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Hanover Direct to recapitalize

Gary Evans -- Home Textiles Today, November 10, 2003

Edgewater, NJ — Hanover Direct has signed a recapitalization agreement in principal with Chelsey Direct LCC and Regan Partners LP that will give Chelsey Direct a majority equity and voting interest in the company.

Under the agreement, Chelsey Direct would exchange its 1,622,111 shares of Series B Preferred Stock for 564,819 shares of newly issues Series C Preferred Stock and 81,857,833 shares of newly issued common stock.

If the closing takes place before Dec. 17, the Series C stock will have an aggregate liquidation preference of nearly $56.5 million. The outstanding Series B stock has a current aggregate liquidation preference of nearly $113 million and a maximum final liquidation preference of nearly $146.2 million on August. 23, 2005. The new common shares will have an effective issue price of 69 cents per share.

"We believe we have reached a proposal that provides strong economic benefits to the common shareholders of Hanover by eliminating the overhang created by the Series B Preferred Stock, reducing the potential maximum redemption requirement at the August 23, 2005 redemption date by approximately $90 million, and aligning the interests of all parties to permit the continued turnaround of the company," said Thom Shull, Hanover Direct chairman, president and ceo.

The proposed Series C Preferred Stock has a liquidation preference of $100 per share, carries a quarterly dividend starting on Jan. 1, 2006, and increasing each year by 1.5 percent. In lieu of cash dividends, the company may accrue dividends at a rate equal to 1 percent higher than the annual cash dividend rate. The stock has a mandatory redemption date of Jan. 1, 2009.

Regan Partners LP, a member of the company's board of directors, will participate as a member of the Transactions Committee, which must approve the agreement.

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