<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 12, 1996
REGISTRATION NO. 333-2743
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 3
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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HANOVER DIRECT, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 13-0853260
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
</TABLE>
1500 HARBOR BOULEVARD
WEEHAWKEN, NEW JERSEY 07087
(201) 863-7300
(Address, including zip code, and telephone number,
including area code,of registrant's principal executive offices)
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<TABLE>
<S> <C>
Copy to:
RAKESH K. KAUL MONTE E. WETZLER, ESQ.
HANOVER DIRECT, INC. WHITMAN BREED ABBOTT & MORGAN
1500 HARBOR BOULEVARD 200 PARK AVENUE
WEEHAWKEN, NEW JERSEY 07087 NEW YORK, NEW YORK 10166
(201) 863-7300 (212) 351-3000
(Name, address, including zip code, and telephone
number, including area code, of agent for
service)
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF THE PROPOSED SALE OF THE SECURITIES TO
THE PUBLIC: As soon as practicable following the effective date of this
Registration Statement and the effective date of the Rights Offering described
herein.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. /X/
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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<PAGE> 2
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED JULY 12, 1996
PROSPECTUS
50,000,000 SHARES
HANOVER DIRECT, INC.
COMMON STOCK
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Hanover Direct, Inc., a Delaware corporation (the "Company" or "Hanover"),
is distributing to holders of record of its common stock, par value $.66 2/3 per
share (the "Common Stock"), its 6% Series A Convertible Additional Preferred
Stock, par value $.01 and stated value $10.00 per share (the "Series A Preferred
Stock"), and its Series B Convertible Additional Preferred Stock, par value $.01
and stated value $10.00 per share (the "Series B Preferred Stock" and, together
with the Series A Preferred Stock, the "Convertible Preferred Stock")
outstanding as of Thursday, July 18, 1996 (the "Record Date") transferable
subscription rights (the "Rights") to subscribe for and purchase additional
shares of Common Stock for a price of $ per share (the "Subscription
Price").
Each shareholder will receive . transferable Rights for each share of
Common Stock held of record on the Record Date, . transferable Rights for each
share of Series A Preferred Stock held of record on the Record Date and .
transferable Rights for each share of Series B Preferred Stock held of record on
the Record Date. The number of Rights distributed by the Company to each holder
of Common Stock and Convertible Preferred Stock will be rounded up to the
nearest whole number. Each Right will be exercisable for one share of Common
Stock. No fractional Rights or cash in lieu thereof will be issued or paid.
Holders of Rights are entitled to purchase for the Subscription Price one share
of Common Stock for each Right held (the "Subscription Privilege"). Once a
holder of Rights has exercised such Rights, such exercise may not be revoked.
The Rights will be evidenced by transferable subscription certificates
("Subscription Certificates"). An aggregate of up to approximately shares
of Common Stock (the "Underlying Shares") will be sold upon exercise of the
Rights or pursuant to the Standby Purchase Agreement, executed on and dated as
of July 18, 1996 (the "Standby Purchase Agreement"), between the Company and NAR
Group Limited, a private investment holding company which owns approximately 53%
of the Common Stock of the Company as of the date hereof on a fully-diluted
basis ("NAR"). The distribution of the Rights and the sale of the shares of
Common Stock upon the exercise of the Rights or pursuant to the Standby Purchase
Agreement is referred to herein as the "Rights Offering." See "THE RIGHTS
OFFERING."
The Rights will expire at 5:00 p.m., New York City time, on Friday, August
16, 1996 (the "Expiration Date"). Holders of Rights are encouraged to consider
carefully the exercise or sale of the Rights by the Expiration Date. After the
Expiration Date, unexercised Rights will be null and void. See "THE RIGHTS
OFFERING."
NAR has agreed, pursuant to and subject to the terms and conditions of the
Standby Purchase Agreement, to purchase, at the Subscription Price, any of the
Underlying Shares that are not purchased through the exercise of the
Subscription Privilege ("Unsubscribed Shares"). In the event that the conditions
contained in the Standby Purchase Agreement are not met by the Company and are
not waived by NAR, the obligation of NAR to purchase any Unsubscribed Shares may
be cancelled upon notice by NAR. In the event that the conditions contained in
the Standby Purchase Agreement are not met by the Company and are not waived by
NAR, the Subscription Price shall be returned to the subscribers as soon as
practicable after the Expiration Date and no Underlying Shares will be sold by
the Company. Although the Company believes that NAR would waive the
non-occurrence of any of the conditions, if NAR does not do so the cancellation
by NAR of its obligation to purchase any Unsubscribed Shares would have an
adverse effect on the Company's financial condition and, in such event, it is
possible that the Company may need to seek protection under applicable
insolvency laws. See "THE RIGHTS OFFERING -- STANDBY PURCHASE COMMITMENT." NAR
plans to exercise all of the Rights distributed to it but is not irrevocably
committed to do so. Assuming that all of the holders of Rights exercise such
Rights and that NAR exercises the Rights distributed to it, NAR would own
approximately 53% of the Common Stock of the Company after the Rights Offering
on a fully-diluted basis. Assuming that all the conditions of the Standby
Purchase Agreement are satisfied or waived and that no Rights are exercised by
the holders thereof but that NAR exercises its Rights and purchases all of the
Unsubscribed Shares pursuant to the Standby Purchase Agreement, NAR would own
approximately 69% of the Common Stock after the Rights Offering on a
fully-diluted basis.
REFERENCE IS MADE TO "RISK FACTORS" BEGINNING ON PAGE 5 WHICH CONTAINS
MATERIAL INFORMATION THAT SHOULD BE CONSIDERED IN CONNECTION WITH THE SECURITIES
BEING OFFERED HEREBY.
The Common Stock is traded on the American Stock Exchange (the "AMEX")
under the symbol HNV. It is anticipated that the Rights will trade on the AMEX
and in the over-the-counter market. There can be no assurance, however, that a
market for the Rights will develop or as to the price at which the Rights will
trade. The last reported sales price of the Common Stock on the American Stock
Exchange on July 18, 1996 was $ per share. See "PRICE RANGE OF COMMON
STOCK."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
The date of this Prospectus is July 19, 1996.
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
<PAGE> 3
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR
REPRESENTATION SHOULD NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY OR ANY OTHER PERSON. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY THE SECURITIES OFFERED HEREBY TO ANY PERSON OR BY ANYONE IN ANY
JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION MAY NOT LAWFULLY BE MADE.
------------------------
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-3 (together with any amendments
thereto, the "Registration Statement") under the Securities Act with respect to
the Shares. This Prospectus does not contain all the information set forth in
the Registration Statement, certain parts of which are omitted in accordance
with the rules and regulations of the Commission and certain items of which may
be contained in schedules and exhibits to the Registration Statement as
permitted by the rules and regulations of the Commission and to which reference
is hereby made for further information with respect to the Company and the
Common Stock. Items of information omitted from this Prospectus but contained in
the Registration Statement may be inspected and copied at the public reference
facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the following regional offices of the Commission:
7 World Trade Center, New York, New York 10048, and Citicorp Center, 500 West
Madison, Suite 1400, Chicago, Illinois 60661. Copies of such material can be
obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy statements and other information with the
Commission. Such reports, proxy statements and other information can be
inspected and copied at the public reference facilities maintained by the
Commission referred to above. In addition, copies of such reports, proxy
statements and other information concerning the Company may also be inspected
and copied at the offices of the American Stock Exchange at 86 Trinity Place,
New York, New York 10006 on which exchange the Common Stock is listed and
traded.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission are
incorporated herein by reference: (a) the Annual Report on Form 10-K for the
fiscal year ended December 30, 1995, as amended by Amendments No. 1 and 2
thereto filed April 29, 1996 and April 30, 1996, respectively, and Amendment No.
3 thereto filed July , 1996; (b) the Quarterly Report on Form 10-Q for the
quarterly period ended March 30, 1996, as amended by Amendment No. 1 thereto
filed July , 1996; (c) Amendments No. 1 and 2 dated April 16, 1996 and July
12, 1996, respectively, to the Current Report on Form 8-K dated May 25, 1995;
and (d) the Registration Statement on Form 8-B (Registration No. 1-12082) filed
with the Commission on June 14, 1993.
All documents subsequently filed by the Company pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act prior to the termination of the offering
of the Common Stock shall be deemed to be incorporated by reference in this
Prospectus and to be a part hereof from the respective date of filing of each
such document. Any statement contained in a document incorporated or deemed to
be incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is, or is deemed to be,
incorporated by reference herein modifies or supersedes such statement. Any such
statement so modified or superceded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person to whom this
Prospectus is delivered, upon written or oral request, a copy of any or all of
the documents incorporated by reference herein, other than certain exhibits to
such documents. Requests for such documents should be directed to Debra A.
Berliner, Vice President -- Investor Relations and Corporate Communications,
Hanover Direct, Inc. at 1500 Harbor Boulevard, Weehawken, New Jersey 07087 or
telephone number (201) 863-7300.
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<PAGE> 4
THE COMPANY
The Company is a leading direct specialty retailer that publishes a
portfolio of branded catalogs offering home fashions, general merchandise and
apparel. The Company's catalogs include Domestications(R), a leading specialty
home textile catalog, and The Company Store(R), an upscale direct marketer of
down comforters and other down and related products for the home. The Company
also publishes Gump's(R), a leading upscale catalog of exclusive gifts from the
well-known San Francisco retailer acquired by the Company in 1993. The Company
also publishes catalogs in the kitchenware segment with Colonial Garden
Kitchens(R), a specialty catalog featuring worksaving and lifestyle enhancing
items for the kitchen and home, and Kitchen & Home(R), an upscale kitchen and
home product catalog. The Company's apparel portfolio includes Tweeds(R), the
European inspired women's fashion catalog, International Male(R), offering
unique men's fashions with an international flair, Silhouettes(R), a women's
fashion catalog featuring every day, workout, special occasion and career
fashions for larger sized women, and Undergear(R), a leader in activewear,
workout wear and fashion underwear for men. In 1995, the Company discontinued
six catalogs, One 212(R), Simply Tops(R), Essence By Mail(R), Hanover House(R),
Mature Wisdom(R) and Tapestry(R). The Company did not discontinue any catalogs
during 1994 or 1993. The Company has no current plans to dispose of any further
catalogs in 1996 but reviews its portfolio of catalogs as well as new
opportunities to acquire or develop catalogs from time to time.
In 1994, Hanover expanded its catalog offerings by entering into a
licensing agreement (the "Sears Agreement") with Sears, Roebuck and Co.
("Sears") in which Hanover mails several versions of its catalogs to the more
than 20 million mail order and credit card customers of Sears. In 1995, Hanover
generated revenues of $81 million and operating income of $3 million from this
venture. The Sears Agreement has an initial three-year term with automatic
renewals thereafter unless commencing December 31, 1996 either party gives at
least 12 months prior written notice that the agreement will terminate at the
end of the initial term or the extended term. The Company is obligated to meet
various operational performance standards under the Sears Agreement. If the
Company is unable to meet these standards (after written notice and a 30-day
cure period), Sears would be entitled to terminate the Sears Agreement. The
Company is also entitled to terminate the Sears Agreement in certain
circumstances, including if Sears fails to comply with any material provision of
the Sears Agreement. The Company is currently not meeting certain of the
operational standards, namely the customer service and in stock position
standards, and Sears has asked the Company for a plan to achieve the service
levels and fill rates mandated by the Sears Agreement before the end of 1996.
The Company has not yet finalized such plan but expects to finalize and submit
such plan to Sears for approval in the near future. The Company believes it can
achieve such levels and rates within such time period, although there can be no
assurance that the Company will achieve such levels and rates within such time
period.
During 1995, Hanover mailed approximately 370 million catalogs, a 2%
reduction from the prior year, and had total revenues of approximately $750
million and a net operating loss of approximately $30 million. Hanover maintains
a proprietary customer list currently containing approximately 18 million names
of customers who have made purchases from at least one of Hanover's catalogs
within the past 36 months (down from 19 million in 1994). Over 7 million of the
names on the list represent customers who have made purchases from at least one
of Hanover's catalogs within the last 12 months.
In 1995, Hanover acquired Improvements(R), a leading do-it-yourself home
improvement catalog featuring home aid accessories, the remaining interest in
The Safety Zone(R), a direct marketer of safety, prevention and protection
products, and a controlling interest in Austad's(R), a direct marketer of golf
equipment and related apparel and accessories. In February 1996, the Company
acquired the remaining interest in Austad's(R) in an asset exchange.
NAR owns approximately 53% of the Common Stock of Hanover on a
fully-diluted basis. NAR, a British Virgin Islands corporation, is a joint
venture between the family of Alan G. Quasha, a director and the chairman of the
board of Hanover, and Compagnie Financiere Richemont A.G., a Swiss public
company engaged in luxury goods, tobacco and other businesses ("Richemont").
Hanover is successor in interest to The Horn & Hardart Company, a
restaurant company founded in 1911, and Hanover House Industries, Inc., founded
in 1934. Hanover's name was changed in 1993 to reflect its business focus on
specialty catalog marketing. The Company is incorporated in Delaware with its
principal
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<PAGE> 5
executive office at 1500 Harbor Boulevard, Weehawken, New Jersey 07087. The
Company's telephone number is (201) 863-7300.
RECENT DEVELOPMENTS
CREDIT ARRANGEMENTS
In November 1995, the Company entered into a $75 million secured credit
facility (the "Credit Facility") with Congress Financial Corporation
("Congress") consisting of a three-year revolving line of credit of up to $65
million and two two-year term loans aggregating $10 million. The revolving
facility carries an interest rate of 1.25% above prime and the term loan carries
an interest rate of 1.5% above prime. At March 30, 1996, the Company had
approximately $57.1 million of outstanding borrowings under the revolving credit
facility (including documentary and standby letters of credit) and approximately
$9.7 million outstanding under the term loans. In April 1996, Congress provided
the Company with an additional $4 million over the borrowing base formula up to
the maximum $75 million limit of the Credit Facility until the closing of the
Rights Offering. Under the Credit Facility, the Company is required to comply
with certain restrictive debt covenants including maintaining minimum net worth
of $80 million and working capital of $26 million as of December 30, 1995. In
April 1996, these restrictive debt covenants were revised to $75 million and $21
million, respectively, in an amendment to the Credit Facility. In May 1996, the
definitions of consolidated net worth and consolidated working capital were
amended to take into account the $25 million advanced by NAR.
In November 1995, Intercontinental Mining & Resources Incorporated, an
affiliate of NAR ("IMR"), purchased the Company's 9.25% Senior Subordinated
Notes due August 1, 1998 (the "9.25% Notes") from a third party in connection
with the refinancing of the Company's indebtedness under the Credit Facility. In
April 1996, IMR and the Trustee for the 9.25% Notes reduced the working capital
requirements and net worth requirements contained in the Indenture relating to
the 9.25% Notes by $5 million until the closing of the Rights Offering. In May
1996, the definitions of consolidated net worth and consolidated working capital
were amended to take into account the $25 million advanced by NAR.
PRE-FUNDING BY NAR
The operating losses the Company experienced in the first quarter of 1996
continued in the second quarter of 1996. As a result of those losses as well as
additional capital requirements of up to $3.0 million for the Company's new
fulfillment facility in Roanoke, the Company increased the size of the Rights
Offering from $40 million to $50 million and the Company requested that NAR
advance up to $25 million and NAR has advanced $25 million against the exercise
of all the Rights distributed to it and/or its commitment to purchase all of the
Unsubscribed Shares. The Company has executed a subordinated promissory note in
the amount of up to $25 million (the "NAR Promissory Note"). The Company will
repay to NAR any amounts outstanding under the NAR Promissory Note on the
earlier of December 31, 1996 or the completion of the Rights Offering. The NAR
Promissory Note is subordinate to the Credit Facility.
ACQUISITIONS AND DISPOSITIONS
In May 1995, the Company acquired 67.5% of the outstanding shares of
Austad's Holdings, Inc. ("AHI"), which owned The Austad Company ("TAC"), the
publisher of the Austad's(R) catalog, featuring golf equipment, apparel and
gifts. The Company acquired the remaining interest in AHI in February 1996 by
virtue of the surrender by David Austad and certain family members (the "Austad
Family") to AHI of their AHI shares, amounting to 32.5% of the outstanding
shares, and the payment by the Austad Family of approximately $1.2 million
(subject to certain post-closing adjustments) to the Company. In return, the
Austad Family received all the outstanding shares of AGS, Inc. ("AGS"), a South
Dakota corporation newly-formed by TAC to hold the existing retail assets and
liabilities of TAC. As a result of the reorganization, AHI became a wholly-owned
subsidiary of the Company. AGS will operate the four existing retail stores
acquired from TAC, located in Illinois, Minnesota and South Dakota, as
Austad's(R) stores under license from AHI. The
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<PAGE> 6
license grants Mr. Austad exclusive retail rights to the Austad's(R) name in 37
states and Canada. AHI retains all direct marketing and other rights.
In April 1996, the Company sold the assets of Leichtung Workshops(R), a
woodworking and hobby catalog, for approximately $900,000 in cash and short-term
notes.
RISK FACTORS
In addition to all the other information contained in this Prospectus and
the documents incorporated by reference, prospective purchasers should consider
the risk factors set forth below prior to deciding whether to exercise or sell
the Rights.
IMPORTANCE OF LIQUIDITY TO THE COMPANY'S EXISTENCE
As of March 30, 1996, the Company had borrowed approximately $66.8 million
of the $68.0 million available under the Credit Facility and had approximately
$3 million of cash on hand. In April 1996, Congress provided the Company with an
additional $4 million over the borrowing base formula up to the maximum $75
million limit of the Credit Facility until the closing of the Rights Offering.
In addition, Congress reduced the working capital and net worth requirements
contained in the Credit Facility by $5 million for the same period. In May 1996,
the definitions of consolidated net worth and consolidated working capital were
amended to take into account the $25 million advanced by NAR. Although the
Company believes that it will not sustain losses that must be funded with the
proceeds of the Rights Offering and that, accordingly, the Rights Offering
proceeds will be available to reduce the amounts outstanding under the Credit
Facility, there is no assurance that the proceeds of the Rights Offering will be
available for such purposes. See "THE COMPANY" and "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS" in the
Quarterly Report on Form 10-Q for the quarterly period ended March 30, 1996 and
in the Annual Report on Form 10-K for the fiscal year ended December 30, 1995,
each as amended. If the Company continues to sustain losses that must be funded
with the proceeds of the Rights Offering, the Company may be in default under
the Credit Facility and would accordingly be required to seek waivers therefrom
and amendments thereto. In addition, the Company may be required to borrow
additional funds from public or private sources on a long-term or short-term
basis or to sell assets. If it is not successful in any of these endeavors, the
Company may ultimately need to seek protection under applicable insolvency laws
affecting creditors' rights. However, the Company is not pursuing any of these
alternatives at this time.
ABILITY TO REPAY NAR PROMISSORY NOTE
The Company is relying on the proceeds from the Rights Offering as the
source of repayment of amounts outstanding under the NAR Promissory Note. In the
event that the Company is not able to repay in a timely fashion amounts
outstanding under the NAR Promissory Note from the proceeds of the Rights
Offering or from another source of funds, the Company would have to refinance
the Note on or before its due date. There can be no assurance that the Company
would be able to obtain refinancing. If the Company could not obtain such
refinancing, it would be in default under both the NAR Promissory Note and the
Credit Facility and would have to obtain from NAR and Congress waivers of such
defaults. There can be no assurance that the Company would be able to obtain
such waivers. If the Company could not obtain such waivers, it is possible that
the Company may need to seek protection under applicable insolvency laws.
POSSIBLE TERMINATION OF SEARS AGREEMENT; SUBSTANTIAL LOSS OF REVENUE
In January 1994, the Company entered into the Sears Agreement to produce
specialty catalogs for the more than 20 million mail order and credit card
customers of Sears. In 1994 and 1995, Hanover generated revenues of $71 million
and $81 million, respectively, and operating income of $2.9 million and $3
million, respectively, from this venture. The Sears Agreement contains
performance standards which must be met by the Company and which allow Sears to
terminate the Sears Agreement upon non-compliance. The Company is currently not
meeting certain of the operational standards, namely the customer service and in
stock position
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<PAGE> 7
standards, and Sears has asked the Company for a plan to achieve the service
levels and fill rates mandated by the Sears Agreement before the end of 1996.
The Company has not yet finalized such plan but expects to finalize and submit
such plan to Sears for approval in the near future. There can be no assurance
that the Company will achieve the service levels and fill rates set forth in the
plan. If the Company is unable to achieve the service levels and fill rates set
forth in such plan within the time period indicated, Sears may have grounds to
terminate the Sears Agreement. If Sears terminates the Sears Agreement, the
Company may experience a loss of revenues related to the venture.
OPERATING LOSSES; FUTURE OPERATING RESULTS
The Company has recently experienced operating losses. The Company reported
a net loss of $9.5 million, or $(.10) per share, for the quarter ended March 30,
1996 compared to a net loss of $4.9 million, or $(.05) per share, in the same
period in the prior year. The Company reported a net loss of $30 million, or
$(.32) per share, for the year ended December 30, 1995 compared to net income of
$14.8 million, or $.16 per share, in the same period in the prior year. Revenues
decreased in the quarter ended March 30, 1996 to $166 million from $177 million
for the same period in 1995. Revenues decreased in 1995 to $750 million from
$769 million in 1994. The Company recorded a loss from operations of $7.7
million in the first quarter of 1996, or (4.7)% of revenues, compared to a loss
from operations of $4.1 million, or (2.4)% of revenues, for the same period in
1995. The Company recorded a loss from operations of $22.6 million in 1995, or
(3)% of revenues, compared to income from operations of $16 million, or 2.1% of
revenues, for the same period in the prior year. As a result of the operating
losses incurred in 1995, the Company's financial condition deteriorated. The
Company's working capital and long term debt changed from $58.5 million and
$35.9 million, respectively, at December 31, 1994 to $28.8 million and $57.3
million, respectively, at December 30, 1995. At March 30, 1996, working capital
and long term debt increased to $41.4 million and $79.2 million, respectively,
largely due to additional borrowings under the Credit Facility with Congress.
The net loss in the first quarter of 1996 was primarily a result of an
increase in paper costs, telemarketing and fulfillment costs due to weather
related issues and continued operating problems in the new Roanoke fulfillment
center and an increase in inventory write-downs while the net loss in 1995 was
primarily the result of the cumulative impact of the significant increases in
postage and paper prices and weak consumer demand. See "RISK
FACTORS -- INCREASES IN COSTS OF MAILING AND PAPER" and "-- CONSUMER SPENDING;
WEAKNESS IN CONSUMER DEMAND." In addition, the Company also incurred costs in
connection with the consolidation of facilities into its new Roanoke, Virginia
fulfillment center and the upgrade of its management information systems. See
"RISK FACTORS -- INEFFICIENCIES IN CONNECTION WITH NEW FULFILLMENT FACILITIES"
and "-- COSTS ASSOCIATED WITH COMPUTER SYSTEMS CONVERSION." Whether the Company
is able to return to positive net income will depend on its ability to increase
catalog sales and to effectively monitor and control costs. There can be no
assurance that the Company's future operations will generate net income.
Furthermore, future operating results depend upon many factors, the unfavorable
outcome of which would adversely affect the Company's results of operations.
These factors include general economic conditions, the ability of the Company to
continue to attract and retain customers successfully, the level of competition
and the Company's ability to successfully identify, forecast and respond to
customer preferences and fashion trends. See "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS" in the
Company's Quarterly Report on Form 10-Q for the quarterly period ended March 30,
1996, as amended, and in the Company's Annual Report on Form 10-K for the fiscal
year ended December 30, 1995, as amended.
TIGHTENING OF VENDOR CREDIT
As a result of the operating losses mentioned above (see "RISK
FACTORS -- OPERATING LOSSES; FUTURE OPERATING RESULTS") coupled with a very
difficult year for retailers with numerous Chapter 11 filings occurring, the
Company experienced a tightening of vendor credit in the fourth quarter of 1995
which impacted the Company's ability to obtain merchandise on a timely basis.
This resulted in higher back order levels (unfilled orders) and increased
fulfillment costs which negatively impacted the Company's operating results in
that quarter. Accordingly, the Company's back order level increased from $10.3
million to
6
<PAGE> 8
$14.6 million from December 31, 1994 to December 30, 1995 and from $10.0 million
to $16.0 million from April 1, 1995 to March 30, 1996. These back order levels
have negatively affected initial order fulfillment rates which has resulted in
higher fulfillment expense due to increased split shipments and warehouse
handling costs experienced in 1996. Fulfillment costs (telemarketing,
distribution, outbound transportation and credit card commission costs)
increased from $81.9 million to $91.4 million and from $22.3 million to $23.9
million for the same periods, respectively. Also, in March 1996, the Company
concluded that its recent operating results would have a further negative impact
on the Company's ability to conduct business on normal trade terms. The Company
believes that upon completion of the Rights Offering the Company will return to
normal trade terms with all suppliers and will have adequate capital to support
its operations. However, there can be no assurance that upon the completion of
the Rights Offering normal trade terms will resume nor that the Company's
capital will be adequate to support its operations. See "RISK
FACTORS -- DEPENDENCE ON SUPPLIERS."
CAPITAL INTENSITY OF MAIL ORDER CATALOG BUSINESS; NEED FOR SELF-FUNDING
As a general matter, the capital intensity of the mail order catalog
business has increased in recent months requiring companies to make a permanent
investment in working capital to fund systems to increase customer service,
warehousing to speed delivery time, inventory to increase fill rates and credit
to increase customer response rates in order to be competitive. The mail order
catalog industry's fixed costs have increased in recent years which has resulted
in higher break even rates than previously experienced. At the same time, the
sources of financing for mail order catalog companies have shrunk due to the
number of bankruptcies in the industry and the high percentage of intangible
assets owned by such companies to which traditional lenders frequently will not
ascribe value as collateral for purposes of establishing lending limits,
requiring such companies to self-fund growth. There is no assurance that the
Company will have the funds to invest in working capital or the resources to
fund self-growth or to take advantage of opportunities in the industry. See
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION AND
RESULTS OF OPERATIONS" in the Company's Quarterly Report on Form 10-Q for the
quarterly period ended March 30, 1996, as amended, and in the Company's Annual
Report on Form 10-K for the fiscal year ended December 30, 1995, as amended.
IMPORTANCE OF DOMESTICATIONS(R)
The Company's Domestications(R) catalog is one of the nation's leading
specialty home textile catalogs. It had revenues of approximately $311 million
in 1993, which constituted approximately 48% of the Company's revenues in 1993,
and revenues of approximately $361 million in 1994, which constituted
approximately 47% of the Company's revenues in 1994. Domestications'(R) revenues
were approximately $282 million in 1995, which constituted approximately 38% of
the Company's revenues in 1995. Domestications'(R) product margin, which
decreased 5 percentage points from December 31, 1995 to March 30, 1996, was
significantly impacted by the higher postage and paper costs experienced
industry-wide as well as by additional costs in connection with the move of its
fulfillment operations into the Company's new Roanoke, Virginia facility.
Additionally, Domestications'(R) product margin was adversely impacted by
product mix changes, increased promotional activities to maintain its
competitive position and higher inventory write-downs. A further decrease in
revenues or profitability of Domestications(R) would have a material adverse
effect upon the Company's financial position and results of operations.
INCREASES IN COSTS OF MAILING AND PAPER
The Company mails its catalogs and ships most of its merchandise through
the United States Postal Service. In 1995, catalog mailing and product shipment
expenses represented approximately 18% of revenues as compared to approximately
15% of revenues in 1994. In January 1995, the United States Postal Service
increased postage rates by approximately 14% to 18% which resulted in an
increase of the Company's average cost of mailing a catalog by 15% as compared
to 1994. The Company also experienced record price increases in 1995 for paper
that is used in the production of its catalogs as the paper industry announced a
series of significant price increases that increased the Company's average cost
for paper by 43% as compared to 1994.
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<PAGE> 9
Paper costs represented approximately 8% of revenues in 1995 as compared to 7%
in 1994. These cost increases (which aggregated $18 million in 1995) adversely
impacted the Company's margins and earnings in 1995. Although it is generally
the policy of the Company to recover the costs of shipping and handling from its
customers, in 1995 it was unable to fully recover such costs. Other than an
anticipated 2% to 3% reduction in postal rates on an annualized basis as a
result of a reclassification of postal rates that will become effective on July
1, 1996, the Company does not expect a material reduction in these cost levels.
Further increases in postal rates or paper costs would have a material negative
impact on the Company's results of operations to the extent that the Company is
unable to offset such increase by raising selling prices or by implementing more
efficient mailing, delivery and order fulfillment systems.
INEFFICIENCIES IN CONNECTION WITH NEW FULFILLMENT FACILITIES
In 1995, the Company completed construction of its 530,000 square foot
facility on a site in Roanoke, Virginia to handle all of Domestications'(R)
warehouse and fulfillment needs. The total cost of this facility was $18.3
million. The Company began partial shipping and receiving activities in the
first quarter of 1995 and the facility was fully operational in September 1995.
As a result, all of Domestications'(R) warehouse and fulfillment operations were
consolidated from several locations into one facility. The Company also
completed the consolidation of its apparel catalogs into its Roanoke, Virginia
apparel facility in 1995. The consolidation of the fulfillment operations of
Gump's(R) from DeSoto, Texas and Improvements(R) from Cleveland, Ohio to other
Company facilities was also completed in 1995. The relocation of Austad's(R)
fulfillment operations from Sioux Falls, South Dakota to other Company
facilities was completed by mid-July 1996. The Company experienced operating
inefficiencies and down-time, costs and expenses related to maintaining
duplicate facilities, moving expenses, lease termination fees and severance
expenses and start-up problems in conjunction with bringing various warehouse
and distribution facilities into service in 1995 and incurred approximately $2.7
million in costs related thereto. The Company believes it will continue to
experience inefficiencies in 1996. Although the Company has taken and is taking
actions which it believes will lead to more efficient operations, there is no
assurance that the Company will be able to achieve any improvement in efficiency
or reduction in costs. In addition, although the Company maintains business
interruption insurance for its primary facilities and other insurance for its
business, a partial or total loss of one or more of these consolidated
facilities may have a material adverse effect upon the Company's financial
position and results of operations. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS" in the Quarterly
Report on Form 10-Q for the quarterly period ended March 30, 1996 and in the
Annual Report on Form 10-K for the fiscal year ended December 30, 1995, each as
amended.
COSTS ASSOCIATED WITH COMPUTER SYSTEMS CONVERSION
The Company is continuing to upgrade its management information systems by
implementing new integrated software and migrating from a centralized mainframe
to mid-range mini-computers. As of December 30, 1995, the Company invested
approximately $16 million in such systems. The Company currently estimates that
the total cost to install and implement the new systems will be approximately
$19 million. The Company brought two catalogs on-line in 1994 and eight
additional catalogs on-line in 1995 (during which time it maintained its
existing systems for its other catalogs). The Company plans to bring the balance
of its catalogs on-line in 1996. The Company will incur approximately $3 million
in additional MIS costs in 1996 due primarily to non-cash charges relating to
amortization of deferred software costs. The new management information systems
have been designed to meet the Company's requirements as a high volume publisher
of multiple catalogs and to permit the Company to achieve substantial economies
of scale and improvements in the way its financial, merchandising, inventory,
telemarketing, fulfillment and accounting functions are performed. Until the new
systems are installed Company-wide, the Company will not achieve the full
benefits of the new systems. There have been costs associated with maintaining
duplicate facilities and certain inefficiencies and difficulties, including
lower levels of customer service, in working with the new systems and
maintaining duplicate systems as the transition process continues. There is no
assurance that the Company will be able to overcome these difficulties and
inefficiencies without them having an adverse affect
8
<PAGE> 10
on operations or that the new systems will be implemented as currently scheduled
or that they will achieve the goals established by the Company.
CONSUMER SPENDING; WEAKNESS IN CONSUMER DEMAND
The Company's operations recently have been affected by the weak retail
environment in most of the Company's business segments. The Company's product
margin at March 30, 1996 was approximately 6.4% while at December 30, 1995 it
was approximately 6.7%. Product margins have decreased due to greater
promotional expenses as a result of generally weak consumer demand. The success
of the Company's operations depends upon a number of factors relating to
consumer spending, including future economic conditions affecting disposable
consumer income such as employment, business conditions, interest rates and
taxation. There can be no assurance that weak economic conditions or changes in
the retail environment or other economic factors that impact the level of
consumer spending would not have a material adverse impact on the Company.
CREDIT RISKS
Several of the Company's catalogs, including Domestications(R),
International Male(R) and Gump's(R), offer their own credit cards. The Company
also offers, for use with almost all catalogs, the use of the Hanover Shop At
Home credit card. In addition, the Company increasingly offers customers
deferred billing arrangements reflecting a trend in the mail order catalog
industry. The use of credit cards and deferred billing arrangements could be
costly to the Company since it may need to fund such charges under the Credit
Facility. The Company's bad debt expense at March 30, 1996 was approximately
$1.2 million while at December 30, 1995 it was approximately $4.7 million. There
is no assurance that the use of credit cards and deferred billing arrangements
will not lead to higher bad debt expenses.
COSTS ASSOCIATED WITH DISCONTINUED CATALOGS
The Company discontinued six catalogs in 1995 which generated revenues of
$87.8 million in 1995 and $117.9 million in 1994 as a result of operating losses
of $20 million in 1995 (including a provision for the costs associated with
discontinuing these catalogs of $8.6 million) and $4.7 million in 1994 and poor
future prospects for these catalogs. As a result of discontinuing catalogs, the
Company incurs costs related to write-downs of merchandise in the discontinued
catalogs to net realizable value at the time of discontinuance. Such costs are
estimated at the time of discontinuance based on factors known at the time. As
additional information becomes known, the Company adjusts such estimates. The
Company may discontinue additional catalogs although it currently has no plans
to do so.
CHALLENGES ASSOCIATED WITH RECENT ACQUISITIONS AND NEW BUSINESS DEVELOPMENTS
The Company acquired certain catalogs in 1995. See NOTE 2 OF NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS in the Company's Annual Report on Form 10-K
for the fiscal year ended December 30, 1995, as amended. None of these catalogs
except Improvements(R) and Leichtung Workshops(R) was profitable at the time of
its acquisition by the Company. In addition, these acquisitions present
relatively new market niches for the Company and the Company must successfully
integrate and develop these newly acquired companies. There can be no assurance
that the Company will be able to successfully integrate these new businesses or
improve their profitability.
ADJUSTMENTS IN CARRYING VALUE AND USEFUL LIFE
The acquisitions of Improvements(R), Leichtung Workshops(R), The Safety
Zone(R) and Austad's(R) have been accounted for using the purchase method of
accounting with goodwill of approximately $18.9 million in the aggregate
initially recorded based upon the fair value of the net assets acquired and
liabilities assumed. In addition, the Company recorded $3.1 million representing
the fair value of acquired mailing lists. The Company assesses the carrying
value and the economic useful life of the goodwill on an ongoing basis based on
9
<PAGE> 11
such business' prior and future operating income and estimated net cash flows.
There can be no assurance that the Company will not adjust the carrying value
and the economic useful life of such goodwill in the future.
COMPETITION
The mail order catalog business is highly competitive. The Company's
catalogs compete with other mail order catalogs, both specialty and general, and
retail stores, including department stores, specialty stores and discount
stores. A number of the Company's competitors have substantially greater
financial, distribution and marketing resources than the Company. In addition,
due to the increased fixed costs experienced by the mail order catalog industry
in recent years, the Company may be at a competitive disadvantage as compared to
companies with substantially greater financial resources which will have a
greater ability to meet these costs than the Company will have due to its
limited financial resources. See "RISK FACTORS -- IMPORTANCE OF LIQUIDITY TO THE
COMPANY'S EXISTENCE." The recent substantial sales growth in the direct
marketing industry has encouraged the entry of many new competitors and an
increase in competition from established companies.
SEASONALITY
The Company has experienced substantially increased sales in the fourth
quarter of each year as compared to the first three quarters, due in part to the
Company mailing more catalogs in the second part of the year and decreasing
apparel sales as a percentage of total sales. As a result, the fourth quarter is
increasing in importance to the Company's results of operations. In the fourth
quarter of 1995, the Company observed that customers waited until later in the
quarter to order merchandise from the Company's catalogs in order to benefit
from promotions, following a trend which affected the retail industry as a
whole. In addition, many of such customers elected to take advantage of the
Company's deferred billing arrangements or to use the Company's credit cards.
Accordingly, and for other reasons that the Company is not able to foresee,
there can be no assurance that the Company's fourth quarter operations will be
successful.
DEPENDENCE ON SUPPLIERS
Although the Company as a whole is generally not dependent on any one or
small group of suppliers, several of its major catalogs are dependent on one or
a small group of suppliers. There is no assurance that such suppliers will
continue to provide the Company with the quantities of merchandise on the terms
currently offered to the Company or that the Company will be able to find
alternative suppliers on competitive terms.
In addition, the Company's profitability depends upon its obtaining
competitive terms from the merchandise vendors for its catalogs. In the fourth
quarter of 1995, due to concerns over continuing operating losses at the Company
and questions from vendors concerning the Company's continuing viability in
light of the very difficult year for retailers with numerous Chapter 11 filings
occurring, certain of such vendors tightened the terms available to the Company
which resulted in higher back order levels and increased fulfillment costs which
negatively impacted the Company's operating results in that quarter. This trend
continued in early 1996 after several additional retail companies filed Chapter
11. The Company believes that upon the completion of the Rights Offering, the
Company will return to normal trade terms with all suppliers; however, if the
Company continues to experience operating losses, the Company may not be able to
obtain such terms or sufficient quantities of merchandise on a cost-effective
and timely basis to satisfy customer demand.
FOREIGN SOURCING
Approximately 7% of the Company's merchandise is purchased directly from
foreign suppliers located principally in China, Hong Kong, India and Portugal.
Such suppliers require the Company to post letters of credit relating to the
merchandise purchased by the Company which increases the Company's cost of
capital. The Company's business is subject to the risks generally associated
with conducting business abroad, including adverse fluctuations in currency
exchange rates (particularly those of the U.S. dollar against certain foreign
currencies), changes in import duties or quotas, the imposition of taxes or
other charges on imports,
10
<PAGE> 12
disruptions or delays in shipments and transportation, labor disputes and
strikes. The Company minimizes such risks by making foreign purchases in U.S.
dollars and does not generally utilize hedging instruments. The occurrence of
any one or more of the foregoing could adversely affect the Company's financial
position or results of operations.
DEPENDENCE ON MANAGEMENT
The success of the Company's operations depends in part on its ability to
attract and retain skilled management personnel. The Company recently retained a
new President and Chief Executive Officer, Rakesh K. Kaul, who is building a
management team. As a result of the turmoil in the mail order catalog business
due to the operating difficulties encountered by catalog operators in 1995,
including record paper and postage price increases, management turnover at the
Company and within the entire industry has been high. The Executive Vice
President, Secretary and General Counsel has resigned and the Executive Vice
President and Chief Financial Officer has indicated his intention to resign for
personal reasons but has agreed to stay with the Company until his replacement
can be found. The Company has commenced a search for a new Chief Financial
Officer. In addition, the Company's Chief Information Officer has resigned. The
General Counsel and Chief Information Officer positions are currently being
filled by individuals who have served as service providers to the Company. The
Company has adopted various retention programs and the Company believes it will
not have problems finding acceptable replacements.
TAX LOSS CARRYFORWARDS
Realization of certain future tax benefits of the Company (for example,
certain existing net operating loss carryforwards ("NOLs") and temporary timing
differences of the Company) is dependent on the Company's ability to generate
taxable income within the carryforward period and the periods in which net
temporary differences reverse. Future levels of operating income and taxable
income are dependent upon general economic conditions, competitive pressures on
sales and margins, postal and other delivery rates and other factors beyond the
Company's control. Accordingly, no assurance can be give that sufficient taxable
income will be generated for utilization of NOLs and reversals of temporary
differences. See NOTE 10 OF NOTES TO CONSOLIDATED FINANCIAL STATEMENTS in the
Company's Annual Report on Form 10-K for the fiscal year ended December 30,
1995, as amended.
RESTRICTIONS ON DIVIDENDS
The Company is restricted from paying dividends on its Common Stock or from
acquiring any of its capital stock by certain debt covenants contained in
agreements to which the Company is a party. Cash dividends have not been paid on
the Common Stock since 1967.
RELATIONSHIP WITH NAR
NAR currently owns approximately 53% of the Company's outstanding Common
Stock on a fully diluted basis. Assuming that all of the holders of Rights
exercise such Rights and that NAR exercises the Rights distributed to it, NAR
would own approximately 53% of the Common Stock of the Company after the Rights
Offering on a fully-diluted basis. Assuming that no Rights are exercised by the
holders thereof but that all the conditions of the Standby Purchase Agreement
are satisfied or waived and that NAR exercises its Rights and purchases all of
the Unsubscribed Shares pursuant to the Standby Purchase Agreement, NAR would
own approximately 69% of the Common Stock after the Rights Offering on a
fully-diluted basis. NAR has the power to elect the entire Board of Directors
and, except as otherwise provided by law or the Company's Certificate of
Incorporation, to approve any action requiring shareholder approval without a
shareholders' meeting.
DEPENDENCE ON NAR
As the Company's financial performance has deteriorated, the Company has
become increasingly dependent on NAR and its affiliates for financial support.
In November 1995, IMR, an affiliate of NAR, purchased the 9.25% Notes from a
third party in connection with the refinancing of the Company's
11
<PAGE> 13
indebtedness under the Credit Facility. The Company paid NAR a commitment fee of
$105,000 upon the signing of a repurchase and option agreement and a fee of
$210,000 (1.5% of the outstanding principal amount of the 9.25% Notes acquired
by IMR) upon the funding, as well as all expenses incurred by NAR in performing
its obligation. The Company extended by two years the terms of the warrants to
purchase 5,033,735 shares of Common Stock held by NAR and IMR to August 1, 1998.
The Company also agreed to indemnify NAR against any and all claims or losses
asserted against it or incurred by it relating to the transactions contemplated
by the repurchase and option agreement.
The Company and NAR have entered into the Standby Purchase Agreement,
pursuant to which NAR will be required, subject to the fulfillment of various
terms and conditions thereof, to purchase all Unsubscribed Shares in the Rights
Offering. NAR has agreed to exercise all of the Rights distributed to it but is
not irrevocably committed to do so. If all of the Rights are exercised, NAR will
not be required to purchase any of the Common Stock issuable upon the exercise
of the Rights. As compensation to NAR for its commitment under the Standby
Purchase Agreement, the Company has agreed to pay to NAR, on the Closing Date or
at such other time and date as NAR and the Company may agree in writing, certain
fees described more fully under the caption "THE RIGHTS OFFERING -- STANDBY
PURCHASE COMMITMENT." NAR has advanced $25 million against the exercise of all
of the Rights distributed to it and/or its commitment to purchase all of the
Unsubscribed Shares if all of the conditions of the Standby Purchase Agreement
are satisfied or waived. See "RECENT DEVELOPMENTS -- PRE-FUNDING BY NAR."
There is no assurance that NAR or its affiliates will continue to support
the Company financially should the Company need such support since NAR and its
affiliates are under no obligation to do so. There is no assurance that should
NAR or its affiliates cease to provide such financial support, it would not have
a material adverse impact on the Company. Further, in the event that the
conditions contained in the Standby Purchase Agreement are not met by the
Company and are not waived by NAR, the obligation of NAR to purchase any
Unsubscribed Shares may be cancelled upon notice by NAR. In the event that the
conditions contained in the Standby Purchase Agreement are not met by the
Company and are not waived by NAR, the Subscription Price shall be returned to
the subscribers as soon as practicable after the Expiration Date and no
Underlying Shares will be sold by the Company. Although the Company believes
that NAR would waive the non-occurrence of any of the conditions, if NAR does
not do so the cancellation by NAR of its obligation to purchase any Unsubscribed
Shares would have an adverse effect on the Company's financial condition and, in
such event, it is possible that the Company may need to seek protection under
applicable insolvency laws. See "THE RIGHTS OFFERING -- STANDBY PURCHASE
COMMITMENT."
POTENTIAL CONFLICTS OF INTEREST
NAR is the beneficial owner of approximately 53% of the Common Stock of the
Company as of the date hereof on a fully-diluted basis. Alan G. Quasha, a
director and chairman of the Board of Directors of the Company, has been
designated by the Board of Directors of NAR to oversee NAR's investment in the
Company and may therefore be deemed to be an indirect beneficial owner of such
securities beneficially owned by NAR, although Mr. Quasha disclaims such
beneficial ownership. There can be no assurance that no conflicts of interest
will arise as a result of this affiliated relationship.
SHARES ELIGIBLE FOR FUTURE SALE
In the future, NAR will be able to sell shares of Common Stock owned by it
in the open market pursuant to an exemption from registration under the
Securities Act or by causing the Company to file a registration statement with
respect to such shares. NAR has "piggyback" and demand registration rights as
provided in a Registration Rights Agreement between it and the Company. Sales of
substantial amounts of Common Stock in the public market could adversely affect
the market price. NAR has advised the Company that it does not currently intend
to sell any shares of voting stock of the Company owned by it.
UNCERTAIN MARKET FOR RIGHTS; MARKET CONDITIONS; MARKET CONSIDERATIONS
Because the Rights are new securities, the trading market for the Rights
may be volatile. Moreover, there can be no assurance that a market for the
Rights will develop or as to the price at which the Rights will trade.
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<PAGE> 14
The Subscription Price of the Rights has been determined by the Board of
Directors of the Company and represents a discount to the market price of the
Common Stock at the date of this Prospectus. However, there can be no assurance
that the market price for the Common Stock will not decline during the
subscription period or that, following the Expiration Date, a subscribing Rights
holder will be able to sell shares of Common Stock purchased in the Rights
Offering at a price equal to or greater than the Subscription Price. When made,
the election of a Rights holder to exercise Rights in the Rights Offering is
irrevocable. Moreover, until certificates are delivered, subscribing Rights
holders may not be able to sell the Common Stock that they have purchased in the
Rights Offering. Certificates representing shares of Common Stock purchased
pursuant to the Subscription Privilege will be delivered to subscribers as soon
as practicable after the Expiration Date. No interest will be paid to Rights
holders on funds delivered to the Subscription Agent pursuant to the exercise of
Rights pending delivery of shares of Common Stock acquired upon exercise of
Rights.
IMPACT OF RIGHTS OFFERING ON HOLDERS OF COMMON STOCK; DILUTION
The Rights entitle the holders of shares of Common Stock and Convertible
Preferred Stock to purchase shares of Common Stock at a price below the
prevailing market price of the Common Stock immediately prior to the
commencement of the Rights Offering. Holders of shares of Common Stock and
Convertible Preferred Stock who exercise their Rights will preserve their
proportionate interest in their equity ownership and voting power of the Company
on a fully-diluted basis. Holders who do not exercise their Rights will
experience a decrease in their proportionate interest in the equity ownership
and voting power of the Company. The sale of the Rights may not compensate a
holder for all or any part of the reduction in the market value of such
stockholder's shares of Common Stock, if any, resulting from the Rights
Offering. Stockholders who do not exercise or sell their Rights will relinquish
any value inherent in the Rights.
Assuming all of the Rights are exercised and based on 93,590,696 shares of
Common Stock, 78,300 shares of Series A Preferred Stock and 634,900 shares of
Series B Preferred Stock outstanding on July 18, 1996, the consummation of the
Rights Offering would result (on a pro forma basis as of such date) in an
increase of approximately shares of Common Stock. NAR owns
approximately 53% of the Common Stock as of such date on a fully diluted basis.
Assuming that all of the holders of the Rights exercise such Rights and that NAR
exercises the Rights distributed to it, NAR would own approximately 53% of the
Common Stock of the Company after the Rights Offering on a fully diluted basis.
Assuming that no Rights are exercised by the holders thereof but that all the
conditions of the Stand-by Purchase Agreement are satisfied or waived and that
NAR exercises its Rights and purchases all of the Unsubscribed Shares pursuant
to the Standby Purchase Agreement, NAR would own approximately 69% of the Common
Stock after the Rights Offering on a fully diluted basis.
CONSTRUCTIVE DISTRIBUTIONS UNDER THE FEDERAL TAX CODE
The distribution of Rights pursuant to the Rights Offering has been
designed so as not to result in a taxable distribution of property for federal
income tax purposes to the holders of shares of either the Common Stock or the
Convertible Preferred Stock. However, the provisions of the Internal Revenue
Code and the Treasury Regulations issued thereunder relating to the treatment of
distributions such as the Rights Offering are not clear as to certain aspects of
the analysis required to avoid such a taxable distribution, and the tax
consequences of the Rights Offering also may be affected by the occurrence of
future events. Accordingly, counsel to the Company is unable to render an
opinion as to the applicability of such provisions to the Rights Offering. See
"THE RIGHTS OFFERING -- CERTAIN FEDERAL INCOME TAX CONSEQUENCES TO HOLDERS --
Constructive Distributions Under Section 305 of the Code."
USE OF PROCEEDS
The proceeds available to the Company from the Rights Offering, including
NAR's standby purchase commitment, after payment of approximately $1,665,000 of
fees and expenses incurred in connection with the Rights Offering, will be
approximately $48,335,000. The Company intends to use such net proceeds as
follows: (i) to pay approximately $14.2 million of principal and interest on the
9.25% Notes outstanding and owned by IMR, an affiliate of NAR, the Company's
majority shareholder, (ii) to repay the $25 million principal amount outstanding
under the NAR Promissory Note and (iii) to use the balance of the net proceeds
to repay
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<PAGE> 15
amounts outstanding under the Credit Facility with Congress (approximately $18.4
million under the revolving line of credit as of June 29, 1996). It is possible
that if the Company continues to incur losses a portion of the net proceeds of
the Rights Offering may be used to support the Company's operations.
In November 1995, the Company entered into the Credit Facility with
Congress consisting of a three-year revolving line of credit of up to $65
million and two two-year term loans aggregating $10 million. The revolving
facility carries an interest rate of 1.25% above prime and the term loan carries
an interest rate of 1.5% above prime. At March 30, 1996, the Company had
approximately $57.1 million of outstanding borrowings under the revolving line
of credit (including documentary and standby letters of credit) and
approximately $9.7 million outstanding under the term loans. The rates of
interest related to the revolving line of credit and the term loans were 9.50%
and 9.75%, respectively, at March 30, 1996.
In November 1995, IMR, an affiliate of NAR, purchased the 9.25% Notes from
a third party in connection with the refinancing of the Company's indebtedness
under the Credit Facility. Interest on the 9.25% Notes is payable quarterly at a
rate of 9.25% per annum. At March 30, 1996, the Company had $14 million of 9.25%
Notes outstanding and owned by IMR.
On May 31, 1996, the Company executed and delivered the NAR Promissory
Note. As of June 29, 1996, the Company had drawn $25 million thereunder. The NAR
Promissory Note carries an interest rate of 1.5% above prime which is payable
either in cash or shares of Common Stock valued at the Subscription Price, at
NAR's option.
Pending any specific application, the net proceeds will be added to working
capital and invested in short-term interest-bearing obligations.
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CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company at March 30, 1996 and as adjusted to reflect the net proceeds of
approximately $48.3 million from the sale of the 50,000,000 shares of the Common
Stock offered by the Company assuming a Subscription Price of $1.00. See "USE OF
PROCEEDS."
<TABLE>
<CAPTION>
AT MARCH 30, 1996
-------------------------
ACTUAL AS ADJUSTED
--------- -----------
(IN THOUSANDS, EXCEPT PER
SHARE INFORMATION)
<S> <C> <C>
Total debt (includes the current portion of long-term debt of $3.6
million)(a):
Congress Revolving Credit Facility................................. $ 24,103 $ 14,770
Revolving Term Notes............................................... 20,000 20,000
Term Financing Facility............................................ 9,797 9,797
8.76% Mortgage Note Payable due 2003............................... 1,703 1,703
Industrial Revenue Bonds due 2003.................................. 8,000 8,000
6% Mortgage Notes Payable due 1998................................. 3,098 3,098
9.25% Senior Subordinated Notes due 1998........................... 14,000 --
7 1/2% Convertible Subordinated Debentures due 2007................ 751 751
Capital Leases..................................................... 2,761 2,761
Other.............................................................. 19 19
--------- ---------
Total debt................................................. 84,232 60,899
Shareholders' equity:
6% Series A Convertible Additional Preferred Stock, $10 stated
value, authorized 5,000,000 shares; issued 78,300 shares in 1996... 806 806
Series B Convertible Additional Preferred Stock, $.01 par value,
authorized and issued 634,900 shares in 1996....................... 5,606 5,606
Common Stock, $.66 2/3 par value, authorized 150,000,000 shares;
issued 93,757,045 in 1995 and 93,516,651 shares outstanding;
143,757,045 shares issued and 143,516,651 outstanding, as
adjusted(b)(c)....................................................... 62,504 95,171
Capital in excess of par value(c).................................. 255,397 271,730
Accumulated deficit................................................ (240,868) (240,868)
Less:
Treasury stock, at cost (1,157,061 shares at March 30, 1996)....... (3,345) (3,345)
Notes receivable from sale of Common Stock......................... (1,962) (1,962)
Deferred compensation.............................................. (277) (277)
--------- ---------
Total shareholders' equity...................................... 77,861 126,861
--------- ---------
Total capitalization....................................... $ 162,093 $ 187,760
========= =========
</TABLE>
- ---------------
(a) The Company intends to repay approximately $9.3 million of borrowings under
the Credit Facility from Congress with proceeds in excess of the repayment
of $14 million principal amount of 9.25% Notes and the NAR Promissary Note
in the principal amount of $25 million.
(b) Excludes 5,707,233 shares of Common Stock issuable upon exercise of
outstanding options and warrants exercisable within 60 days of July 18,
1996.
(c) The gross proceeds from the Rights Offering are $50 million and the Company
estimates incurring approximately $1.7 million in fees associated with the
filing, resulting in net proceeds of approximately $48.3 million.
15
<PAGE> 17
DIVIDEND POLICY
The Company is restricted from paying dividends on its Common Stock or from
acquiring any of its capital stock by certain debt covenants contained in
agreements to which the Company is a party. Cash dividends have not been paid on
the Common Stock since 1967.
PRICE RANGE OF COMMON STOCK
The Common Stock is traded on the AMEX under the symbol "HNV." The
following table sets forth the high and low sale prices of the Common Stock
reported on the AMEX Composite Tape for the periods shown.
<TABLE>
<CAPTION>
HIGH LOW
----- -----
<S> <C> <C>
1994
First Quarter.............................................. $77/8 $6
Second Quarter............................................. 71/8 315/16
Third Quarter.............................................. 415/16 33/4
Fourth Quarter............................................. 43/8 33/8
1995
First Quarter.............................................. 35/8 21/2
Second Quarter............................................. 31/16 25/16
Third Quarter.............................................. 213/16 115/16
Fourth Quarter............................................. 21/16 11/2
1996
First Quarter.............................................. 113/16 11/8
Second Quarter............................................. 21/16 11/8
</TABLE>
As of July 18, 1996, there were approximately 4,825 holders of record of
the Common Stock. On July 18, 1996, the last reported sale price of the Common
Stock on the AMEX was $ per share.
16
<PAGE> 18
THE RIGHTS OFFERING
THE RIGHTS
The Company is distributing transferable Rights, at no cost, to the record
holders ("Holders") of the Common Stock and Convertible Preferred Stock
outstanding as of the Record Date. The Company will distribute . Rights for
each share of Common Stock held of record on the Record Date, .
Rights for each share of Series A Preferred Stock held of record on the Record
Date and . Rights for each share of Series B Preferred Stock held of record
on the Record Date. The number of Rights distributable for each share of Series
A Preferred Stock and Series B Preferred Stock held on the Record Date was
calculated assuming such shares had been converted into Common Stock on the
Record Date in accordance with the terms thereof. The Rights will be evidenced
by transferable Subscription Certificates. An aggregate of up to approximately
Underlying Shares will be sold upon exercise of the Rights or pursuant to
the Standby Purchase Agreement between the Company and NAR. On Friday, August
23, 1996 (the "Closing Date"), in addition to its exercise of the Rights
distributed to it, NAR shall purchase from the Company all Unsubscribed Shares
pursuant to its standby purchase commitment if the conditions of the Standby
Purchase Agreement are satisfied or waived by NAR. In the event that the
conditions precedent to NAR's obligation to exercise its standby purchase
commitment are not satisfied or otherwise waived by NAR, the Subscription Price
shall be returned to the subscribers as soon as practicable after the Expiration
Date and no Underlying Shares will be sold by the Company. Accordingly, until
the Expiration Date, the Subscription Price shall be held in escrow by the
Subscription Agent pending receipt of notice from the Company that NAR has
elected to purchase the Unsubscribed Shares. See "THE RIGHTS OFFERING -- STANDBY
PURCHASE COMMITMENT."
No fractional Rights or cash in lieu thereof will be issued or paid. The
number of Rights distributed to each Holder will be rounded up to the nearest
whole number. No Subscription Certificate may be divided in such a way as to
permit the holder to receive a greater number of Rights than the number to which
such Subscription Certificate entitles its holder, except that a depositary,
bank, trust company, and securities broker or dealer holding shares of Common
Stock on the Record Date for more than one beneficial owner may by delivering a
written request by 5:00 p.m., New York City time, on Thursday, August 1, 1996
and, upon proper showing to the Subscription Agent, exchange its Subscription
Certificate to obtain a Subscription Certificate for the number of Rights to
which all such beneficial owners in the aggregate would have been entitled had
each been a Holder on the Record Date. The Company reserves the right to refuse
to issue any such Subscription Certificate if such issuance would be
inconsistent with the principle that each beneficial owner's holders will be
rounded up to the nearest whole Right.
Because the number of the Rights distributed to each Holder will be rounded
up to the nearest whole number, beneficial owners of Common Stock who are also
the record holders of such shares will receive more Rights under certain
circumstances than beneficial owners of Common Stock who are not the record
holders of their shares and who do not obtain (or cause the record owner of
their shares of Common Stock to obtain) a separate Subscription Certificate with
respect to the shares beneficially owned by them, including shares held in an
investment advisory or similar account. To the extent that record holders of
Common Stock or beneficial owners of Common Stock who obtain a separate
Subscription Certificate receive more Rights, they will be able to subscribe for
more shares pursuant to the Subscription Privilege.
EXPIRATION DATE
The Rights will expire at 5:00 p.m., New York City time, on the Expiration
Date. After the Expiration Date, unexercised Rights will be null and void. The
Company will not be obligated to honor any purported exercise of Rights received
by the Subscription Agent after the Expiration Date, regardless of when the
documents relating to such exercise were sent, except pursuant to the Guaranteed
Delivery Procedures described below.
17
<PAGE> 19
SUBSCRIPTION PRIVILEGE
Pursuant to the Subscription Privilege, each Right will entitle the holder
thereof to receive, upon payment of the Subscription Price, one share of Common
Stock. Certificates representing shares of Common Stock purchased pursuant to
the Subscription Privilege will be delivered to subscribers as soon as
practicable after the Expiration Date. In the event that the conditions
precedent to NAR's obligation to exercise its standby purchase commitment are
not satisfied or otherwise waived by NAR, the Subscription Price shall be
returned to the subscribers as soon as practicable after the Expiration Date and
no Underlying Shares will be sold by the Company. Accordingly, until the
Expiration Date, the Subscription Price shall be held in escrow by the
Subscription Agent pending receipt of notice from NAR that it has elected to
purchase the Unsubscribed Shares. However, in the event that NAR waives the
conditions precedent that are not satisfied, it will have a purchase commitment
for all of the Unsubscribed Shares. See "THE RIGHTS OFFERING -- STANDBY PURCHASE
COMMITMENT."
EXERCISE OF RIGHTS
Rights may be exercised by delivering to American Stock Transfer & Trust
Company, as the Subscription Agent, on or prior to 5:00 p.m., New York City
time, on the Expiration Date, the properly completed and executed Subscription
Certificate evidencing such Rights with any required signatures guaranteed,
together with payment in full of the Subscription Price for each Underlying
Share subscribed for pursuant to the Subscription Privilege. Such payment in
full must be by (a) check or bank draft drawn upon a U.S. bank or postal,
telegraphic or express money order payable to American Stock Transfer & Trust
Company, as Subscription Agent, or (b) wire transfer of funds to the account
maintained by the Subscription Agent for such purpose at Bank,
Account No. ; ABA No. . The Subscription Price will be
deemed to have been received by the Subscription Agent only upon (i) clearance
of any uncertified check, (ii) receipt by the Subscription Agent of any
certified check or bank draft drawn upon a U.S. bank or any postal, telegraphic
or express money order or (iii) receipt of good funds in the Subscription
Agent's account designated above. If paying by uncertified personal check,
please note that the funds paid thereby may take at least five business days to
clear. Accordingly, holders of Rights who wish to pay the Subscription Price by
means of uncertified personal check are urged to make payment sufficiently in
advance of the Expiration Date to ensure that such payment is received and
clears by such date and are urged to consider payment by means of certified or
cashier's check, money order or wire transfer of funds.
In the event that the conditions precedent to NAR's obligation to exercise
its standby purchase commitment are not satisfied or otherwise waived by NAR,
the Subscription Price shall be returned to the subscribers as soon as
practicable after the Expiration Date and no Underlying Shares will be sold by
the Company. Accordingly, until the Expiration Date, the Subscription Price
shall be held in escrow by the Subscription Agent pending receipt of notice from
the Company that NAR has elected to purchase the Unsubscribed Shares.
The address to which the Subscription Certificates and payment of the
Subscription Price should be delivered is:
AMERICAN STOCK TRANSFER & TRUST COMPANY
<TABLE>
<S> <C> <C>
By Mail: By Facsimile By Hand:
American Stock Transfer & Trust Transmission: American Stock Transfer & Trust
Company (718) 234-5001 Company
40 Wall Street, 46th Floor 40 Wall Street, 46th Floor
New York, New York 10005 New York, New York 10005
</TABLE>
To Confirm Receipt and
For General Information:
(Call Collect)
(212) 936-5100
(718) 921-8200
18
<PAGE> 20
If a Rights holder wishes to exercise Rights, but time will not permit such
holder to cause the Subscription Certificate or Subscription Certificates
evidencing such Rights to reach the Subscription Agent on or prior to the
Expiration Date, such Rights may nevertheless be exercised if all of the
following conditions (the "Guaranteed Delivery Procedures") are met:
(i) such holder has caused payment in full of the Subscription Price
for each Underlying Share being subscribed for pursuant to the Subscription
Privilege to be received (in the manner set forth above) by the
Subscription Agent on or prior to the Expiration Date;
(ii) the Subscription Agent receives, on or prior to the Expiration
Date, a guarantee notice (a "Notice of Guaranteed Delivery"), substantially
in the form provided with the Instruction as to Use of Hanover Direct, Inc.
Subscription Certificates (the "Instructions") distributed with the
Subscription Certificates, from a member firm of a registered national
securities exchange or a member of the National Association of Securities
Dealers, Inc. (the "NASD"), or from a commercial bank or trust company
having an office or correspondent in the United States (each, an "Eligible
Institution"), stating the name of the exercising Rights holder, the number
of Rights represented by the Subscription Certificate or Subscription
Certificates held by such exercising Rights holder, the number of
Underlying Shares being subscribed for pursuant to the Subscription
Privilege, and guaranteeing the delivery to the Subscription Agent of any
Subscription Certificate evidencing such Rights within three American Stock
Exchange trading days following the date of the Notice of Guaranteed
Delivery; and
(iii) the properly completed Subscription Certificate or Subscription
Certificates evidencing the Rights being exercised, with any required
signatures guaranteed, is received by the Subscription Agent within three
American Stock Exchange trading days following the date of the Notice of
Guaranteed Delivery relating thereto. The Notice of Guaranteed Delivery may
be delivered to the Subscription Agent in the same manner as Subscription
Certificates at the addresses set forth above, or may be transmitted to the
Subscription Agent by telegram or facsimile transmission (telecopy no.
(718) 236-4588 or (718) 234-5001). Additional copies of the form of Notice
of Guaranteed Delivery are available upon request from the Information
Agent, whose address and telephone numbers are set forth under "INFORMATION
AGENT."
Unless a Subscription Certificate (i) provides that the shares of Common
Stock to be issued pursuant to the exercise of Rights represented thereby are to
be delivered to the holder of such Rights or (ii) is submitted for the account
of an Eligible Institution, signatures on such Subscription Certificate must be
guaranteed by an Eligible Institution.
Holders who hold shares of Common Stock for the account of others, such as
brokers, trustees or depositaries for securities, should notify the respective
beneficial owners of such shares as soon as possible to ascertain such
beneficial owners' intentions and to obtain instructions with respect to the
Rights. If the beneficial owner so instructs, the record holder of such Right
should complete Subscription Certificates and submit them to the Subscription
Agent with the proper payment. In addition, beneficial owners of Common Stock or
Rights held through such a holder should contact the holder and request the
holder to effect transactions in accordance with the beneficial owner's
instructions.
The instructions accompanying the Subscription Certificates should be read
carefully and followed in detail. DO NOT SEND SUBSCRIPTION CERTIFICATES TO THE
COMPANY.
THE METHOD OF DELIVERY OF SUBSCRIPTION CERTIFICATES AND PAYMENT OF THE
SUBSCRIPTION PRICE TO THE SUBSCRIPTION AGENT WILL BE AT THE ELECTION AND RISK OF
THE RIGHTS HOLDERS, BUT IF SENT BY MAIL IT IS RECOMMENDED THAT SUCH CERTIFICATES
AND PAYMENTS BE SENT BY REGISTERED MAIL, PROPERLY INSURED, WITH RETURN RECEIPT
REQUESTED, AND THAT A SUFFICIENT NUMBER OF DAYS BE ALLOWED TO ENSURE DELIVERY TO
THE SUBSCRIPTION AGENT AND CLEARANCE OF PAYMENT PRIOR TO 5:00 P.M., NEW YORK
CITY TIME, ON THE EXPIRATION DATE. BECAUSE UNCERTIFIED PERSONAL CHECKS MAY TAKE
AT LEAST FIVE BUSINESS DAYS
19
<PAGE> 21
TO CLEAR, YOU ARE STRONGLY URGED TO PAY, OR ARRANGE FOR PAYMENT, BY MEANS OF
CERTIFIED OR CASHIER'S CHECK, MONEY ORDER OR WIRE TRANSFER OF FUNDS.
All questions concerning the timeliness, validity, form and eligibility of
any exercise of Rights will be determined by the Company, whose determinations
will be final and binding. The Company in its sole discretion may waive any
defect or irregularity, or permit a defect or irregularity to be corrected
within such time as it may determine, or reject the purported exercise of any
Right. Subscriptions will not be deemed to have been received or accepted until
all irregularities have been waived or cured within such time as the Company
determines in its sole discretion. Neither the Company nor the Subscription
Agent will be under any duty to give notification of any defect or irregularity
in connection with the submission of Subscription Certificates or incur any
liability for failure to give such notification.
Any questions or requests for assistance concerning the method of
exercising Rights or requests for additional copies of this Prospectus, the
Instructions or the Notice of Guaranteed Delivery should be directed to the
Information Agent, Morrow & Co., Inc. at its address set forth under
"Information Agent" (telephone (800) 533-7254).
NO REVOCATION
ONCE A HOLDER OF RIGHTS HAS EXERCISED THE SUBSCRIPTION PRIVILEGE, SUCH
EXERCISE MAY NOT BE REVOKED.
METHOD OF TRANSFERRING RIGHTS
Rights may be purchased or sold through usual investment channels,
including banks and brokers. The Rights may be traded on the AMEX and in the
over-the-counter market. It is anticipated that the Rights will trade on a "when
issued" basis up to and including the AMEX trading day immediately following the
Record Date.
The Rights evidenced by a single Subscription Certificate may be
transferred in whole by endorsing the Subscription Certificate for transfer in
accordance with the accompanying Instructions. A portion of the Rights evidenced
by a single Subscription Certificate (but not fractional Rights) may be
transferred by delivering to the Subscription Agent a Subscription Certificate
properly endorsed for transfer, with instructions to register such portion of
the Rights evidenced thereby in the name of the transferee (and to issue a new
Subscription Certificate to the transferee evidencing such transferred Rights).
In such event, a new Subscription Certificate evidencing the balance of the
Rights will be issued to the Rights holder or, if the Rights holder so
instructs, to an additional transferee.
The Rights evidenced by a Subscription Certificate also may be sold, in
whole or in part, through the Subscription Agent by delivering to the
Subscription Agent such Subscription Certificate properly executed for sale by
the Subscription Agent. If only a portion of the Rights evidenced by a single
Subscription Certificate are to be sold by the Subscription Agent, such
Subscription Certificate must be accompanied by instructions setting forth the
action to be taken with respect to the Rights that are not to be sold. Promptly
following the Expiration Date, the Subscription Agent will send the Rights
holder a check for the net proceeds from the sale of any Rights sold. If the
Rights can be sold, sales of such Rights will be deemed to have been effected at
the weighted average price received by the Subscription Agent for the sale of
all Rights through the Subscription Agent, less any applicable brokerage
commissions, taxes and other direct expenses of sale. The Company will pay the
fees charged by the Subscription Agent for effecting such sales. Orders to sell
Rights must be received by the Subscription Agent prior to 11:00 a.m., New York
City time, on Tuesday, August 13, 1996 and the Subscription Agent's obligation
to execute orders is subject to its ability to find buyers.
Holders wishing to transfer all or a portion of their Rights (but not
fractional Rights) should allow a sufficient amount of time prior to the
Expiration Date for (i) the transfer instructions to be received and processed
by the Subscription Agent, (ii) a new Subscription Certificate to be issued and
transmitted to the transferee or transferees with respect to transferred Rights,
and to the transferor with respect to retained Rights, if any, and (iii) the
Rights evidenced by such new Subscription Certificates to be exercised or sold
by
20
<PAGE> 22
the recipients thereof. Neither the Company nor the Subscription Agent shall
have any liability to a transferee or transferor of Rights if Subscription
Certificates are not received in time for exercise or sale prior to the
Expiration Date.
Except for the fees charged by the Subscription Agent (which will be paid
by the Company as described above), all commissions, fees and other expenses
(including brokerage commissions and transfer taxes) incurred in connection with
the purchase, sale or exercise of Rights will be for the account of the
transferor of the Rights, and none of such commissions, fees or expenses will be
paid by the Company or the Subscription Agent.
The Company anticipates that the Rights will be eligible for transfer
through, and that the exercise of the Subscription Privilege may be effected
through, the facilities of the Depository Trust Company.
LISTING AND TRADING
The outstanding shares of Common Stock are listed and traded on the AMEX.
It is anticipated that the Rights will trade on the AMEX and in the
over-the-counter market. There can be no assurance, however, that a market for
the Rights will develop or as to the price at which the Rights will trade. The
Company has applied for the listing of the Underlying Shares on the AMEX.
FOREIGN AND CERTAIN OTHER SHAREHOLDERS
Subscription Certificates will not be mailed to Holders whose addresses are
outside the United States but will be held by the Subscription Agent for their
account. To exercise such Rights, such Holders must notify the Subscription
Agent on or prior to 11:00 a.m., New York City time, on Tuesday, August 13,
1996, at which time (if no instructions have been received) the Rights
represented thereby will be sold, if feasible, and the net proceeds, if any,
remitted to such Holders. If the Rights can be sold, sales of such Rights will
be deemed to have been effected at the weighted average price received by the
Subscription Agent for the sale of all Rights through the Subscription Agent,
less any applicable brokerage commissions, taxes and other expenses.
STANDBY PURCHASE COMMITMENT
The Company and NAR have entered into the Standby Purchase Agreement,
pursuant to which NAR will be required, subject to the fulfillment of various
terms and conditions thereof, to purchase all Unsubscribed Shares. In the event
that the conditions contained in the Standby Purchase Agreement are not met by
the Company and are not waived by NAR, the obligation of NAR to purchase any
Unsubscribed Shares may be cancelled upon notice by NAR. In the event that the
conditions contained in the Standby Purchase Agreement are not met by the
Company and are not waived by NAR, the Subscription Price shall be returned to
the subscribers as soon as practicable after the Expiration Date and no
Underlying Shares will be sold by the Company. Although the Company believes
that NAR would waive the non-occurrence of any of the conditions, if NAR does
not do so the cancellation by NAR of its obligation to purchase any Unsubscribed
Shares would have an adverse effect on the Company's financial condition and, in
such event, it is possible that the Company may need to seek protection under
applicable insolvency laws. If all of the Rights are exercised, NAR will not be
required to purchase any of the Common Stock issuable upon the exercise of the
Rights. The summary of the Standby Purchase Agreement contained herein discusses
all the material terms of such agreement, but is qualified in its entirety by
reference to the specific provisions of the Standby Purchase Agreement, a copy
of which is on file with the Commission. See "AVAILABLE INFORMATION."
As compensation to NAR for its commitment under the Standby Purchase
Agreement, the Company has agreed to pay to NAR, on the Closing Date or at such
other time and date as NAR and the Company may agree in writing, an amount equal
to 1% (the "Standby Fee") in respect of the aggregate offering price of the
aggregate number of shares of Common Stock issuable upon exercise of the Rights
granted to holders of Common Stock and Convertible Preferred Stock plus an
additional amount equal to 4% of the aggregate offering price (the "Take-Up
Fee") in respect of all shares of Common Stock, if any, purchased by NAR
pursuant to its commitment thereunder; provided, however, that the Company shall
pay to NAR, on the Closing Date, the Standby Fee and, if any, the Take-Up Fee in
cash or shares of Common Stock (with each
21
<PAGE> 23
such share being attributed a value equal to the Subscription Price by the
parties thereto), or any combination of cash and shares of Common Stock as NAR
shall decide in its sole discretion. NAR has not yet decided how it will take
such fees. NAR shall communicate its election to receive the Standby Fee and, if
any, the Take-Up Fee in cash or shares of Common Stock or combinations of both
by delivering a signed writing evidencing such election to the Company on the
Closing Date. Notwithstanding the foregoing, NAR shall not be entitled to a
Standby Fee with respect to the shares of Common Stock issuable upon exercise of
the Rights with respect to the shares of Common Stock owned beneficially by
Theodore H. Kruttschnitt as of July 18, 1996 if (i) at the time of the execution
of the Standby Purchase Agreement, he has furnished to NAR an undertaking to
exercise the Rights distributed to him with respect to such shares of Common
Stock and (ii) upon the closing of the Rights Offering, Mr. Kruttschnitt
purchases the shares of Common Stock which he undertakes to purchase. Mr.
Kruttschnitt [furnished] [did not furnish] such an undertaking [on July ,
1996]. As additional compensation to NAR for its commitment under the Standby
Purchase Agreement, the Company has agreed to amend all warrants to purchase
shares of Common Stock held by NAR and its affiliate to permit a "net-issue"
exercise. As of March 30, 1996, NAR and its affiliates owned warrants to
purchase an aggregate of 5,033,735 shares of Common Stock at exercise prices
ranging from $2.19 to $2.91 per share expiring on August 1, 1998. The number of
shares for which the warrants may be exercised and the exercise prices thereof
will be adjusted as a result of the Rights Offering pursuant to the
anti-dilution provisions of such warrants.
The Company has agreed that except as otherwise contemplated in this
Prospectus, it will not, prior to October 17, 1996, sell or otherwise dispose of
any shares of Common Stock or securities convertible into or exchangeable or
exercisable for shares of Common Stock pursuant to a registration statement
filed after the date hereof with the Commission pursuant to the Securities Act
without the prior written consent of NAR.
The Standby Purchase Agreement provides that the Company will indemnify NAR
against certain liabilities incurred in connection with the Rights Offering,
including liabilities under the Securities Act, or contribute to payments NAR
may be required to make in respect thereof.
The obligation of NAR under the Standby Purchase Agreement to purchase
Unsubscribed Shares is subject to the following conditions, among others: that
the Registration Statement of which this Prospectus is a part shall have been
declared effective, and that no stop order with respect thereto shall have been
issued; that the Company shall have commenced mailing the Subscription
Certificates to record holders of the Common Stock and Convertible Preferred
Stock not later than the day following the Record Date and shall have completed
such mailing expeditiously, and shall have offered the Common Stock for
subscription in accordance with the terms and under the conditions set forth in
this Prospectus; that the Company shall have advised NAR daily during the period
when the Rights are exercisable of the number of shares of Common Stock
subscribed for, and prior to 12:00 Noon, New York City time, on the business day
following the Expiration Date, shall have advised NAR of the number of the
shares of Common Stock subscribed for and of the number of Unsubscribed Shares;
that the Company shall not have experienced any material adverse change in its
business (including the results of operations or management) or properties and
that the Company affirm as correct certain representations and warranties made
to NAR. In addition, NAR in its absolute discretion may elect to terminate its
obligations under the Standby Purchase Agreement if trading in the Common Stock
has been suspended by the Commission or the AMEX or trading in securities
generally on the AMEX has been suspended, limited or subject to the
establishment of minimum prices.
The issuance of Common Stock upon the exercise of Rights to holders of
shares of Common Stock and Convertible Preferred Stock to which Rights have been
granted is contingent upon the consummation of the purchase by NAR of the
Unsubscribed Shares. In the event that the conditions precedent to NAR's
obligations to exercise its standby purchase commitment are not satisfied or
otherwise waived by NAR, all amounts paid by subscribers upon exercise of Rights
shall be returned to such subscribers as soon as practicable after the
Expiration Date and no Underlying Shares will be sold by the Company.
Accordingly, until the Expiration Date, the Subscription Price shall be held in
escrow by the Subscription Agent pending receipt of notice from the Company that
NAR has elected to purchase the Unsubscribed Shares. However, in the event that
NAR waives the conditions precedent that are not satisfied, it will have a
purchase commitment for all of the Unsubscribed Shares.
22
<PAGE> 24
CERTAIN FEDERAL INCOME TAX CONSEQUENCES TO HOLDERS
Whitman Breed Abbott & Morgan, counsel to the Company, has advised the
Company that the following summary reflects their opinion as to the material
United States federal income tax considerations applicable to Holders upon the
distribution of the Rights, and to holders of Rights upon their exercise and
disposition. Holders should be aware that certain of the federal income tax
consequences relevant to the Holders are unclear under existing law or are
dependent on factual considerations that cannot currently be determined and
counsel have not rendered an opinion with respect to such consequences. An
opinion of counsel represents the legal judgment of such counsel and is not
binding on the Internal Revenue Service. There can be no assurance that the
Internal Revenue Service will take a similar view as to any of the tax
consequences described below. No ruling has been or will be requested from the
Internal Revenue Service on any tax matters relating to the Rights Offering or
the ownership or disposition of the Common Stock.
This summary is based upon the provisions of the Code, the regulations,
administrative rulings and judicial decisions now in effect, all of which are
subject to change (possibly with retroactive effect) or different
interpretations. This summary does not purport to deal with all aspects of
federal income taxation that may be relevant to a particular Holder or to
certain types of Holders subject to special treatment under the federal income
tax laws (for example, banks, dealers in securities, life insurance companies,
tax exempt organizations and foreign taxpayers), nor does it discuss any aspect
of state, local or foreign tax laws. Foreign persons should see "THE RIGHTS
OFFERING -- CERTAIN UNITED STATES TAX CONSEQUENCES TO NON-UNITED STATES HOLDERS"
below. Furthermore, this summary is limited to persons that have held the Common
Stock or Convertible Preferred Stock, as applicable, as capital assets
(generally, property held for investment) within the meaning of Section 1221 of
the Code. This discussion is not intended as tax advice to the Holders. Holders
are advised to consult their own tax advisors with respect to the consequences
to them of the Rights Offering to their own particular tax situations.
Distribution of the Rights. Subject to the discussions in "Constructive
Distributions Under Section 305 of the Code," below, Holders will not recognize
taxable income, for federal income tax purposes, in connection with the
distribution of the Rights.
Basis and Holding Period of the Rights. Except as provided in the
following sentence, the basis of the Rights received by a Holder as a
distribution with respect to such Holder's Common Stock or Convertible Preferred
Stock, as applicable, will be zero. If either (i) the fair market value of the
Rights on the date of issuance is 15% or more of the fair market value (on the
date of issuance) of the Common Stock or Convertible Preferred Stock, as
applicable, with respect to which they are received or (ii) the Holder elects,
in such Holder's federal income tax return for the taxable year in which the
Rights are received, to allocate part of the basis of such Common Stock or
Convertible Preferred Stock, as applicable, to the Rights, then upon exercise or
transfer of the Rights, the Holder's basis in such Common Stock or Convertible
Preferred Stock, as applicable, will be allocated between the Common Stock or
Convertible Preferred Stock, as applicable, and the Rights in proportion to the
fair market values of each on the date of distribution. The holding period of a
Holder with respect to the Rights received as a distribution on such Holder's
Common Stock or Convertible Preferred Stock, as applicable, will include the
Holder's holding period for the Common Stock or Convertible Preferred Stock, as
applicable, with respect to which the Rights were distributed. In the case of a
purchaser of Rights, the tax basis of such Rights will be equal to the purchase
price paid therefor and the holding period for such Rights will commence on the
day following the date of the purchase.
Transfer of the Rights. A Holder who sells the Rights received in the
distribution prior to exercise will recognize gain or loss equal to the
difference between the sale proceeds and such Holder's basis (if any) in the
Rights sold. Such gain or loss will be capital gain or loss if gain or loss from
a sale of Common Stock or Convertible Preferred Stock, as applicable, held by
such Holder would be characterized as capital gain or loss at the time of such
sale, and will be long term capital gain or loss if the holding period for the
Rights disposed of is more than one year and short term capital gain or loss if
such holding period is one year or less. Any gain or loss recognized on a sale
of Rights acquired by purchase will be short term capital gain or loss if Common
Stock acquired through exercise of such Rights would be a capital asset in the
hands of the seller (if acquired by him).
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<PAGE> 25
Lapse of the Rights. Holders who allow the Rights distributed to them to
lapse will not recognize any gain or loss, and no adjustment will be made to the
basis of the Common Stock owned by such Holders. Purchasers of the Rights will
be entitled to a loss equal to their tax basis in the Rights if such Rights
expire unexercised. Any loss recognized on the expiration of Rights acquired by
purchase will be a short term capital loss if Common Stock acquired through
exercise of such Rights would be a capital asset in the hands of the seller (if
acquired by him).
Exercise of the Rights; Basis and Holding Period of Common Stock. Holders
of Rights will not recognize gain or loss upon the exercise of such Rights. The
basis of the Common Stock acquired through exercise of the Rights will be equal
to the sum of the Subscription Price therefor and the Rights holder's basis in
such Rights (if any). The holding period for the Common Stock acquired through
exercise of the Rights will begin on the date the Rights are exercised.
Constructive Distributions Under Section 305 of the Code. Section 305 of
the Code provides, as a general rule, that a distribution of rights to acquire
stock of a corporation made by such corporation to its shareholders with respect
to its stock is not a taxable event. However, there are a number of exceptions
to this general rule, and a distribution of rights that falls within any one of
such exceptions is treated as "a distribution of property to which section 301
applies."
Under one of the relevant exceptions, a distribution of stock or stock
rights will be treated as a distribution of property to which section 301
applies if it constitutes a "disproportionate distribution" with respect to any
class or classes of stock or convertible debt of the corporation. A distribution
of stock or stock rights constitutes a "disproportionate distribution" if it is
a part of a distribution or a series of distributions (including deemed
distributions) that has the effect of (i) the receipt of property (including
cash) by some shareholders and (ii) an increase in the proportionate interests
of other shareholders in the assets or earnings and profits of the distributing
corporation. For this purpose, cash dividends paid with respect to stock and
debt service payments made with respect to convertible securities (which are
treated for this purpose as outstanding stock) may constitute the requisite
"receipt of property" by some shareholders irrespective of whether such
dividends or payments are related to the distribution of stock or stock rights.
Further, a distribution of stock or stock rights that does not maintain the
proportionate interests of the various classes of stock and securities
(including any conversion rights relating thereto) of the distributing company
may constitute the requisite increase in the proportionate interests in the
assets or earnings and profits of the shareholders receiving the distribution of
stock or stock rights.
Under a second relevant exception, a distribution of stock or stock rights
by a corporation with respect to its preferred stock generally will be treated
as a distribution of property to which section 301 applies unless the
distribution is made with respect to convertible preferred stock to take into
account a stock dividend, stock split or any similar event (including the sale
of stock at less than fair market value pursuant to a rights offering) that
would otherwise result in the dilution of the conversion right.
The Company has represented that the number and proportion of Rights to be
distributed to the holders of Common and Convertible Preferred Stock have been
calculated in a manner designed to maintain the relative interests of such
Holders in the assets and earnings and profits of the Company. The Company has
further represented that the number of Rights to be distributed to the holders
of Convertible Preferred Stock (which Convertible Preferred Stock currently does
not contain anti-dilution provisions) has been calculated in a manner designed
solely to prevent the dilution of the conversion rights of such holders.
Accordingly, the distribution of Rights pursuant to the Rights Offering has been
designed so as not to be subject to tax pursuant to section 305. However,
section 305 and the Treasury Regulations thereunder are not clear as to the
methodology to be used in calculating the number of proportion of rights to be
issued with respect to convertible stock or securities in order to protect the
holders thereof from dilution in the event of a rights offering, and the
Internal Revenue Service could take the position that the number of Rights
distributed to the holders of Convertible Preferred Stock is more or less than
is required merely to protect such Holders from dilution.
If the number of Rights distributed to the Holders of Convertible Preferred
Stock ultimately is determined to have been more than is required to protect
such Holders from dilution, all or a portion of such
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<PAGE> 26
distribution could be treated as a distribution of property to such Holders to
which section 301 applies. If the number of Rights distributed to the holders of
Convertible Preferred Stock ultimately is determined to have been less than is
required to protect such Holders from dilution, there could be a deemed
"disproportionate distribution" to the holders of Common Stock to the extend of
such shortfall. Furthermore, future events, such as distributions of stock,
stock rights or property (including cash), by the Company, which cannot now be
determined, could affect the tax consequences of the Rights Offering. Because
the law is unclear in this area and because future events, which cannot now be
determined, could affect the tax consequences of the Rights Offering under
section 305, counsel is unable to render an opinion as to the applicability of
section 305 to the Rights Offering.
If the Rights Offering were to result in a distribution of property to
which section 301 applies under one of the above-described exceptions, such
distribution would be treated as a dividend to the extent of the Company's
current or accumulated earnings and profits. Any excess of the distributed
amount over such current and accumulated earnings and profits would be treated
as a tax-free return of capital to the extent of the recipient's basis in the
stock to which such distribution is attributable, and then as an amount received
in exchange for such stock.
The Company believes that it had a deficit in both current and accumulated
earnings and profits as of the close of its taxable year ended December 30, 1995
and for the first quarter of 1996. The amount of earnings and profits, if any,
that the Company will earn during 1996 will depend on its future actions and
financial performance and cannot currently be determined. However, based upon
the Company's current projections, it is not anticipated that the Company will
have any current or accumulated earnings and profits for its 1996 tax year. In
such case the Rights Offering would not result in any dividend income to the
holders of Common or Convertible Preferred Stock even if the Rights Offering
ultimately is determined to have resulted in a distribution of property to which
section 301 applies.
If the Company were to generate current earnings and profits for 1996 and
the Rights Offering were treated as a distribution of property to which section
301 applies under one of the above-described exceptions, a Holder might
ultimately be treated as having received a constructive dividend pursuant to
section 305 of the Code as a result of the Rights Offering equal to the lesser
of the value of the distribution and such Holder's share of the current and
accumulated earnings and profits of the Company. Subject to certain holding
period and taxable income requirements imposed by the Code, an actual or
constructive distribution to a corporate Holder resulting from the Rights
Offering that is treated as a dividend may qualify for the dividends received
deduction available under section 246 of the Code. Corporate Holders claiming
such a dividends received deduction are advised to consult with their tax
advisors as to the potential applicability of Section 1059 to such deduction.
Whether or not the Company has current or accumulated earnings and profits,
in the event that the Rights Offering is treated as a distribution to which
section 301 applies, Holders would receive a basis in the Rights received or
other property deemed distributed equal to the amount of such distribution.
EACH HOLDER IS URGED TO CONSULT WITH SUCH HOLDER'S OWN TAX ADVISOR WITH
RESPECT TO THE TAX CONSEQUENCES OF THE RIGHTS OFFERING TO SUCH HOLDER'S OWN
PARTICULAR TAX SITUATION, INCLUDING THE APPLICATION AND EFFECT OF STATE AND
LOCAL INCOME AND OTHER TAX LAWS.
FEDERAL INCOME TAX CONSEQUENCES OF RIGHTS OFFERING TO THE COMPANY
The Company will not recognize gain or loss on either the distribution or
the exercise or lapse of the Rights.
CERTAIN UNITED STATES TAX CONSEQUENCES TO NON-UNITED STATES HOLDERS
The following summary describes the material United States federal tax
consequences of the distribution, exercise and disposition of the Rights, and
the ownership and disposition of Common Stock acquired upon exercise thereof, by
a person (a "non-U.S. holder") who, for United States federal income tax
purposes, is a
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<PAGE> 27
nonresident alien individual, a foreign corporation, foreign partnership, or
foreign estate or trust, as such terms are defined in the Code. This summary
does not discuss all aspects of federal taxation that may be relevant to a
particular non-U.S. holder, nor does it consider specific facts and
circumstances that may be relevant to a particular non-U.S. holder's tax
position.
Issuance or Exercise of the Rights. Subject to the possible application of
Section 305 of the Code (see "THE RIGHTS OFFERING -- CERTAIN FEDERAL INCOME TAX
CONSEQUENCES TO HOLDERS -- Constructive Distributions Under Section 305 of the
Code," above), which could cause the Rights Offering to result in the
constructive receipt of dividends (which would be taxable as described in
"Dividends on Common Stock," below) or of an amount received in exchange for the
Common Stock (which would be taxable as described in "Disposition of Rights or
Common Stock," below), non-U.S. holders of Common Stock will not recognize
taxable income, for United States federal income tax purposes, and will not be
subject to withholding of United States federal income tax, in connection with
the receipt or exercise of the Rights.
Disposition of Rights or Common Stock. A non-U.S. Holder generally will
not be subject to United States federal income tax with respect to gain
recognized on the disposition of the Rights or Common Stock acquired upon
exercise thereof unless (i) the gain is effectively connected with a trade or
business of the non-U.S. Holder in the United States, (ii) in the case of a
non-U.S. Holder who is a nonresident alien individual and holds either the
Rights or such Common Stock as a capital asset, such Holder is present in the
United States for 183 or more days in the taxable year of sale, (iii) the
non-U.S. Holder has owned, directly or by attribution, more than 5% of the
Rights or the Common Stock at any time during the five-year period ending on the
date of disposition of such interest and the Rights or such Common Stock, as the
case may be, is, at the time of disposition, a United States real property
interest within the meaning of Section 897(c)(1) of the Code or (iv) a non-U.S.
Holder is subject to tax pursuant to certain provisions of the Code applicable
to expatriates.
Dividends on Common Stock. Dividends paid to a non-U.S. Holder of Common
Stock or Convertible Preferred Stock, as applicable, will be subject to
withholding of United States federal income tax at a 30% rate or such lower rate
as may be specified by an applicable income tax treaty, unless the dividends are
effectively connected with the conduct of a trade or business of the non-U.S.
Holder within the United States. In order to claim the benefit of an applicable
tax treaty rate, a non-U.S. Holder may have to file with the Company or its
dividend paying agent an exemption or reduced treaty rate certificate or letter
in accordance with the terms of such treaty.
Dividends received by a non-U.S. Holder that are effectively connected with
the conduct of a trade or business of a non-U.S. holder within the United States
are exempt from the withholding tax described above. A non-U.S. holder may claim
this exemption by filing Form 4224 (Exemption from Withholding of Tax on Income
Effectively Connected with the Conduct of Trade or Business in the United
States) with the Company or its dividend paying agent. Dividends that are
effectively connected with the conduct of a trade or business within the United
States (after reduction by certain deductions) are generally taxed regular
United States federal income tax rate and, in the case of foreign corporations,
may also be subject to an additional U.S. branch profits tax of 30% (or lower
applicable treaty rate).
Federal Estate Taxes. Common Stock held by an individual non-U.S. Holder
at the time of death will be included in such Holder's gross estate for United
States federal estate tax purposes, unless an applicable estate tax treaty
provides otherwise.
U.S. Information Reporting Requirements and Backup Withholding. Under
temporary United States Treasury Regulations, United States information
reporting requirements and backup withholding tax will not apply to dividends
paid on Common Stock to a non-U.S. holder at an address outside the United
States. Payment by a United States office of a broker of the proceeds of a sale
of the Rights or Common Stock acquired through exercise thereof is subject to
both information reporting and backup withholding at a rate of 31% unless the
Holder certifies its non-U.S. status under penalties of perjury or otherwise
establishes an exemption. Information reporting requirements (but not backup
withholding) will also apply to a payment of the proceeds of a sale of the
Rights or such Common Stock by a foreign office of a United States broker, or
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<PAGE> 28
certain foreign brokers, unless the broker has documentary evidence in its
records that the Holder is a non-U.S. holder and certain other conditions are
met, or the Holder otherwise establishes an exemption.
The Internal Revenue Service has issued proposed regulations which, if they
become final, would impose new information reporting and certification
requirements and possible backup withholding on payments of dividends to
non-U.S. Holders. The new rules would be applicable to payments of dividends
made after 1997 and current law would remain in effect until then. Non-U.S.
holders should consult with their tax advisers as to compliance with the new
rules so as to avoid possible information reporting and backup withholding on
dividend payments after 1997.
A non-U.S. Holder may obtain a refund of any amounts withheld under the
backup withholding rules by filing the appropriate claim for refund with the
United States Revenue Service.
EACH NON-U.S. HOLDER IS URGED TO CONSULT WITH SUCH NON-U.S. HOLDER'S OWN
TAX ADVISOR WITH RESPECT TO THE TAX CONSEQUENCES OF THE RIGHTS OFFERING TO SUCH
NON-U.S. HOLDER'S OWN PARTICULAR TAX SITUATION, INCLUDING THE APPLICATION AND
EFFECT OF STATE, LOCAL AND FOREIGN INCOME AND OTHER TAX LAWS.
DESCRIPTION OF COMMON STOCK
For a description of the Common Stock, see "DESCRIPTION OF CAPITAL STOCK."
SUBSCRIPTION AGENT
The Company has appointed American Stock Transfer & Trust Company as
Subscription Agent for the Rights Offering. The Subscription Agent's address,
which is the address to which the Subscription Certificates and payment of the
Subscription Price should be delivered, as well as the address to which the
Notice of Guaranteed Delivery must be delivered, is:
AMERICAN STOCK TRANSFER & TRUST COMPANY
<TABLE>
<S> <C> <C>
By Mail: By Facsimile Transmission: By Hand:
American Stock Transfer & Trust (718) 234-5001 American Stock Transfer & Trust
Company Company
40 Wall Street, 46th Floor 40 Wall Street, 46th Floor
New York, New York 10005 New York, New York 10005
To Confirm Receipt and
For General Information:
(212) 936-5100
(718) 921-8200
</TABLE>
The Company will pay the fees and expenses of the Subscription Agent, and has
also agreed to indemnify the Subscription Agent from any liability which it may
incur in connection with the Rights Offering. The Company has been informed by
the Subscription Agent that it is a bank within the meaning of Section 3(a)(6)
of the Exchange Act.
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<PAGE> 29
INFORMATION AGENT
The Company has appointed Morrow & Co., Inc. as Information Agent for the
Rights Offering. Any questions or requests for additional copies of this
Prospectus, the Instructions or the Rights Offering Notice of Guaranteed
Delivery may be directed to the Information Agent at the telephone numbers and
address below.
MORROW & CO., INC.
909 Third Avenue
20th Floor
New York, NY 10022
(212) 754-8000
TOLL-FREE 1-800-566-9061
Banks and brokerage firms please call 1-800-662-5200
The Company will pay the fees and expenses of the Information Agent and has also
agreed to indemnify the Information Agent from certain liabilities which it may
incur in connection with the Rights Offering.
DESCRIPTION OF CAPITAL STOCK
The following general summary of the material terms of the capital stock of
the Company does not purport to be complete and is subject to, and qualified in
its entirety by reference to, the pertinent portions of the Company's
Certificate of Incorporation.
GENERAL
The authorized capital stock of the Company consists of 150,000,000 shares
of Common Stock, 12,270,503 shares of Class B Common Stock, par value $.01 per
share (the "Class B Common Stock"), 40,000 shares of Class B 8% Cumulative
Preferred Stock, par value $.01 and stated value $1,000 per share (the "Class B
Preferred"), 861,900 shares of 7.5% Cumulative Convertible Preferred Stock, par
value $.01 and stated value $20 per share (the "7.5% Preferred"), 234,900 shares
of Series A Preferred Stock, 634,900 shares of Series B Preferred Stock and
5,000,000 shares of Additional Preferred Stock, par value $.01 per share (the
"Additional Preferred"). As of July 18, 1996, there were 93,590,696 shares of
Common Stock, 78,300 shares of Series A Preferred Stock and 634,900 shares of
Series B Preferred Stock outstanding.
COMMON STOCK
General. There are no redemption or sinking fund provisions applicable to
the shares of Common Stock and such shares are not entitled to any preemptive
rights.
Voting. Each holder of Common Stock is entitled to one vote for each share
registered in the holder's name on the books of the Company. Since none of the
shares of Common Stock has cumulative voting rights, the holders of more than
50% of the shares can elect all the Directors of the Company in each class of
Directors, if they so choose, and, in that event, the holders of the remaining
shares will not be able to elect any of the Directors. See "RISK
FACTORS -- RELATIONSHIP WITH NAR."
Dividends. Subject to the prior rights of holders of any then issued and
outstanding preferred stock, the holders of Common Stock are entitled to receive
such dividends as may be declared from time to time by the Board of Directors of
the Company from the assets of the Company which are legally available therefor.
The Company is restricted from paying dividends on its Common Stock by certain
debt covenants contained in agreements to which the Company is a party. See
"DIVIDEND POLICY."
Liquidation. Upon the liquidation, dissolution or winding-up of the
Company, holders of Common Stock are entitled to receive, pro rata, after the
prior rights of creditors and holders of any preferred stock have been
satisfied, all the remaining assets of the Company available for distribution.
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<PAGE> 30
Transfer Agent and Registrar. American Stock Transfer & Trust Company is
the Transfer Agent and Registrar for the Common Stock.
ADDITIONAL PREFERRED
Additional Preferred may be issued at such times, to such persons and for
such consideration as the Board of Directors may determine to be in the
Company's best interest without (except as otherwise required by law) further
authority from the shareholders. Such shares of authorized and unissued
Additional Preferred may be issued with such designations, voting powers,
preferences and relative, participating, optional or other special rights, and
qualifications, limitations and restrictions of such rights, as the Company's
Board of Directors may authorize, including but not limited to: (i) the
distinctive designation of each series and the number of shares that will
constitute such series; (ii) the voting rights, if any, of shares of such
series; (iii) the dividend rate on the shares of such series, any restriction,
limitation or condition upon the payment of such dividends, whether dividends
shall be cumulative and the dates on which dividends are payable; (iv) the
prices at which, and the terms and conditions on which, the shares of such
series may be redeemed, if such shares are redeemable; (v) the purchase or
sinking fund provisions, if any, for the purchase or redemption of shares of
such series; (vi) any preferential amount payable upon shares of such series in
the event of the liquidation, dissolution or winding-up of the Company or the
distribution of its assets; and (vii) the prices or rates of conversion at
which, and the terms and conditions on which, the shares of such series may be
converted into other securities, if such shares are convertible.
SERIES A PREFERRED STOCK
Dividends. The holders of record of shares of Series A Preferred Stock are
entitled to receive preferential cumulative dividends, when and as declared by
the Board of Directors of the Company out of funds legally available therefor,
at a rate of 6% of the stated value per annum. Dividends on the Series A
Preferred Stock commenced to accrue on September 30, 1993.
Liquidation Preference. In the event of any distribution of assets upon
any liquidation, dissolution or winding-up of the Company, whether voluntary or
involuntary, after payment or provision for payment of the debts and other
liabilities of the Company, the holder of each share of the then outstanding
Series A Preferred Stock shall be entitled to receive out of the assets of the
Company, whether such assets are capital, surplus or earnings, an amount equal
to the then stated value of each share of Series A Preferred Stock, before any
payments or distributions are made to, or set aside for, any other equity
security of the Company other than any other series of preferred stock. If the
assets of the Company are insufficient to pay such amounts in full, then the
entire assets of the Company shall be distributed pro rata to the holders of
shares of preferred stock after the holders of the Class B Preferred and the
7.5% Preferred have been paid in full. Neither a consolidation, merger or other
business combination of the Company with or into another corporation or other
entity nor a sale or transfer of all or part of the Company assets for cash,
securities or other property shall be considered a liquidation, dissolution or
winding up of the Company.
Conversion. On September 30, 1994, each holder of the Series A Preferred
Stock automatically, without any action on the part of such holder, had
one-third of each such holders' holdings of Series A Preferred Stock converted
into a number of shares of Common Stock of the Company determined by dividing
the then stated value of the shares by the Conversion Price (as defined) for
such date. On September 30, 1995, each holder of the Series A Preferred Stock
automatically, without any action on the part of such holder, had one-third of
each such holders' holdings of Series A Preferred Stock converted into a number
of shares of Common Stock of the Company determined by dividing the then stated
value of the shares by the Conversion Price for such date. On September 30, 1996
(the "Conversion Date"), all shares of the Series A Preferred Stock that remain
outstanding (the "Final Conversion Allotment") shall automatically, without any
action being required on the part of the holders thereof, be converted into a
number of shares of Common Stock determined by dividing the then stated value of
the shares by the Conversion Price. The "Conversion Price" shall be an amount
equal to the average of the per-share closing prices (regular way) for a round
lot of the Common Stock on the AMEX (or, if the Common Stock is then not listed
for trading on the AMEX,
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<PAGE> 31
such other exchange or system on which the Common Stock shall from time to time
be traded) on each of the five trading days immediately preceding the Conversion
Date.
No fractional shares or scrip representing fractional shares of Common
Stock shall be issued upon conversion of Series A Preferred Stock. Instead of
any fractional share of Common Stock that would otherwise be issuable upon
conversion of any shares of Series A Preferred Stock, the Company will pay a
cash adjustment in respect of such fractional interest in an amount equal to the
same fraction of the Conversion Price per share of Common Stock.
Redemption. The Company shall have the right to redeem the Final
Conversion Allotment at any time prior to September 20, 1996 at the liquidation
value (initial stated value plus accrued but unpaid dividends) of such shares
payable in cash.
Voting Rights. The holders of the Series A Preferred Stock shall not have
any voting rights except as may be required by law.
Preemptive Rights. The Series A Preferred Stock is not entitled to any
preemptive or subscription rights in respect of any securities of the Company.
SERIES B PREFERRED STOCK
Dividends. The holders of record of shares of Series A Preferred Stock are
entitled to receive dividends, when and as declared by the Board of Directors of
the Company out of funds legally available therefor, at a rate of 5% of the
stated value per annum from February 15, 1995 through February 15, 1998
provided, however, that Aegis Safety Holdings, Inc. shall have achieved at least
One Million Dollars ($1,000,000) of earnings (as computed in accordance with
generally accepted accounting principles consistently applied) ("EBIT") during
the fiscal year (or portion thereof) in question for which the dividend
computation is being made, and 7% of the state value per annum from February 16,
1998 through February 15, 2000 regardless of the EBIT of Aegis Safety Holdings,
Inc., each payable in cash in arrears.
Liquidation Preference. In the event of any distribution of assets upon
any liquidation, dissolution or winding-up of the Company, whether voluntary or
involuntary, after payment or provision for payment of the debts and other
liabilities of the Company, the holder of each share of the then outstanding
Series B Preferred Stock shall be entitled to receive out of the assets of the
Company, whether such assets are capital, surplus or earnings, an amount equal
to the then stated value of each share of Series B Preferred Stock, before any
payments or distributions are made to, or set aside for, any other equity
security of the Company other than the holders of the 7.5% Preferred, the Class
B Preferred, the Series A Preferred Stock and then, pro rata, to the holders of
shares of any other series of Additional Preferred. Neither a consolidation,
merger or other business combination of the Company with or into another
corporation or other entity nor a sale or transfer of all or part of the Company
assets for cash, securities or other property shall be considered a liquidation,
dissolution or winding up of the Company.
Conversion. Each holder of the Series B Preferred Stock shall be entitled
at any time and from time to time to convert any or all of his outstanding
shares of Series B Preferred Stock into such number of shares of Common Stock
determined by dividing the then stated value of the shares by the Series B
Conversion Price. The "Series B Conversion Price" shall be $6.66 (subject to
adjustment upon the occurrence of a stock split or other subdivision or a
combination of outstanding shares of Common Stock, or the reclassification of
the Company's capital stock or any other similar event with respect to the
Common Stock) ("Adjustment Events").
At any time subsequent to the date upon which the per-share closing price
(regular way) for a round lot of the Common Stock on the AMEX (or such other
exchange or system on which the Common Stock shall from time to time be traded)
has been greater than $6.66 for 20 trading days in a 30 consecutive trading day
period, the Company has the right to require the conversion of all of the
outstanding shares of Series B Preferred Stock at the Series B Conversion Price.
The Series B Conversion Price will be adjusted upon the occurrence of an
Adjustment Event. The Company will provide the holders of shares of Series B
Preferred
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<PAGE> 32
Stock which are to be converted with at least 30 days written notice of the date
upon which conversion of the Series B Preferred Stock is required.
Redemption. The Company shall redeem all of the outstanding shares of
Series B Preferred Stock on February 15, 2000 in cash or in Common Stock at the
option of the Company in either case together with any accrued but unpaid
dividends through the February 15, 2000. If the shares Series B Preferred Stock
to be redeemed are to be paid in cash, the redemption price per share shall be
equal to the Series B Conversion Price on February 15, 2000. If the shares of
Series B Preferred Stock to be redeemed are to be paid in Common Stock, the
number of shares of Common Stock to be paid upon redemption of each share of
Series B Preferred Stock (the "Redemption Shares") shall be determined by
dividing the stated value of the shares by the Series B Conversion Price on
February 15, 2000. In addition, if the shares of Series B Preferred Stock to be
redeemed are to be paid in Common Stock and if the per-share closing price
(regular way) on the American Stock Exchange for a round lot of the Common Stock
on February 15, 2000 (the "Redemption Date Closing Price") is less than 95% of
the Series B Conversion Price on February 15, 2000, each holder of Series B
Preferred Stock shall be entitled to receive on February 15, 2000 such
additional shares of Common Stock determined by multiplying (x) the difference
between 95% of the Series B Conversion Price on February 15, 2000 and the
Redemption Date Closing Price and (y) the aggregate number of Redemption Shares
to which such holder is entitled, and dividing the product thereof by the
Redemption Date Closing Price. No fractional shares shall be issued, but a cash
payment in an amount equal to the value of such fractional share shall be made
in lieu thereof.
Voting Rights. Each share of Series B Preferred Stock shall be entitled to
a number of votes equal to the number of shares of Common Stock that such share
of Series B Preferred Stock is convertible into based on the then existing
Series B Conversion Price. Except as provided by law, the holders of the Series
B Preferred Stock shall vote together with the holders of the Common Stock (and
any other class or series which may be similarly entitled to vote with the
shares of Common Stock) as one class on all matters submitted to a vote of
stockholders of the Company.
Preemptive Rights. The Series B Preferred Stock is not entitled to any
preemptive or subscription rights in respect of any securities of the Company.
PLAN OF DISTRIBUTION
The Company is distributing transferable Rights, at no cost, to the Holders
of the Common Stock and Convertible Preferred Stock outstanding as of the Record
Date. See "THE RIGHTS OFFERING -- THE RIGHTS." Each Right will entitle the
holder thereof to receive, upon payment of the Subscription Price, one share of
Common Stock. See "THE RIGHTS OFFERING -- SUBSCRIPTION PRIVILEGE."
NAR has agreed to purchase from the Company all Unsubscribed Shares
pursuant to its standby purchase commitment. See "THE RIGHTS OFFERING -- STANDBY
PURCHASE COMMITMENT." No underwriters, brokers or dealers have been retained by
the Company in connection with the Rights Offering.
The Company anticipates receiving approximately $48,335,000 in proceeds
from the Rights Offering including NAR's standby purchase commitment, after
payment of approximately $1,665,000 of fees and expenses incurred in connection
with the Rights Offering. See "USE OF PROCEEDS."
EXPERTS
The consolidated balance sheets of the Company and subsidiaries as of
December 30, 1995 and December 31, 1994, and the related consolidated statements
of income, shareholders' (deficit) equity and cash flows for each of the three
fiscal years in the period ended December 30, 1995 and schedules incorporated by
reference in this Prospectus and elsewhere in the Registration Statement have
been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their report with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in accounting and auditing
in giving said report.
31
<PAGE> 33
The balance sheets of The Austad Company as of December 31, 1993 and 1994,
and the related statements of operations, shareholders' equity and cash flows
for each of the two years in the period ended December 31, 1994 incorporated by
reference in this Prospectus and elsewhere in the Registration Statement, have
been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their report with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in accounting and auditing
in giving said report.
LEGAL MATTERS
The legality of the securities offered hereby will be passed upon for the
Company by Whitman Breed Abbott & Morgan, New York, New York.
32
<PAGE> 34
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses in connection with the Rights Offering are as
follows:
<TABLE>
<S> <C>
SEC registration fee.................................................. $ 30,375.00
AMEX listing fees and expenses........................................ 17,500.00*
Printing and engraving expenses....................................... 55,000.00*
Legal fees and expenses............................................... 100,000.00*
Accounting fees and expenses.......................................... 125,000.00*
Blue Sky fees and expenses (including counsel fees)................... 20,000.00*
Standby Purchaser's fees.............................................. 1,250,000.00*
Subscription Agent's fees and expenses................................ 55,000.00*
Information Agent's fees and expenses................................. 7,500.00*
Miscellaneous expenses................................................ 4,625.00*
-----------
Total....................................................... $1,665,000.00
===========
</TABLE>
- ---------------
* Estimated
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Hanover is incorporated under the laws of Delaware. Section 145 of the
Delaware General Corporation Law generally provides that a corporation is
empowered to indemnify any person who is made a party to any threatened, pending
or completed action, suit or proceeding by reason of the fact that he is or was
a director, officer, employee or agent of Hanover or is or was serving, at the
request of Hanover, in any of such capacities of another corporation or other
enterprise, if such director, officer, employee or agent acted in good faith and
in a manner he reasonably believed to be in or not opposed to the best interests
of Hanover, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. This statute describes in
detail the right of Hanover to indemnify any such person.
Article SEVENTH of the Certificate of Incorporation of Hanover (referred to
therein as the "Corporation") provides, in pertinent part, as follows:
Indemnification. Except as prohibited by Section 145 of the
Delaware General Corporation Law, every director and officer of the
Corporation shall be entitled as a matter of right to be indemnified
by the Corporation against reasonable expense and any liability paid
or incurred by such person in connection with any actual or threatened
claim, action, suit or proceeding, civil, criminal, administrative,
investigative or other, whether brought by or in the right of the
Corporation or otherwise, in which he or she may be involved, as a
party or otherwise, by reason of such person being or having been a
director or officer of the Corporation or by reason of the fact that
such person is or was serving at the request of the Corporation as a
director, officer, employee, fiduciary or other representative of the
Corporation or another corporation, partnership, joint venture, trust,
employee benefit plan or other entity (such claim, action, suit or
proceeding hereinafter being referred to as an "action"); provided,
however, that no such right of indemnification shall exist with
respect to an action brought by a director or officer against the
Corporation other than in a suit for indemnification as provided
hereunder. Such indemnification shall include the right to have
expenses incurred by such person in connection with an action paid in
advance by the Corporation prior to final disposition of such action,
subject to such conditions as may be prescribed by law. As used
herein, "expense" shall include, among other things, fees and expenses
of counsel selected by such person, and "liability" shall include
amounts of judgments, excise taxes, fines and penalties, and amounts
paid in settlement.
II-1
<PAGE> 35
Insurance; Other Funding. The Corporation may purchase and
maintain insurance to protect itself and any person eligible to be
indemnified hereunder against any liability or expense asserted or
incurred by such person in connection with any action, whether or not
the Corporation would have the power to indemnify such person against
such liability or expense by law or under the provisions of this
Article Seventh. The Corporation may make other financial
arrangements, which may include, among other things, a trust fund,
program of self-insurance, grant of a security interest or other lien
on any assets of the Corporation, or establishment of a letter of
credit, guaranty or surety, to ensure the payment of such sums as may
become necessary to effect indemnification as provided herein.
Non-Exclusive; Nature and Extent of Rights. The right of
indemnification provided for herein (i) shall not be deemed exclusive
of any other rights, whether now existing or hereafter created, to
which those seeking indemnification hereunder may be entitled under
any agreement, by-law or article provision, vote of the stockholders
or directors or otherwise, (ii) shall be deemed to create contractual
rights in favor of persons entitled to indemnification hereunder,
(iii) shall continue as to persons who have ceased to have the status
pursuant to which they were entitled or were designated as entitled to
indemnification hereunder and shall inure to the benefit of the heirs
and legal representatives of persons entitled to indemnification
hereunder and (iv) shall be applicable to actions, suits or
proceedings commenced after the adoption of this Article Seventh,
whether arising from acts or omissions occurring before or after the
adoption hereof. The right of indemnification provided for herein may
not be amended, modified or repealed so as to limit in any way the
indemnification provided for herein with respect to any acts or
omissions occurring prior to the adoption of any such amendment or
repeal.
Article IV of the Bylaws of Hanover also contains the same provisions
relating to the indemnification of directors and officers which are set forth in
Article SEVENTH of the Certificate of Incorporation of Hanover.
Hanover has agreed to purchase insurance to indemnify its directors and
officers against liabilities incurred as a result of serving in such capacity
and has agreed to enter into indemnification agreements with its directors.
II-2
<PAGE> 36
ITEM 16. EXHIBITS AND FINANCIAL STATEMENTS SCHEDULES.
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ------------------------------------------------------------------------------------
<C> <S>
1.1 Form of Standby Purchase Agreement between Hanover and NAR*
4 Form of Subscription Certificate
5 Opinion of Whitman Breed Abbott & Morgan as to the legality of the securities being
registered*
8 Form of Opinion of Whitman Breed Abbott & Morgan as to the tax consequences to
holders*
10.1 Repurchase and Option Agreement, dated as of September 29, 1995, by and among
Hanover, IMR and SunAmerica Life Insurance Company*
10.2 Subordinated Promissory Note, dated May 31, 1996, in the principal amount of up to
$25 million payable by Hanover to IMR.*
23.1 Consents of Arthur Andersen LLP
23.2 Consent of Whitman Breed Abbott & Morgan (included in the opinion set forth as
Exhibit 5 to this Registration Statement)*
24 Powers of Attorney of certain directors and officers of Hanover (included on page
II-4 of the Registration Statement (Registration No. 333-2743) filed with the
Commission on April 23, 1996)
99.1 Form of Instructions as to use of Subscription Certificates
99.2 Form of Notice of Guaranteed Delivery for Subscription Certificates
99.3 Form of Subscription Agency Agreement*
99.4 Form of Information Agent Agreement*
99.5 Form of Letter to Common Stockholders who are record holders
99.6 Form of Letter to Common Stockholders whose addresses are outside the U.S.
99.7 Form of Letter to Common Stockholders who are beneficial holders
99.8 Form of Letter to Clients of Common Stockholders who are beneficial holders
99.9 Form of Letter to Series A Preferred Stockholders
99.10 Form of Letter to Series B Preferred Stockholders
</TABLE>
- ---------------
* Previously filed.
(b) Financial Statement Schedules:
None.
ITEM 17. UNDERTAKINGS.
(a) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
Hanover pursuant to the provisions described under Item 20 above, or otherwise,
Hanover has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act of 1933 (the "Act") and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
payment by Hanover of expenses incurred or paid by a director, officer or
controlling person of Hanover in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, Hanover will, unless in the
opinion of their counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act of 1933 and will be governed by the final adjudication of such issue.
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 that is incorporated by reference in the Registration
Statement shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE> 37
(c) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) (sec.230.424(b) of this
chapter) if, in the aggregate, the changes in volume and price represent
no more than a 20% change in the maximum aggregate offering price set
forth in the "Calculation of Registration Fee" table in the effective
registration statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement;
Provided, however, that paragraphs(e & 1)(i) and (a)(1)(ii) do not
apply if the registration statement is on Form S-3 (sec.239.13 of this
chapter) or Form S-8 (sec.239.16b of this chapter), and the information
required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the registrant
pursuant to section 13 or section 15(d) of the Securities Exchange Act
of 1934 that are incorporated by reference in the registration
statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(d) The undersigned registrant hereby undertakes to supplement the
prospectus, after the expiration of the subscription period, to set forth the
results of the subscription offer, the transactions by the underwriters during
the subscription period, the amount of unsubscribed securities to be purchased
by the underwriters, and the terms of any subsequent reoffering thereof. If any
public offering by the underwriters is to be made on terms differing from those
set forth on the cover page of the prospectus, a post-effective amendment will
be filed to set forth the terms of such offering.
(e) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purposes of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE> 38
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Hanover Direct, Inc. certifies that it has reasonable grounds to believe that it
meets all of the requirements for filing on Form S-3 and has duly caused this
Amendment No. 3 to Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Weehawken, State of New
Jersey, on the 12th day of July, 1996.
HANOVER DIRECT, INC.
By: /s/ RAKESH K. KAUL
Rakesh K. Kaul,
President and Chief Executive
Officer
Pursuant to the requirement of the Securities Act of 1933, as amended, this
Amendment No. 3 to Registration Statement has been signed below by the following
persons, in the capacities indicated on July 12, 1996.
<TABLE>
<CAPTION>
NAME TITLE
- ------------------------------------------ ----------------------------------------------
<S> <C>
/s/ ALAN G. QUASHA* Chairman of the Board and Director
- ------------------------------------------
Alan G. Quasha
/s/ RAKESH K. KAUL Director, President and Chief Executive
- ------------------------------------------ Officer
Rakesh K. Kaul (principal executive officer)
/s/ WAYNE P. GARTEN* Executive Vice President (principal financial
- ------------------------------------------ officer)
Wayne P. Garten
/s/ RALPH DESTINO* Director
- ------------------------------------------
Ralph Destino
Director
- ------------------------------------------
J. David Hakman
Director
- ------------------------------------------
S. Lee Kling
Director
- ------------------------------------------
Theodore H. Kruttschnitt
/s/ ELIZABETH VALK LONG* Director
- ------------------------------------------
Elizabeth Valk Long
Director
- ------------------------------------------
Edmund R. Manwell
/s/ GERALDINE STUTZ* Director
- ------------------------------------------
Geraldine Stutz
</TABLE>
II-5
<PAGE> 39
<TABLE>
<CAPTION>
NAME TITLE
- ------------------------------------------ ----------------------------------------------
<S> <C>
/s/ JEFFREY LAIKIND* Director
- ------------------------------------------
Jeffrey Laikind
/s/ ROBERT F. WRIGHT* Director
- ------------------------------------------
Robert F. Wright
</TABLE>
- ---------------
* Edward J. O'Brien, pursuant to a Power of Attorney executed by each of the
directors and officers noted above and filed with the Securities and Exchange
Commission, by signing his name hereto, does hereby sign and execute this
Amendment No. 3 to Registration Statement on Form S-3 on behalf of each of the
persons noted above, in the capacities indicated.
/s/ Edward J. O'Brien
--------------------------------------
Edward J. O'Brien
II-6
<PAGE> 40
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT PAGE NUMBER
- ------- ----------------------------------------------------------------------- -----------
<C> <S> <C>
1.1 Form of Standby Purchase Agreement between Hanover and NAR*
4 Form of Subscription Certificate
5 Opinion of Whitman Breed Abbott & Morgan as to the legality of the
securities being registered*
8 Form of Opinion of Whitman Breed Abbott & Morgan as to the tax
consequences to holders*
10.1 Repurchase and Option Agreement, dated at of September 29, 1995, by and
among Hanover, IMR and SunAmerica Life Insurance Company*
10.2 Subordinated Promissory Note, dated May 31, 1996, in the principal
amount of up to $25 million payable by Hanover to IMR.*
23.1 Consents of Arthur Andersen, LLP
23.2 Consent of Whitman Breed Abbott & Morgan (included in the opinion set
forth as Exhibit 5 to this Registration Statement)*
24 Powers of Attorney of certain directors and officers of Hanover
(included on page II-4 of the Registration Statement (Registration No.
333-2743) filed with the Commission on April 23, 1996)
99.1 Form of Instructions as to use of Subscription Certificates
99.2 Form of Notice of Guaranteed Delivery for Subscription Certificates
99.3 Form of Subscription Agency Agreement*
99.4 Form of Information Agent Agreement*
99.5 Form of Letter to Common Stockholders who are record holders
99.6 Form of Letter to Common Stockholders whose addresses are outside the
U.S.
99.7 Form of Letter to Common Stockholders who are beneficial holders
99.8 Form of Letter to Clients of Common Stockholders who are beneficial
holders
99.9 Form of Letter to Series A Preferred Stockholders
99.10 Form of Letter to Series B Preferred Stockholders
</TABLE>
- ---------------
* Previously filed.
<PAGE> 1
EXHIBIT 4
[FORM OF SUBSCRIPTION CERTIFICATE]
HANOVER DIRECT, INC.
SUBSCRIPTION CERTIFICATE NO.
- ---------------
CUSIP NO. [
- ---------]
THE TERMS AND CONDITIONS OF THE RIGHTS OFFERING ARE SET FORTH IN THE
COMPANY'S PROSPECTUS DATED JULY 19, 1996 (THE "PROSPECTUS") AND ARE INCORPORATED
HEREIN BY REFERENCE. COPIES OF THE PROSPECTUS ARE AVAILABLE UPON REQUEST FROM
THE COMPANY AND THE SUBSCRIPTION AGENT.
THIS CERTIFICATE OR A NOTICE OF GUARANTEED DELIVERY MUST BE RECEIVED BY THE
SUBSCRIPTION AGENT WITH PAYMENT IN FULL BY 5:00 P.M., NEW YORK CITY TIME, ON
FRIDAY, AUGUST 16, 1996 (THE "RIGHTS OFFERING EXPIRATION DATE").
The Rights represented by this Subscription Certificate may be exercised by duly
completing Form 1; may be transferred, assigned, exercised or sold through a
bank or broker by duly completing Form 2; and may be sold through the
Subscription Agent by duly completing Form 3. Rights holders are advised to
review the Prospectus and Instructions, copies of which are available from the
Subscription Agent, before exercising or selling their Rights. IMPORTANT:
Complete appropriate FORM and, if applicable, delivery instructions, and SIGN on
reverse side.
<TABLE>
<S> <C>
SUBSCRIPTION PRICE $ PER SHARE RIGHTS TO PURCHASE
(Name and Address of Registered Holder) COMMON STOCK OF
HANOVER DIRECT, INC.
</TABLE>
The registered owner whose name is inscribed hereon, or assigns, is entitled
to subscribe for shares of Common Stock upon the terms and subject to the
conditions set forth in the Prospectus and Instructions relating thereto.
<TABLE>
<S> <C>
By By
- ------------------------------------------------------ ------------------------------------------------------
RAKESH K. KAUL EDWARD J. O'BRIEN
President and Senior Vice President,
Chief Executive Officer Treasurer and Secretary
</TABLE>
THIS SUBSCRIPTION CERTIFICATE IS TRANSFERABLE AND MAY BE COMBINED OR DIVIDED
(BUT ONLY INTO SUBSCRIPTION CERTIFICATES EVIDENCING A WHOLE NUMBER OF RIGHTS) AT
THE OFFICE OF THE SUBSCRIPTION AGENT.
RIGHTS HOLDERS SHOULD BE AWARE THAT IF THEY CHOOSE TO EXERCISE OR TRANSFER
LESS THAN ALL OF THE RIGHTS EVIDENCED HEREBY, THEY MAY NOT RECEIVE A NEW
SUBSCRIPTION CERTIFICATE IN SUFFICIENT TIME TO EXERCISE THE REMAINING RIGHTS
EVIDENCED THEREBY.
FORM 1 -- EXERCISE AND SUBSCRIPTION: The undersigned hereby irrevocably
exercises one or more Rights to subscribe for shares of Common Stock as
indicated below, on the terms and subject to the conditions specified in the
Prospectus, receipt of which is hereby acknowledged.
(a) Number of shares subscribed for pursuant to the Subscription Privilege
(one Right needed to subscribe for each full share):
--------------------
(b) Total Subscription Price (total number of shares subscribed for pursuant
to the Subscription Privilege times the Subscription Price of $
----------------):
-------------------*
METHOD OF PAYMENT (CHECK ONE)
/ / CHECK, BANK DRAFT OR MONEY ORDER PAYABLE TO AMERICAN STOCK TRANSFER &
TRUST COMPANY.
/ / WIRE TRANSFER DIRECTED
------------------------- TO BANK; ACCOUNT NO.
----------------; ABA NO.
----------------.
(c) If the number of Rights being exercised pursuant to the Subscription
Privilege is less than all of the Rights represented by this
Subscription Certificate (check only one):
/ / DELIVER TO ME A NEW SUBSCRIPTION CERTIFICATE EVIDENCING THE REMAINING
RIGHTS TO WHICH I AM ENTITLED.
/ / DELIVER A NEW SUBSCRIPTION CERTIFICATE EVIDENCING THE REMAINING
RIGHTS IN ACCORDANCE WITH MY FORM 2 INSTRUCTIONS (which include any
required signature guarantees).
/ / SELL THE REMAINING UNEXERCISED RIGHTS IN ACCORDANCE WITH MY FORM 3
INSTRUCTIONS.
/ / CHECK HERE IF RIGHTS ARE BEING EXERCISED PURSUANT TO A NOTICE OF
GUARANTEED DELIVERY DELIVERED TO THE SUBSCRIPTION AGENT PRIOR TO THE
DATE HEREOF AND COMPLETE THE FOLLOWING:
Name(s) of Registered Owner(s) .........................................
Window Ticket number (if any) ..........................................
Date of Execution of Notice of Guaranteed Delivery .....................
Name of Institution which Guaranteed Delivery ..........................
- ---------------
* If the amount enclosed or transmitted is not sufficient to pay the
Subscription Price for all shares that are stated to be subscribed for, or if
the number of shares being subscribed for is not specified, the number of
shares subscribed for will be assumed to be the maximum number that could be
subscribed for upon payment of such amount. If the number of shares to be
subscribed for pursuant to the Subscription Privilege is not specified and the
amount enclosed or transmitted exceeds the Subscription Price for all shares
represented by this Subscription Certificate (the "Subscription Excess"), the
person subscribing pursuant hereto shall be entitled to the return of any such
Subscription Excess remaining after such calculation without interest or
deduction.
<PAGE> 2
FORM 2 -- TO TRANSFER YOUR SUBSCRIPTION CERTIFICATE OR SOME OR ALL OF YOUR
RIGHTS OR TO EXERCISE OR SELL RIGHTS THROUGH YOUR BANK OR BROKER: For value
received, Rights represented by this Subscription Certificate are hereby
assigned to (please print name and address and Social Security No. of transferee
in full):
Name:
- --------------------------------------
Address:
- --------------------------------------
- --------------------------------------
- --------------------------------------
Social Security Number
/ / FORM 3 -- CHECK HERE TO SELL YOUR UNEXERCISED RIGHTS THROUGH SUBSCRIPTION
AGENT: Check box if the undersigned hereby authorizes the Subscription Agent to
sell any Rights represented by this Subscription Certificate but not exercised
hereby and to deliver to the undersigned a check for the net proceeds.
FORM 4 -- DELIVERY INSTRUCTIONS: Name and/or address for mailing any stock,
new Subscription Certificate or cash payment if other than shown on the reverse
hereof:
Name:
--------------------------------------
Address:
--------------------------------------
--------------------------------------
(Including Zip Code)
(over)
<PAGE> 3
IMPORTANT
RIGHTS HOLDER SIGN HERE
AND, IF RIGHTS ARE BEING SOLD OR EXERCISED,
COMPLETE SUBSTITUTE FORM W-8 OR W-9, AS APPLICABLE, BELOW
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(SIGNATURE(S) OF HOLDER(S))
Dated:
- ------------------------------------------------------------------------------ ,
1996
(Must be signed by the registered holder(s) exactly as name(s) appear(s) on
this Subscription Certificate. If signature is by trustee(s), executor(s),
administrator(s), guardian(s), attorney(s)-in-fact, agent(s), officer(s) of a
corporations or another acting in a fiduciary or representative capacity, please
provide the following information. See Instructions.)
Name(s) ------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(PLEASE PRINT)
Capacity
-------------------------------------------------------------------------
Address-------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(INCLUDING ZIP CODE)
Area Code and
Telephone Number
-----------------------------------------------------------------
(HOME)
- --------------------------------------------------------------------------------
(BUSINESS)
TAX IDENTIFICATION OR
SOCIAL SECURITY NUMBER
-----------------------------------------------------------------
(COMPLETE SUBSTITUTE FORM W-9 BELOW)
GUARANTEE OF SIGNATURE(S)
NOTE: SEE PARAGRAPH 5(C) OF INSTRUCTIONS
Authorized Signature
----------------------------------------------------------------
Name --------------------------------------------------------------------------
Title---------------------------------------------------------------------------
Name of Firm
---------------------------------------------------------------------
Address-------------------------------------------------------------------------
Area Code and Telephone Number
-----------------------------------------------------
Dated:
- ------------------------------------------------------------------------------ ,
1996
<PAGE> 4
SUBSTITUTE CERTIFICATE OF FOREIGN STATUS
<TABLE>
<S> <C>
FORM W-8
DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE
- ------------------------------------------------------------------------------------------------------
PLEASE Name of owner (if joint account, also give joint owner's name.) (See U.S. Taxpayer Indentification number (if
PRINT Specific Instructions.) any)
OR TYPE
-------------------------------------------------------------------------------------------------------------------
Permanent address (See Specific Instructions.) (Include apt. or suite no.)
-------------------------------------------------------------------------------------------------------------------
City, province or state, postal code, and country
-------------------------------------------------------------------------------------------------------------------
Current mailing address, if different from permanent address (Include apt. or suite no., or P.O. box if mail is not
delivered to street address.)
-------------------------------------------------------------------------------------------------------------------
City, town or post office, state and ZIP code (if foreign address, enter city, province or state, postal code, and
country.)
- ------------------------------------------------------------------------------------------------------------------------------
List account information Account number Account type Account number
here (Optional, see
Specific Instructions.)
- -------------------------------------------------------------------------------------------------------------------
<CAPTION>
List account information Account type
here (Optional, see
Specific Instructions.)
- --------------------------------------------------------------------------------------
</TABLE>
NOTICE OF CHANGE IN STATUS -- To notify the payer, mortgage interest recipient,
broker, or barter exchange that you no longer qualify for exemption, check
here....................................................................... / /
If you check this box, reporting will begin on the account(s) listed.
<TABLE>
<S> <C>
- --------------------------------------------------------------------------------
CERTIFICATION -- (Check applicable box(es)). Under penalties of perjury, I certify that:
/ / For INTEREST PAYMENTS, I am not a U.S. citizen or resident (or I am filing for a foreign
PLEASE corporation, partnership, estate, or trust).
SIGN / / For DIVIDENDS, I am not a U.S. citizen or resident (or I am filing for a foreign, corporation,
HERE partnership, estate, or trust)
/ / For BROKER TRANSACTIONS or BARTER EXCHANGES, I am an exempt foreign person as defined in the
instructions below.
-------------------------------------------------------------------------------------------------------
Signature Date
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: FAILURE TO COMPLETE THIS FORM MAY RESULT IN BACKUP WITHHOLDING OF 31% OF
ANY PAYMENTS MADE TO YOU. PLEASE REVIEW THE GUIDELINES FOR CERTIFICATION
OF FOREIGN STATUS ON SUBSTITUTE FORM W-8 WHICH ARE ATTACHED TO THE
INSTRUCTIONS AS EXHIBIT B, FOR ADDITIONAL DETAILS.
<PAGE> 1
EXHIBIT 23.1(A)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use and
incorporation by reference in this Amendment No. 3 to registration statement of
our reports dated March 29, 1996 (except with respect to the matters discussed
in Note 14, as to which the date is March 7, 1996) included therein and in
Hanover Direct, Inc.'s Form 10-K for the year ended December 30, 1995.
ARTHUR ANDERSEN, LLP
New York, New York
July 12, 1996
<PAGE> 2
EXHIBIT 23.1(B)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
by reference in this Amendment No. 3 to registration statement of our report
dated February 23, 1996 included in Hanover Direct, Inc.'s Form 8-K, as amended
by Amendment No. 1 thereto, dated April 16, 1996, and to all references to our
Firm included in this Amendment No. 3 to registration statement.
ARTHUR ANDERSEN, LLP
Minneapolis, Minnesota
July 12, 1996
<PAGE> 1
EXHIBIT 99.1
[FORM OF INSTRUCTIONS AS TO USE OF SUBSCRIPTION CERTIFICATES]
INSTRUCTIONS AS TO USE OF
HANOVER DIRECT, INC. SUBSCRIPTION CERTIFICATES
------------------------
CONSULT THE INFORMATION AGENT, YOUR BANK OR BROKER
AS TO ANY QUESTIONS
The following instructions relate to a rights offering (the "Rights
Offering") by Hanover Direct, Inc., a Delaware corporation (the "Company"), to
the holders of its Common Stock, par value $.66 2/3 per Share (the "Common
Stock"), its 6% Series A Convertible Additional Preferred Stock, par value $.01
per share (the "Series A Preferred Stock"), and its Series B Convertible
Additional Preferred Stock, par value $.01 per share (the "Series B Preferred
Stock" and, together with the Series A Preferred Stock, the "Convertible
Preferred Stock"), as described in the Company's Prospectus dated July 19, 1996
(the "Prospectus"). Holders of record of Common Stock and the Convertible
Preferred Stock at the close of business on Thursday, July 18, 1996 (the "Record
Date") are receiving . transferable subscription rights (the "Rights") for
each share of Common Stock held by them on the Record Date while the holders of
Series A Preferred Stock are receiving . transferable Rights for each share
of Series A Preferred Stock held by them on the Record Date and holders of
Series B Preferred Stock are receiving . transferable Rights for each share
of Series B Preferred Stock held by them on the Record Date. An aggregate of
approximately Rights exercisable to purchase an aggregate of
approximately 50,000,000 shares of Common Stock (the "Underlying Shares") is
being distributed in connection with the Rights Offering. Each Right is
exercisable, upon payment of $ in cash (the "Subscription Price"), to
purchase one share of Common Stock (the "Subscription Privilege"). See "THE
RIGHTS OFFERING -- SUBSCRIPTION PRIVILEGE" in the Prospectus.
No fractional Rights or cash in lieu thereof will be issued or paid. The
number of Rights distributed by the Company has been rounded up to the nearest
whole number in order to avoid issuing fractional Rights.
The Rights will expire at 5:00 p.m., New York City time, on Friday, August
16, 1996 (the "Expiration Date"). It is anticipated that the Rights will be
traded on the American Stock Exchange and in the over-the-counter market.
The number of Rights to which you are entitled is printed on the face of
your subscription certificate. You should indicate your wishes with regard to
the exercise or sale of your Rights by completing the appropriate form or forms
on your subscription certificate and returning the certificate to the
Subscription Agent in the envelope provided.
YOUR SUBSCRIPTION CERTIFICATE MUST BE RECEIVED BY THE SUBSCRIPTION AGENT,
OR GUARANTEED DELIVERY REQUIREMENTS WITH RESPECT TO YOUR SUBSCRIPTION
CERTIFICATE MUST BE COMPLIED WITH, AND PAYMENT OF THE SUBSCRIPTION PRICE,
INCLUDING FINAL CLEARANCE OF ANY CHECKS, MUST BE RECEIVED BY THE SUBSCRIPTION
AGENT, ON OR BEFORE 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE. YOU
MAY NOT REVOKE ANY EXERCISE OF A RIGHT.
1. SUBSCRIPTION PRIVILEGE.
To exercise Rights, complete Form 1 and send your properly completed and
executed subscription certificate, together with payment in full of the
Subscription Price for each Underlying Share subscribed for pursuant to the
Subscription Privilege, to the Subscription Agent. Payment of the Subscription
Price must be made in U.S. dollars for the full number of Underlying Shares
being subscribed for (a) by check or bank draft drawn upon a U.S. bank or
postal, telegraphic or express money order payable to American Stock Transfer &
Trust Company, as Subscription Agent, or (b) by wire transfer of funds to the
account maintained by the Subscription Agent for such purpose at
Bank; Account No. ; ABA No. . The
<PAGE> 2
Subscription Price will be deemed to have been received by the Subscription
Agent only upon (i) the clearance of any uncertified check, (ii) the receipt by
the Subscription Agent of any certified check or bank draft drawn upon a U.S.
bank or any postal, telegraphic or express money order or (iii) the receipt of
good funds in the Subscription Agent's account designated above. IF PAYING BY
UNCERTIFIED PERSONAL CHECK, PLEASE NOTE THAT THE FUNDS PAID THEREBY MAY TAKE AT
LEAST FIVE BUSINESS DAYS TO CLEAR. ACCORDINGLY, HOLDERS OF RIGHTS WHO WISH TO
PAY THE SUBSCRIPTION PRICE BY MEANS OF UNCERTIFIED PERSONAL CHECK ARE URGED TO
MAKE PAYMENT SUFFICIENTLY IN ADVANCE OF THE EXPIRATION DATE TO ENSURE THAT SUCH
PAYMENT IS RECEIVED AND CLEARS BY SUCH DATE AND ARE URGED TO CONSIDER PAYMENT BY
MEANS OF CERTIFIED OR CASHIER'S CHECK, MONEY ORDER OR WIRE TRANSFER OF FUNDS.
You may also transfer your subscription certificate to your bank or broker in
accordance with the procedures specified in paragraph 3(a) below, make
arrangements for the delivery of funds on your behalf and request such bank or
broker to exercise the Subscription Certificate on your behalf. Alternatively,
you may cause a written guarantee substantially in the form of Exhibit A to
these instructions (the "Notice of Guaranteed Delivery") from a member firm of a
registered national securities exchange or a member of the National Association
of Securities Dealers, Inc., or from a commercial bank or trust company having
an office or correspondent in the United States (each of the foregoing being an
"Eligible Institution") to be received by the Subscription Agent at or prior to
the Expiration Date together with payment in full of the applicable Subscription
Price. Such Notice of Guaranteed Delivery must state your name, the number of
Rights represented by your subscription certificate and the number of Rights
being exercised pursuant to the Subscription Privilege, and will guarantee the
delivery to the Subscription Agent of your properly completed and executed
subscription certificates within three American Stock Exchange trading days
following the date of the Notice of Guaranteed Delivery. If this procedure is
followed, your subscription certificates must be received by the Subscription
Agent within three American Stock Exchange trading days of the Notice of
Guaranteed Delivery. Additional copies of the Notice of Guaranteed Delivery may
be obtained upon request from the Information Agent at the address, or by
calling the telephone number, indicated below.
In the event that the conditions precedent to NAR's obligation to exercise
its standby purchase commitment are not satisfied or otherwise waived by NAR,
the Subscription Price shall be returned to the subscribers as soon as
practicable after the Expiration Date and no Underlying Shares will be sold by
the Company. Accordingly, until the Expiration Date, the Subscription Price
shall be held in escrow by the Subscription Agent pending receipt of notice from
the Company that NAR has elected to purchase the Unsubscribed Shares.
The address, telephone and telecopier numbers of the Subscription Agent are
as follows:
<TABLE>
<S> <C> <C>
By Mail: By Facsimile By Hand:
American Stock Transfer Transmission: American Stock Transfer
& Trust Company (718) 236-5001 & Trust Company
40 Wall Street, 46th 40 Wall Street, 46th
Floor Floor
New York, New York 10005 New York, New York 10005
</TABLE>
To Confirm Receipt of
Facsimile and For General
Information:
(212) 936-5100
(718) 921-8200
The address and telephone numbers of Morrow & Co., Inc., the Information
Agent, are as follows:
909 Third Avenue
20th Floor
New York, New York 10022
(212) 754-8000
TOLL-FREE 1-800-566-9061
Banks and brokerage firms please call 1-800-662-5200
If you exercise less than all of the Rights evidenced by your subscription
certificate by so indicating in Form 1 of your subscription certificate, the
Subscription Agent either (i) will issue to you a new subscription
2
<PAGE> 3
certificate evidencing the unexercised Rights, (ii) if you so indicate on Form 2
of your subscription certificate, will transfer the unexercised Rights in
accordance with your instructions or (iii) if you so indicate in Form 3 of your
subscription certificate, will endeavor to sell such unexercised Rights for you.
HOWEVER, IF YOU CHOOSE TO HAVE A NEW SUBSCRIPTION CERTIFICATE SENT TO YOU OR TO
A TRANSFEREE, YOU OR SUCH TRANSFEREE MAY NOT RECEIVE ANY SUCH NEW SUBSCRIPTION
CERTIFICATE IN SUFFICIENT TIME TO PERMIT SALE OR EXERCISE OF THE RIGHTS
EVIDENCED THEREBY. IF YOU HAVE NOT INDICATED THE NUMBER OF RIGHTS BEING
EXERCISED, OR IF YOU HAVE NOT FORWARDED FULL PAYMENT OF THE SUBSCRIPTION PRICE
FOR THE NUMBER OF RIGHTS THAT YOU HAVE INDICATED ARE BEING EXERCISED, YOU WILL
BE DEEMED TO HAVE EXERCISED THE SUBSCRIPTION PRIVILEGE WITH RESPECT TO THE
MAXIMUM NUMBER OF WHOLE RIGHTS WHICH MAY BE EXERCISED FOR THE SUBSCRIPTION PRICE
PAYMENT DELIVERED BY YOU, AND TO THE EXTENT THAT THE SUBSCRIPTION PRICE PAYMENT
DELIVERED BY YOU EXCEEDS THE PRODUCT OF THE SUBSCRIPTION PRICE MULTIPLIED BY THE
NUMBER OF RIGHTS EVIDENCED BY THE SUBSCRIPTION CERTIFICATES DELIVERED BY YOU
(SUCH EXCESS BEING THE "SUBSCRIPTION EXCESS"), YOU WILL BE ENTITLED TO THE
RETURN OF ANY SUCH SUBSCRIPTION EXCESS BY THE SUBSCRIPTION AGENT WITHOUT
INTEREST OR DEDUCTION.
2. DELIVERY OF STOCK CERTIFICATE, ETC.
The following deliveries and payments will be made to the address shown on
the face of your subscription certificate unless you provide instructions to the
contrary on Form 4.
(a) Subscription Privilege. As soon as practicable after the Expiration
Date, the Subscription Agent shall mail to each exercising Rights holder
certificates representing shares of Common Stock purchased pursuant to the
Subscription Privilege.
(b) Cash Payments. As soon as practicable after the valid exercise of
Rights, the Subscription Agent will mail to each Rights holder who exercises the
Subscription Privilege any Subscription Excess received by the Subscription
Agent.
Promptly following the Expiration Date, the Subscription Agent will mail a
check for any Rights sold through the Subscription Agent to the holder of such
Rights, less applicable commissions, taxes and other charges.
3. TO SELL OR TRANSFER RIGHTS.
(a) Sale of Rights through a Bank or Broker. To sell all Rights evidenced
by a subscription certificate through your bank or broker, so indicate on Form 2
and deliver your properly completed and executed subscription certificate to
your bank or broker. If Form 2 is completed without designating a transferee,
the Subscription Agent may thereafter treat the bearer of the subscription
certificate as the absolute owner of all of the Rights evidenced by such
subscription certificate for all purposes, and the Subscription Agent shall not
be affected by any notice to the contrary. Because your bank or broker cannot
issue subscription certificates, if you wish to sell less than all of the Rights
evidenced by a subscription certificate, either you or your bank or broker must
instruct the Subscription Agent as to the action to be taken with respect to the
Rights not sold, or you or your bank or broker must first have your subscription
certificate divided into subscription certificates of appropriate denominations
by following the instructions in paragraph 4 of these instructions. The
subscription certificates evidencing the number of Rights you intend to sell can
then be transferred by your bank or broker in accordance with the instructions
in this paragraph 3(a).
(b) Transfer of Rights to a Designated Transferee. To transfer all of
your Rights to a transferee other than a bank or broker, you must complete Form
2 in its entirety, execute the subscription certificate and have your signature
guaranteed by an Eligible Institution. A subscription certificate that has been
properly transferred in its entirety may be exercised by a new holder without
having a new subscription certificate issued. In order to exercise, or otherwise
take action with respect to, such a transferred subscription certificate, the
new holder should deliver the subscription certificate, together with payment of
the applicable Subscription Price and complete separate instructions signed by
the new holder, to the Subscription Agent in ample time to permit the
Subscription Agent to take the desired action. Because only the Subscription
Agent can issue subscription certificates, if you wish to transfer less than all
of the Rights evidenced by your subscription certificate to a designated
transferee, you must instruct the Subscription Agent as to the action to be
taken
3
<PAGE> 4
with respect to the Rights not sold or transferred, or you must divide your
subscription certificate into subscription certificates of appropriate smaller
denominations by following the instructions in paragraph 4 below. The
subscription certificate evidencing the number of Rights you intend to transfer
can then be transferred by following the instructions in this paragraph 3(b).
(c) Sale of Rights through Subscription Agent. To sell some or all of
your Rights through the Subscription Agent, you must check the box in Form 3 and
deliver the subscription certificate to the Subscription Agent. Your
subscription certificate should be delivered to the Subscription Agent in ample
time for it to be sold and exercised, but in no event later than 11:00 a.m., New
York City time, on Tuesday, August 13, 1996. The Subscription Agent's obligation
to execute orders is subject to its ability to find buyers. If you wish to sell
less than all of your Rights, you or your bank or broker must instruct the
Subscription Agent as to the action to be taken with respect to the Rights not
sold. Promptly following the Expiration Date, the Subscription Agent will send
you a check for the net proceeds of such sale as described in the Prospectus. If
you wish to sell Rights through the Subscription Agent, you should also complete
the Substitute Form W-9 referred to in paragraph 8 below.
4. TO HAVE A SUBSCRIPTION CERTIFICATE DIVIDED INTO SMALLER DENOMINATIONS.
To have a subscription certificate divided into smaller denominations, send
your subscription certificate, together with complete separate instructions
(including specification of the denominations into which you wish your Rights to
be divided) signed by you, to the Subscription Agent, allowing sufficient time
for new subscription certificates to be issued and returned so that they can be
used prior to the Expiration Date. Alternatively, you may ask a bank or broker
to effect such actions on your behalf. Your signature must be guaranteed by an
Eligible Institution if any of the new subscription certificates is to be issued
in a name other than that in which the old subscription certificate was issued.
Subscription certificates may not be divided into fractional Rights, and any
instruction to do so will be rejected. AS A RESULT OF DELAYS IN THE MAIL, THE
TIME OF THE TRANSMITTAL, THE NECESSARY PROCESSING TIME AND OTHER FACTORS, YOU OR
YOUR TRANSFEREE MAY NOT RECEIVE SUCH NEW SUBSCRIPTION CERTIFICATES IN TIME TO
ENABLE THE RIGHTS HOLDER TO COMPLETE A SALE OR EXERCISE BY THE EXPIRATION DATE.
NEITHER THE COMPANY NOR THE SUBSCRIPTION AGENT WILL BE LIABLE TO EITHER A
TRANSFEROR OR TRANSFEREE FOR ANY SUCH DELAYS.
5. EXECUTION.
(a) Execution by Registered Holder. The signature on the subscription
certificate must correspond with the name of the registered holder exactly as it
appears on the face of the subscription certificate without any alteration or
change whatsoever. Persons who sign the subscription certificate in a
representative or other fiduciary capacity must indicate their capacity when
signing and, unless waived by the Subscription Agent in its sole and absolute
discretion, must present to the Subscription Agent satisfactory evidence of
their authority to so act.
(b) Execution by Person Other than Registered Holder. If the subscription
certificate is executed by a person other than the holder named on the face of
the subscription certificate, proper evidence of authority of the person
executing the subscription certificate must accompany the same unless, for good
cause, the Subscription Agent dispenses with proof of authority.
(c) Signature Guarantees. Your signature must be guaranteed by an
Eligible Institution if you wish to transfer your Rights, as specified in
paragraph 3(b) above, to a transferee other than a bank or broker, if you wish a
new subscription certificate or certificates to be issued in a name other than
that in which the old subscription certificate was issued, as specified in
paragraph 4 above, or if you specify special payment or delivery instructions
pursuant to Form 4.
6. METHOD OF DELIVERY.
The method of delivery of subscription certificates and payment of the
Exercise Price to the Subscription Agent will be at the election and risk of the
Rights holder, but, if sent by mail, it is recommended that they be sent by
registered mail, properly insured, with return receipt requested, and that a
sufficient number of days be
4
<PAGE> 5
allowed to ensure delivery to the Subscription Agent and the clearance of any
checks sent in payment of the Exercise Price prior to 5:00 p.m., New York City
time, on the Expiration Date.
7. SPECIAL PROVISIONS RELATING TO THE DELIVERY OF RIGHTS THROUGH THE DEPOSITORY
TRUST COMPANY.
In the case of holders of Rights that are held of record through The
Depository Trust Company ("DTC"), exercises of the Subscription Privilege may be
effected by instructing DTC to transfer Rights from the DTC account of such
holder to the DTC account of the Subscription Agent, together with payment of
the Subscription Price for each Underlying Share subscribed for pursuant to the
Subscription Privilege.
8. SUBSTITUTE FORMS W-8 AND W-9.
Each Rights holder who elects either to exercise Rights or to have the
Subscription Agent endeavor to sell such holder's Rights should provide the
Subscription Agent with either a Certificate of Foreign Status on Substitute
Form W-8 or a correct Taxpayer Identification Number ("TIN") on Substitute Form
W-9, both of which forms are included on the subscription certificate.
Additional copies of Substitute Forms W-8 and W-9 may be obtained upon request
from the Subscription Agent at the address, or by calling the telephone number,
indicated above. Failure to provide the information on these forms may subject
such holder to a $50 penalty and to 31% federal income tax withholding with
respect to (i) dividends that may be paid by the Company on shares of Common
Stock purchased upon the exercise of Rights (for those holders exercising
Rights) or (ii) funds to be remitted to Rights holders in respect of Rights sold
by the Subscription Agent (for those holders electing to have the Subscription
Agent sell their Rights).
5
<PAGE> 6
EXHIBIT A
NOTICE OF GUARANTEED DELIVERY
FOR
SUBSCRIPTION CERTIFICATES
ISSUED BY
HANOVER DIRECT, INC.
This form, or one substantially equivalent hereto, must be used to exercise
Rights pursuant to the Rights Offering described in the Prospectus dated July
19, 1996 (the "Prospectus") of Hanover Direct, Inc., a Delaware corporation (the
"Company"), if a holder of Rights cannot deliver the subscription certificate(s)
evidencing the Rights (the "Subscription Certificate(s)") to the Subscription
Agent listed below (the "Subscription Agent") at or prior to 5:00 p.m., New York
City time, on Friday, August 16, 1996 (the "Expiration Date"). Such form must be
delivered by hand or sent by facsimile transmission or mail to the Subscription
Agent, and must be received by the Subscription Agent on or prior to the
Expiration Date. See "THE RIGHTS OFFERING -- EXERCISE OF RIGHTS" in the
Prospectus. Payment of the Subscription Price of $ per share for each share
of the Company's Common Stock subscribed for upon exercise of such Rights must
be received by the Subscription Agent in the manner specified in the Prospectus
at or prior to 5:00 p.m., New York City time, on the Expiration Date even if the
Subscription Certificate evidencing such Rights is being delivered pursuant to
the procedure for guaranteed delivery thereof.
The Subscription Agent is:
American Stock Transfer & Trust Company
<TABLE>
<S> <C> <C>
By Mail: By Facsimile By Hand:
American Stock Transfer Transmission: American Stock Transfer
& Trust Company (718) 236-5001 & Trust Company
40 Wall Street, 46th 40 Wall Street, 46th
Floor Floor
New York, New York 10005 New York, New York 10005
</TABLE>
To Confirm Receipt of
Facsimile and For General
Information:
(212) 936-5100
(718) 921-8200
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR
TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE OTHER THAN AS SET FORTH ABOVE DOES
NOT CONSTITUTE A VALID DELIVERY.
A-1
<PAGE> 7
HANOVER DIRECT, INC.
Gentlemen:
The undersigned hereby represents that he or she is the holder of
Subscription Certificate(s) representing Rights and that such Subscription
Certificate(s) cannot be delivered to the Subscription Agent at or before 5:00
p.m., New York City time, on the Expiration Date. Upon the terms and subject to
the conditions set forth in the Prospectus, receipt of which is hereby
acknowledged, the undersigned hereby elects to exercise the Subscription
Privilege to subscribe for one share of Common Stock per Right with respect to
each of
Rights represented by such Subscription Certificate. The undersigned understands
that payment of the Subscription Price of $ per share for each share of
Common Stock subscribed for pursuant to the Subscription Privilege must be
received by the Subscription Agent at or before 5:00 p.m., New York City time,
on the Expiration Date and represents that such payment, in the aggregate amount
of $ , either (check appropriate box):
/ / is delivered herewith or / / was delivered separately in the manner
set forth below (check appropriate box and complete information relating
thereto):
/ / wire transfer of funds
-- name of transferor institution......................................
-- date of transfer........................confirmation number (if
available)..........................................................
/ / uncertified check (Payment by uncertified check will not be deemed to
have been received by the Subscription Agent until such check has
cleared. Holders paying by such means are urged to make payment
sufficiently in advance of the Expiration Date to ensure that such
payment clears by such date.)
/ / certified check
/ / bank draft (cashier's check)
-- name of maker.......................................................
-- date and number of check, draft or money order......................
(date) (number)
-- bank on which check is drawn or issuer of money order...............
<TABLE>
<S> <C>
Signature(s)................................ Address.....................................
............................................ ............................................
Name(s)..................................... ............................................
............................................ Tel. No(s). (. . .).........................
Please Type or Print
</TABLE>
Subscription Certificate No(s). (if available)..................................
A-2
<PAGE> 8
GUARANTEE OF DELIVERY
(NOT TO BE USED FOR SUBSCRIPTION CERTIFICATE SIGNATURE GUARANTEE)
The undersigned, a member firm of a registered national securities exchange
or of the National Association of Securities Dealers, Inc. or a commercial bank
or trust company having an office or correspondent in the United States,
guarantees that the undersigned will deliver to the Subscription Agent the
certificates representing the Rights being exercised hereby, with any required
signature guarantees and any other required documents, all within three American
Stock Exchange, Inc. trading days after the date hereof.
<TABLE>
<S> <C>
............................................ Dated:................................, 1996
............................................ ............................................
............................................ ............................................
............................................ (Name of Firm)
Address
............................................ ............................................
(Area Code and Telephone Number) (Authorized Signature)
</TABLE>
The institution which completes this form must communicate the guarantee to
the Subscription Agent and must deliver the Subscription Certificate(s) to the
Subscription Agent within the time period shown herein. Failure to do so could
result in a financial loss to such institution.
A-3
<PAGE> 9
EXHIBIT B
IMPORTANT TAX INFORMATION
Under the federal income tax law, (i) dividend payments that may be made by
the Company on shares of Common Stock issued upon the exercise of Rights, and
(ii) payments that may be remitted by the Subscription Agent to Rights holders
in respect of Rights sold on such holders' behalf by the Subscription Agent, may
be subject to backup withholding, and each Rights holder who either exercises
Rights or requests the Subscription Agent to sell Rights should provide the
Subscription Agent (as the Company's agent, in respect of exercised Rights, and
as payer with respect to Rights sold by the Subscription Agent) with either a
Certificate of Foreign Status on Substitute Form W-8 or such Rights holder's
correct taxpayer identification number on Substitute Form W-9, both of which
forms are included on the subscription certificate. If such Rights holder is an
individual, the taxpayer identification number is his social security number. If
the Subscription Agent, which is also the transfer agent for the Company, is not
provided with either a Certificate of Foreign Status or the correct taxpayer
identification number in connection with such payments, the Rights holder may be
subject to a $50 penalty imposed by the Internal Revenue Service.
Exempt Rights holders (including, among others, all corporations and
certain foreign individuals) are not subject to these backup withholding and
reporting requirements. In general, in order for a foreign individual to qualify
as an exempt recipient, that Rights holder must submit a statement, signed under
the penalties of perjury, attesting to that individual's exempt status. Such
statements can be obtained from the Subscription Agent. See the enclosed
Guidelines for Certification of Taxpayer Identification Number on Substitute
Form W-9 for additional instructions.
If backup withholding applies, the Company or the Subscription Agent, as
the case may be, will be required to withhold 31 percent of any such payments
made to the Rights holder. Backup withholding is not an additional tax. Rather,
the tax liability of persons subject to backup withholding will be reduced by
the amount of tax withheld. If withholding results in an overpayment of taxes, a
refund may be obtained.
PURPOSE OF SUBSTITUTE FORMS W-8 AND W-9
To prevent backup withholding, the Rights holder is required either to
provide the Subscription Agent with a Certificate of Foreign Status by
completing the Substitute Form W-8 which is included on the subscription
certificate or to notify the Subscription Agent of his correct taxpayer
identification number by completing the Substitute Form W-9 which is included on
the subscription certificate certifying that the taxpayer identification number
provided on Substitute Form W-9 is correct (or that such Rights holder is
awaiting a taxpayer identification number).
WHAT NUMBER TO GIVE THE SUBSCRIPTION AGENT
The Rights holder is required to give the Subscription Agent the social
security number or employer identification number of the record owner of the
Rights. If the Rights are in more than one name or are not in the name of the
actual owner, consult the enclosed Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9 for additional guidelines on which
number to report.
B-1
<PAGE> 10
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE
PAYER. Social Security numbers have nine digits separated by two hyphens: i.e.
000-00-0000. Employer identification numbers have nine digits separated by only
one hyphen: i.e. 00-0000000. The table below will help determine the number to
give the payer.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GIVE THE NAME AND
SOCIAL SECURITY
FOR THIS TYPE OF ACCOUNT: NUMBER OF--
<C> <S> <C>
- ---------------------------------------------------------------------------------------------
1. Individual The individual
- ---------------------------------------------------------------------------------------------
2. Two or more individuals (joint account) The actual owner of the account
or, if combined funds, the first
individual on the account(1)
- ---------------------------------------------------------------------------------------------
3. Custodian account of a minor (Uniform Gifts to The minor(2)
Minors Act)
- ---------------------------------------------------------------------------------------------
4. a. The usual revocable savings trust (grantor is The grantor-trustee(1)
also trustee)
- ---------------------------------------------------------------------------------------------
b. The so-called trust account that is not a legal The actual owner(1)
or valid trust under state law
- ---------------------------------------------------------------------------------------------
5. Sole proprietorship The owner(3)
- ---------------------------------------------------------------------------------------------
GIVE THE NAME AND
EMPLOYER IDENTIFICATION
FOR THIS TYPE OF ACCOUNT: NUMBER OF--
- ---------------------------------------------------------------------------------------------
6. A valid trust, estate or pension trust Legal entity (do not furnish the
identification number of the
personal representative or
trustee unless the legal entity
itself is not designated in the
account title)(4)
- ---------------------------------------------------------------------------------------------
7. Corporation The corporation
- ---------------------------------------------------------------------------------------------
8. Association, club, religious, charitable, The organization
educational or other tax-exempt organization
- ---------------------------------------------------------------------------------------------
9. Partnership The partnership
- ---------------------------------------------------------------------------------------------
10. A broker or registered nominee The broker or nominee
- ---------------------------------------------------------------------------------------------
11. Account with the Department of Agriculture in the The public entity
name of a public entity (such as a State or local
government, school district, or prison) that
receives agricultural program payments
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
</TABLE>
- ---------------
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's social security number.
(3) Show the name of the owner. You may also enter your business name.
(4) List first and circle the name of the legal trust, estate or pension trust.
Note: If no name is circled when there is more than one name, the number will be
considered to be that of the first name listed.
B-2
<PAGE> 11
OBTAINING A NUMBER
If you don't have a taxpayer identification number or you don't know your
number, obtain Form SS-5, Application for a Social Security Number Card, or Form
SS-4, Application for Employer Identification Number, at the local office of the
Social Security Administration or the Internal Revenue Service and apply for a
number.
PAYEES EXEMPT FROM BACKUP WITHHOLDING
Payees specifically exempted from backup withholding on ALL payments
include the following:
- A corporation.
- A financial institution.
- An organization exempt from tax under section 501(a), or an individual
retirement plan, or a custodial account under section 403(b)(7).
- The United States or any agency or instrumentality thereof.
- A State, the District of Columbia, a possession of the United States, or
any subdivision or instrumentality thereof.
- A foreign government, a political subdivision of a foreign government, or
any agency or instrumentality thereof.
- An international organization or any agency or instrumentality thereof.
- A dealer in securities or commodities registered in the United States or
a possession of the United States.
- A real estate investment trust.
- A common trust fund operated by a bank under section 584(a).
- An exempt charitable remainder trust, or a non-exempt trust described in
section 4947(a)(1).
- An entity registered at all times under the Investment Company Act of
1940.
- A foreign central bank of issue.
Payments of dividends and patronage dividends not generally subject to
backup withholding include the following:
- Payments to nonresident aliens subject to withholding under section 1441.
- Payments to partnerships not engaged in a trade or business in the United
States and which have at least one nonresident partner.
- Payments of patronage dividends where the amount received is not paid in
money.
- Payments made by certain foreign organizations.
Payments of interest not generally subject to backup withholding include
the following:
- Payments of interest on obligations issued by individuals. Note: You may
be subject to backup withholding if this interest is $600 or more and is
paid in the course of the payer's trade or business and you have not
provided your correct taxpayer identification number to the payer.
- Payments of tax-exempt interest (including exempt-interest dividends
under section 852).
- Payments described in section 6049(b)(5) to nonresident aliens.
- Payments on tax-free covenant bonds under section 1451.
- Payments made by certain foreign organizations.
- Mortgage interest paid to you.
B-3
<PAGE> 12
Exempt payees described above should file Form W-9 to avoid possible
erroneous backup withholding. FILE THIS FORM WITH THE PAYER, FURNISH YOUR
TAXPAYER IDENTIFICATION NUMBER, WRITE "EXEMPT" ON THE FACE OF THE FORM, SIGN AND
DATE THE FORM AND RETURN IT TO THE PAYER.
Payments that are not subject to information reporting are also not subject
to backup withholding. For details, see the regulations under sections 6041,
6041A(a), 6042, 6044, 6045, 6049, 6050A and 6050N.
PRIVACY ACT NOTICE. Section 6109 requires most recipients of dividends,
interest, or other payments to give taxpayer identification numbers to payers
who must report the payments to the IRS. The IRS uses the numbers for
identification purposes and to help verify the accuracy of your tax return.
Payers must be given the number whether or not recipients are required to file
tax returns. Payers must generally withhold 20% of taxable interest, dividends,
and certain other payments to a payee who does not furnish a taxpayer
identification number to a payer. Certain penalties may also apply.
PENALTIES
(1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER. If you
fail to furnish your taxpayer identification number to a payer, you are subject
to a penalty of $50 for each such failure unless your failure is due to
reasonable cause and not to willful neglect.
(2) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING. If
you make a false statement with no reasonable basis which results in no
imposition of backup withholding, you are subject to a penalty of $500.
(3) CRIMINAL PENALTY FOR FALSIFYING INFORMATION. Falsifying certifications
or affirmations may subject you to criminal penalties including fines and/or
imprisonment.
FOR ADDITIONAL INFORMATION, CONTACT YOUR TAX CONSULTANT
OR THE INTERNAL REVENUE SERVICE.
B-4
<PAGE> 1
EXHIBIT 99.2
[FORM OF NOTICE OF GUARANTEED DELIVERY FOR SUBSCRIPTION CERTIFICATES]
NOTICE OF GUARANTEED DELIVERY
FOR
SUBSCRIPTION CERTIFICATES
ISSUED BY
HANOVER DIRECT, INC.
This form, or one substantially equivalent hereto, must be used to exercise
Rights pursuant to the Rights Offering described in the Prospectus dated July
19, 1996 (the "Prospectus") of Hanover Direct, Inc., a Delaware corporation (the
"Company"), if a holder of Rights cannot deliver the subscription certificate(s)
evidencing the Rights (the "Subscription Certificate(s)") to the Subscription
Agent listed below (the "Subscription Agent") at or prior to 5:00 p.m., New York
City time, on Friday, August 16, 1996 (the "Expiration Date"). Such form must be
delivered by hand or sent by facsimile transmission or mail to the Subscription
Agent, and must be received by the Subscription Agent on or prior to the
Expiration Date. See "THE RIGHTS OFFERING -- EXERCISE OF RIGHTS" in the
Prospectus. Payment of the Subscription Price of $[ ] per share for each share
of the Company's Common Stock subscribed for upon exercise of such Rights must
be received by the Subscription Agent in the manner specified in the Prospectus
at or prior to 5:00 p.m., New York City time, on the Expiration Date even if the
Subscription Certificate evidencing such Rights is being delivered pursuant to
the procedure for guaranteed delivery thereof.
The Subscription Agent is:
American Stock Transfer & Trust Company
<TABLE>
<S> <C> <C>
By Mail: By Facsimile By Hand:
American Stock Transfer Transmission: American Stock Transfer
& Trust Company (718) 236-5001 & Trust Company
40 Wall Street, 46th Floor 40 Wall Street, 46th Floor
New York, New York 10005 New York, New York 10005
To Confirm Receipt of
Facsimile and
For General Information:
(212) 936-5100
(718) 921-8200
</TABLE>
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR
TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE OTHER THAN AS SET FORTH ABOVE DOES
NOT CONSTITUTE A VALID DELIVERY.
<PAGE> 2
HANOVER DIRECT, INC.
Gentlemen:
The undersigned hereby represents that he or she is the holder of
Subscription Certificate(s) representing Rights and that such
Subscription Certificate(s) cannot be delivered to the Subscription Agent at or
before 5:00 p.m., New York City time, on the Expiration Date. Upon the terms and
subject to the conditions set forth in the Prospectus, receipt of which is
hereby acknowledged, the undersigned hereby elects to exercise the Subscription
Privilege to subscribe for one share of Common Stock per Right with respect to
each of Rights represented by such Subscription Certificate. The
undersigned understands that payment of the Subscription Price of $[ ] per
share for each share of Common Stock subscribed for pursuant to the Subscription
Privilege must be received by the Subscription Agent at or before 5:00 p.m., New
York City time, on the Expiration Date and represents that such payment, in the
aggregate amount of $ , either (check appropriate box):
/ / is delivered herewith or / / was delivered separately in the manner
set forth below (check appropriate box and complete information relating
thereto):
/ / wire transfer of funds
-- name of transferor institution.....................................
-- date of transfer........................confirmation number
(if available).....................................................
/ / uncertified check (Payment by uncertified check will not be deemed to
have been received by the Subscription Agent until such check has
cleared. Holders paying by such means are urged to make payment
sufficiently in advance of the Expiration Date to ensure that such
payment clears by such date.)
/ / certified check
/ / bank draft (cashier's check)
/ / money order
-- name of maker......................................................
-- date and number of check, draft or
money order........................................................
(date) (number)
-- bank on which check is drawn or issuer of money order..............
<TABLE>
<S> <C>
Signature(s)................................ Address.....................................
............................................ ............................................
Name(s)..................................... ............................................
............................................ Tel. No(s). (. . .).........................
Please Type or Print
</TABLE>
Subscription Certificate No(s). (if available)..................................
2
<PAGE> 3
GUARANTEE OF DELIVERY
(NOT TO BE USED FOR SUBSCRIPTION CERTIFICATE SIGNATURE GUARANTEE)
The undersigned, a member firm of a registered national securities exchange
or of the National Association of Securities Dealers, Inc. or a commercial bank
or trust company having an office or correspondent in the United States,
guarantees that the undersigned will deliver to the Subscription Agent the
certificates representing the Rights being exercised hereby, with any required
signature guarantees and any other required documents, all within three American
Stock Exchange, Inc. trading days after the date hereof.
<TABLE>
<S> <C>
............................................ Dated:................................, 1996
............................................ ............................................
............................................ ............................................
............................................ (Name of Firm)
Address
............................................ ............................................
(Area Code and Telephone Number) (Authorized Signature)
</TABLE>
The institution which completes this form must communicate the guarantee to
the Subscription Agent and must deliver the Subscription Certificate(s) to the
Subscription Agent within the time period shown herein. Failure to do so could
result in a financial loss to such institution.
3
<PAGE> 1
EXHIBIT 99.5
[FORM OF LETTER TO COMMON STOCKHOLDERS WHO ARE RECORD HOLDERS]
[LETTERHEAD OF HANOVER DIRECT, INC.]
JULY 19, 1996
To Our Shareholders:
Hanover Direct, Inc. is distributing to the holders of its outstanding
Common Stock, at no cost, Rights to purchase additional shares of Common Stock
in a Rights Offering. Shareholders will receive . Rights for each
share of Common Stock held by them as of the close of business on Thursday, July
18, 1996. Each whole right will entitle the holder thereof to a Subscription
Privilege to purchase one share of Common Stock at $ per share.
Enclosed herewith is a Subscription Certificate evidencing .
transferable Rights for each share of Common Stock that you owned at the close
of business on Thursday, July 18, 1996. Your Rights may be exercised,
transferred or sold as explained more fully in the accompanying Instructions. If
you choose to exercise your Rights, you must submit payment in full of the
Subscription Price and appropriate documentation to the Subscription Agent no
later than 5:00 p.m., New York City time, on Friday, August 16, 1996.
The enclosed Prospectus provides the details of the Rights Offering and
important information concerning the Company and the Common Stock being offered.
Please read it carefully.
YOU ARE URGED TO ACT PROMPTLY. THE RIGHTS OFFERING AND THE RIGHTS WILL
EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON FRIDAY, AUGUST 16, 1996.
Very truly yours,
RAKESH K. KAUL
President and Chief Executive Officer
<PAGE> 1
EXHIBIT 99.6
[FORM OF LETTER TO COMMON STOCKHOLDERS WHOSE ADDRESSES ARE OUTSIDE THE U.S.]
[LETTERHEAD OF HANOVER DIRECT, INC.]
JULY 19, 1996
To Our Shareholders:
Hanover Direct, Inc. is distributing to the holders of its outstanding
Common Stock, at no cost, Rights to purchase additional shares of Common Stock
in a Rights Offering. Shareholders will receive . Rights for each
share of Common Stock held by them as of the close of business on Thursday, July
18, 1996. Each whole right will entitle the holder thereof to a Subscription
Privilege to purchase one share of Common Stock at $[ ] per share.
Subscription certificates will not be mailed to shareholders whose
addresses are outside the United States. Instead, the Subscription Agent,
American Stock Transfer & Trust Company, is holding on your behalf a
Subscription Certificate evidencing . transferable Rights for each
share of Common Stock that you owned at the close of business on Thursday, July
18, 1996. Your Rights may be exercised, transferred or sold as explained more
fully in the accompanying Instructions by instructing the Subscription Agent. If
such instructions are not received by the Subscription Agent by 11:00 a.m., New
York City time, on Thursday, August 13, 1996, your Rights will, if feasible, be
sold, and the net proceeds will be remitted to you, unless prohibited by
applicable laws and regulations.
Instructions to the Subscription Agent should be directed (1) if by mail,
to American Stock Transfer & Trust Company, 40 Wall Street, 46th Floor, New
York, New York 10005, or (2) if by telephone, to at (212) 936-5100.
Please act promptly if you choose to exercise, sell or otherwise dispose of
your Rights. Please bear in mind that in order for the exercise of the Rights to
be valid, the payment of the Subscription Price for the Rights being exercised
must be received no later than 5:00 p.m., New York City time, on Friday, August
16, 1996 and such payments by uncertified check must have cleared by such time.
The enclosed Prospectus provides the details of the Rights Offering and
important information concerning the Company and the Common Stock being offered.
Please read it carefully.
YOU ARE URGED TO ACT PROMPTLY. THE RIGHTS OFFERING AND THE RIGHTS WILL
EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON FRIDAY, AUGUST 16, 1996.
Very truly yours,
RAKESH K. KAUL
President and Chief Executive Officer
<PAGE> 1
EXHIBIT 99.7
[FORM OF LETTER TO COMMON STOCKHOLDERS WHO ARE BENEFICIAL HOLDERS]
[LETTERHEAD OF HANOVER DIRECT, INC.]
JULY 19, 1996
To Our Shareholders:
Hanover Direct, Inc. is distributing to the holders of its outstanding
Common Stock, at no cost, Rights to purchase additional shares of Common Stock
in a Rights Offering. Shareholders will receive . Rights for each share of
Common Stock held by them as of the close of business on Thursday, July 18,
1996. Each whole right will entitle the holder thereof to a Subscription
Privilege to purchase one share of Common Stock at $[ ] per share.
Your bank or broker has received on your behalf a Subscription Certificate
evidencing . transferable Rights for each share of Common Stock that you owned
at the close of business on Thursday, July 18, 1996. Your Rights may be
exercised, transferred or sold by instructing your bank or broker as explained
more fully in the accompanying Instructions. If you choose to exercise your
Rights, your bank or broker must submit payment in full of the Subscription
Price and appropriate documentation to the Subscription Agent no later than 5:00
p.m., New York City time, on Friday, August 16, 1996.
The enclosed Prospectus provides the details of the Rights Offering and
important information concerning the Company and the Common Stock being offered.
Please read it carefully.
YOU ARE URGED TO ACT PROMPTLY. THE RIGHTS OFFERING AND THE RIGHTS WILL
EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON FRIDAY, AUGUST 16, 1996.
Very truly yours,
RAKESH K. KAUL
President and Chief Executive Officer
<PAGE> 1
EXHIBIT 99.8
[FORM OF LETTER TO CLIENTS OF COMMON STOCKHOLDERS WHO ARE BENEFICIAL OWNERS]
RIGHTS OFFERING
[50,000,000 SHARES]
HANOVER DIRECT, INC.
COMMON STOCK
$.66 2/3 PAR VALUE)
THE RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
FRIDAY, AUGUST 16, 1996.
ONCE A HOLDER HAS PROPERLY EXERCISED A RIGHT
SUCH EXERCISE MAY NOT BE REVOKED.
To our Clients:
Enclosed for your consideration is a prospectus dated July 19, 1996 (the
"Prospectus") relating to the offering (the "Rights Offering") of Hanover
Direct, Inc. (the "Company"), pursuant to which holders of the Company's Common
Stock, par value $.66 2/3 per share (the "Common Stock"), as of the close of
business on Thursday, July 18, 1996, are being issued, at no cost to such
holders, transferable subscription rights (the "Rights") to subscribe for and
purchase, for a limited period of time, shares of the Company's Common Stock at
a price of $[ ] per share (the "Subscription Price"). The terms and
conditions of this Rights Offering are set forth in the Prospectus, to which
reference is made for a complete description of the Rights Offering.
The Prospectus is being forwarded to you as the beneficial owner of the
Subscription Certificate carried by us in your account but not registered in
your name. An exercise or transfer of such Subscription Certificate may only be
made by us as the holder of record and pursuant to your instructions.
Accordingly, we request instruction as to whether you wish us to: (a)
exercise any or all of the Rights held by us in your account, pursuant to the
terms and conditions set forth in the enclosed Prospectus; (b) transfer all or
any of such Rights to another party; or (c) attempt to sell such Rights for your
account. WE URGE YOU TO READ THE PROSPECTUS CAREFULLY BEFORE INSTRUCTING US AS
TO WHETHER OR NOT TO EXERCISE, TRANSFER OR SELL ANY RIGHTS.
Your instructions to us should be forwarded as promptly as possible in
order to permit us to exercise the Rights, and complete and deliver the
Subscription Certificate on your behalf in accordance with the provisions of the
Rights Offering. This Rights Offering will expire at 5:00 p.m., New York City
time, on Friday, August 16, 1996 (the "Expiration Time"). Further, if you direct
us to sell or transfer your Rights, you must so instruct us sufficiently in
advance to permit such sale to be made or such transfer to be effected and a new
Subscription Certificate to be issued to the recipient prior to the Expiration
Time.
If you wish to have us exercise, transfer or sell any or all of your
Rights, please so instruct us by completing, executing and returning to us the
instruction form on the reverse side hereof. If you exercise Rights, you must
contact us in order to arrange for your payment of the Subscription Price.
If we do not receive complete written instructions in accordance with the
procedures outlined in the Prospectus, we will not exercise, transfer or sell
your Rights.
If you have not indicated the number of Rights being exercised, or if you
have not arranged for full payment of the Subscription Price for the number of
Rights that you have indicated are being exercised, you will be deemed to have
exercised the Subscription Privilege with respect to the maximum number of
Rights which may be exercised for the Subscription Price payment arranged for by
you. To the extent that the Subscription Price payment arranged for by you
exceeds the product of the Subscription Price multiplied by the number of Rights
attendant to your Subscription Privilege (such excess being the "Subscription
Excess"), such Subscription Excess will be returned to you or credited to your
account from which payment was made.
If you merely sign the instruction form without completing it and arranging
for any Subscription Price payment, we will deem it to mean that you do not want
us to exercise your Rights, but want us to attempt to sell all of your Rights.
<PAGE> 2
INSTRUCTIONS AS TO RIGHTS
The undersigned acknowledge(s) receipt of your letter and the Prospectus
relating to the Rights Offering of Hanover Direct, Inc., and hereby instructs
you as follows:
1. Exercise of Rights.
Please exercise my rights to subscribe for shares of Common Stock as indicated
below:
(a) Number of shares subscribed for pursuant to the Subscription
Privilege*:
(b) Total Subscription Price (total number of shares subscribed for
pursuant to the Subscription Privilege multiplied by the Subscription
Price of $[ ]): $
You must contact us to arrange your method of payment of the Subscription Price.
2. Transfer of Rights.
For value received, ________________ of my unexercised Rights are hereby
transferred to:
Name:
Address:
(Including Zip Code)
Tax Identification or Social Security Number of recipient:
3. Sale of Rights.
Please attempt to sell ________ of my unexercised Rights.
SIGN AND DATE HERE:
Dated: __________ , 1996
--------------------------------------
Signature
--------------------------------------
--------------------------------------
Please print name(s) and address(es)
below:
--------------------------------------
--------------------------------------
- ---------------
* Each whole right entitles the holder thereof to subscribe for one share of
Common Stock.
2
<PAGE> 1
EXHIBIT 99.9
[FORM OF LETTER TO SERIES A PREFERRED STOCKHOLDERS]
[LETTERHEAD OF HANOVER DIRECT, INC.]
July 19, 1996
To Our Shareholders:
Hanover Direct, Inc. is distributing to the holders of its outstanding 6%
Series A Convertible Additional Preferred Stock ("Series A Preferred Stock"), at
no cost, Rights to purchase shares of Common Stock in a Rights Offering.
Shareholders will receive . Rights for each share of Series A Preferred Stock
held by them as of the close of business on Thursday, July 18, 1996. Each whole
Right will entitle the holder thereof to a Subscription Privilege to purchase
one share of Common Stock at $ per share.
Enclosed herewith is a Subscription Certificate evidencing .
transferable Rights for each share of Series A Preferred Stock that you owned at
the close of business on Thursday, July 18, 1996. Your Rights may be exercised,
transferred or sold as explained more fully in the accompanying Instructions. If
you choose to exercise your Rights, you must submit payment in full of the
Subscription Price and appropriate documentation to the Subscription Agent no
later than 5:00 p.m., New York City time, on Friday, August 16, 1996.
The enclosed Prospectus provides the details of the Rights Offering and
important information concerning the Company and the Common Stock being offered.
Please read it carefully.
YOU ARE URGED TO ACT PROMPTLY. THE RIGHTS OFFERING AND THE RIGHTS WILL
EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON FRIDAY, AUGUST 16, 1996.
Very truly yours,
Rakesh K. Kaul
President and Chief Executive Officer
<PAGE> 1
EXHIBIT 99.10
[Form of Letter to Series B Preferred Stockholders]
[Letterhead of Hanover Direct, Inc.]
JULY 19, 1996
To Our Shareholders:
Hanover Direct, Inc. is distributing to the holders of its outstanding
Series B Convertible Additional Preferred Stock ("Series B Preferred Stock"), at
no cost, Rights to purchase shares of Common Stock in a Rights Offering.
Shareholders will receive . Rights for each share of Series B Preferred
Stock held by them as of the close of business on Thursday, July 18, 1996. Each
whole Right will entitle the holder thereof to a Subscription Privilege to
purchase one share of Common Stock at $ per share.
Enclosed herewith is a Subscription Certificate evidencing .
transferable Rights for each share of Series B Preferred Stock that you owned at
the close of business on Thursday, July 18, 1996. Your Rights may be exercised,
transferred or sold as explained more fully in the accompanying Instructions. If
you choose to exercise your Rights, you must submit payment in full of the
Subscription Price and appropriate documentation to the Subscription Agent no
later than 5:00 p.m., New York City time, on Friday, August 16, 1996.
The enclosed Prospectus provides the details of the Rights Offering and
important information concerning the Company and the Common Stock being offered.
Please read it carefully.
YOU ARE URGED TO ACT PROMPTLY. THE RIGHTS OFFERING AND THE RIGHTS WILL
EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON FRIDAY, AUGUST 16, 1996.
Very truly yours,
Rakesh K. Kaul
President and Chief Executive
Officer
