<PAGE> 1
As filed with the Securities and Exchange Commission on April 30, 1998
Registration No. 333-______
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------
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)
Delaware 1500 Harbor Boulevard 13-0853260
(State or other Weehawken, New Jersey 07087 (Employer
jurisdiction of (201) 863-7300 Identification
incorporation Number)
or organization)
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
--------------
Rakesh K. Kaul
Hanover Direct, Inc.
1500 Harbor Boulevard
Weehawken, New Jersey 07087
(201) 863-7300
(Name, address, including zip code,
and telephone number, including area
code, of agent for service)
Copy to:
Monte E. Wetzler, Esq.
Brown Raysman Millstein Felder & Steiner LLP
120 West 45th Street
New York, New York 10136
(212) 944-1515
--------------
Approximate date of commencement of proposed sale to the public: From time
to time after the effective date of this Registration Statement.
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|
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. |_| ___________.
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_| __________.
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
====================================================================================================================================
Proposed
Proposed Maximum
Maximum Aggregate Amount of
Amount to be Offering Price Offering Registration
Title of Each Class of Securities to be Registered Registered Per Share (1) Price(1) Fee
====================================================================================================================================
<S> <C> <C> <C> <C>
Common Stock, par value $.66-2/3 per share 3,700,000 $3.25 $12,025,000 $3,547.38
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457 of the Securities Act of 1933, as amended
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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.
================================================================================
Exhibit Index on Page II-2
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PROSPECTUS
3,700,000 Shares
HANOVER DIRECT, INC.
COMMON STOCK
----------------------
This Prospectus relates to the public offering from time to time of up to
3,700,000 shares (the "Shares") of common stock, par value $.66-2/3 per share
(the "Common Stock"), of Hanover Direct, Inc., a Delaware corporation (the
"Company"), by SMALLCAP World Fund, Inc. (the "Selling Stockholder"). The Shares
were acquired by the Selling Stockholder on November 6, 1997 pursuant to a Stock
Purchase Agreement dated November 4, 1997 between the Company and the Selling
Stockholder. The Company will not receive any proceeds from the sale of the
Shares by the Selling Stockholder. The Company is paying the expenses for the
registration of the Shares.
The Selling Stockholder has not advised the Company of any specific plans
for the distribution of the Shares, but it is anticipated that the Shares may be
sold from time to time in transactions (which may include block transactions) on
the American Stock Exchange at the market prices then prevailing. Sales of the
Shares may also be made through negotiated transactions or otherwise. The
Selling Stockholder and the brokers and dealers through which the sales of the
Shares may be made may be deemed to be "underwriters" within the meaning set
forth in the Securities Act of 1933, as amended (the "Securities Act"), and
their commissions and discounts and other compensation may be regarded as
underwriters' compensation. The period of distribution of the Shares may occur
over an extended period of time, but which will not in any event be longer than
nine months from the effective date of this Prospectus. The Selling Stockholder
will pay agency or brokerage commissions incurred in the sale of the Shares. See
"PLAN OF DISTRIBUTION."
Reference is made to "RISK FACTORS" beginning on page 9 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. The closing price of the Common Stock on the AMEX on April
28, 1998 was $3-1/4 per share.
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 ________, 1998.
<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 Commission
maintains a Web site (http: www.sec.gov) that contains reports, proxy and
information statements and other information regarding registrants, such as the
Company, that file electronically with the Commission.
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 27, 1997, and (b) 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 Shares 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
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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
suspended 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 Investor
Relations and Corporate Communications, Hanover Direct, Inc. at 1500 Harbor
Boulevard, Weehawken, New Jersey 07087 or telephone number (201) 863-7300.
PRIVATE SECURITIES LITIGATION REFORM ACT SAFE HARBOR STATEMENT
This Prospectus (including the documents incorporated by reference herein)
contains certain forward-looking statements (as such term is defined in the
Private Securities Litigation Reform Act of 1995) and information relating to
the Company that is based on the beliefs of the management of the Company, as
well as assumptions made by and information currently available to the
management of the Company. When used in this Prospectus, the words "estimate,"
"project," "believe," "anticipate," "intend," "expect" and similar expressions
are intended to identify forward-looking statements. Such statements reflect the
current views of the Company with respect to future events and are subject to
risks and uncertainties that could cause actual results to differ materially
from those contemplated in such forward-looking statements. For a discussion of
such risks, see "RISK FACTORS." Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of the date
hereof. The Company does not undertake any obligation to publicly release any
revisions to these forward-looking statements to reflect events or circumstances
after the date hereof or to reflect the occurrence of unanticipated events.
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THE COMPANY
Hanover Direct, Inc. (the "Company") is a leading specialty direct
marketer with a diverse branded portfolio of home fashions, general merchandise,
men's and women's apparel and gift catalogs delivered via direct mail and
electronic commerce. In December 1996, the Company regrouped its catalog titles
so that all significant decisions, including those regarding market positioning
and strategy, merchandising, circulation levels, catalog design, inventory
management and cash management, are made by management of each of six brand
groups -- Home Fashions-Mid-Market brands, Home Fashions-Upscale brands, General
Merchandise brands, Women's Apparel brands, Men's Apparel brands and Gift brands
groups - each consisting of one or more catalog titles. All of these brand
groups have continued to utilize the Company's common systems platform and
central purchasing, telemarketing, fulfillment, distribution and administrative
functions.
The Company's Home Fashions-Mid-Market brands include Domestications(R), a
leading specialty home fashions catalog. The Home Fashions-Upscale brands
include The Company Store(R), a direct marketer of upscale home fashions
focusing on high quality down comforters and other down and related products for
the home, including sheets and towels, and Kitchen & Home(R), an upscale kitchen
and home product catalog. The General Merchandise brands include
Improvements(R), a do-it-yourself home improvements catalog, The Safety Zone(R),
a direct marketer of safety, prevention and protection products, and Colonial
Garden Kitchens(R), featuring work-saving and lifestyle-enhancing items for the
kitchen and home. The Women's Apparel brands include Silhouettes(R), featuring
everyday, workout, special occasion and career fashions for larger sized women,
and Tweeds(R), the European-inspired women's fashion catalog. The Men's Apparel
brands include International Male(R), offering unique men's fashions with an
international flair, Austad's(R), a direct marketer of golf equipment, apparel
and accessories, and Undergear(R), a leader in activewear, workout wear and
fashion underwear for men. The Gift brands include Gump's By Mail(R), a leading
upscale catalog of jewelry and luxury gifts, and Gump's, the well known retail
store based in San Francisco.
The Company reviews its portfolio of catalogs as well as new opportunities
to acquire or develop catalogs from time to time. No catalogs were discontinued
during the 1996 or 1997 fiscal years.
During 1997, the Company mailed approximately 244 million catalogs. The
Company maintains a proprietary customer list currently containing approximately
12 million names of customers (down from approximately 14 million names in 1996
and 18 million in 1995) who have made purchases from at least one of the
Company's catalogs within the past 36 months. Over 4 million of the names on the
list represent customers who have made purchases from at least one of the
Company's catalogs within the last 12 months (down from approximately 6 million
names in 1996 and 7 million in 1995).
In December 1996, the Company announced a plan to reduce its annual
operating costs on continuing catalogs by approximately $50 million starting
January 1, 1997. Actual cost savings under this plan were in excess of $60
million in 1997.
The Company is incorporated in Delaware, with its principal executive
office at 1500 Harbor Boulevard, Weehawken, New Jersey 07087. The Company's
telephone number is (201) 863-7300. Richemont Finance S.A. ("Richemont"), a
Luxembourg public company, owns approximately 19.4% of the Company's Common
Stock on a fully diluted basis. Richemont is an affiliate of Compagnie
Financiere Richemont, A.G., a Swiss public company engaged in luxury goods,
tobacco and other businesses ("Richemont A.G."). NAR Group Limited, a
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British Virgin Islands corporation (together with its affiliates, "NAR"), owns
approximately 45.2% of the Company's Common Stock on a fully diluted basis. NAR,
a private investment holding company, is a joint venture between the family of
Alan G. Quasha, a director and the Chairman of the Board of the Company, and
Richemont. Richemont beneficially owns 64.6% of the Company's Common Stock on
a fully diluted basis (such percentage does not include any shares of Common
Stock which Richemont would acquire if it were to exercise its option under the
Reimbursement Agreement (as hereinafter defined) with the Company; see "RECENT
DEVELOPMENTS--Credit Arrangements" and "RISK FACTORS--Relationship with NAR and
Richemont"). The Company is a successor in interest to The Horn & Hardart
Company, a restaurant company founded in 1911, and Hanover House Industries,
Inc., founded in 1934.
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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 the prime rate, currently
9.75%, and the term loan carries an interest rate of 1.5% above the prime rate,
currently 10.0%. The Credit Facility is secured by all assets of the Company
other than certain receivables. At December 27, 1997, the Company had no
outstanding borrowings under the revolving facility (excluding approximately
$3.0 million of documentary and standby letters of credit) and approximately
$7.9 million outstanding under the term loans, which were originally due
November 1997 and were extended to November 1998. Remaining availability under
the Credit Facility was $29.0 million at December 27, 1997. Due to the seasonal
nature of its business, the Company was required to make substantial borrowings
under the revolving facility in the first quarter of 1998; the Company had
sufficient availability for such borrowings. Under the Credit Facility, the
Company is required to comply with certain restrictive debt covenants,
including maintaining minimum levels of net worth and working capital. In
December 1996, the minimum net worth covenant was lowered to $70 million. On
March 26, 1997, Congress agreed to waive certain defaults and further reduce
the working capital and net worth covenants for fiscal 1997 as follows:
<TABLE>
<CAPTION>
Working Capital (as defined) in
the Credit Facility Amount
--------------- ------
<S> <C>
January through May 1997 $ (5,000,000)
June through November 1997 $ 0
December 1997 and thereafter $ (10,000,000)
<CAPTION>
Net Worth Amount
--------- ------
<S> <C>
January through May 1997 $ 14,000,000
June 1997 and thereafter $ 21,500,000
</TABLE>
Congress also agreed at that time to amend the covenant relating to material
adverse changes so that measurement thereunder would commence from December 28,
1996. The amount that can be borrowed under the Credit Facility is based on
percentages of acceptable inventory and accounts receivable as reported to
Congress from time to time. Congress began lowering the advance rate for
inventories in November 1996 and continued to reduce it until a new inventory
appraisal was completed in March 1997. The advance rate remained the same
through the balance of 1997. In November 1997, a new inventory appraisal was
completed and negotiations for the refinancing of the Credit Facility
commenced. Under the terms of the re-negotiated Credit Facility, effective March
1998, the inventory advance rate was increased, interest rates were reduced and
the Credit Facility was extended to January 31, 2001.
In September 1996, Intercontinental Mining & Resources Incorporated, an
affiliate of NAR ("IMR"), loaned the Company $10 million, as evidenced by a
subordinated promissory note in the amount of $10 million (the "IMR Promissory
Note"). Such loan bore interest at the prime rate plus 1.5%, was due on
November 14, 1996 and, if it was not repaid before May 15, 1997, was convertible
at the option of NAR into shares of Common Stock at the lower of the fair market
value thereof on the date of execution or the then current fair market value
thereof. The IMR Promissory Note was subordinate to the Credit Facility and
excluded from the working capital
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covenant calculation. NAR applied this $10 million note to acquire $10 million
of the Company's Common Stock in the 1997 Rights Offering (see "1997 Rights
Offering").
In December 1996, the Company finalized its agreement (the "Reimbursement
Agreement") with Richemont that provided the Company with up to approximately
$28 million of letters of credit through Swiss Bank Corporation, New York
Branch. The three letters of credit, which were to expire on February 18, 1998,
carry an interest rate of 3.5% above the prime rate, currently 12.0%, payable to
Richemont quarterly on amounts drawn under the letters of credit. The Company
also agreed to pay a facility fee equal to 5% of the principal amount of the
letters of credit, as well as all other fees incurred in connection with
providing the facility. In the event that the Company has not paid in full, by
the expiration date, any outstanding balances under the letters of credit,
Richemont shall have the option, exercisable at any time prior to payment in
full of all amounts outstanding under the letters of credit, to convert such
amount into Common Stock of the Company at the mean of the bid and ask prices of
the Company's Common Stock on November 8, 1996, or the mean of the bid and ask
prices of the Company's Common Stock on each of the thirty days immediately
prior to the date of exercise of the conversion privilege. The Reimbursement
Agreement is subordinate to the Credit Facility. On December 5, 1996, Richemont
advanced the Company $10 million against the anticipated $28 million line of
credit. The Company repaid the $10 million loan after the letter of credit
agreement was in place on December 19, 1996. In November 1997, Richemont
definitively agreed to extend its guarantee under the Reimbursement Agreement to
March 30, 1999. As consideration for this transaction, the Company agreed to pay
to Richemont a fee of 4% of the principal amount of each letter of credit
aggregating $1,073,483.28. The extension required the approval of Congress and
Swiss Bank, which approvals were obtained in February 1998, and was subject to
certain other conditions. On February 18, 1998, the extension of the Richemont
guarantee and the closing of this transaction were consummated. Accordingly, the
expiration dates of the letters of credit were extended through March 30, 1999,
and the letters of credit were amended to reflect the assignment of all
obligations thereon from Swiss Bank, New York Branch to Swiss Bank, Stamford
Branch.
1997 Rights Offering
The Company commenced a $50 million rights offering (the "1997 Rights
Offering") on April 29, 1997. Holders of record of the Company's Common Stock
and Series B Convertible Additional Preferred Stock, par value $.01 and stated
value $10.00 per share (the "Series B Preferred"), as of April 28, 1997, the
record date, were eligible to participate in the 1997 Rights Offering. The
rights were exercisable at a price of $.90 per share. Shareholders received .38
rights for each share of Common Stock held and .57 rights for each share of
Series B Preferred held as of the record date. The 1997 Rights Offering expired
on May 30, 1997, with 55,654,623 rights to purchase shares exercised, and it
closed on June 6, 1997.
Richemont entered into a standby purchase agreement (the "Richemont
Standby Purchase Agreement") to purchase all shares not subscribed to by
shareholders of record at the subscription price. Richemont purchased 40,687,970
shares in the 1997 Rights Offering and, as a result, then owned approximately
20.3% of the Company. The Company paid in cash, from the proceeds of the 1997
Rights Offering, to Richemont on the closing date approximately $1.8 million,
which represented an amount equal to 1% of the aggregate offering price of the
aggregate number of shares issuable upon closing of the 1997 Rights Offering
other than with respect to the shares of Common Stock held by NAR or its
affiliates plus an amount equal to one-half of one percent of the aggregate
number of shares acquired by NAR upon exercise of their rights (Standby Fee)
plus an amount equal to 4% of the aggregate offering price in respect to all
unsubscribed shares (Take-Up Fee). In connection with the entering of the
Richemont Standby Purchase Agreement, the Company named two
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Richemont representatives, Messrs. Jan P. du Plessis and Howard M.S. Tanner, to
its Board of Directors (the "Board") at the 1997 Annual Meeting of Shareholders.
Messrs. du Plessis and Tanner filled positions vacated by the resignations of
Geraldine Stutz and Jeffery R. Laikind. Mr. Mehta was nominated and elected to
the Board in 1997 to fill a newly created Board position. In addition, Messrs.
du Plessis and Tanner were named to the Audit, Executive and Stock Option &
Executive Compensation Committees of the Board.
On April 26, 1997, NAR irrevocably agreed with the Company, subject to and
upon the consummation of the 1997 Rights Offering, to exercise certain of the
rights distributed to it for the purchase of 11,111,111 shares of Common Stock
that had an aggregate purchase price of approximately $10 million. NAR agreed to
pay for and the Company agreed to accept as payment for the exercise of such
rights the surrender by NAR of the principal amount due under a subordinated
promissory note dated September 1996 due by the Company to Intercontinental
Mining & Resources Incorporated, an affiliate of NAR ("IMR"), in the principal
amount of $10 million the ("IMR Promissory Note") and cancellation thereof.
In order to facilitate vendor shipments and to permit the commencement of
the Company's plan to consolidate certain of its warehouse facilities, Richemont
advanced $30 million as of April 23, 1997 against its commitment to purchase all
of the unsubscribed shares pursuant to the Richemont Standby Purchase Agreement.
The Company then executed a subordinated promissory note in the amount of $30
million to evidence this indebtedness (the "Richemont Promissory Note") which
was repaid out of the proceeds of the 1997 Rights Offering.
The Company issued 55,654,623 shares as a result of the 1997 Rights
Offering, which generated gross cash proceeds of approximately $40 million
(after giving effect to the acquisition and exercise by NAR of rights having an
aggregate purchase price of $10 million, which were paid for by the surrender
and cancellation of the IMR Promissory Note). The proceeds of the 1997 Rights
Offering were used by the Company: (i) to repay the $30 million principal amount
outstanding under the Richemont Promissory Note, and (ii) for working capital
and general corporate purposes including repayment of amounts outstanding under
the Credit Facility with Congress.
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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 invest in the
Shares offered hereby.
Operating Losses; Future Operating Results
The Company has recently experienced operating losses. The Company
reported a net loss of $10.9 million, or $(.06) per share, for the year ended
December 27, 1997 compared to a net loss of $104 million, or $(.93) per share,
for the prior year. The 1996 extraordinary item of $1.1 million, or ($.01) per
common share relates to the early extinguishment of debt. After giving effect to
the extraordinary item, the net loss for 1996 was $105 million, or ($.94) per
common share. Per share amounts are expressed after deducting preferred
dividends of $.2 million in both 1997 and 1996. Revenues decreased for the year
ended December 27, 1997 to $558 million from $700 million for 1996. The Company
recorded a loss from operations of $1.8 million in 1997, or (0.3)% of revenues,
compared to a loss from operations of $94.5 million, or (13.5)% of revenues, for
1996.
The net loss in 1997 was primarily a result of the costs associated with
certain catalogs refining their targeted customers and merchandise offerings.
Such redefinition caused these specific catalogs to incur higher than normal
merchandise and advertising costs in 1997, although such costs were less than
in 1996. Also contributing to the net loss were tight vendor credit conditions,
which caused postage and warehousing costs, while improved over 1996, to be
less than optimal, although vendor credit conditions have improved subsequent
to the 1997 Rights Offering for certain of the Company's catalogs. See "RISK
FACTORS--Competition," "--Dependence on Suppliers" and "--Tightening of Vendor
Credit." In addition, the Company also incurred costs in connection with the
upgrade of its management information systems. See "RISK FACTORS--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 Company's ability
to attract and retain at all levels appropriate management talent, 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 Annual Report on Form 10-K for the fiscal year
ended December 27, 1997. In addition, to the extent the Company's revenues
continue to decline, the Company many lose the critical mass it needs to cover
fixed overhead costs.
Importance of Liquidity to the Company's Existence
As of December 27, 1997, the Company had borrowed none of the $29 million
available under the Credit Facility and had approximately $14.8 million of cash
on hand. Due to the seasonal nature of its business, the Company was required
to make substantial borrowings under the revolving facility in the first
quarter of 1998; the Company had sufficient availability for such
borrowings. There is no assurance that the Company will not continue to
sustain losses that must be funded by the Company. See "THE COMPANY" and
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION AND
RESULTS OF OPERATIONS" in the Annual Report on Form 10-K for the fiscal year
ended December 27, 1997.
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Tightening of Vendor Credit
As a result of the operating losses mentioned above (see "RISK
FACTORS--Operating Losses; Future Operating Results"), the Company experienced a
tightening of vendor credit in the fourth quarter of 1996 with respect to
certain of its catalogs which impacted the Company's ability to obtain
merchandise on a timely basis. This resulted in higher backorder levels
(unfilled orders) and increased fulfillment costs with respect to such catalogs,
which negatively impacted the Company's operating results. These higher
backorder levels negatively affected initial order fulfillment rates, which
resulted in higher fulfillment expense due to increased split shipments and
warehouse handling costs with respect to those catalogs. Although vendor credit
restrictions have improved since the completion of the 1997 Rights Offering,
there can be no assurance that creditors will not reinstitute more stringent
terms should operating losses continue. See "RISK FACTORS--Dependence on
Suppliers."
Capital Intensity of Mail Order Catalog Business; Need for Self-Funding
The capital intensity of the mail order catalog business has increased in
recent years, requiring companies to make a permanent investment in working
capital to fund systems to increase customer service, increase warehousing to
speed delivery time, raise inventory to increase fill rates and offer more
credit to increase customer response rates in order to remain competitive. As a
result, the mail order catalog industry's fixed costs have increased in recent
years, resulting 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), increasingly requiring such companies to self-fund growth.
There is no assurance that the Company will have adequate funds to invest in
working capital or the resources to self-fund 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
Annual Report on Form 10-K for the fiscal year ended December 27, 1997.
Reduction in Customer Lists
During 1997, the Company mailed approximately 244 million catalogs. The
Company maintains a proprietary customer list currently containing approximately
12 million names of customers (down from approximately 14 million names in 1996
and 18 million in 1995) who have made purchases from at least one of the
Company's catalogs within the past 36 months. Over 4 million of the names on the
list represent customers who have made purchases from at least one of the
Company's catalogs within the last 12 months (down from approximately 6 million
names in 1996 and 7 million in 1995). To the extent the Company's customer list
continues to decline, it may have a material adverse impact on the Company's
future revenues and growth potential.
Increases in Costs of Mailing and Paper
The Company mails its catalogs and ships most of its merchandise through
the United States Postal Service ("USPS"). In 1997, catalog mailing and product
shipment expenses represented approximately 14% of revenues, as compared to
approximately 18% of revenues in 1996. The USPS announced a proposed increase in
mailing rates that will take effect in mid-1998. The Company is currently
investigating ways to mitigate the
10
<PAGE> 12
effects of these expected increases. If the Company does not successfully
develop any such plan, it may have a material adverse effect on its results of
operations. The United Parcel Service ("UPS") raised its rates for domestic
deliveries by 3.6 percent for ground rates and 3.3 percent for air rates
effective February 7, 1998. The Company expects its actual UPS costs to exceed
the stated percentage increases and is investigating alternatives to minimize
this impact. There can be no assurance that such increased costs will not have
an adverse impact on the Company's results of operations.
The Company also experienced substantial price increases in 1997 for paper
that is used in the production of its catalogs. Further increases in postal
rates or paper costs may have a material negative impact on the Company's
results of operations to the extent that the Company is unable to offset any
such increases by raising selling prices or by implementing more efficient
mailing, delivery and order-fulfillment systems.
Loss of New Fulfillment Facilities
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 Company's Annual Report on Form 10-K for the
fiscal year ended December 27, 1997.
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 27, 1997, the Company had invested
approximately $18.1 million of capitalized costs in such systems and anticipates
capital expenditures of approximately $.5 million to complete the conversion.
The Company completed bringing all of its catalogs on-line to the mid-range
computer systems in 1997. The Company has incurred approximately $3.4 million
and $3.6 million of costs associated with the amortization of capitalized
software for 1996 and 1997, respectively. 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. 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 continued. There is no assurance that the new systems will achieve the
goals established by the Company.
Call Center Services Agreement
In the first quarter of 1997, the Company entered into a three-year call
center services agreement with MCI Communications Corp. In connection therewith,
the Company agreed to guarantee certain levels of call volume, with certain
exceptions, which will create a liability in the event such levels of call
volume are not achieved for whatever reason. In the event such levels of call
volume are not achieved, the Company's results of operations may be adversely
effected.
11
<PAGE> 13
Implementation of Improved Inventory Procedures
During certain prior periods, the Company maintained a higher level of
inventory than is consistent with satisfactory product contribution margins. In
the latter part of 1996, the Company began implementing a plan to reduce the
amount of such inventory. Inventories amounted to $64.3 million at December 27,
1997, as compared to $67.6 million at December 28, 1996. Inventory turned 3.8
times in both 1996 and 1997. The Company has initiated additional procedures to
monitor and control its inventory position. There is no assurance that these new
procedures will be effective. In the event the Company cannot maintain these
procedures successfully, there may be an adverse effect on the Company's results
of operations.
Consumer Spending
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 will 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 private label credit cards.
The Company has a five year $75 million credit facility with General Electric
Credit Corporation ("GECC") expiring in the year 2000 which provides for the
sale and servicing of accounts receivable originating from the Company's
revolving credit cards. GECC's servicing responsibilities include credit
processing, collections, billing/payment processing, reporting and credit card
issuance. The Company is required to maintain certain financial covenants
related to this agreement which the Company failed to maintain, but has received
a waiver for the event of default at December 27, 1997. There can be no
assurance that the Company will not experience an event of default under the
GECC credit facility in the future or, if such an event of default does occur,
that the Company will be able to obtain a waiver of such default. In such an
event, the Company would be forced to seek refinancing, and there can be no
assurance that the Company could obtain refinancing on terms acceptable to it.
In addition, the Company intends to increase deferred billing and
installment arrangements offered to customers, reflecting a trend in the mail
order catalog industry. The increased use of private label credit cards and
deferred billing and installment arrangements could be costly to the Company
since losses under these plans must be funded by the Company. The Company's bad
debt expense at December 27, 1997 was approximately $4.0 million for the year
then ended, while at December 28, 1996 it was approximately $6.8 million for the
year then ended. There is no assurance that the use of private label credit
cards and deferred billing arrangements will not lead to higher bad debt
expenses.
Costs Associated with Discontinued Catalogs
As a result of discontinuing catalogs, the Company incurs costs related to
write-downs of merchandise
12
<PAGE> 14
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. Although no catalogs were discontinued during the 1996
or 1997 fiscal years, the Company may discontinue additional catalogs, although
it currently has no plans to do so, which could have a material adverse affect
on the Company.
Adjustments in Carrying Value and Useful Life
The Company assesses the carrying value and the economic useful life of
goodwill related to acquired businesses on an ongoing basis based on such
business' prior and future operating income and estimated net cash flows. The
Company recognized an impairment loss of approximately $22.0 million in fiscal
1996, which was primarily composed of the write-off of goodwill and mailing
lists associated with Tweeds(R), The Safety Zone(R) and Austad's(R). At December
27, 1997, the Company had net goodwill and mailing lists valued at $18.0
million. There can be no assurance that the Company will not adjust the carrying
value and the economic useful life of goodwill and mailing lists 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, due to its limited financial resources, 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. 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 to the decrease
in apparel sales as a percentage of total Company sales. As a result, the fourth
quarter is increasing in importance to the Company's results of operations. In
the fourth quarter of 1997, the Company reported net income of $4.8 million.
However, 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 continue to meet
expectations.
Dependence on Suppliers
The Company's profitability depends upon its obtaining competitive terms
from the merchandise vendors for its catalogs. In the fourth quarter of 1996 and
the first half of 1997, due to concerns with respect to continuing operating
losses at the Company, certain of the Company's vendors tightened the terms
available to
13
<PAGE> 15
some of the Company's catalogs, resulting in higher back-order levels and
increased fulfillment costs for those catalogs which had a negative impact on
the Company's operating results. The Company believes that as a result of the
completion of the 1997 Rights Offering and the recent extension of the
Reimbursement Agreement, the Company has returned to normal trade terms with
certain suppliers and will eventually 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. See
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION AND
RESULTS OF OPERATIONS" in the Company's Annual Report on Form 10-K for the
fiscal year ended December 27, 1997.
Foreign Sourcing
Approximately 9% of the Company's merchandise is purchased directly from
foreign suppliers located principally in China, Hong Kong, India and Portugal.
Such suppliers generally require the Company to post letters of credit relating
to the merchandise purchased by the Company, increasing the Company's capital
requirements. 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, 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 continuing to
build a management team. Management turnover at the Company and within the
entire industry has been high.
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 given that sufficient
taxable income will be generated for utilization of NOLs and reversals of
temporary differences. See Note 10 of the "Notes to Consolidated Financial
Statements" in the Company's Annual Report on Form 10-K for the fiscal year
ended December 27, 1997.
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
14
<PAGE> 16
dividends have not been paid on the Common Stock since 1967.
Relationship with NAR and Richemont
NAR currently owns approximately 45.2% of the Company's outstanding Common
Stock on a fully-diluted basis while Richemont owns approximately 19.4% of the
Company's outstanding Common Stock on a fully-diluted basis. NAR and Richemont
have 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. Pursuant
to Amendment No. 1 to the Joint Venture Agreement of NAR Group Limited among
Richemont, Evansville Limited ("Evansville") and Mr. Quasha, dated June 13,
1997, Evansville and Mr. Quasha notified Richemont on or about April 7, 1998
that they are exercising their right to cause NAR to sell and transfer to
Richemont and Richemont to purchase on or before May 7, 1998 approximately 25
million shares of Common Stock of the Company. After giving effect to this
transaction, Mr. Quasha and NAR will beneficially own approximately 33.3% of the
Common Stock and Richemont will beneficially own approximately 64.6% of the
Common Stock on a fully diluted basis . Mr. Quasha alone will beneficially own
less than 1% of the Common Stock. Following the closing of this transaction,
NAR intends to distribute the Common Stock then owned by it to its shareholders
pro rata.
Dependence on NAR and Richemont
As the Company's financial performance deteriorated in 1996 and the first
half of 1997, the Company became increasingly dependent on NAR and Richemont and
their affiliates for financial support. On December 19, 1996, the Company
finalized the Reimbursement Agreement with Richemont. See "RECENT DEVELOPMENTS -
Credit Arrangements." There is no assurance that NAR or Richemont or their
affiliates will continue to support the Company financially should the Company
need such support, since neither NAR nor Richemont nor their affiliates are
under any obligation to do so. There is no assurance that should NAR or
Richemont or their affiliates cease to provide such financial support, such
cessation would not have a material adverse impact on the Company.
Potential Conflicts of Interest
NAR is the beneficial owner of approximately 45.2% 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. See "--Relationship with NAR and Richemont." 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, except as noted
above under "--
15
<PAGE> 17
Relationship with NAR and Richemont."
16
<PAGE> 18
THE SELLING STOCKHOLDER
The Shares to which this Prospectus relates are owned by, and are offered
for the account of, the Selling Stockholder, a mutual fund and substantial
investor in the Company. On and prior to the date hereof, the Selling
Stockholder owned 9,480,440 shares of Common Stock, representing 4.5% of the
Company's Common Stock on a fully diluted basis.
The Selling Stockholder acquired the Shares in a private placement on
November 6, 1997 pursuant to a Stock Purchase Agreement dated November 4, 1997
at a price of $1.41 per share for an aggregate purchase price of approximately
$5.2 million. The Shares are restricted and have not been registered under the
Securities Act of 1933, as amended. The Company also entered into a registration
rights agreement with the Selling Stockholder that calls for the Company to use
its best efforts to effect the registration of such shares as soon as
practicable after April 1, 1998 and has granted certain piggyback registration
rights. The Company has the right to delay such registration for a period of not
more that ninety calendar days if, in the reasonable judgment of the Board, such
filing is not in the best interests of the Company at such time. Such
registration is to be effected by the preparation and filing by the Company with
the Commission of a registration statement on Form S-3, of which this Prospectus
constitutes a part. The Company is to pay all expenses in connection with the
registration of such shares.
Neither the Selling Stockholder nor any of its directors, officers,
employees or agents has held any position or office or has had any material
relationship with the Company or any of its predecessors or affiliates within
the past three years.
USE OF PROCEEDS
The Company will not receive any of the proceeds from the sale of the
Shares offered hereby.
PLAN OF DISTRIBUTION
The Shares offered hereby are being sold by the Selling Stockholder acting
as principal for its own account. The Selling Stockholder, directly or through
brokers, dealers, underwriters or agents, may sell some or all of such Selling
Stockholder's Shares. Any broker, dealer, underwriter or agent participating in
a transaction involving the Shares may receive a concession, commission or
underwriting discount from the Selling Stockholder and/or from the purchasers of
such Shares for whom they may act as agents. The broker, dealer or underwriter
may agree to sell a specified number of the Shares at a stipulated price per
Share and, to the extent that such person is unable to do so and acting as an
agent for the Selling Stockholder, to purchase as principal any of the Shares
remaining unsold at a price per Share required to fulfill the person's
commitment to the Selling Stockholder.
A broker, dealer or underwriter who acquires the Shares from the Selling
Stockholder as a principal for its own account may thereafter resell such Shares
from time to time in transactions (which may involve block transactions and
which may also involve sales to or through another broker, dealer, underwriter
or agent, including transactions of the nature described above) on the American
Stock Exchange, in negotiated transactions or otherwise, at market prices
prevailing at the time of the sale or at negotiated prices. In connection with
such resales, the broker, dealer, underwriter or agent may pay commissions to or
receive commissions from the purchasers of the Shares. The Selling Stockholder
also may sell some or all of the Selling Stockholder's Shares directly to
purchasers without the assistance of a broker, dealer, underwriter or agent and
17
<PAGE> 19
without the payment of any commissions.
The Company is bearing all of the costs relating to the registration of
the Shares. Any commissions, discounts or other fees payable to a broker,
dealer, underwriter or agent in connection with the sale of any of the Shares
will be borne by the Selling Stockholder or other persons selling the Shares.
Any commissions paid or any discounts or concessions allowed to any
broker, dealer or underwriter and, if any such broker, dealer or underwriter
purchases any of the Shares as principal, any profits received on the resale of
such Shares, may be deemed to be underwriting commissions or discounts under the
Securities Act.
EXPERTS
The consolidated balance sheets of the Company and subsidiaries as of
December 27, 1997 and December 28, 1996, 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 27, 1997 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.
LEGAL MATTERS
The legality of the Shares offered hereby has been passed upon for the
Company by Brown Raysman Millstein Felder & Steiner LLP, New York, New York.
18
<PAGE> 20
================================================================================
No dealer, salesman or any other person has been authorized to give any
information or to make any representations, other than those contained in this
Prospectus, in connection with the offering made by this Prospectus, and
information and representations not herein contained, if given or made, must not
be relied upon as having been authorized. 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 be made. Neither the delivery of this Prospectus nor any
sales made hereunder shall under any circumstances create any implication that
the information contained herein is correct as of any time subsequent to the
date hereof or thereof or that there has been no change in the affairs of the
Company since the date hereof.
TABLE OF CONTENTS
Page
Available Information ..................................................... 2
Incorporation of Certain
Documents by Reference .............................................. 2
Private Securities Litigation Reform
Act Safe Harbor Statement ........................................... 3
The Company ............................................................... 4
Recent Developments ....................................................... 6
Risk Factors .............................................................. 9
The Selling Stockholder ................................................... 17
Use of Proceeds ........................................................... 17
Plan of Distribution ...................................................... 17
Experts ................................................................... 18
Legal Matters ............................................................. 18
================================================================================
================================================================================
3,700,000 Shares
HANOVER DIRECT, INC.
Common Stock
---------------
PROSPECTUS
__, 1998
---------------
================================================================================
<PAGE> 21
e
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The estimated expenses in connection with the offering of the Shares,
which will be borne by the Registrant, are as follows:
<TABLE>
<S> <C>
SEC registration fee ............................... $ 3,547.38
Printing and engraving expenses .................... 1,000*
Legal fees and expenses ............................ 5,000*
Accounting fees and expenses ....................... 15,000*
Blue Sky fees and expenses (including counsel fees) 1,000*
Miscellaneous expenses ............................. 952.62*
----------
Total ....................... $26,500*
==========
</TABLE>
* Estimated
Item 15. Indemnification of Directors and Officers.
The Registrant is a Delaware corporation. 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 the Registrant or is or was serving, at the
request of the Registrant, 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 the Registrant, 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 the Registrant to indemnify any such
person.
Article SEVENTH of the Certificate of Incorporation of the Registrant
(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
II-1
<PAGE> 22
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.
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 the Registrant 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
the Registrant.
The Registrant has purchased insurance to indemnify its directors
and certain officers against liabilities incurred as a result of serving
in such capacity and has entered into indemnification agreements with
certain of its directors.
II-2
<PAGE> 23
Item 16. Exhibits.
<TABLE>
<CAPTION>
Exhibit Page
Number Description of Exhibit Number
------ ---------------------- ------
<S> <C>
5 Opinion of Brown Raysman Millstein Felder
& Steiner LLP as to the legality of the
securities being registered.
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Brown Raysman Millstein Felder
& Steiner LLP (included in the opinion set
forth as Exhibit 5 to this Registration Statement).
24 Powers of Attorney of certain directors
and officers of the Company (included on pages
II-5 and II-6 of this Registration Statement).
</TABLE>
Item 17. Undertakings.
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) 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;
II-3
<PAGE> 24
Provided, however, that paragraphs (1)(i) and (1)(ii) do not apply if the
Registration Statement is on Form S-3 or Form S-8, 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 hereof.
(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.
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 section 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.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the provisions described under Item 15 above, or
otherwise, the Registrant 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 and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling persons
in connection with the securities being registered, the Registrant will, unless
in the opinion of its 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.
II-4
<PAGE> 25
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
Registration Statement on Form S-3 to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Weehawken, State of New
Jersey, on the 30th day of April, 1998.
HANOVER DIRECT, INC.
By: /s/ Rakesh K. Kaul
----------------------------------
Rakesh K. Kaul
President and Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints Rakesh K. Kaul and Larry J. Svoboda, and
each of them, his true and lawful attorney-in-fact and agent with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto such attorneys-in-fact and
agents full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as they might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, or their
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement on Form S-3 has been signed below by the following
persons in the capacities indicated on April 30, 1998.
Name Title
/s/ Alan G. Quasha
- ---------------------------------- Chairman of the Board and Director
Alan G. Quasha
/s/ Rakesh K. Kaul
- ---------------------------------- Director, President and Chief
Rakesh K. Kaul Executive Officer
(principal executive officer)
II-5
<PAGE> 26
/s/ Larry J. Svoboda
- ---------------------------------- Senior Vice President and Chief
Larry J. Svoboda Financial Officer
(principal financial officer)
/s/ Ralph Destino
- ---------------------------------- Director
Ralph Destino
/s/ J. David Hakman
- ---------------------------------- Director
J. David Hakman
/s/ S. Lee Kling
- ---------------------------------- Director
S. Lee Kling
- ---------------------------------- Director
Theodore H. Kruttschnitt
/s/ Elizabeth Valk Long
- ---------------------------------- Director
Elizabeth Valk Long
/s/ Shailesh J. Mehta
- ---------------------------------- Director
Shailesh J. Mehta
/s/ Jan P. du Plessis
- ---------------------------------- Director
Jan P. du Plessis
- ---------------------------------- Director
Howard M.S. Tanner
/s/ Edmund R. Manwell
- ---------------------------------- Director
Edmund R. Manwell
/s/ Robert F. Wright
- ---------------------------------- Director
Robert F. Wright
II-6
<PAGE> 27
EXHIBIT INDEX
-------------
Exhibit
Number Description of Exhibit
------ ----------------------
5 Opinion of Brown Raysman Millstein Felder
& Steiner LLP as to the legality of the
securities being registered.
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Brown Raysman Millstein Felder
& Steiner LLP (included in the opinion set
forth as Exhibit 5 to this Registration Statement)
24 Powers of Attorney of certain directors
and officers of the Company (included on pages
II-5 and II-6 of this Registration Statement).
<PAGE> 1
EXHIBIT 5
BROWN RAYSMAN MILLSTEIN FELDER & STEINER LLP
120 West 45th Street
New York, New York 10036
April 30, 1998
Hanover Direct, Inc.
1500 Harbor Boulevard
Weehawken, New Jersey 07087
Re: Hanover Direct, Inc.
Ladies and Gentlemen:
We refer to the Registration Statement on Form S-3 (the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities Act"),
filed by Hanover Direct, Inc., a Delaware corporation (the "Company"), with the
Securities and Exchange Commission (the "Commission"). The Registration
Statement covers 3,700,000 shares (the "Shares") of the Company's common stock,
par value $0.66 2/3 per share (the "Common Stock").
We have examined the originals or certified, photostatic or facsimile
copies of such records and other documents as we have deemed relevant and
necessary as the basis for the opinions set forth below. In such examination, we
have assumed the legal capacity of all natural persons, the genuineness of all
signatures, the authenticity of all documents submitted to us as originals, the
conformity to original documents of all documents submitted to us as certified
or photostatic copies and the authenticity of the originals of such copies.
Based upon our examination, as described above, and subject to the
assumptions and qualifications stated herein and relying on statements of fact
contained in the documents that we have examined, we are of the opinion that the
Shares have been duly authorized and validly issued and are fully paid and
non-assessable.
We consent to the filing of this opinion as an Exhibit to the Registration
Statement. In giving this consent, we do not admit that we are within the
category of persons whose consent is required under Section 7 of the Securities
Act or the General Rules and Regulations of the Commission.
Very truly yours,
BROWN RAYSMAN MILLSTEIN
FELDER & STEINER LLP
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this registration statement of our report dated March 4, 1998
(except with respect to the matter discussed in Note 8, as to which the date is
March 25, 1998) included in Hanover Direct, Inc.'s Annual Report on Form 10-K
for the fiscal year ended December 27, 1997 and to references to our firm
included in this registration statement.
ARTHUR ANDERSEN LLP
New York, New York
April 30, 1998
