of any other right, power or
privilege nor shall any single or partial exercise thereof preclude any other or
further exercise thereof or the exercise of any other right, power or privilege.
The rights and remedies herein provided shall be cumulative and not exclusive of
any rights or remedies provided by law.
3.6 Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective heirs,
executors, administrators, successors and assigns.
3.7 Governing Law. This Agreement shall be construed in accordance
with and governed by the law of the State of New York, without regard to
principles of conflicts of law (other than Section 5-1401 of the General
Obligations Law of the State of New York).
3.8 Jurisdiction. Any suit, action or proceeding seeking to
enforce any provision of, or based on any matter arising out of or in connection
with, this Agreement or the transactions contemplated hereby may be brought in
any federal or state court located in the Southern District of New York, and
each of the parties hereby consents to the jurisdiction of such courts (and of
the appropriate appellate courts therefrom) in any such suit, action or
proceeding and irrevocably waives, to the fullest extent permitted by law, any
objection which it may now or hereafter have to the laying of the venue of any
such suit, action or proceeding in any such court or that any such suit, action
or proceeding which is brought in any such court has been brought in an
inconvenient forum. Process in any such suit, action or proceeding may be served
on any party anywhere in the world, whether within or without the jurisdiction
of any such court. Without limiting the foregoing, each party agrees that
service of process on such party as provided in Section 3.2 shall be deemed
effective service of process on such party.
3.9 Waiver of Jury Trial. EACH OF THE PARTIES HERETO HEREBY
IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY.
3.10 Counterparts; Effectiveness. This Agreement may be signed in
any number of counterparts, each of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument
provided no party shall be bound unless and until the Stockholders and the
Company have each signed a counterpart hereof. Facsimile transmissions of any
executed original documents and/or retransmission of any executed facsimile
transmission shall be deemed to be the same as the delivery of an executed
original. At the written request of any party hereto, the other parties hereto
shall confirm facsimile transmissions by executing duplicate original documents
and delivering the same to the requesting party or parties.
3.11 Entire Agreement. This Agreement and the Recapitalization
Agreement and the agreements contemplated thereby constitute the entire
agreement between the parties with respect to the subject matter of this
Agreement and supersedes all prior agreements and understandings, both oral and
written, between the parties with respect to the transactions
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contemplated herein. No provision of this Agreement or any other agreement
contemplated hereby is intended to confer on any Person other than the parties
hereto any rights or remedies.
3.12 Captions. The captions herein are included for convenience of
reference only and shall be ignored in the construction or interpretation
hereof.
3.13 Severability. If any term, provision, covenant or restriction
of this Agreement is held by a court of competent jurisdiction or other
authority to be invalid, void or unenforceable (a "Determination"), the
remainder of the terms, provisions, covenants and restrictions of this Agreement
shall remain in full force and effect and shall in no way be affected, impaired
or invalidated so long as the economic or legal substance of the transactions
contemplated hereby is not affected in any manner materially adverse to any
party. Upon such a Determination, the parties shall negotiate in good faith to
modify this Agreement so as to effect the original intent of the parties as
closely as possible in an acceptable manner in order that the transactions
contemplated hereby be consummated as originally contemplated to the fullest
extent possible.
3.14 Amendments. The provisions of this Agreement, including the
provisions of this sentence, may not be amended, modified or supplemented, and
waivers or consents to departures from the provisions hereof may not be given
without the prior written consent of the Stockholders.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
COMPANY:
HANOVER DIRECT, INC.
By: /s/ Thomas C. Shull
____________________________________
Name: Thomas C. Shull
Title: President
STOCKHOLDERS:
CHELSEY DIRECT, LLC
By: /s/ William B. Wachtel
____________________________________
Name:
Title:
/s/ Stuart Feldman
________________________________________
Stuart Feldman
REGAN PARTNERS, L.P.
By: /s/ Basil P. Regan
____________________________________
Name: Basil P. Regan
Title: General Partner
REGAN INTERNATIONAL FUND LIMITED
By: Regan Fund Management Ltd.
By: /s/ Basil P. Regan
______________________________
Basil P. Regan
President
/s/ Basil P. Regan
__________________________________
Basil P. Regan
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EXHIBIT A
Number of Percentage
Stockholders Address Class of Stock Shares Owned of Class
- ------------ ------- -------------- ------------ --------
Chelsey Direct, LLC 712 Fifth Avenue Common 111,304,721 50.5%
45th Floor Class C 564,819 100%
New York, NY 10019
Stuart Feldman 712 Fifth Avenue Common 160,900 .7%
45th Floor
New York, NY 10019
Regan Partners, L.P. 32 East 57th Street Common 26,787,350(1) 12.2%
20th Floor
New York, NY 10022
Regan International c/o Hemisphere Common 10,986,100 4.9%
Fund Limited Management Limited
Hemisphere House
9 Church Street
P.O. Box HM 951
Hamilton HM DX,
Bermuda
Basil P. Regan 32 East 57th Street Common 1,064,900(2) .5%
20th Floor
New York, NY 10022
- --------
(1) 1,879,800 of such shares are held in a managed account.
(2) Includes options to acquire 110,000 shares of Common Stock.
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