SC 13D/A 1 form13da3.txt AMENDMENT NO. 3 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 SCHEDULE 13D Under the Securities Exchange Act of 1934 Amendment No. 3 Hanover Direct, Inc. -------------------------------- (Name of Issuer) Common Stock, $0.66 2/3 par value ------------------------------- (Title of Class of Securities) 440506 10 3 -------------------------------- (CUSIP Number) William B. Wachtel Wachtel & Masyr, LLP 110 East 59th Street New York, New York 10022 (212) 909-9595 --------------------------------------------------- (Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications) August 7, 2003 ------------------------------- (Date of Event which Requires Filing of this Statement) If the filing person has previously filed a statement on Schedule 13G to report the acquisition which is the subject of this Schedule 13D, and is filing this schedule because of Rule 13d-1(e), 13d-1(f) or 13d-1(g), check the following box { }. Note: Schedules filed in paper format shall include a signed original and five copies of the schedule, including all exhibits. See Rule 13d-7 for other parties to whom copies are to be sent. (Continued on following pages) Page 1 of 17 Pages Page 2 of 17 1. NAME OF REPORTING PERSON Chelsey Capital Profit Sharing Plan I.R.S. IDENTIFICATION NO. OF ABOVE PERSON (Entities only) 13-3716218 2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) {x} (b) { } 3. SEC USE ONLY 4. SOURCE OF FUNDS WC 5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e) { } 6. CITIZENSHIP OR PLACE OF ORGANIZATION New York NUMBER OF SHARES 7. SOLE VOTING POWER 0 shares BENEFICIALLY OWNED BY EACH 8. SHARED VOTING POWER 0 shares REPORTING PERSON WITH 9. SOLE DISPOSITIVE POWER 0 shares REPORTING PERSON WITH 10. SHARED DISPOSITIVE POWER 0 shares 11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 29,607,788 shares 12. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES { } 13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 21.4% 14. TYPE OF REPORTING PERSON EP Page 3 of 17 1. NAME OF REPORTING PERSON Chelsey Direct, LLC I.R.S. IDENTIFICATION NO. OF ABOVE PERSON (Entities only) 13-3716218 2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) {x} (b) { } 3. SEC USE ONLY 4. SOURCE OF FUNDS AF 5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e) { } 6. CITIZENSHIP OR PLACE OF ORGANIZATION Delaware NUMBER OF SHARES 7. SOLE VOTING POWER 0 shares BENEFICIALLY OWNED BY EACH 8. SHARED VOTING POWER 0 shares REPORTING PERSON WITH 9. SOLE DISPOSITIVE POWER 0 shares REPORTING PERSON WITH 10. SHARED DISPOSITIVE POWER 0 shares 11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 29,607,788 shares 12. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES { } 13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 21.4% 14. TYPE OF REPORTING PERSON OO Page 4 of 17 1. NAME OF REPORTING PERSON William B. Wachtel I.R.S. IDENTIFICATION NO. OF ABOVE PERSON (Entities only) 2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) {x} (b) { } 3. SEC USE ONLY 4. SOURCE OF FUNDS AF 5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e) { } 6. CITIZENSHIP OR PLACE OF ORGANIZATION United States NUMBER OF SHARES 7. SOLE VOTING POWER 29,446,888 shares BENEFICIALLY OWNED BY EACH 8. SHARED VOTING POWER 0 shares REPORTING PERSON WITH 9. SOLE DISPOSITIVE POWER 29,446,888 shares REPORTING PERSON WITH 10. SHARED DISPOSITIVE POWER 0 shares 11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 29,607,788 shares 12. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES { } 13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 21.4% 14. TYPE OF REPORTING PERSON IN Page 5 of 17 1. NAME OF REPORTING PERSON DSJ International Resources Ltd. I.R.S. IDENTIFICATION NO. OF ABOVE PERSON (Entities only) 13-3716218 2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) {x} (b) { } 3. SEC USE ONLY 4. SOURCE OF FUNDS N/A 5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e) { } 6. CITIZENSHIP OR PLACE OF ORGANIZATION New York NUMBER OF SHARES 7. SOLE VOTING POWER 0 shares BENEFICIALLY OWNED BY EACH 8. SHARED VOTING POWER 0 shares REPORTING PERSON WITH 9. SOLE DISPOSITIVE POWER 0 shares REPORTING PERSON WITH 10. SHARED DISPOSITIVE POWER 0 shares 11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 29,607,788 shares 12. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES { } 13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 21.4% 14. TYPE OF REPORTING PERSON CO, HC Page 6 of 17 1. NAME OF REPORTING PERSON Stuart Feldman I.R.S. IDENTIFICATION NO. OF ABOVE PERSON (Entities only) 2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) {x} (b) { } 3. SEC USE ONLY 4. SOURCE OF FUNDS N/A 5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e) { } 6. CITIZENSHIP OR PLACE OF ORGANIZATION United States NUMBER OF SHARES 7. SOLE VOTING POWER 160,900 shares BENEFICIALLY OWNED BY EACH 8. SHARED VOTING POWER 0 shares REPORTING PERSON WITH 9. SOLE DISPOSITIVE POWER 160,900 shares REPORTING PERSON WITH 10. SHARED DISPOSITIVE POWER 0 shares 11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 29,607,788 shares 12. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES { } 13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 21.4% 14. TYPE OF REPORTING PERSON IN Page 7 of 17 Item 4. Purpose of the Transaction Item 4 is hereby amended by the deletion of the last paragraph and the substitution of the following paragraphs: At 11:30 a.m. on Thursday, August 7, 2003, representatives of Chelsey LLC met with the Board of Directors and senior management of the Issuer. When setting up the meeting, the Issuer requested Chelsey LLC to make a specific proposal with respect to Chelsey LLC's previously stated objective of aligning the interest of the Issuer's Common Stock and the Preferred Shares. In response, Chelsey LLC delivered to the Issuer a document entitled "Recapitalization of Hanover Direct, Inc. Summary of Terms" attached as Exhibit D. Chelsey LLC's representative made an oral presentation to the Issuer's Board following the outline entitled "Hanover Direct, Inc. Summary of Key Points Made By Chelsey Direct, LLC. August 7, 2003" attached as Exhibit E. In response to a question Chelsey LLC indicated that it had not formulated any specific intentions with respect to the Issuer's business, because it only had access to public information, and did not have access to management for a discussion or evaluation of alternatives. Chelsey LLC's representative noted that, after effecting a recapitalization, the entire range of alternatives could be considered on the basis of what would be in the best interests of the Issuer and its shareholders, and deliberations which focused on the effects of various alternatives on the Common Stock versus the Preferred Shares would be eliminated or minimized. At approximately 5 p.m. on Friday, August 8, 2003, Chelsey's representative received the letter attached as Exhibit F, and, at approximately 1 p.m. on Monday, August 11, 2003, Chelsey responded by sending the letter attached as Exhibit G. The Reporting Persons reserve the right to acquire additional shares of the Common Stock in the open market or otherwise, to seek significant representation on the Issuer's Board of Directors and/or to pursue any of the actions enumerated in subparagraphs (a) through (j) of Item 4 of Schedule 13D which they deem appropriate. The Reporting Persons also reserve the right to sell the shares that they have purchased. Chelsey LLC also reserves the right to withdraw or modify its recapitalization proposal. Item 7. Material to be Filed as Exhibits Exhibit A Purchase and Sale Agreement dated as of May 19, 2003 between Richemont Finance S.A. and Chelsey Direct, LLC. (previously filed) Exhibit B Letter, dated July 7, 2003, from Mr. Thomas C. Shull to Messieurs Johann Rupert and Stuart Feldman. (previously filed) Exhibit C Letter, dated July 11, 2003, from Chelsey Direct, LLC to Mr. Thomas C. Shull. (previously filed) Exhibit D Recapitalization of Hanover Direct, Inc. Summary of Terms. Page 8 of 17 Exhibit E Hanover direct, Inc. Summary of Key Points Made by Chelsey Direct, LLC. August 7, 2003. Exhibit F Letter, dated August 8, 2003, from Sarah Hewitt, Esq. of Brown, Raysman, Millstein, Felder & Steiner LLP, counsel to Hanover Direct, Inc., to Martin Nussbaum, Esq. of Swidler Berlin Shereff Friedman, LLP, counsel to Chelsey Direct, LLC. Exhibit G Letter, dated August 11, 2003, from Martin Nussbaum, Esq. of Swidler Berlin Shereff Friedman, LLP, counsel to Chelsey Direct, LLC, to Sarah Hewitt, Esq. of Brown, Raysman, Millstein, Felder & Steiner LLP, counsel to Hanover Direct, Inc. Page 9 of 17 Signatures After reasonable inquiry and to the best of the knowledge and belief of each of the undersigned, the undersigned certify that the information set forth in this Amendment No. 3 to the Statement on Schedule 13D is true, complete and correct. Date: August 12, 2003 Chelsey Capital Profit Sharing Plan By: /s/ William B. Wachtel William B. Wachtel, its Trustee Chelsey Direct, LLC By: /s/ William B. Wachtel William B. Wachtel, its Manager /s/ William B. Wachtel William B. Wachtel DSJ International Resources Ltd. By: /s/ Stuart Feldman Stuart Feldman, its President /s/ Stuart Feldman Stuart Feldman Page 10 of 17 Exhibit Index Exhibit D. Recapitalization of Hanover Direct, Inc. Summary of Terms. Exhibit E. Hanover Direct, Inc. Summary of Key Points Made by Chelsey Direct, LLC. August 7, 2003. Exhibit F. Letter, dated August 8, 2003, from Sarah Hewitt, Esq. of Brown, Raysman, Millstein, Felder & Steiner LLP, counsel to Hanover Direct, Inc., to Martin Nussbaum, Esq. of Swidler Berlin Shereff Friedman, LLP, counsel to Chelsey Direct, Inc. Exhibit G. Letter, dated August 11, 2003, from Martin Nussbaum, Esq. of Swidler Berlin Shereff Friedman, LLP, counsel to Chelsey Direct, LLC, to Sarah Hewitt, Esq. of Brown, Raysman, Millstein, Felder & Steiner LLP, counsel to Hanover Direct, Inc. Page 11 of 17 Exhibit D Recapitalization of Hanover Direct, Inc. Summary of Terms Chelsey Direct will transfer the entire issue of Series B Preferred shares (including accrued dividends) to Hanover Direct, Inc.("HNV") which shall issue to Chelsey (i) shares of Series C Preferred Shares (on the terms set forth below) with an aggregate liquidation preference equal to one-half (1/2) of the accreted liquidation preference of the Series B Preferred Shares and the closing date, and (ii) newly issued shares of Common Stock of HNV at the rate of approximately 300% of its current market value (at the close on August 6, 2003) for the balance of the accreted liquidation preference. Key Terms of Series C Preferred Shares: ------------------------- ------------------------------------------------------ Amount of Issue That number of shares as will have an aggregate liquidation preference equal to 1/2 of the accreted liquidation preference of the Series B Preferred Shares at the closing date. ------------------------- ------------------------------------------------------ ------------------------- ------------------------------------------------------ Liquidation Preference $1.00 per share ------------------------- ------------------------------------------------------ ------------------------- ------------------------------------------------------ Dividend Commencing January 1, 2006 dividends shall be payable quarterly at the rate of 6% per annum, with the preferred dividend rate increasing at by 1 1/2% per annum on each anniversary of the dividend commencement date until redeemed. At HNV's election, dividends may be paid in kind at a rate equal to 1% higher than the applicable cash dividend rate. The Series C Preferred Shares shall be entitled to participate ratably with the Common Stock on a share for share basis in any dividends or distributions paid to or with respect to the Common Stock. The right to participate shall have anti-dilution protection. ------------------------- ------------------------------------------------------ ------------------------- ------------------------------------------------------ Redemption The Series C Preferred Shares may be redeemed in whole and not in part, at the option of HNV at any time for the liquidation preference and any accrued and unpaid dividends (the "Redemption Price"). The Series C Preferred shares shall be redeemed by the Company on January 1, 2009 (the "Mandatory Redemption Date")for the Redemption Price. If the Series C Preferred Shares are not redeemed on or before the Mandatory Redemption Date, the Series C Preferred Shares shall be entitled to elect one half of the Company's Board of Directors. ------------------------- ------------------------------------------------------ ------------------------- ------------------------------------------------------ Voting The Series C Preferred Shares shall be entitled to one vote per share, and shall vote as a class with the Common Stock on any matter submitted to a vote of the Common Stockholders. The Series C Preferred shares shall be entitled to vote as a class on any matter that would adversely affect that Series. ------------------------- ------------------------------------------------------ ------------------------- ------------------------------------------------------ Covenants and Rights The Series C Preferred Shares shall have such additional covenants and rights as are customary or necessary to give effect to the foregoing. ------------------------- ------------------------------------------------------ Page 12 of 17 Other material terms and conditions: The agreements governing the transaction shall, among other things, provide for a reconstitution of HNV's board to permit Chelsey to designate a majority of directors, corporate governance guarantees to assure that there shall be continuing directors of HNV who are not affiliated with Chelsey (who shall have their own counsel and financial advisor at HNV's expense), the assent of the unaffiliated directors shall be required for the approval of any transaction with Chelsey (including, a determination of whether or not to redeem the Series C Preferred shares), demand and piggy back registration rights with respect to the resale by Chelsey of the shares of Common Stock owned by it, the discontinuance, with prejudice, of the pending litigation, releases from Chelsey to HNV and its officers and directors from claims of breach of fiduciary duty, releases from HNV and its officers and directors from claims against Chelsey. Page 13 of 17 Exhibit E Hanover Direct, Inc. Summary of Key Points Made by Chelsey Direct, LLC. August 7, 2003 I. Objective: a. Chelsey's objective is to profit from its investment in HNV in a transaction that aligns the interests of all of the holders of equity. II. Background: a. Prior to acquiring the HNV securities owned by Richemont, Chelsey initiated contact with HNV management and offered to work cooperatively with the HNV to effect a purchase at a discount. In other words, in effect Chelsey would have provided HNV with the financing which would have enabled HNV to acquire the Richemont securities at a discount on an immediate and unconditional basis. b. Based on HNV's filings, HNV instead elected to attempt to effect such a purchase on its own. c. HNV failed in its efforts and Chelsey purchased the Richemont securities in HNV. Chelsey succeeded because it was in a position to pay cash immediately, while HNV did not have the money, so its offer was contingent and conditional. HNV took an aggressive tack by refusing to transfer record ownership, and instituting litigation while attempting to repurchase the securities at a price which, in HNV's judgment, would give Chelsey a return that HNV (but not Chelsey) determined to be adequate. III. Current Status a. The accreted value of the Series B Preferred shares is approximately $105,000,000 and this month will increase to $112,963,810. The Series B Preferred Shares continues to accrete at a rate of more than $15MM per year. b. The Company has itself acknowledged that absent a significant asset disposition, HNV cannot honor its contractual obligation to redeem the Series B Preferred shares, or even a sufficient number of such shares to eliminate Chelsey's entitlement to designate directors at the end of August. Page 14 of 17 c. The Series B Preferred shares will continue to accrete through 2005, at which point the liquidation preference will equal over $146MM. d. The Board of HNV owes a duty to the holders of the Series B Preferred shares; and, in addition, the Certificate of Designation ("COD") of the Series B Preferred shares obligates HNV to redeem the Series B Preferred Shares on August 31, 2005. The COD further requires HNV and its Board Members to "take all measures permitted under the Delaware General Corporate Law" to create sufficient surplus to enable HNV to redeem the Series B Preferred Shares, and to continue to do so until all of the Series B Preferred Shares are redeemed. e. The existence of the Series B Preferred Shares will, for the foreseeable future, impede increases in HNV's business and growth in the value of its common stock. f. The fully accreted value of the Series B Preferred shares is over 400% of the current market capitalization of HNV's common stock. Based on comparable multiples of earnings, HNV's EBITDA would have to increase by nearly 400% in order for the enterprise value of HNV to exceed the sum of its debt, obligations and the liquidation preference of the Series B Preferred. g. The HNV Board may not put at risk the value currently imbedded in HNV, thereby placing at risk and potentially diminishing the assets available to satisfy the obligation to redeem the Series B Preferred. h. HNV today has the opportunity to realize value that would likely enable it to redeem the Series B Preferred Shares at its current accreted value. If values diminish, the entitlement of the Series B Preferred Shares will be put at risk. IV. Merits of Chelsey's Proposal a. Depressing effect of the Series B Preferred Shares would be eliminated. b. Common stock would now participate in their current value of HNV (as opposed to merely having "Option Value") and in all future growth in value. c. Even after reflecting dilution in the common stock, the current common stockholders would achieve greater value than is currently available to them at any likely increase in value. Page 15 of 17 d. In order for the HNV common to achieve a return equal to the Chelsey proposal, HNV's EBITDA would have to increase in excess of 500% and perhaps as much as 800%. This would be a challenge under any circumstance but will be extraordinarily difficult for HNV since the existence of the Series B Preferred hampers access to new capital. e. The distractions and expense of the current dispute would end, as would the possibility of liability. f. The common stockholders would be permitted to share in the discount in the acquisition price of the Series B Preferred Shares. g. The equity and asset base of HNV by definition would not be diminished. h. The value acquired in redeeming the Series B Preferred shares represents a favorable valuation of the common stock being issued- a 300% premium. i. The terms of the Series C Preferred stock to be issued are much less burdensome to HNV and will not present an impediment to the growth of the company or increases in the value of the common stock. Page 16 of 17 Exhibit F BROWNRAYSMAN BROWN RAYSMAN MILLSTEIN FELDER & STEINER Sarah Hewitt Partner 212-895-2190 shewitt@brownraysman.com August 8, 2003 BY FACSIMILE Martin Nussbaum, Esq. Swindler Berlin Shereff Friedman, LLP The Chrysler Building 405 Lexington Avenue New York, New York 10174 Re: Hanover Direct, Inc. Dear Marty: I write on behalf of the Directors of Hanover Direct, Inc. (the "Company") in regards to the recapitalization proposal that Chelsey Direct, LLC ("Chelsey") made to the Company's Board of Directors yesterday morning through an oral presentation accompanied by a written term sheet. Please be advised that the Board of Directors has referred Chelsey's proposal to its Transactions Committee for consideration with a view towards making a recommendation to the Board of Directors. The Transactions Committee with engage financial advisors and counsel to assist in its deliberations. Of necessity, the Transactions Committee and the Board of Directors will need time to properly consider and respond to Chelsey's recapitalization proposal. The Company may be in contact with Chelsey during this process, particularly if the Transactions Committee needs clarification of any aspects of Chelsey's proposal. This letter and the process described herein do not waive any rights the Company may have. Very truly yours, Sarah Hewitt cc: Hanover Direct, Inc. BROWN RAYSMAN MILLSTEIN FELDER & STEINER LLP 900 Third Avenue New York, NY 10022 T 212-895-2000 f 212-895-2900 brownraysman.com Page 17 of 17 Exhibit G SWIDLER BERLIN SHEREFF FRIEDMAN, LLP NEW YORK OFFICE THE CHRYSLER BUILDING WASHINGTON, DC OFFICE 405 LEXINGTON AVENUE THE WASHINGTON HARBOUR MARTIN NUSSBAUM NEW YORK, NY 10174 3000 K STREET, NW, SUITE 300 TELEPHONE: (212) 891-9276 TELEPHONE (212) 973-0111 WASHINGTON, DC 20007-5116 FACSIMILE: (212) 891-9255 FACSIMILE (212) 891-9598 TELEPHONE : (202) 424-7500 MNUSSBAUM@SWIDLAW.COM WWW.SWIDLAW.COM FACSIMILE: (202) 424-7647 August 11, 2003 VIA TELEFAX (212) 895-2900 Sarah Hewitt, Esq. Brown, Raysman, Millstein, Felder & Steiner LLP 900 Third Avenue New York, NY 10022 Re: Hanover Direct, Inc. Dear Sarah: I'm writing in response to your letter dated August, 8, 2003. Chelsey Direct, Inc. ("Chelsey") recognizes that the Transaction Committee and the Board of Directors of Hanover Direct, Inc. (the "Company") will need some time to consider in good faith and respond to Chelsey's recapitalization proposal, although Chelsey believes that the advantages of the proposal to the Company and its Common Stockholders are so manifest that a determination can be made quickly. While Chelsey is prepared to leave that proposal open for a reasonable period of time to permit consideration by the Transaction Committee and Board, it can not do so indefinitely. Accordingly, Chelsey needs to initiate a dialogue immediately with counsel and the financial advisors to the Transaction Committee so that we can discuss a reasonable schedule and facilitate their work. We invite the chairman of the Transaction Committee to contact William Wachtel to initiate this process. Very truly yours, Martin Nussbaum cc: William B. Wachtel