SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): NOVEMBER 10, 2003
HANOVER DIRECT, INC.
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
1-08056
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(COMMISSION FILE NUMBER)
DELAWARE 13-0853260
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(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION) IDENTIFICATION NUMBER)
115 RIVER ROAD
EDGEWATER, NEW JERSEY 07020
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(ADDRESS OF PRINCIPAL (ZIP CODE)
EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (201) 863-7300
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(FORMER NAME OR FORMER ADDRESS, IF CHANGED SINCE LAST REPORT)
ITEM 5. OTHER EVENTS.
On November 10, 2003, Hanover Direct, Inc. (the "Company") entered into a
Memorandum of Understanding with Chelsey Direct, LLC ("Chelsey") and Regan
Partners, L.P. setting forth the agreement in principle to recapitalize the
Company, reconstitute the Board of Directors of the Company and settle
outstanding litigation between the Company and Chelsey. The Memorandum of
Understanding had been approved by the Transactions Committee of the Board of
Directors of the Company.
The parties agreed to effect within ten days or as soon thereafter as
possible a binding Recapitalization Agreement that would, upon the closing of
the transactions set forth in the Recapitalization Agreement, exchange 564,819
shares of a newly issued Series C Preferred Stock and 81,857,833 shares of newly
issued common stock for the 1,622,111 shares of Series B Preferred Stock
currently held by Chelsey, subject to adjustment if the transaction is not
consummated by December 17, 2003. If the closing takes place on or before
December 17, 2003, the Series C Preferred Stock will have an aggregate
liquidation preference of $56,481,900 while the outstanding Series B Preferred
Stock has a current aggregate liquidation preference of $112,963,810 and a
maximum final liquidation preference of $146,168,422 on August 23, 2005. The new
common shares will have an effective issue price of $.69. With the issuance of
the new common shares, Chelsey will have a majority equity and voting interest
in the Company.
Upon the execution of the Recapitalization Agreement, the Company will
reconstitute the Board to eight members, including four designees of Chelsey.
The Recapitalization Agreement is subject to the approval of the Transactions
Committee and the Board of Directors of the Company. It is also subject to other
consents including the approval of Congress Financial Corporation. The Company
intends to prepare and file with the Securities and Exchange Commission and
transmit to all equity holders of the Company, as required by Rule 14f-1 of the
Securities Exchange Act of 1934, as amended, a statement regarding its intent to
effect a change in majority of directors as promptly as practicable. Following
the expiration of ten days following the filing and mailing of the statement,
the Board of Directors will increase to nine members, with the additional
director being a Chelsey designee.
The proposed Series C Preferred Stock, with a liquidation preference of
$100 per share, carries a quarterly dividend, starting on January 1, 2006 at 6%
and increasing each year by 1-1/2%. In lieu of cash dividends, the Company may
elect to accrue dividends at a rate equal to 1% higher than the annual cash
dividend rate. The Series C Preferred Stock has a redemption date of January 1,
2009. The Company shall redeem the maximum number of shares of Series C
Preferred Stock as possible with the net proceeds of certain asset and equity
sales, including the disposition of the Company's non-core assets, not required
to be used to repay Congress Financial Corporation pursuant to the terms of the
19th Amendment to the Loan and Security Agreement, and Chelsey shall be required
to accept such redemptions.
The Recapitalization Agreement will also define the duties of the
Transactions Committee and provide for the reconstitution of the committees of
the Board of Directors, mutual releases and termination of litigation between
the Company and Chelsey, voting agreements between Chelsey and Regan Partners, a
major shareholder of the Company, and agreements to recommend certain amendments
to the Company's Certificate of Incorporation, including a 10-for-1 reverse
stock split and a decrease in the
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par value of the Common Stock from $.66 2/3 per share to $.01 per share, at the
first annual meeting of shareholders following the closing.
If the closing of the Recapitalization Agreement has not occurred by
November 30, 2003, then the Company will pay Chelsey $1 million by December 3,
2003. If the closing has not occurred by the close of business on December 17,
2003, then the Memorandum of Understanding shall cease to be effective unless
either the Company or Chelsey elects to extend the closing past such date. If
the Company makes such an election, the number of shares of Common Stock and
Series C Preferred Stock issued to Chelsey in the Recapitalization shall be
adjusted pursuant to the terms of the agreement. If Chelsey makes such an
election, there shall be no adjustment to the number of shares. In either case,
the closing shall occur no later than February 29, 2004.
The Memorandum of Understanding has been filed as Exhibit 99.2 to this
Current Report on Form 8-K. The Company strongly recommends that interested
parties refer to it for a full and complete understanding of the terms and
conditions of the Memorandum of Understanding.
On November 10, 2003, the Company issued a press release announcing that
it had signed the Memorandum of Understanding. A copy of the press release is
attached as Exhibit 99.1.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(c) Exhibits.
Exhibit 99.1 - Press Release dated November 10, 2003 of the Company.
Exhibit 99.2 - Memorandum of Understanding among the Company, Chelsey Direct,
LLC and Regan Partners, L.P. dated November 10, 2003.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
HANOVER DIRECT, INC.
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(Registrant)
November 10, 2003 By: /s/ Brian C. Harriss
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Name: Brian C. Harriss
Title: Executive Vice President,
Human Resources & Legal
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