Exhibit 10.4
THIS SERIES D PREFERRED STOCK PURCHASE WARRANT AND THE SHARES THAT MAY BE
PURCHASED HEREUNDER HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR UNDER THE SECURITIES LAWS OF ANY STATE. THIS SERIES D PREFERRED
STOCK PURCHASE WARRANT AND THE SHARES THAT MAY BE PURCHASED HEREUNDER MAY NOT BE
SOLD OR OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND REGISTRATION OR QUALIFICATION
UNDER APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL THAT THE
PROPOSED TRANSACTION DOES NOT VIOLATE THE SECURITIES ACT OF 1933, AND APPLICABLE
STATE SECURITIES LAWS.
HANOVER DIRECT, INC.
SERIES D PREFERRED STOCK PURCHASE WARRANT
Date of Issuance: July 8, 2004 Certificate No. PW-1
THIS IS TO CERTIFY that CHELSEY DIRECT, LLC, a Delaware limited liability
company, and its transferees, successors and assigns (the "Holder"), for good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, is entitled to purchase from HANOVER DIRECT, INC., a Delaware
corporation (the "Company"), at the price of $0.01 per share (the "Exercise
Price"), at any time after September 30, 2004 (the "Commencement Date") and
expiring on July 8, 2014 unless sooner exchanged pursuant to Section 1(c) hereof
(the "Expiration Date"), one hundred (100) shares of the fully paid and
nonassessable Series D Preferred Stock (as defined in Section 9 hereof), of the
Company (as such number may be adjusted as provided herein). The one hundred
(100) shares of Series D Preferred Stock which may be purchased pursuant to this
Warrant, as the same may be adjusted pursuant to Section 6, are referred to
herein as the "Aggregate Number."
Capitalized terms used herein shall have the meanings ascribed to such
terms in Section 9 hereof unless otherwise defined herein.
SECTION 1. THE WARRANT; TRANSFER AND EXCHANGE.
(a) The Warrant. This Series D Preferred Stock Purchase Warrant
(the "Warrant") is issued in connection with the Junior Secured Term Loan
Agreement. This Warrant and the rights and privileges of the Holder and the
Company hereunder may be exercised by the Holder in whole or in part as provided
herein; shall survive any termination of the Junior Secured Term Loan Agreement;
and, as more fully set forth in Sections 1(b) and 8 hereof, may be transferred
by the Holder to any other Person or Persons at any time or from time to time,
in whole or in part, regardless of whether the Holder retains any or all rights
under the Junior Secured Term Loan Agreement.
(b) Transfer and Exchanges. The Company shall initially record
this Warrant on a register to be maintained by the Company with its other stock
books and, subject to Section 8 hereof, from time to time thereafter shall
reflect the transfer of this Warrant on such register when surrendered for
transfer in accordance with the terms hereof and properly endorsed, accompanied
by appropriate instructions, and further accompanied by payment in cash or by
check, bank draft or money order payable to the order of the Company, in United
States currency, of an amount equal to any stamp or other tax or governmental
charge or fee required to be paid in connection with the transfer thereof. Upon
any such transfer, a new warrant or warrants shall be issued to the transferee
and the Holder (in the event the Warrant is only partially transferred) and the
surrendered warrant shall be canceled. This Warrant may be exchanged at the
option of the Holder, when surrendered at the Principal Office of the Company,
for another warrant or other warrants of like tenor and representing in the
aggregate the right to purchase a like number of shares of Series D Preferred
Stock.
(c) Mandatory Exchange of Warrant. Notwithstanding any other
provision of this Warrant, upon (x) the approval by the stockholders of the
Company, at the Company's next meeting of stockholders, of the issuance of
equity securities of the Company to the Holder (the "Stockholder Approval") and
(y) the filing with the Secretary of State of the State of Delaware of an
amendment to the Certificate of Incorporation of the Company as contemplated by
the Stockholder Approval (the "Required Filing"), this Warrant shall be
automatically exchanged for a warrant in the form attached hereto as Exhibit A
(the "Common Stock Purchase Warrant") to purchase 30.00% of the issued and
outstanding shares of common stock, par value $0.01 per share (the "Common
Stock"), of the Company on a Fully Diluted basis (which for these purposes
assumes the full exercise of the Common Stock Purchase Warrant) at an exercise
price of $0.01 per share of Common Stock. Upon the Company's receipt of the
Stockholder Approval and the completion of the Required Filing, the Holder shall
surrender this Warrant at the Principal Office of the Company and receive in
consideration therefor the Common Stock Purchase Warrant.
SECTION 2. EXERCISE.
(a) Right to Exercise. At any time after the Commencement Date and
on or before the Expiration Date unless sooner exchanged pursuant to
Section 1(c) hereof, the Holder, in accordance with the terms hereof, may
exercise this Warrant, in whole at any time or in part from time to time, by
delivering this Warrant to the Company during normal business hours on any
Business Day at the Company's Principal Office, together with the Election to
Purchase, in the form attached hereto as Exhibit B and made a part hereof (the
"Election to Purchase"), duly executed, and payment of the Exercise Price per
share for the number of shares to be purchased (the "Exercise Amount"), as
specified in the Election to Purchase. If the Expiration Date is not a Business
Day, then this Warrant may be exercised on the next succeeding Business Day.
(b) Payment of Exercise Price. Payment of the Exercise Price shall
be made to the Company as follows (or any combination thereof): (i) in cash or
other immediately available funds or (ii) as provided in Section 2(c). In the
case of payment of all or a portion of the Exercise Price pursuant to Section
2(c), the direction by the Holder to make a "Cashless Exercise" shall serve as
accompanying payment for that portion of the Exercise Price. The amount of the
Exercise Price to be paid shall equal the product of (i) the Exercise Amount
multiplied by (ii) the Exercise Price per share.
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(c) Cashless Exercise. The Holder shall have the right to pay all
or a portion of the Exercise Price by making a "Cashless Exercise" pursuant to
this Section 2(c), in which case the portion of the Exercise Price to be so paid
shall be paid by reducing the number of shares of Series D Preferred Stock
otherwise issuable pursuant to the Election to Purchase (the "Exercised Shares")
by an amount (the "Cashless Exercise Shares") equal to (i) the Exercise Price
multiplied by the Exercised Shares and divided by (ii) the Fair Market Value Per
Share. The number of shares of Series D Preferred Stock to be issued to the
Holder as a result of a Cashless Exercise will therefore be equal to the
Exercised Shares minus the Cashless Exercise Shares.
(d) Issuance of Shares of Series D Preferred Stock. Upon receipt
by the Company of this Warrant at its Principal Office in proper form for
exercise, and accompanied by payment of the Exercise Price as aforesaid, the
Holder shall be deemed to be the holder of record of the shares of Series D
Preferred Stock issuable upon such exercise, notwithstanding that certificates
representing such shares of Series D Preferred Stock may not then be actually
delivered. Upon such surrender of this Warrant and payment of the Exercise Price
as aforesaid, the Company shall issue and cause to be delivered with all
reasonable dispatch to, or upon the written order of, the Holder (and in such
name or names as the Holder may designate) a certificate or certificates for the
Exercise Amount, subject to any reduction as provided in Section 2(c) for a
Cashless Exercise.
(e) Fractional Shares. The Company shall not be required to
deliver fractions of shares of Series D Preferred Stock upon exercise of this
Warrant. If any fraction of a share of Series D Preferred Stock would be
deliverable upon an exercise of this Warrant, the Company may, in lieu of
delivering such fraction of a share of Series D Preferred Stock, make a cash
payment to the Holder in an amount equal to the same fraction of the Fair Market
Value Per Share determined as of the Business Day immediately preceding the date
of exercise of this Warrant.
(f) Partial Exercise. In the event of a partial exercise of this
Warrant, the Company shall issue to the Holder a Warrant in like form for the
unexercised portion thereof.
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SECTION 3. PAYMENT OF TAXES. The Company shall pay all stamp taxes attributable
to the initial issuance of shares or other securities issuable upon the exercise
of this Warrant or issuable pursuant to Section 6 hereof, excluding any tax or
taxes which may be payable because of the transfer involved in the issuance or
delivery of any certificates for shares or other securities in a name other than
that of the Holder in respect of which such shares or securities are issued.
SECTION 4. REPLACEMENT WARRANT. In case this Warrant is mutilated, lost, stolen
or destroyed, the Company shall issue and deliver in exchange and substitution
for and upon cancellation of the mutilated Warrant, or in lieu of and in
substitution for the Warrant lost, stolen or destroyed, a new Warrant of like
tenor and representing an equivalent right or interest, but only upon receipt of
evidence reasonably satisfactory to the Company of such loss, theft or
destruction of such Warrant and upon receipt of indemnity reasonably
satisfactory to the Company (provided, that if the Holder is a financial
institution or other institutional investor its personal undertaking to provide
an indemnity is hereby deemed to be reasonably satisfactory to the Company;
provided, further, the form of such undertaking shall be reasonably satisfactory
to the Company).
SECTION 5. RESERVATION OF SERIES D PREFERRED STOCK AND OTHER COVENANTS.
(a) Reservation of Authorized Series D Preferred Stock. The
Company shall at all times reserve and keep available out of the aggregate of
its authorized but unissued shares, free of preemptive rights, such number of
its duly authorized shares of Series D Preferred Stock, or other stock or
securities deliverable pursuant to Section 6 hereof, as shall be sufficient to
enable the Company at any time to fulfill all of its obligations under this
Warrant.
(b) Affirmative Actions to Permit Exercise and Realization of
Benefits. If any shares of Series D Preferred Stock reserved or to be reserved
for the purpose of the exercise of this Warrant, or any shares or other
securities reserved or to be reserved for the purpose of issuance pursuant to
Section 6 hereof, require registration with or approval of any governmental
authority under any federal or state law (other than securities laws) before
such shares or other securities may be validly delivered upon exercise of this
Warrant, then the Company covenants that it will, at its sole expense, secure
such registration or approval, as the case may be (including but not limited to
approvals or expirations of waiting periods required under the Hart Scott Rodino
Antitrust Improvements Act).
(c) Regulatory Requirements and Restrictions. In the event of any
reasonable determination by the Holder that, by reason of any existing or future
federal or state law, statute, rule, regulation, guideline, order, court or
administrative ruling, request or directive (whether or not having the force of
law and whether or not failure to comply therewith would be unlawful)
(collectively, a "Regulatory Requirement"), the Holder is effectively restricted
or prohibited from holding this Warrant or the Warrant Shares (including any
shares of capital stock or other securities distributable to the Holder in any
merger, reorganization, readjustment or other reclassification), or otherwise
realizing upon or receiving the benefits intended under this Warrant, the
Company shall, and shall use its reasonable best efforts to have its
shareholders, take such action as the Holder and the Company shall jointly agree
in good faith to be reasonably necessary to permit the Holder to comply with
such Regulatory Requirement. The reasonable
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costs of taking such action, whether by the Company, the Holder or otherwise,
shall be borne by the Holder.
(d) Validly Issued Shares. The Company covenants that all shares
of Series D Preferred Stock that may be delivered upon exercise of this Warrant,
assuming full payment of the Exercise Price, (including those issued pursuant to
Section 6 hereof), shall upon delivery by the Company be duly authorized and
validly issued, fully paid and nonassessable, free from all stamp taxes, liens
and charges with respect to the issue or delivery thereof and otherwise free of
all other security interests, encumbrances and claims of any nature whatsoever
other than such security interests, encumbrances and claims granted by the
Holder.
(e) No Additional Issuances of Series D Preferred Stock. The
Company covenants that it shall not issue or sell any shares of Series D
Preferred Stock, or securities convertible into or exercisable for Series D
Preferred Stock, in excess of the Aggregate Number. Under certain conditions,
the Aggregate Number is subject to adjustment as set forth in this Section 6.
SECTION 6. ADJUSTMENTS TO AGGREGATE NUMBER.
(a) Equitable Adjustments. In case the Company shall (i) subdivide
its outstanding shares of Series D Preferred Stock into a larger number of
shares of Series D Preferred Stock, including without limitation by means of a
stock split, (ii) combine its outstanding shares of Series D Preferred Stock
into a smaller number of shares of Series D Preferred Stock, or (iii) take or
propose to take any other action that may have a dilutive effect on the Warrant
Shares issuable upon exercise of this Warrant, as reasonably determined by the
Board of Directors of the Company, the Aggregate Number in effect immediately
prior thereto shall be equitably adjusted so as to prevent the dilution of the
Warrant Shares issuable upon exercise of this Warrant. No adjustments shall be
made under this Section 6 as a result of the issuance by the Company of the
Warrant Shares upon exercise of this Warrant.
(b) Changes in Series D Preferred Stock. In case at any time the
Company shall initiate any transaction or be a party to any transaction
(including, without limitation, a merger, consolidation, share exchange, sale,
lease or other disposition of all or substantially all of the Company's assets,
liquidation, recapitalization or reclassification of the Series D Preferred
Stock) in connection with which the outstanding Series D Preferred Stock shall
be changed into or exchanged for different securities of the Company or capital
stock or other securities of another corporation or interests in a non-corporate
entity or other property (including cash) or any combination of the foregoing
(each such transaction being herein called a "Transaction"), then, as a
condition of the consummation of the Transaction, lawful, enforceable and
adequate provision shall be made so that the Holder shall be entitled to elect,
by written notice to the Company, to receive (i) a new warrant in form and
substance similar to, and in exchange for, this Warrant to purchase all or a
portion of such securities or other property or (ii) upon exercise of this
Warrant at any time on or after the consummation of the Transaction, in lieu of
the Warrant Shares issuable upon such exercise prior to such consummation, the
securities or other property (including cash) to which such Holder would have
been entitled upon consummation of the Transaction if such Holder had exercised
this Warrant immediately prior thereto (subject to adjustments from and after
the consummation date as nearly equivalent as possible to the
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adjustments provided for in this Section 6). The Company will not effect any
Transaction unless prior to the consummation thereof each corporation or other
entity (other than the Company) which may be required to deliver any new
warrant, securities or other property as provided herein shall assume, by
written instrument delivered to the Holder, the obligation to deliver to such
Holder such new warrant, securities or other property as in accordance with the
foregoing provisions such Holder may be entitled to receive and such corporation
or entity shall have similarly delivered to the Holder an opinion of counsel for
such corporation or entity, satisfactory to the Holder, which opinion shall
state that all of the terms of the new warrant or this Warrant shall be
enforceable against the Company and such corporation or entity in accordance
with the terms hereof and thereof, together with such other matters as the
Holder may reasonably request. The foregoing provisions of this Section 6(b)
shall similarly apply to successive Transactions.
(c) Notices.
(i) Notice of Proposed Actions. In case the Company shall
propose (A) to pay any dividend payable in stock of any class to the holders of
its Capital Stock or to make any other distribution to the holders of its
Capital Stock, (B) to offer to the holders of its Capital Stock rights to
subscribe for or to purchase any Convertible Securities or additional shares of
Capital Stock or shares of stock of any class or any other securities, warrants,
rights or options (other than the exercise of pre-emptive rights by a Holder)
(C) to effect any reclassification of its Capital Stock, (D) to effect any
recapitalization, stock subdivision, stock combination or other capital
reorganization, (E) to effect any consolidation or merger, share exchange, or
sale, lease or other disposition of all or substantially all of its property,
assets or business, (F) to effect the liquidation, dissolution or winding up of
the Company or (G) to effect any other action which would require an adjustment
under this Section 6, then in each such case the Company shall give to the
Holder written notice of such proposed action, which shall specify the date on
which a record is to be taken for the purposes of such stock dividend, stock
subdivision, stock combination, distribution or rights, or the date on which
such reclassification, recapitalization, reorganization, consolidation, merger,
share exchange, sale, lease, transfer, disposition, liquidation, dissolution,
winding up or other transaction is to take place and the date of participation
therein by the holders of Capital Stock, if any such date is to be fixed, or the
date on which the transfer of Capital Stock is to occur, and shall also set
forth such facts with respect thereto as shall be reasonably necessary to
indicate the effect of such action on the Capital Stock and on the Aggregate
Number after giving effect to any adjustment which will be required as a result
of such action. Such notice shall be so given in the case of any action covered
by clause (A) or (B) above at least 30 days prior to the record date for
determining holders of the Capital Stock for purposes of such action and, in the
case of any other such action, at least 30 days prior to the earlier of the date
of the taking of such proposed action or the date of participation therein by
the holders of Capital Stock.
(ii) Adjustment Notice. Whenever the Aggregate Number is to
be adjusted pursuant to this Section 6, unless otherwise agreed by the Holder,
the Company shall promptly (and in any event within 10 Business Days after the
event requiring the adjustment) prepare a certificate signed by the chief
financial officer of the Company, setting forth, in reasonable detail, the event
requiring the adjustment and the method by which such adjustment is to be
calculated. The certificate shall set forth, if applicable, a description of the
basis on which
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the Board of Directors in good faith determined, as applicable, the Fair Market
Value Per Share, the fair market value of any evidences of indebtedness, shares
of stock, other securities, warrants, other subscription or purchase rights, or
other property or the equitable nature of any adjustment under Section 6(b)
hereof, the new Aggregate Number and, if applicable, any new securities or
property to which the Holder is entitled. The Company shall promptly cause a
copy of such certificate to be delivered to the Holder. The Company shall keep
at its Principal Office copies of all such certificates and cause the same to be
available for inspection at said office during normal business hours by the
Holder or any prospective purchaser of the Warrant (in whole or in part) if so
designated by the Holder.
SECTION 7. NO DILUTION OR IMPAIRMENT. The Company will not, by amendment of its
Certificate of Incorporation or through any reorganization, recapitalization,
transfer of assets, consolidation, merger, share exchange, dissolution or any
other voluntary action, avoid or seek to avoid the observance or performance of
any of the terms of this Warrant, including without limitation the adjustments
required under Section 6 hereof, and will at all times in good faith assist in
the carrying out of all such terms and in taking of all such action as may be
necessary or appropriate to protect the rights of the Holder against dilution or
other impairment. Without limiting the generality of the foregoing and
notwithstanding any other provision of this Warrant to the contrary (including
by way of implication), the Company (a) will not increase the par value of any
shares of Series D Preferred Stock receivable on the exercise of this Warrant
above the amount payable therefor on such exercise or (b) will take all such
action as may be necessary or appropriate so that the Company may validly and
legally issue fully paid and nonassessable shares of Series D Preferred Stock on
the exercise of this Warrant.
SECTION 8. TRANSFERS OF THE WARRANT.
(a) Generally. Subject to the restrictions set forth in this
Section 8, the Holder may at any time and from time to time freely transfer this
Warrant and the Warrant Shares in whole or in part. This Warrant and the Warrant
Shares are issued or issuable subject to the provisions and conditions contained
herein, and every Holder hereof by accepting the same agrees with the Company to
such provisions and conditions, and represents to the Company that this Warrant
has been acquired and the Warrant Shares will be acquired for the account of the
Holder for investment and not with a view to or for sale in connection with any
distribution thereof.
(b) Compliance with Securities Laws. The Holder agrees that the
Warrant and the Warrant Shares may not be sold or otherwise disposed of except
pursuant to an effective registration statement under the Securities Act and
applicable state securities laws or pursuant to an applicable exemption from the
registration requirements of the Securities Act and such state securities laws.
In the event that the Holder transfers this Warrant or the Warrant Shares
pursuant to an applicable exemption from registration, the Company may request,
at its expense, an opinion of counsel that the proposed transfer does not
violate the Securities Act and applicable state securities laws.
(c) Restrictive Securities Legend. The certificate representing
the shares of Series D Preferred Stock issued upon the exercise of the Warrant
shall bear the restrictive legends set forth below:
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"The shares represented by this certificate have not been registered
under the Securities Act of 1933, as amended, or the securities laws
of any State and may not be sold or otherwise disposed of except
pursuant to an effective registration statement under such Act and
applicable State securities laws or pursuant to an applicable
exemption from the registration requirements of such Act and such
laws."
SECTION 9. DEFINITIONS.
As used herein, in addition to the terms defined elsewhere herein, the
following terms shall have the following meanings.
"Affiliate" means, with respect to any Person, a Person (a) directly or
indirectly controlling, controlled by, or under common control with, such
Person, (b) directly or indirectly owning or holding ten percent (10%) or more
of any equity interest in such Person or (c) ten percent (10%) or more of whose
voting stock or other equity interest is directly or indirectly owned or held by
such Person. For purposes of this definition, "control" (including with
correlative meanings, the terms "controlling," controlled by" and "under common
control with") means the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of a Person,
whether through the ownership of voting securities, by contract or otherwise.
"Aggregate Number" has the meaning set forth in the Preamble.
"Business Day" means any day other than a Saturday, Sunday or other day on
which commercial banks in The City of New York, New York are authorized or
required by law or executive order to close.
"Capital Stock" means (i) with respect to any Person that is a
corporation, any and all shares, interests or equivalents in capital stock
(whether voting or nonvoting, and whether common or preferred) of such
corporation, and (ii) with respect to any Person that is not a corporation, any
and all partnership, membership, limited liability company or other equity
interests of such Person that confer on a Person the right to receive a share of
the profits and losses of, or the distribution of assets of, the issuing Person;
and in each case, any and all warrants, rights or options to purchase any of the
foregoing.
"Cashless Exercise Shares" has the meaning set forth in Section 2(c).
"Certificate of Incorporation" means, as to a Person, unless the context
in which it is used shall otherwise require, the Certificate of Incorporation
(or equivalent or similar organizational documents) of such Person as in effect
on the Commencement Date.
"Commencement Date" has the meaning set forth in the Preamble.
"Commission" means the Securities and Exchange Commission or any similar
agency then having jurisdiction to enforce the Securities Act.
"Common Stock" has the meaning set forth in Section 1(c).
"Common Stock Purchase Warrant" has the meaning set forth in Section 1(c).
"Company" has the meaning set forth in the Preamble.
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"Convertible Securities" means evidences of indebtedness, shares of stock
or other securities (including, but not limited to options and warrants) which
are directly or indirectly convertible, exercisable or exchangeable, with or
without payment of additional consideration in cash or property, for shares of
Series D Preferred Stock, either immediately or upon the onset of a specified
date or the happening of a specified event.
"Election to Purchase" has the meaning set forth in Section 2(a).
"Exercise Amount" has the meaning set forth in Section 2(a).
"Exercise Price" has the meaning set forth in the Preamble.
"Exercised Shares" has the meaning set forth in Section 2(c).
"Expiration Date" has the meaning set forth in the Preamble.
"Fair Market Value Per Share" means, per share of Series D Preferred Stock
on any date: (a) the fair market value of the outstanding Series D Preferred
Stock based upon an arm's length sale of the Company on such date (including its
ownership interest in all Persons) as an entirety, such sale being between a
willing buyer and a willing seller and determined without reference to any
discount for minority interest, restrictions on transfer, disparate voting
rights among classes of capital stock or lack of marketability with respect to
capital stock divided by (b) the aggregate number of shares of Series D
Preferred Stock outstanding. The Fair Market Value Per Share shall be determined
by the Board of Directors of the Company in good faith within 10 days of any
event for which such determination is required and such determination (including
the basis therefor) shall be promptly provided to the Holder. Such determination
shall be binding on the Holder unless the Holder objects thereto in writing
within 10 Business Days of receipt. In the event the Company and the Holder
cannot agree on the Fair Market Value Per Share within 10 Business Days of the
date of the Holder's objection, the Fair Market Value Per Share shall be
determined by a disinterested appraiser (which shall be a nationally recognized
investment banking firm) mutually selected by the Company and the Holder, the
fees and expenses of which shall be paid 50% by the Company and 50% by the
Holder unless such determination results in a Fair Market Value Per Share more
than 110% of the Fair Market Value Per Share initially determined by the Company
in which case such fees and expenses shall be borne by the Company. Any
selection of a disinterested appraiser shall be made in good faith within seven
Business Days after the end of the last 10 Business Day period referred to above
and any determination of Fair Market Value Per Share by a disinterested
appraiser shall be made within 30 days of the date of selection.
"Fully Diluted" means, with respect to the Series D Preferred Stock as of
a particular time (taking into account the transaction in respect of which the
"Fully Diluted" basis is being calculated at such time), the total number of
outstanding shares of Series D Preferred Stock as of such time as determined by
treating all outstanding and then exercisable options, warrants and other rights
for the purchase or other acquisition of Series D Preferred Stock as having been
exercised and by treating all outstanding Convertible Securities which at the
time of such calculation may be converted as having been so converted.
"Holder" or "Holders" means any holder of an interest in the Warrant or
the outstanding Warrant Shares.
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"Junior Secured Term Loan Agreement" means that certain Loan and Security
Agreement, dated as of July 8, 2004, by and among Chelsey Finance, LLC, Hanover
Direct, Inc. and the other borrowers named therein as the same may be amended,
modified, supplemented or restated.
"Person" means any individual, firm, corporation, partnership, limited
liability company, joint venture, incorporated or unincorporated association,
joint stock company, governmental authority, or other entity of any kind, and
shall include any successor (by merger or otherwise) of such entity.
"Principal Office" means the Company's principal office as set forth in
Section 14 hereof or such other principal office of the Company in the United
States of America, the address of which first shall have been set forth in a
notice to the Holder.
"Regulatory Requirement" has the meaning set forth in Section 5(c).
"Required Filing" has the meaning set forth in Section 1(c).
"Securities Act" means the Securities Act of 1933, as amended, or any
successor federal statute, and the rules and regulations thereunder as the same
shall be in effect at the time.
"Series D Preferred Stock" means the Series D Preferred Stock, par value
$0.01 per share, of the Company or any other Capital Stock of the Company into
which such stock is reclassified or reconstituted.
"Stockholder Approval" has the meaning set forth in Section 1(c).
"Subsidiary(ies)" means, with respect to any Person, a corporation,
partnership, limited liability company or other entity of which shares of stock
or other ownership interests having ordinary voting power (other than stock or
such other ownership interests having such power only by reason of the happening
of a contingency) to elect a majority of the board of directors or other
managers of such corporation, partnership or other entity are at the time owned,
or the management of which is otherwise controlled, directly or indirectly
through one or more intermediaries, or both, by such Person.
"Transaction" has the meaning set forth in Section 6(b).
"Twenty Day Average" means, with respect to any prices and in connection
with the calculation of Fair Market Value Per Share, 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 Per Share" is being determined.
"Warrant" has the meaning set forth in Section 1(a).
"Warrant Securities" means the Warrant and the Warrant Shares,
collectively.
"Warrant Shares" means (a) the shares of Series D Preferred Stock issued
or issuable upon exercise of this Warrant in accordance with its terms and (b)
all other shares of the Company's capital stock issued with respect to such
shares by way of stock dividend, stock split or other reclassification or in
connection with any merger, consolidation, recapitalization or other
reorganization affecting the Company's capital stock.
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SECTION 10. SURVIVAL OF PROVISIONS. Notwithstanding the full exercise by the
Holder of its rights to purchase Series D Preferred Stock hereunder, the
provisions of Sections 5(c), 5(d) and 11 through 21 of this Warrant shall
survive such exercise and the Expiration Date.
SECTION 11. DELAYS, OMISSIONS AND INDULGENCES. It is agreed that no delay or
omission to exercise any right, power or remedy accruing to the Holder upon any
breach or default of the Company under this Warrant shall impair any such right,
power or remedy, nor shall it be construed to be a waiver of any such breach or
default, or any acquiescence therein, or of or in any similar breach or default
thereafter occurring; nor shall any waiver of any single breach or default be
deemed a waiver of any other breach or default theretofore or thereafter
occurring. It is further agreed that any waiver, permit, consent or approval of
any kind or character on the Holder's part of any breach or default under this
Warrant, or any waiver on the Holder's part of any provisions or conditions of
this Warrant must be in writing and that all remedies, either under this
Warrant, or by law or otherwise afforded to the Holder, shall be cumulative and
not alternative.
SECTION 12. RIGHTS OF TRANSFEREES. Subject to Section 8, the rights granted to
the Holder hereunder of this Warrant shall pass to and inure to the benefit of
all subsequent transferees of all or any portion of the Warrant (provided that
the Holder and any transferee shall hold such rights in proportion to their
respective ownership of the Warrant and Warrant Shares) until extinguished
pursuant to the terms hereof.
SECTION 13. CAPTIONS. The titles and captions of the Sections and other
provisions of this Warrant are for convenience of reference only and are not to
be considered in construing this Warrant.
SECTION 14. NOTICES. All notices, demands and other communications provided for
or permitted hereunder shall be made in writing and shall be by registered or
certified first-class mail, return receipt requested, telecopy, overnight
courier service or personal delivery:
(a) if to the Company:
Hanover Direct, Inc.
115 River Road, Building 10
Edgewater, New Jersey 07020
Attention: Chief Executive Officer
Facsimile No.: (201) 272-3465
with a copy to:
Brown Raysman Millstein Felder & Steiner LLP
900 Third Avenue
New York, New York 10022
Attention: Sarah Hewitt, Esq.
Facsimile No.: (212) 895-2900
(b) if to the Holder:
11
Chelsey Direct, LLC
712 Fifth Avenue, 45th Floor
New York, New York 10019
Attention: Stuart Feldman
Facsimile No.: (212) 765-3112
with a copy to:
Swidler Berlin Shereff Friedman, LLP
405 Lexington Avenue
New York, New York 10174
Attention: Richard A. Goldberg, Esq.
Facsimile No.: (212) 891-9598
All such notices and communications shall be deemed to have been duly given:
when delivered by hand, if personally delivered; when delivered by courier, if
delivered by commercial overnight courier service; five Business Days after
being deposited in the mail, postage prepaid, if mailed; and when receipt is
acknowledged, if telecopied.
SECTION 15. SUCCESSORS AND ASSIGNS. This Warrant shall be binding upon and inure
to the benefit of the parties hereto and their respective successors or heirs
and personal representatives and permitted assigns; provided, that the Company
shall have no right to assign its rights, or to delegate its obligations,
hereunder without the prior written consent of the Holder.
SECTION 16. GOVERNING LAW. THIS WARRANT IS TO BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK AND WITHOUT
REGARD TO THE PRINCIPLES OF CONFLICTS OF LAW OF SUCH STATE.
SECTION 17. JURISDICTION, JURY TRIAL WAIVER, ETC.
(a) THE COMPANY AND THE HOLDER HEREBY IRREVOCABLY AGREE THAT ANY
LEGAL ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS WARRANT MAY BE
BROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR OF THE UNITED STATES OF
AMERICA FOR THE SOUTHERN DISTRICT OF NEW YORK AND EACH HEREBY EXPRESSLY SUBMITS
TO THE PERSONAL JURISDICTION AND VENUE OF SUCH COURTS FOR THE PURPOSES THEREOF
AND EXPRESSLY WAIVES ANY CLAIM OF IMPROPER VENUE AND ANY CLAIM THAT SUCH COURTS
ARE AN INCONVENIENT FORUM. THE COMPANY AND THE HOLDER EACH HEREBY IRREVOCABLY
CONSENT TO THE SERVICE OF PROCESS OF ANY OF THE AFOREMENTIONED COURTS IN ANY
SUCH SUIT, ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED
OR CERTIFIED MAIL, POSTAGE PREPAID, TO ITS ADDRESS SET FORTH IN THIS AGREEMENT,
SUCH SERVICE TO BECOME EFFECTIVE 10 DAYS AFTER SUCH MAILING.
(b) THE COMPANY AND THE HOLDER EACH HEREBY WAIVES ITS RIGHT TO A
JURY TRIAL WITH RESPECT TO ANY ACTION OR CLAIM ARISING OUT
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OF ANY DISPUTE IN CONNECTION WITH THIS WARRANT, ANY RIGHTS OR OBLIGATIONS
HEREUNDER OR THE PERFORMANCE OF SUCH RIGHTS AND OBLIGATIONS. THE COMPANY (I)
CERTIFIES THAT NO HOLDER OR ATTORNEY OR OTHER REPRESENTATIVE OF THE HOLDER HAS
REPRESENTED, EXPRESSLY OR OTHERWISE, THAT THE HOLDER WOULD NOT, IN THE EVENT OF
LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVERS AND (II) ACKNOWLEDGES THAT THE
HOLDER HAS BEEN INDUCED TO PURCHASE THIS WARRANT BY, AMONG OTHER THINGS, THE
WAIVERS AND CERTIFICATIONS CONTAINED HEREIN.
(c) FINAL JUDGMENT AGAINST THE COMPANY, IN ANY ACTION, SUIT OR
PROCEEDING HEREUNDER SHALL BE CONCLUSIVE, AND MAY BE ENFORCED IN OTHER
JURISDICTIONS (I) BY SUIT, ACTION, OR PROCEEDING ON THE CONCLUSIVE EVIDENCE OF
THE FACT AND OF THE AMOUNT OF ANY LIABILITY OF THE COMPANY THEREIN DESCRIBED OR
(II) IN ANY OTHER MANNER PROVIDED BY OR PURSUANT TO THE LAWS OF SUCH OTHER
JURISDICTION; PROVIDED, HOWEVER, THAT ANY HOLDER MAY AT ITS OPTION BRING SUIT,
OR INSTITUTE OTHER JUDICIAL PROCEEDING, TO ENFORCE A FINAL JUDGMENT AGAINST THE
COMPANY OR ANY OF ITS PROPERTIES IN THE STATE OR FEDERAL COURT OF THE UNITED
STATES OR OF ANY COUNTRY OR PLACE WHERE THE COMPANY OR ITS PROPERTIES MAY BE
FOUND.
SECTION 18. SEVERABILITY. If any one or more of the provisions contained herein,
or the application thereof in any circumstance, is held invalid, illegal or
unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions hereof shall not be in any way impaired, unless the provisions held
invalid, illegal or unenforceable shall substantially impair the benefits of the
remaining provisions hereof. The parties hereto further agree to replace such
invalid, illegal or unenforceable provision of this Warrant with a valid, legal
and enforceable provision that will achieve, to the extent possible, the
economic, business and other purposes of such invalid, illegal or unenforceable
provision.
SECTION 19. ENTIRE AGREEMENT. This Warrant contains the entire agreement among
the parties with respect to the subject matter hereof and thereby supercedes all
prior and contemporaneous agreements or understandings with respect thereto.
SECTION 20. HEADINGS.
The headings in this Warrant are for convenience of reference only and shall not
limit or otherwise affect the meaning hereof.
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SECTION 21. NO STRICT CONSTRUCTION. The Company and the Holder each acknowledge
that they have been represented by counsel in connection with this Warrant. The
Company and the Holder have participated jointly in the negotiation and drafting
of this Warrant. In the event an ambiguity or question of intent or
interpretation arises under any provision of this Warrant, this Warrant shall be
construed as if drafted jointly by the parties thereto, and no presumption or
burden of proof shall arise favoring or disfavoring any party by virtue of the
authorship of any of the provisions of this Warrant.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the Company has caused this Warrant to be issued and
executed in its corporate name by its duly authorized officers as of the date
below written.
DATED: JULY 8, 2004 HANOVER DIRECT, INC.
By: /s/ Wayne P. Garten
______________________________
Name: Wayne P. Garten
Title: President and Chief
Executive Officer
ATTEST:
By: /s/ Charles E. Blue
___________________________________
Name: Charles E. Blue
Title: Senior Vice President and Chief
Financial Officer
EXHIBIT A
FORM OF COMMON STOCK PURCHASE WARRANT
EXHIBIT A
THIS COMMON STOCK PURCHASE WARRANT AND THE SHARES THAT MAY BE PURCHASED
HEREUNDER HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR UNDER THE SECURITIES LAWS OF ANY STATE. THIS COMMON STOCK PURCHASE WARRANT
AND THE SHARES THAT MAY BE PURCHASED HEREUNDER MAY NOT BE SOLD OR OFFERED FOR
SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, AND REGISTRATION OR QUALIFICATION UNDER APPLICABLE
STATE SECURITIES LAWS OR AN OPINION OF COUNSEL THAT THE PROPOSED TRANSACTION
DOES NOT VIOLATE THE SECURITIES ACT OF 1933, AND APPLICABLE STATE SECURITIES
LAWS.
HANOVER DIRECT, INC.
COMMON STOCK PURCHASE WARRANT
Date of Issuance: [______], 2004 Certificate No. W-1
THIS IS TO CERTIFY that CHELSEY FINANCE, LLC, a Delaware limited liability
company, and its transferees, successors and assigns (the "Holder"), for good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, is entitled to purchase from HANOVER DIRECT, INC., a Delaware
corporation (the "Company"), at the price of $0.01 per share (the "Exercise
Price"), at any time after the date hereof (the "Commencement Date") and
expiring on [____], 2014 (the "Expiration Date"), [__________] shares of the
fully paid and nonassessable Common Stock (as defined in Section 9 hereof) of
the Company (as such number may be adjusted as provided herein). The
[__________] shares of Common Stock which may be purchased pursuant to this
Warrant are referred to herein as the "Aggregate Number," which represents the
number of shares that as of the date hereof would constitute 30.00% of all
issued and outstanding shares of Common Stock of the Company on a Fully Diluted
basis, which for these purposes assumes the full exercise of this Warrant.
Capitalized terms used herein shall have the meanings ascribed to such
terms in Section 9 hereof unless otherwise defined herein.
SECTION 22. THE WARRANT; TRANSFER AND EXCHANGE.
(a) The Warrant. This Common Stock Purchase Warrant (the
"Warrant") is issued in connection with the Junior Secured Term Loan Agreement.
This Warrant and the rights and privileges of the Holder and the Company
hereunder may be exercised by the Holder in whole or in part as provided herein;
shall survive any termination of the Junior Secured Term
1
Loan Agreement; and, as more fully set forth in Sections 1(b) and 8 hereof, may
be transferred by the Holder to any other Person or Persons at any time or from
time to time, in whole or in part, regardless of whether the Holder retains any
or all rights under the Junior Secured Term Loan Agreement.
(b) Transfer and Exchanges. The Company shall initially record
this Warrant on a register to be maintained by the Company with its other stock
books and, subject to Section 8 hereof, from time to time thereafter shall
reflect the transfer of this Warrant on such register when surrendered for
transfer in accordance with the terms hereof and properly endorsed, accompanied
by appropriate instructions, and further accompanied by payment in cash or by
check, bank draft or money order payable to the order of the Company, in United
States currency, of an amount equal to any stamp or other tax or governmental
charge or fee required to be paid in connection with the transfer thereof. Upon
any such transfer, a new warrant or warrants shall be issued to the transferee
and the Holder (in the event the Warrant is only partially transferred) and the
surrendered warrant shall be canceled. This Warrant may be exchanged at the
option of the Holder, when surrendered at the Principal Office of the Company,
for another warrant or other warrants of like tenor and representing in the
aggregate the right to purchase a like number of shares of Common Stock.
SECTION 23. EXERCISE.
(a) Right to Exercise. At any time after the Commencement Date and
on or before the Expiration Date, the Holder, in accordance with the terms
hereof, may exercise this Warrant, in whole at any time or in part from time to
time, by delivering this Warrant to the Company during normal business hours on
any Business Day at the Company's Principal Office, together with the Election
to Purchase, in the form attached hereto as Exhibit A and made a part hereof
(the "Election to Purchase"), duly executed, and payment of the Exercise Price
per share for the number of shares to be purchased (the "Exercise Amount"), as
specified in the Election to Purchase. If the Expiration Date is not a Business
Day, then this Warrant may be exercised on the next succeeding Business Day.
(b) Payment of Exercise Price. Payment of the Exercise Price shall
be made to the Company as follows (or any combination thereof): (i) in cash or
other immediately available funds or (ii) as provided in Section 2(c). In the
case of payment of all or a portion of the Exercise Price pursuant to Section
2(c), the direction by the Holder to make a "Cashless Exercise" shall serve as
accompanying payment for that portion of the Exercise Price. The amount of the
Exercise Price to be paid shall equal the product of (i) the Exercise Amount
multiplied by (ii) the Exercise Price per share.
(c) Cashless Exercise. The Holder shall have the right to pay all
or a portion of the Exercise Price by making a "Cashless Exercise" pursuant to
this Section 2(c), in which case the portion of the Exercise Price to be so paid
shall be paid by reducing the number of shares of Common Stock otherwise
issuable pursuant to the Election to Purchase (the "Exercised Shares") by an
amount (the "Cashless Exercise Shares") equal to (i) the Exercise Price
multiplied by the Exercise Shares and divided by (ii) the Fair Market Value Per
Share. The number of shares of Common Stock to be issued to the Holder as a
result of a Cashless Exercise will therefore be equal to the Exercised Shares
minus the Cashless Exercise Shares.
2
(d) Issuance of Shares of Common Stock. Upon receipt by the
Company of this Warrant at its Principal Office in proper form for exercise, and
accompanied by payment of the Exercise Price as aforesaid, the Holder shall be
deemed to be the holder of record of the shares of Common Stock issuable upon
such exercise, notwithstanding that certificates representing such shares of
Common Stock may not then be actually delivered. Upon such surrender of this
Warrant and payment of the Exercise Price as aforesaid, the Company shall issue
and cause to be delivered with all reasonable dispatch to, or upon the written
order of, the Holder (and in such name or names as the Holder may designate) a
certificate or certificates for the Exercise Amount, subject to any reduction as
provided in Section 2(c) for a Cashless Exercise.
(e) Fractional Shares. The Company shall not be required to
deliver fractions of shares of Common Stock upon exercise of this Warrant. If
any fraction of a share of Common Stock would be deliverable upon an exercise of
this Warrant, the Company may, in lieu of delivering such fraction of a share of
Common Stock, make a cash payment to the Holder in an amount equal to the same
fraction of the Fair Market Value Per Share determined as of the Business Day
immediately preceding the date of exercise of this Warrant.
(f) Partial Exercise. In the event of a partial exercise of this
Warrant, the Company shall issue to the Holder a Warrant in like form for the
unexercised portion thereof.
SECTION 24. PAYMENT OF TAXES. The Company shall pay all stamp taxes attributable
to the initial issuance of shares or other securities issuable upon the exercise
of this Warrant or issuable pursuant to Section 6 hereof, excluding any tax or
taxes which may be payable because of the transfer involved in the issuance or
delivery of any certificates for shares or other securities in a name other than
that of the Holder in respect of which such shares or securities are issued.
SECTION 25. REPLACEMENT WARRANT. In case this Warrant is mutilated, lost, stolen
or destroyed, the Company shall issue and deliver in exchange and substitution
for and upon cancellation of the mutilated Warrant, or in lieu of and in
substitution for the Warrant lost, stolen or destroyed, a new Warrant of like
tenor and representing an equivalent right or interest, but only upon receipt of
evidence reasonably satisfactory to the Company of such loss, theft or
destruction of such Warrant and upon receipt of indemnity reasonably
satisfactory to the Company (provided, that if the Holder is a financial
institution or other institutional investor its personal undertaking to provide
an indemnity is hereby deemed to be reasonably satisfactory to the Company;
provided, further, the form of such undertaking shall be reasonably satisfactory
to the Company).
SECTION 26. RESERVATION OF COMMON STOCK AND OTHER COVENANTS.
(a) Reservation of Authorized Common Stock. The Company shall at
all times reserve and keep available out of the aggregate of its authorized but
unissued shares, free of preemptive rights, such number of its duly authorized
shares of Common Stock, or other stock or securities deliverable pursuant to
Section 6 hereof, as shall be sufficient to enable the Company at any time to
fulfill all of its obligations under this Warrant.
3
(b) Affirmative Actions to Permit Exercise and Realization of
Benefits. If any shares of Common Stock reserved or to be reserved for the
purpose of the exercise of this Warrant, or any shares or other securities
reserved or to be reserved for the purpose of issuance pursuant to Section 6
hereof, require registration with or approval of any governmental authority
under any federal or state law (other than securities laws) before such shares
or other securities may be validly delivered upon exercise of this Warrant, then
the Company covenants that it will, at its sole expense, secure such
registration or approval, as the case may be (including but not limited to
approvals or expirations of waiting periods required under the Hart Scott Rodino
Antitrust Improvements Act).
(c) Regulatory Requirements and Restrictions. In the event of any
reasonable determination by the Holder that, by reason of any existing or future
federal or state law, statute, rule, regulation, guideline, order, court or
administrative ruling, request or directive (whether or not having the force of
law and whether or not failure to comply therewith would be unlawful)
(collectively, a "Regulatory Requirement"), the Holder is effectively restricted
or prohibited from holding this Warrant or the Warrant Shares (including any
shares of capital stock or other securities distributable to the Holder in any
merger, reorganization, readjustment or other reclassification), or otherwise
realizing upon or receiving the benefits intended under this Warrant, the
Company shall, and shall use its reasonable best efforts to have its
shareholders, take such action as the Holder and the Company shall jointly agree
in good faith to be reasonably necessary to permit the Holder to comply with
such Regulatory Requirement. The reasonable costs of taking such action, whether
by the Company, the Holder or otherwise, shall be borne by the Holder.
(d) Validly Issued Shares. The Company covenants that all shares
of Common Stock that may be delivered upon exercise of this Warrant, assuming
full payment of the Exercise Price (including those issued pursuant to Section 6
hereof), shall upon delivery by the Company be duly authorized and validly
issued, fully paid and nonassessable, free from all stamp taxes, liens and
charges with respect to the issue or delivery thereof and otherwise free of all
other security interests, encumbrances and claims of any nature whatsoever other
than such security interests, encumbrances and claims granted by the Holder.
SECTION 27. ADJUSTMENTS TO AGGREGATE NUMBER.
Under certain conditions, the Aggregate Number is subject to adjustment as
set forth in this Section 6. No adjustments shall be made under this Section 6
as a result of (a) the issuance by the Company of the Warrant Shares upon
exercise of this Warrant or (b) the issuance of shares of Common Stock (or
options related thereto) upon the granting of any shares of Common Stock or upon
the exercise of options granted or to be granted under the Company's current and
future stock option and incentive plans (representing in the aggregate the right
to receive or purchase shares aggregating up to [__________] (with all such
adjustments for issuances in excess of such number of shares to be covered by,
and subject to, Section 6(c)(ii)) (subject to adjustment for any of the
circumstances described in Sections 6(a)(i)(A), (B) and (C)) shares of Common
Stock) (collectively, the "Exempt Issuances").
4
(a) Adjustments. The Aggregate Number, after taking into
consideration any prior adjustments pursuant to this Section 6, shall be subject
to adjustment from time to time as follows and, thereafter, as adjusted, shall
be deemed to be the Aggregate Number hereunder.
(i) Stock Dividends; Subdivisions and Combinations. In case
at any time or from time to time the Company shall:
(A) issue to the holders of its Common Stock a
dividend payable in, or other distribution of, Common Stock (a "Stock
Dividend"),
(B) subdivide its outstanding shares of Common Stock
into a larger number of shares of Common Stock, including without limitation by
means of a stock split (a "Stock Subdivision"), or
(C) combine its outstanding shares of Common Stock
into a smaller number of shares of Common Stock, other than the Reverse Stock
Split (a "Stock Combination"),
then the Aggregate Number in effect immediately prior thereto shall be (1)
proportionately increased in the case of a Stock Dividend or a Stock Subdivision
and (2) proportionately decreased in the case of a Stock Combination. In the
event the Company shall declare or pay, without consideration, any dividend on
the Common Stock payable in any right to acquire Common Stock for no
consideration, then the Company shall be deemed to have made a Stock Dividend in
an amount of shares equal to the maximum number of shares issuable upon exercise
of such rights to acquire Common Stock.
(ii) Other Distributions. In case at any time or from time to
time the Company shall take a record of the holders of its Common Stock for the
purpose of entitling them to receive any dividend or other distribution
(collectively, a "Distribution") of:
(A) cash;
(B) any evidences of its indebtedness (other than
Convertible Securities), any shares of its capital stock (other than additional
shares of Common Stock or Convertible Securities) or any other securities or
property of any nature whatsoever (other than cash); or
(C) any options, warrants or other rights to subscribe
for or purchase any of the following: any evidences of its indebtedness (other
than Convertible Securities), any shares of its capital stock (other than
additional shares of Common Stock or Convertible Securities) or any other
securities or property of any nature whatsoever,
then the Holder shall be entitled to elect by written notice to the Company to
receive (1) immediately and without further payment the cash, evidences of
indebtedness, stock, securities, other property, options, warrants and/or other
rights (or any portion thereof) to which the Holder would have been entitled by
way of such Distribution as if the Holder had fully exercised this Warrant
immediately prior to such Distribution or (2) upon the exercise of this Warrant
at any time on or after the taking of such record, the number of Warrant Shares
to be received upon
5
exercise of this Warrant determined as stated herein and, in addition and
without further payment, the cash, evidences of indebtedness, stock, securities,
other property, options, warrants and/or other rights (or any portion thereof)
to which the Holder would have been entitled by way of such Distribution and
subsequent dividends and distributions through the date of exercise as if such
Holder (x) had fully exercised this Warrant immediately prior to such
Distribution and (y) had retained the Distribution in respect of the Common
Stock and all subsequent dividends and distributions of any nature whatsoever in
respect of any stock or securities paid as dividends and distributions and
originating directly or indirectly from such Common Stock.
A reclassification of the Common Stock into shares of Common Stock and
shares of any other class of stock shall be deemed a Distribution by the Company
to the holders of its Common Stock of such shares of such other class of stock
and, if the outstanding shares of Common Stock shall be changed into a larger or
smaller number of shares of Common Stock as a part of such reclassification,
such event shall be deemed a Stock Subdivision or Stock Combination, as the case
may be, of the outstanding shares of Common Stock within the meaning of Section
6(a)(i) hereof.
(iii) Issuance of Common Stock. If at any time or from time to
time the Company shall (except as hereinafter provided in this Section
6(a)(iii)) issue or sell any additional shares of Common Stock for a
consideration per share less than the Fair Market Value Per Share, then,
effective on the date specified below, the Aggregate Number shall be adjusted by
multiplying (A) the Aggregate Number immediately prior thereto by (B) a
fraction, the numerator of which shall be the sum of the number of shares of
Common Stock outstanding immediately prior to the issuance of such additional
shares of Common Stock (calculated on a Fully Diluted basis), the number of
shares of Common Stock issuable upon the conversion or exercise of options,
warrants, rights or other Convertible Securities (but only to the extent that
such Convertible Securities are "in the money" and then exercisable but in any
event subject to adjustment as provided in Section 6(a)(vii)(F)), and the number
of such additional shares of Common Stock so issued and the denominator of which
shall be the sum of the number of shares of Common Stock outstanding immediately
prior to the issuance of such additional shares of Common Stock (calculated on a
Fully Diluted basis), the number of shares of Common Stock issuable upon the
conversion or exercise of options, warrants, rights or other Convertible
Securities (but only to the extent that such Convertible Securities are "in the
money" and then exercisable but in any event subject to adjustment as provided
in Section 6(a)(vii)(F)), and the number of shares of Common Stock which the
aggregate consideration for the total number of such additional shares of Common
Stock so issued would purchase at the Fair Market Value Per Share. The date as
of which the Fair Market Value Per Share shall be computed shall be the earlier
of the date on which the Company shall enter into a firm contract or commitment
for the issuance of such additional shares of Common Stock or the date of actual
issuance of such additional shares of Common Stock.
The provisions of this Section 6(a)(iii) shall not apply to any issuance
of additional shares of Common Stock for which an adjustment is otherwise
provided under Section 6(a)(i) hereof. No adjustment of the Aggregate Number
shall be made under this Section 6(a)(iii) upon the issuance of any additional
shares of Common Stock which are issued pursuant to (1) the exercise of this
Warrant in whole or in part or pursuant to any other Exempt Issuances, (2) the
exercise of other subscription or purchase rights or (3) the exercise of any
conversion or exchange rights in
6
any Convertible Securities, provided that for purposes of clauses (2) or (3) an
adjustment shall previously have been made upon the issuance of such other
rights or upon the issuance of such Convertible Securities (or upon the issuance
of any warrants or other rights therefor) pursuant to Section 6(a)(iv) or (v)
hereof.
(iv) Warrants and Options. If at any time or from time to
time the Company shall take a record of the holders of its Common Stock for the
purpose of entitling them to receive a distribution of, or shall in any manner
(whether directly, by assumption in a merger in which the Company is the
surviving corporation and in which the shareholders of the Company immediately
prior to the merger continue to own more than 50% of the Outstanding Common
Stock immediately after the merger and for a period of 180 days thereafter, or
otherwise) issue or sell any warrants, options or other rights to subscribe for
or purchase (A) any shares of Common Stock or (B) any Convertible Securities,
whether or not the rights to subscribe, purchase, exchange or convert thereunder
are immediately exercisable, and the consideration per share for which
additional shares of Common Stock may at any time thereafter be issuable
pursuant to such warrants, options or other rights or pursuant to the terms of
such Convertible Securities shall be less than the Fair Market Value Per Share,
then the Aggregate Number shall be adjusted as provided in Section 6(a)(iii)
hereof on the basis that (1) the maximum number of additional shares of Common
Stock issuable pursuant to all such warrants, options or other rights or
necessary to effect the conversion or exchange of all such Convertible
Securities shall be deemed to have been issued as of the date of the
determination of the Fair Market Value Per Share as hereinafter provided and (2)
the aggregate consideration for such maximum number of additional shares of
Common Stock shall be deemed to be the minimum consideration received and
receivable by the Company for the issuance of such additional shares of Common
Stock pursuant to the terms of such warrants, options or other rights or such
Convertible Securities. For purposes of this Section 6(a)(iv), the effective
date of such adjustment and the date as of which the Fair Market Value Per Share
shall be computed shall be the earliest of (A) the date on which the Company
shall take a record of the holders of its Common Stock for the purpose of
entitling them to receive any such warrants, options or other rights, (B) the
date on which the Company shall enter into a firm contract or commitment for the
issuance of such warrants, options or other rights and (C) the date of actual
issuance of such warrants, options or other rights.
No adjustment of the Aggregate Number shall be made under this Section
6(a)(iv) upon the issuance of any warrants, options or other rights which are
issued pursuant to the exercise of any Convertible Securities if an adjustment
shall have been made or is contemporaneously made or if no such adjustment shall
have been required upon the issuance of such Convertible Securities, pursuant to
Section 6(a)(v) hereof.
(v) Convertible Securities. If at any time or from time to
time the Company shall take a record of the holders of its Common Stock for the
purpose of entitling them to receive a distribution of or shall in any manner
(whether directly, by assumption in a merger in which the Company is the
surviving corporation and in which the shareholders of the Company immediately
prior to the merger continue to own more than 50% of the Outstanding Common
Stock immediately after the merger and for a period of 180 days thereafter, or
otherwise) issue or sell Convertible Securities, whether or not the rights to
exchange or convert thereunder are immediately exercisable, and the
consideration per share for the additional shares
7
of Common Stock which may at any time thereafter be issuable pursuant to the
terms of such Convertible Securities shall be less than the Fair Market Value
Per Share, then the Aggregate Number shall be adjusted as provided in Section
6(a)(iii) hereof on the basis that (A) the maximum number of additional shares
of Common Stock necessary to effect the conversion or exchange of all such
Convertible Securities shall be deemed to have been issued as of the date of the
determination of the Fair Market Value Per Share as herein provided and (B) the
aggregate consideration for such maximum number of additional shares of Common
Stock shall be deemed to be the minimum consideration received and receivable by
the Company for the issuance of such additional shares of Common Stock pursuant
to the terms of such Convertible Securities. For purposes of this Section
6(a)(v), the effective date of such adjustment and the date as of which the Fair
Market Value Per Share shall be computed shall be the earliest of (1) the date
on which the Company shall take a record of the holders of its Common Stock for
the purpose of entitling them to receive any such Convertible Securities, (2)
the date on which the Company shall enter into a firm contract or commitment for
the issuance of such Convertible Securities and (3) the date of actual issuance
of such Convertible Securities.
No adjustment of the Aggregate Number shall be made under this Section
6(a)(v) upon the issuance of any Convertible Securities which are issued
pursuant to the exercise of any warrants, options or other subscription or
purchase rights if an adjustment shall previously have been made or is
contemporaneously made or if no such adjustment shall have been required upon
the issuance of such warrants, options or other rights pursuant to Section
6(a)(iv) hereof.
(vi) [Intentionally Omitted.]
(vii) Subsequent Adjustments. If at any time after any
adjustment of the Aggregate Number shall have been made pursuant to Section 6(a)
(iv) or (v) hereof on the basis of the issuance of warrants, options or other
rights or the issuance of Convertible Securities, or after any new adjustments
of the Aggregate Number shall have been made pursuant to this Section 6(a)(vii),
then:
(A) such warrants, options or rights or the right of
conversion or exchange in such Convertible Securities shall expire, and a
portion of such warrants, options or rights, or the right of conversion or
exchange in respect of a portion of such Convertible Securities, as the case may
be, shall not have been exercised prior to such expiration, and
(B) in the case of adjustments made pursuant to
Section 6(a)(iv) or (v), the consideration per share for which shares of Common
Stock are issuable pursuant to such warrants, options or rights per the terms of
such Convertible Securities shall be irrevocably increased (provided, no
remuneration was paid therefor), and such previous adjustment shall be rescinded
and annulled and the additional shares of Common Stock which were deemed to have
been issued by virtue of the computation made in connection with such adjustment
shall no longer be deemed to have been issued by virtue of such computation.
Simultaneously therewith, a recomputation shall be made of the effect of such
warrants, options or rights or Convertible Securities on the determination of
the Aggregate Number, which shall be made on the basis of:
8
(1) treating the number of additional shares of Common Stock, if
any, theretofore actually issued pursuant to the previous
exercise of such warrants, options or rights or such right of
conversion or exchange as having been issued on the date or
dates of such exercise and, in the case of a recomputation of
a calculation originally made pursuant to Section 6(a)(iv) or
(v), for the consideration actually received and receivable
therefor, and
(2) in the case of a recomputation of a calculation originally
made pursuant to Section 6(a)(iv) or (v), treating any such
warrants, options or rights or any such Convertible Securities
which then remain outstanding as having been granted or issued
immediately after the time of such irrevocable increase of the
consideration per share for which shares of Common Stock are
issuable under such warrants, options or rights or Convertible
Securities;
and, if and to the extent called for by the foregoing provisions of Section
6(a)(vii) on the basis aforesaid, a new adjustment of the Aggregate Number shall
be made, such new adjustment shall supersede the previous adjustment so
rescinded and annulled.
(viii) Miscellaneous. The following provisions shall be
applicable to the making of adjustments of the Aggregate Number provided above
in this Section 6(a):
(A) The sale or other disposition of any issued shares
of Common Stock owned or held by or for the account of the Company or any of its
Subsidiaries shall be deemed an issuance thereof for the purposes of this
Section 6(a).
(B) To the extent that any additional shares of Common
Stock or any Convertible Securities or any warrants, options or other rights to
subscribe for or purchase any additional shares of Common Stock or any
Convertible Securities (1) are issued solely for cash consideration, the
consideration received by the Company therefor shall be deemed to be the amount
of the cash received by the Company therefor, (2) are offered by the Company for
subscription, the consideration received by the Company shall be deemed to be
the subscription price or (3) are sold to underwriters or dealers for public
offering, the aggregate consideration received by the Company shall be deemed to
be the consideration received by the Company therefor, in any such case
excluding any amounts paid or receivable for accrued interest or accrued
dividends. To the extent that such issuance shall be for a consideration other
than cash, or partially for cash and partially for other consideration, then,
except as otherwise expressly provided herein, the amount of such consideration
shall be deemed to be the fair market value of such other consideration plus, if
applicable, the amount of such cash at the time of such issuance, determined in
the manner set forth in Section 6(d)(ii). In case any additional shares of
Common Stock or any Convertible Securities or any warrants, options or other
rights to subscribe for or purchase such additional shares of Common Stock or
Convertible Securities shall be issued in connection with any merger in which
the Company is the survivor and issues any securities, the amount of
consideration therefor shall be deemed to be the fair market value of such
additional shares of Common Stock, Convertible Securities, warrants, options or
other rights, as the case may be, determined in the manner set forth in Section
6(d)(ii).
9
The consideration for any shares of Common Stock issuable pursuant to the
terms of any Convertible Securities shall be equal to (x) the consideration
received by the Company for issuing any warrants, options or other rights to
subscribe for or purchase such Convertible Securities, plus (y) the
consideration paid or payable to the Company in respect of the subscription for
or purchase of such Convertible Securities, plus (z) the consideration, if any,
payable to the Company upon the exercise of the right of conversion or exchange
of such Convertible Securities.
In case of the issuance at any time of any additional shares of Common
Stock or Convertible Securities in payment or satisfaction of any dividends upon
any class of stock other than Common Stock, the Company shall, be deemed to have
received for such additional shares of Common Stock or Convertible Securities a
consideration equal to the amount of such dividend so paid or satisfied.
(C) The adjustments required by the preceding
paragraphs of this Section 6(a) shall be made whenever and as often as any
specified event requiring an adjustment shall occur, except that no adjustment
of the Aggregate Number that would otherwise be required shall be made (except
in the case of a Stock Subdivision or Stock Combination, as provided for in
Section 6(a)(i) hereof) unless and until such adjustment either by itself or
with other adjustments not previously made adds or subtracts at least one
one-hundredth of one share to or from the Aggregate Number immediately prior to
the making of such adjustment. Any adjustment representing a change of less than
such minimum amount (except as aforesaid) shall be carried forward and made as
soon as such adjustment, together with other adjustments required by this
Section 6(a) and not previously made, would result in a minimum adjustment. For
the purpose of any adjustment, any specified event shall be deemed to have
occurred at the close of business on the date of its occurrence.
(D) In computing adjustments under this Section 6(a),
fractional interests in Common Stock shall be taken into account to the nearest
one-thousandth of a share.
(E) If the Company shall take a record of the holders
of its Common Stock for the purpose of entitling them to receive a dividend or
distribution or subscription or purchase rights and shall, thereafter and before
the distribution to shareholders thereof, legally abandon its plan to pay or
deliver such dividend, distribution, subscription or purchase rights, then no
adjustment shall be required by reason of the taking of such record and any such
adjustment previously made in respect thereof shall be rescinded and annulled.
(F) In making any adjustment, at the time of actual
exercise of the Warrant, to the extent not already taken into account,
securities convertible into capital stock which were not exercisable or
in-the-money that are so exercisable and in the money or previously have been
exercised shall be taken into account, at the time of the exercise of the
Warrant, in the calculation of Fully Diluted shares of Common Stock.
(b) Changes in Common Stock. In case at any time the Company shall
initiate any transaction or be a party to any transaction (including, without
limitation, a merger, consolidation, share exchange, sale, lease or other
disposition of all or substantially all of the
10
Company's assets, liquidation, recapitalization or reclassification of the
Common Stock) in connection with which the previous Outstanding Common Stock
shall be changed into or exchanged for different securities of the Company or
capital stock or other securities of another corporation or interests in a
non-corporate entity or other property or any combination of the foregoing (each
such transaction being herein called a "Transaction"), then, as a condition of
the consummation of the Transaction, lawful, enforceable and adequate provision
shall be made so that the Holder shall be entitled to elect, by written notice
to the Company, to receive (i) a new warrant in form and substance similar to,
and in exchange for, this Warrant to purchase all or a portion of such
securities or other property or (ii) upon exercise of this Warrant at any time
on or after the consummation of the Transaction, in lieu of the Warrant Shares
issuable upon such exercise prior to such consummation, the securities or other
property to which such Holder would have been entitled upon consummation of the
Transaction if such Holder had exercised this Warrant immediately prior thereto
(subject to adjustments from and after the consummation date as nearly
equivalent as possible to the adjustments provided for in this Section 6).
Notwithstanding the foregoing, in the event the Company shall initiate any
Transaction or be a party to any Transaction in connection with which the
previous Outstanding Common Stock shall be changed into or exchanged for cash,
then upon consummation of such transaction, this Warrant shall automatically be
converted into the right to receive a cash amount equal to (A) the Aggregate
Number (subject to the adjustments provided for in this Section 6) multiplied by
(B) the positive difference, if any between the Fair Market Value Per Share and
the Exercise Price. The Company will not effect any Transaction unless prior to
the consummation thereof each corporation or other entity (other than the
Company) which may be required to deliver any new warrant, securities or other
property as provided herein shall assume, by written instrument delivered to the
Holder, the obligation to deliver to such Holder such new warrant, securities or
other property as in accordance with the foregoing provisions such Holder may be
entitled to receive and such corporation or entity shall have similarly
delivered to the Holder an opinion of counsel for such corporation or entity,
satisfactory to the Holder, which opinion shall state that all of the terms of
the new warrant or this Warrant shall be enforceable against the Company and
such corporation or entity in accordance with the terms hereof and thereof,
together with such other matters as the Holder may reasonably request. The
foregoing provisions of this Section 6(b) shall similarly apply to successive
Transactions.
(c) Other Action Affecting Common Stock. In case at any time or
from time to time the Company shall take any action of the type contemplated in
Section 6(a) or (b) hereof but not expressly provided for by such provisions
(including, without limitation, the granting of stock appreciation rights,
phantom stock rights or other rights with equity features) other than cash
bonuses, then, unless in the opinion of the Company's board of directors such
action will not have a material adverse effect upon the rights of the Holder
(taking into consideration, if necessary, any prior actions which the Board of
Directors deemed not to materially adversely affect the rights of the Holder),
the Aggregate Number shall be adjusted in such manner and at such time as the
Board of Directors of the Company may in good faith determine to be equitable in
the circumstances.
(d) Notices.
(i) Notice of Proposed Actions. In case the Company shall
propose (A) to pay any dividend payable in stock of any class to the holders of
its Common Stock or to
11
make any other distribution to the holders of its Common Stock, (B) to offer to
the holders of its Common Stock rights to subscribe for or to purchase any
Convertible Securities or additional shares of Common Stock or shares of stock
of any class or any other securities, warrants, rights or options (other than
the exercise of pre-emptive rights by a Holder), (C) to effect any
reclassification of its Common Stock, (D) to effect any recapitalization, stock
subdivision, stock combination or other capital reorganization, (E) to effect
any consolidation or merger, share exchange, or sale, lease or other disposition
of all or substantially all of its property, assets or business, (F) to effect
the liquidation, dissolution or winding up of the Company or (G) to effect any
other action which would require an adjustment under this Section 6, then in
each such case the Company shall give to the Holder written notice of such
proposed action, which shall specify the date on which a record is to be taken
for the purposes of such stock dividend, stock subdivision, stock combination,
distribution or rights, or the date on which such reclassification,
recapitalization, reorganization, consolidation, merger, share exchange, sale,
lease, transfer, disposition, liquidation, dissolution, winding up or other
transaction is to take place and the date of participation therein by the
holders of Common Stock, if any such date is to be fixed, or the date on which
the transfer of Common Stock is to occur, and shall also set forth such facts
with respect thereto as shall be reasonably necessary to indicate the effect of
such action on the Common Stock and on the Aggregate Number after giving effect
to any adjustment which will be required as a result of such action. Such notice
shall be so given in the case of any action covered by clause (A) or (B) above
at least 30 days prior to the record date for determining holders of the Common
Stock for purposes of such action and, in the case of any other such action, at
least 30 days prior to the earlier of the date of the taking of such proposed
action or the date of participation therein by the holders of Common Stock.
(ii) Adjustment Notice. Whenever the Aggregate Number is to
be adjusted pursuant to this Section 6, unless otherwise agreed by the Holder,
the Company shall promptly (and in any event within 10 Business Days after the
event requiring the adjustment) prepare a certificate signed by the chief
financial officer of the Company, setting forth, in reasonable detail, the event
requiring the adjustment and the method by which such adjustment is to be
calculated. The certificate shall set forth, if applicable, a description of the
basis on which the Board of Directors in good faith determined, as applicable,
the Fair Market Value Per Share, the fair market value of any evidences of
indebtedness, shares of stock, other securities, warrants, other subscription or
purchase rights, or other property or the equitable nature of any adjustment
under Section 6(b) or (c) hereof, the new Aggregate Number and, if applicable,
any new securities or property to which the Holder is entitled. The Company
shall promptly cause a copy of such certificate to be delivered to the Holder.
The Company shall keep at its Principal Office copies of all such certificates
and cause the same to be available for inspection at said office during normal
business hours by the Holder or any prospective purchaser of the Warrant (in
whole or in part) if so designated by the Holder.
SECTION 28. NO DILUTION OR IMPAIRMENT. The Company will not, by amendment of its
Certificate of Incorporation or through any reorganization, recapitalization,
transfer of assets, consolidation, merger, share exchange, dissolution or any
other voluntary action, avoid or seek to avoid the observance or performance of
any of the terms of this Warrant, including without limitation the adjustments
required under Section 6 hereof, and will at all times in good faith assist in
the carrying out of all such terms and in taking of all such action as may be
necessary or appropriate to protect the rights of the Holder against dilution or
other impairment. Without
12
limiting the generality of the foregoing and notwithstanding any other provision
of this Warrant to the contrary (including by way of implication), the Company
(a) will not increase the par value of any shares of Common Stock receivable on
the exercise of this Warrant above the amount payable therefor on such exercise
or (b) will take all such action as may be necessary or appropriate so that the
Company may validly and legally issue fully paid and nonassessable shares of
Common Stock on the exercise of this Warrant.
SECTION 29. TRANSFERS OF THE WARRANT.
(a) Generally. Subject to the restrictions set forth in this
Section 8, the Holder may at any time and from time to time freely transfer this
Warrant and the Warrant Shares in whole or in part. This Warrant and the Warrant
Shares are issued or issuable subject to the provisions and conditions contained
herein, and every Holder hereof by accepting the same agrees with the Company to
such provisions and conditions, and represents to the Company that this Warrant
has been acquired and the Warrant Shares will be acquired for the account of the
Holder for investment and not with a view to or for sale in connection with any
distribution thereof.
(b) Compliance with Securities Laws. The Holder agrees that
the Warrant and the Warrant Shares may not be sold or otherwise disposed of
except pursuant to an effective registration statement under the Securities Act
and applicable state securities laws or pursuant to an applicable exemption from
the registration requirements of the Securities Act and such state securities
laws. In the event that the Holder transfers this Warrant or the Warrant Shares
pursuant to an applicable exemption from registration, the Company may request,
at its expense, an opinion of counsel that the proposed transfer does not
violate the Securities Act and applicable state securities laws. It is expressly
acknowledged that the Warrant Shares are Registrable Securities, within the
meaning of that certain Registration Rights Agreement, dated as of November 30,
2003, by and among the Company, Chelsey Direct, LLC and Stuart Feldman.
(c) Restrictive Securities Legend. The certificate
representing the shares of Common Stock issued upon the exercise of the Warrant
shall bear the restrictive legend set forth below:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933, as amended, or
the securities laws of any State and may not be sold or
otherwise disposed of except pursuant to an effective
registration statement under such Act and applicable State
securities laws or pursuant to an applicable exemption from
the registration requirements of such Act and such laws."
SECTION 30. DEFINITIONS.
As used herein, in addition to the terms defined elsewhere herein, the
following terms shall have the following meanings.
13
"Affiliate" means, with respect to any Person, a Person (a) directly or
indirectly controlling, controlled by, or under common control with, such
Person, (b) directly or indirectly owning or holding ten percent (10%) or more
of any equity interest in such Person or (c) ten percent (10%) or more of whose
voting stock or other equity interest is directly or indirectly owned or held by
such Person. For purposes of this definition, "control" (including with
correlative meanings, the terms "controlling," controlled by" and "under common
control with") means the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of a Person,
whether through the ownership of voting securities, by contract or otherwise.
"Aggregate Number" has the meaning set forth in the Preamble.
"Business Day" means any day other than a Saturday, Sunday or other day on
which commercial banks in The City of New York, New York are authorized or
required by law or executive order to close.
"Capital Stock" means (i) with respect to any Person that is a
corporation, any and all shares, interests or equivalents in capital stock
(whether voting or nonvoting, and whether common or preferred) of such
corporation, and (ii) with respect to any Person that is not a corporation, any
and all partnership, membership, limited liability company or other equity
interests of such Person that confer on a Person the right to receive a share of
the profits and losses of, or the distribution of assets of, the issuing Person;
and in each case, any and all warrants, rights or options to purchase any of the
foregoing.
"Certificate of Incorporation" means, as to a Person, unless the context
in which it is used shall otherwise require, the Certificate of Incorporation
(or equivalent or similar organizational documents) of such Person as in effect
on the Commencement Date.
"Commencement Date" has the meaning set forth in the Preamble.
"Commission" means the Securities and Exchange Commission or any similar
agency then having jurisdiction to enforce the Securities Act.
"Common Stock" means the common stock, par value $0.01 per share, of the
Company or any other Capital Stock of the Company into which such stock is
reclassified or reconstituted.
"Company" has the meaning set forth in the Preamble.
"Convertible Securities" means evidences of indebtedness, shares of stock
or other securities (including, but not limited to options and warrants) which
are directly or indirectly convertible, exercisable or exchangeable, with or
without payment of additional consideration in cash or property, for shares of
Common Stock, either immediately or upon the onset of a specified date or the
happening of a specified event.
"Distribution" has the meaning set forth in Section 6(a)(ii).
"Election to Purchase" has the meaning set forth in Section 2(a).
14
"Exempt Issuances" has the meaning set forth in Section 6.
"Exercise Amount" has the meaning set forth in Section 2(a).
"Exercise Price" has the meaning set forth in the Preamble.
"Expiration Date" has the meaning set forth in the Preamble.
"Fair Market Value Per Share" 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 the
OTC Bulletin Board, or if not so reported, by the 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 Per Share" of the Common Stock shall be the fair market value thereof as
determined (i) jointly by the Company and the Holder or (ii) if Company and the
Holder cannot so agree, by a nationally recognized investment banking firm
selected by the Holder and reasonably acceptable to the Company.
"Fully Diluted" means, with respect to the Common Stock as of a particular
time (taking into account the transaction in respect of which the "Fully
Diluted" basis is being calculated at such time), the total number of
outstanding shares of Common Stock as of such time as determined by treating all
outstanding and then exercisable options, warrants and other rights for the
purchase or other acquisition of Common Stock as having been exercised and by
treating all outstanding Convertible Securities which at the time of such
calculation may be converted as having been so converted.
"Holder" or "Holders" means any holder of an interest in the Warrant or
the outstanding Warrant Shares.
"Junior Secured Term Loan Agreement" means that certain Loan and Security
Agreement, dated as July 8, 2004, by and among Chelsey Finance, LLC, Hanover
Direct, Inc. and the other borrowers named therein, as the same may be amended,
modified, supplemented or restated.
"Outstanding Common Stock" of the Company means, as of the date of
determination, the sum (without duplication) of the following: (a) the number of
shares of Common Stock then outstanding at the date of determination, (b) the
number of shares of Common Stock then issuable upon the exercise of the Warrant
(as such number of shares may be adjusted pursuant to the terms hereof) and (c)
the number of shares of Common Stock then issuable upon the exercise or
conversion of Convertible Securities and any warrants, options or other rights
to subscribe for
15
or purchase Common Stock or Convertible Securities (but excluding any unvested
options and securities not then exercisable for or convertible into Common
Stock).
"Person" means any individual, firm, corporation, partnership, limited
liability company, joint venture, incorporated or unincorporated association,
joint stock company, governmental authority, or other entity of any kind, and
shall include any successor (by merger or otherwise) of such entity.
"Principal Office" means the Company's principal office as set forth in
Section 14 hereof or such other principal office of the Company in the United
States of America, the address of which first shall have been set forth in a
notice to the Holder.
"Regulatory Requirement" has the meaning set forth in Section 5(c).
"Reverse Stock Split" means the one for ten reverse stock split voted upon
by the stockholders of the Company at its August 12, 2004 meeting of
stockholders, as the same may be adjourned to a later date which stock split has
already been reflected in this issuance.
"Securities Act" means the Securities Act of 1933, as amended, or any
successor federal statute, and the rules and regulations thereunder as the same
shall be in effect at the time.
"Stock Combination" has the meaning set forth in Section 6(a)(i)(C).
"Stock Dividend" has the meaning set forth in Section 6(a)(i)(A).
"Stock Subdivision" has the meaning set forth in Section 6(a)(i)(B).
"Subsidiary(ies)" means, with respect to any Person, a corporation,
partnership, limited liability company or other entity of which shares of stock
or other ownership interests having ordinary voting power (other than stock or
such other ownership interests having such power only by reason of the happening
of a contingency) to elect a majority of the board of directors or other
managers of such corporation, partnership or other entity are at the time owned,
or the management of which is otherwise controlled, directly or indirectly
through one or more intermediaries, or both, by such Person.
"Transaction" has the meaning set forth in Section 6(b).
"Twenty Day Average" means, with respect to any prices and in connection
with the calculation of Fair Market Value Per Share, 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 Per Share" is being determined.
"Warrant" has the meaning set forth in Section 1(a).
"Warrant Securities" means the Warrant and the Warrant Shares,
collectively.
"Warrant Shares" means (a) the shares of Common Stock issued or issuable
upon exercise of this Warrant in accordance with its terms and (b) all other
shares of the Company's
16
capital stock issued with respect to such shares by way of stock dividend, stock
split or other reclassification or in connection with any merger, consolidation,
recapitalization or other reorganization affecting the Company's capital stock.
SECTION 31. SURVIVAL OF PROVISIONS. Notwithstanding the full exercise by the
Holder of its rights to purchase Common Stock hereunder, the provisions of
Sections 5(c), 5(d) and 11 through 21 of this Warrant shall survive such
exercise and the Expiration Date.
SECTION 32. DELAYS, OMISSIONS AND INDULGENCES. It is agreed that no delay or
omission to exercise any right, power or remedy accruing to the Holder upon any
breach or default of the Company under this Warrant shall impair any such right,
power or remedy, nor shall it be construed to be a waiver of any such breach or
default, or any acquiescence therein, or of or in any similar breach or default
thereafter occurring; nor shall any waiver of any single breach or default be
deemed a waiver of any other breach or default theretofore or thereafter
occurring. It is further agreed that any waiver, permit, consent or approval of
any kind or character on the Holder's part of any breach or default under this
Warrant, or any waiver on the Holder's part of any provisions or conditions of
this Warrant must be in writing and that all remedies, either under this
Warrant, or by law or otherwise afforded to the Holder, shall be cumulative and
not alternative.
SECTION 33. RIGHTS OF TRANSFEREES. The rights granted to the Holder hereunder of
this Warrant shall pass to and inure to the benefit of all subsequent
transferees of all or any portion of the Warrant (provided that the Holder and
any transferee shall hold such rights in proportion to their respective
ownership of the Warrant and Warrant Shares) until extinguished pursuant to the
terms hereof.
SECTION 34. CAPTIONS. The titles and captions of the Sections and other
provisions of this Warrant are for convenience of reference only and are not to
be considered in construing this Warrant.
SECTION 35. NOTICES. All notices, demands and other communications provided for
or permitted hereunder shall be made in writing and shall be by registered or
certified first-class mail, return receipt requested, telecopy, overnight
courier service or personal delivery:
(a) if to the Company:
Hanover Direct, Inc.
115 River Road, Building 10
Edgewater, New Jersey 07020
Attention: Chief Financial Officer
Facsimile No.: (201) 272-3465
with a copy to:
Brown Raysman Millstein Felder & Steiner LLP
900 Third Avenue
New York, New York 10022
17
Attention: Sarah Hewitt, Esq.
Facsimile No.: (212) 895-2900
(b) if to the Holder:
Chelsey Direct, LLC
712 Fifth Avenue, 45th Floor
New York, New York 10019
Attention: Stuart Feldman
Facsimile No.: (212) 765-3112
with a copy to:
Swidler Berlin Shereff Friedman, LLP
405 Lexington Avenue
New York, New York 10174
Attention: Richard A. Goldberg, Esq.
Facsimile No.: (212) 891-9598
All such notices and communications shall be deemed to have been duly given:
when delivered by hand, if personally delivered; when delivered by courier, if
delivered by commercial overnight courier service; five Business Days after
being deposited in the mail, postage prepaid, if mailed; and when receipt is
acknowledged, if telecopied.
SECTION 36. SUCCESSORS AND ASSIGNS. This Warrant shall be binding upon and inure
to the benefit of the parties hereto and their respective successors or heirs
and personal representatives and permitted assigns; provided, that the Company
shall have no right to assign its rights, or to delegate its obligations,
hereunder without the prior written consent of the Holder.
SECTION 37. GOVERNING LAW. THIS WARRANT IS TO BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK AND WITHOUT
REGARD TO THE PRINCIPLES OF CONFLICTS OF LAW OF SUCH STATE.
SECTION 38. JURISDICTION, JURY TRIAL WAIVER, ETC.
(a) THE COMPANY AND THE HOLDER HEREBY IRREVOCABLY AGREE THAT
ANY LEGAL ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS WARRANT MAY BE
BROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR OF THE UNITED STATES OF
AMERICA FOR THE SOUTHERN DISTRICT OF NEW YORK AND EACH HEREBY EXPRESSLY SUBMITS
TO THE PERSONAL JURISDICTION AND VENUE OF SUCH COURTS FOR THE PURPOSES THEREOF
AND EXPRESSLY WAIVES ANY CLAIM OF IMPROPER VENUE AND ANY CLAIM THAT SUCH COURTS
ARE AN INCONVENIENT FORUM. THE COMPANY AND THE HOLDER EACH HEREBY IRREVOCABLY
CONSENT TO THE SERVICE OF PROCESS OF ANY OF THE AFOREMENTIONED COURTS IN ANY
SUCH SUIT, ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED
OR CERTIFIED MAIL, POSTAGE PREPAID, TO ITS ADDRESS SET FORTH IN THIS
18
AGREEMENT, SUCH SERVICE TO BECOME EFFECTIVE 10 DAYS AFTER SUCH MAILING.
(b) THE COMPANY AND THE HOLDER EACH HEREBY WAIVES ITS RIGHT
TO A JURY TRIAL WITH RESPECT TO ANY ACTION OR CLAIM ARISING OUT OF ANY DISPUTE
IN CONNECTION WITH THIS WARRANT, ANY RIGHTS OR OBLIGATIONS HEREUNDER OR THE
PERFORMANCE OF SUCH RIGHTS AND OBLIGATIONS. THE COMPANY (I) CERTIFIES THAT NO
HOLDER OR ATTORNEY OR OTHER REPRESENTATIVE OF THE HOLDER HAS REPRESENTED,
EXPRESSLY OR OTHERWISE, THAT THE HOLDER WOULD NOT, IN THE EVENT OF LITIGATION,
SEEK TO ENFORCE THE FOREGOING WAIVERS AND (II) ACKNOWLEDGES THAT THE HOLDER HAS
BEEN INDUCED TO PURCHASE THIS WARRANT BY, AMONG OTHER THINGS, THE WAIVERS AND
CERTIFICATIONS CONTAINED HEREIN.
(c) FINAL JUDGMENT AGAINST THE COMPANY, IN ANY ACTION, SUIT
OR PROCEEDING HEREUNDER SHALL BE CONCLUSIVE, AND MAY BE ENFORCED IN OTHER
JURISDICTIONS (I) BY SUIT, ACTION, OR PROCEEDING ON THE CONCLUSIVE EVIDENCE OF
THE FACT AND OF THE AMOUNT OF ANY LIABILITY OF THE COMPANY THEREIN DESCRIBED OR
(II) IN ANY OTHER MANNER PROVIDED BY OR PURSUANT TO THE LAWS OF SUCH OTHER
JURISDICTION; PROVIDED, HOWEVER, THAT ANY HOLDER MAY AT ITS OPTION BRING SUIT,
OR INSTITUTE OTHER JUDICIAL PROCEEDING, TO ENFORCE A FINAL JUDGMENT AGAINST THE
COMPANY OR ANY OF ITS PROPERTIES IN THE STATE OR FEDERAL COURT OF THE UNITED
STATES OR OF ANY COUNTRY OR PLACE WHERE THE COMPANY OR ITS PROPERTIES MAY BE
FOUND.
SECTION 39. SEVERABILITY. If any one or more of the provisions contained herein,
or the application thereof in any circumstance, is held invalid, illegal or
unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions hereof shall not be in any way impaired, unless the provisions held
invalid, illegal or unenforceable shall substantially impair the benefits of the
remaining provisions hereof. The parties hereto further agree to replace such
invalid, illegal or unenforceable provision of this Warrant with a valid, legal
and enforceable provision that will achieve, to the extent possible, the
economic, business and other purposes of such invalid, illegal or unenforceable
provision.
SECTION 40. ENTIRE AGREEMENT. This Warrant contains the entire agreement among
the parties with respect to the subject matter hereof and thereby supercedes all
prior and contemporaneous agreements or understandings with respect thereto.
SECTION 41. HEADINGS.
The headings in this Warrant are for convenience of reference only and
shall not limit or otherwise affect the meaning hereof.
SECTION 42. NO STRICT CONSTRUCTION. The Company and the Holder each acknowledge
that they have been represented by counsel in connection with this Warrant. The
Company and
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the Holder have participated jointly in the negotiation and drafting
of this Warrant. In the event an ambiguity or question of intent or
interpretation arises under any provision of this Warrant, this Warrant shall be
construed as if drafted jointly by the parties thereto, and no presumption or
burden of proof shall arise favoring or disfavoring any party by virtue of the
authorship of any of the provisions of this Warrant.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the Company has caused this Warrant to be issued
and executed in its corporate name by its duly authorized officers as of the
date below written.
DATED: [______], 2004 HANOVER DIRECT, INC.
By: _______________________________
Name: Wayne P. Garten
Title: President and
Chief Executive Officer
ATTEST:
By:___________________________
Name: Charles E. Blue
Title: Senior Vice President and Chief Financial Officer
EXHIBIT A
NOTICE OF EXERCISE
To: ____________________________
____________________________
____________________________
____________________________
1. The undersigned, pursuant to the provisions of the attached Warrant,
hereby elects to exercise this Warrant with respect to ________ shares of Common
Stock (the "Exercise Amount"). Capitalized terms used but not otherwise defined
herein have the meanings ascribed thereto in the attached Warrant.
2. The undersigned herewith tenders payment for such shares in the
following manner (please check type, or types, of payment and indicate the
portion of the Exercise Price to be paid by each type of payment):
_____ Exercise for Cash
_____ Cashless Exercise
3. Please issue a certificate or certificates representing the shares
issuable in respect hereof under the terms of the attached Warrant, as follows:
_____________________________________
(Name of Record Holder/Transferee)
and deliver such certificate or certificates to the following address:
_____________________________________
(Address of Record Holder/Transferee)
4. The undersigned represents that the aforesaid shares are being
acquired for the account of the undersigned for investment and not with a view
to, or for resale in connection with, the distribution thereof and that the
undersigned has no present intention of distributing or reselling such shares.
5. If the Exercise Amount is less than all of the shares of Common
Stock purchasable hereunder, please issue a new warrant representing the
remaining balance of such shares, as follows:
_____________________________________
(Name of Record Holder/Transferee)
and deliver such warrant to the following address:
_____________________________________
(Address of Record Holder/Transferee)
_____________________________________
(Signature)
_____________________________________
(Date)
2
EXHIBIT B
NOTICE OF EXERCISE
To: ________________________________
________________________________
________________________________
________________________________
1. The undersigned, pursuant to the provisions of the attached Warrant,
hereby elects to exercise this Warrant with respect to ________ shares of Series
D Preferred Stock (the "Exercise Amount"). Capitalized terms used but not
otherwise defined herein have the meanings ascribed thereto in the attached
Warrant.
2. The undersigned herewith tenders payment for such shares in the
following manner (please check type, or types, of payment and indicate the
portion of the Exercise Price to be paid by each type of payment):
_____ Exercise for Cash
_____ Cashless Exercise
3. Please issue a certificate or certificates representing the shares
issuable in respect hereof under the terms of the attached Warrant, as follows:
_____________________________________
(Name of Record Holder/Transferee)
and deliver such certificate or certificates to the following address:
_____________________________________
(Address of Record Holder/Transferee)
4. The undersigned represents that the aforesaid shares are being
acquired for the account of the undersigned for investment and not with a view
to, or for resale in connection with, the distribution thereof and that the
undersigned has no present intention of distributing or reselling such shares.
5. If the Exercise Amount is less than all of the shares of Series D
Preferred Stock purchasable hereunder, please issue a new warrant representing
the remaining balance of such shares, as follows:
_____________________________________
(Name of Record Holder/Transferee)
and deliver such warrant to the following address:
_____________________________________
(Address of Record Holder/Transferee)
_____________________________________
(Signature)
_____________________________________
(Date)
2