SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
_______
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) February 9, 1996
Lechters, Inc.
(Exact Name of Registrant as Specified in its Charter)
New Jersey 0-17870 13-2821526
(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification No.)
One Cape May Street, Harrison, NJ 07029-9998
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (201) 481-1100
(Former Name or Former Address, if Changed Since Last Report)
Page 1 of 36 pages.
Exhibit index is on page 2.
Item 5. Other Events
On January 16, 1996, Steen Kanter, formerly the Vice-Chairman and
Chief Executive Officer of Lechters, Inc. (hereinafter "the
Company") until January 10, 1996 when the Board of Directors
accepted Mr. Kanter's resignation, filed a civil action against
the Company in the United States District for the Eastern
District of Pennsylvania asserting claims that certain actions of
the Company relating to his departure from the Company had
violated Section 10(b) of the Securities Exchange Act of 1934 and
the Securities and Exchange Commission's Rule 10b-5, and had
breached his Employment Agreement with the Company. The
Complaint and Summons were served upon the Company by certified
mail on January 19, 1996. A complete copy of the Complaint is
attached to this report on Form 8-K as Exhibit 99.1.
The filing of Mr. Kanter's action against the Company was
reported in The Philadelphia Inquirer on January 16, 1996 and in
The Newark Star-Ledger on January 25, 1996.
On February 9, 1996 the Company filed its Answer and Affirmative
Defenses to the Complaint. A copy of that pleading also is
attached to this Form 8-K report as Exhibit 99.2. The Company
denies the material allegations of the claims asserted by Mr.
Kanter.
Exhibit Index
Exhibit 99.1 - Civil Complaint of Steen Kanter against Lechters,
Inc., Action No. 96-CV-232 (E.D.PA.).
Exhibit 99.2 - Civil Answer of Lechters, Inc., Action No. 96-CV-
232 (E.D.PA.).
SIGNATURES
Pursuant to the requirements of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned hereunto duly authorized.
LECHTERS, INC.
(Registrant)
Date February 9, 1996 BY /s/ IRA S. ROSENBERG
Name: Ira S. Rosenberg
Title: Vice President, Secretary
and Corporate Counsel
IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
STEEN KANTER : CIVIL ACTION
5 Beth Drive :
Lower Gwynedd PA 19002 : NO. 96-CV-232,
:
Plaintiff, :
:
v. :
:
LECHTERS, INC. :
One Cape May Street :
Harrison, NJ 07029 :
:
Defendant. :
COMPLAINT
Plaintiff, Steen Kanter, complains against defendant as
follows:
OVERVIEW
1. This is an action to enjoin defendant from continuing
to violate the Securities Exchange Act of 1934 and to defraud and
manipulate the public concerning the true value of the
defendant's securities, which are traded on the over-the-counter
public market a/k/a NASDAQ. Defendant has and continues to make
false statements and to omit material information in its public
releases about the circumstances relating to the defendant's
termination of plaintiff from his positions as Vice Chairman of
the Board of Directors and Chief Executive Officer ("CEO") of the
defendant. The misrepresentations and omissions are an attempt
to cover up the exposure of over $1.5 million connected to
plaintiff's departure from the company, the cancellation of
Mr. Kanters turnaround plan, the planned return of the former CEO
(Donald Jonas), who had caused the problems creating the need for
a turnaround plan, and that the company currently had no
replacement or turnaround plan. The defendant's misstatements
and omissions were false when made, and continue to be false in
order to artificially inflate the price at which defendant's
stock is trading on the over-the-counter market. In this action,
plaintiff seeks preliminary and permanent injunctive relief
requiring defendant to publicly disclose the true material facts
in order to correct the currently existing fraud on the market.
2. This is also an action for defendant's violation of its
employment contract, Plaintiff is entitled to seek approximately
$1.5 million in actual damages, as well as punitive damages based
on the outrageous bad faith and deceptive conduct of defendant.
THE PARTIES
3. Plaintiff, Steen Kanter, is a citizen of the
Commonwealth of Pennsylvania residing at 5 Beth Drive, Lower
Gwynedd, Pennsylvania 19002. Until January 10, 1996, plaintiff
was the Vice Chairman and Chief Executive Office ("CEO") of
Defendant, who defendant hired to help defendant improve its
business.
4. Defendant, Lechters, Inc. (hereinafter referred to as
"defendant" or "Lechters") is a New Jersey corporation with its
principal office at One Cape May Street, Harrison, New Jersey
07029. Defendant is the largest housewares specialty retailer in
the county with 649 retail outlets.
JURISDICTION AND VENUE
5. This court has jurisdiction over this matter pursuant
to Section 27 of the Exchange Act, 15 U.S.C. Section 78aa, and
under 2 U.S.C. Section 1331 because the citizenship of the
parties is diverse. Venue is appropriate in this district
pursuant to 23 U.S.C. Section 78aa and Section 1391(a).
THE FACTS
6. Defendant is publicly held company whose stock is
traded on the over-the-counter market. As of July 29, 1995, the
company had 17,374,000 shares of common stock outstanding, and
for fiscal year 1994 the company had sales of approximately $399
million. Donald Jonas ("Jonas") was at all times relevant to the
allegations of this Complaint the largest single shareholder
(25%) and Chairman of the defendant and former CEO of the
company, who replaced Mr. Kanter.
7. Beginning in or about 1992, defendant began
experiencing stagnant sales, lack of direction and criticism from
the stock analysts. Its stock price was weakening and profits
were declining.
8. Because of, inter alia, these problems, Jonas and
defendant began a search for a new senior executive who could
help cure defendant's problems and help turn the company around.
9. Mr. Kanter was previously employed by Ikea, where he
worked for 22 years. During his 22-year tenure, Mr. Kanter was
based in five different countries and filled a variety of
different positions. Overseas, his positions included: Sales
Manager in Denmark; General Manager of Ikea's entire mail order
business in Germany; President of Ikea's Austrian operations; and
General Manager of Ikea's Canadian operations. In the United
States, Mr. Kanter was President of Ikea U.S. East and Executive
Vice President of Ikea, Inc., as well as a member of the North
American Board of Ikea, until he accepted his position with the
defendant.
10. During 1993, Jonas contacted Mr. Kanter about joining
the defendant. Extensive conversations and negotiations ensued,
specifically with regard to the proposed scope of Mr. Kanter's
responsibility at Lechters and the term of the Contract. The
scope of Mr. Kanter's duties and authority was extremely
important, particularly the degree of freedom he would be given
to do what was necessary to successfully turn the company around.
Mr. Kanter also insisted on a five year term over Jonas' strong
objections, because that was the minimum period Mr. Kanter needed
to develop and implement an effective long range turnaround of
the company.
11. Over the next several months, Jonas and Mr. Kanter
further discussed Mr. Kanter's expectations about the proposed
position, and in late 1993, Mr. Kanter and Jonas came to an
agreement in principle whereby Mr. Kanter would become the new
Vice Chairman and CEO of Lechters, with duties and
responsibilities commensurate with those positions. Some of the
more important aspects of the agreement between the parties were
the minimum five year term and the fact that Mr. Kanter would be
working at the direction of the Board of Directors, not at the
direction of Jonas, who was going to withdraw from active
management of the company.
12. As of January 11, 1994, defendant and Mr. Kanter
entered into a written employment contract (the "Contract") for a
minimum of five years, a true copy of which, as amended, is
attached hereto and incorporated herein as Exhibit "A". Pursuant
to paragraph 2 of the Contract, Mr. Kanter was Vice Chairman of
the Board of Directors and CEO of defendant, and the performance
of his duties "shall be subject to the direction of the Board of
Directors of the Company."
13. After the parties executed the Contract, Mr. Kanter
spent his time learning to understand the numerous problems which
were plaguing Lechters at that time. These included, inter alia,
the absence of a business plan, the lack of a coherent and viable
budgeting process, the stocking of too many products for the size
of the retail outlets, failure to reduce the prices on
discontinued products in the inventory, and lack of inventory
control at the store level. Mr. Kanter learned that the
situation was much worse than Jonas explained, and worse than he
ever expected.
14. Notwithstanding the unexpectedly worse reality,
Mr. Kanter proceeded with his efforts to turn the company around.
By June 1994, Mr. Kanter had developed an extensive and specific
579-day plan (to the end of January 1996) to begin to turn
Lechters into a competitive, stable and profitable company (the
"First Business Plan"). When Mr. Kanter unveiled his Plan to the
public, Wall Street analysts generally praised it and were quite
interested in it. Coupled with Mr. Kanter's proven experience
while at Ikea, the First Business Plan triggered serious interest
in Lechters by stock analysts and investors.
15. Mr. Kanter received a $50,000 increase in his salary
and a $50,000 bonus after his first full year at Lechters, and
was considered the man to turn Lechters around. At the time,
Jonas told Mr. Kanter, and was quoted by others, that Mr. Kanter
would success Jonas as Chairman.
16. After the defendant adopted the First Business Plan,
investor interest in the company's stock began to increase. The
company promoted Mr. Kanter as spokesman to the investment
community with respect to the opportunities and potential at the
company. Mr. Kanter then began numerous press interviews and
appearances for Lechters, which included, inter alia:
a. television and radio interviews;
b. interviews by Dow Jones News Agency;
c. interviews on CNN Television Network;
d. 10 to 15 investment seminars sponsored by various
brokerage houses; and
e. investment seminars in London and Paris sponsored
by Goldman, Sachs & Co.
17. Mr. Kanter's First Business Plan envisioned significant
changes from how the company had operated in the past under the
direction of Jonas. Jonas complained privately on numerous
occasions, both to Mr. Kanter and the Board, that while
Mr. Kanter's First Business Plan was doing well for Lechters and
the long-term stability of the company and its market perception,
it did not present Jonas in a favorable light, and unknown to
Mr. Kanter, Jonas' personal resentment against Mr. Kanter was
beginning to build.
18. During the Summer of 1995, the price of Lechters stock
declined as a result of a decrease in sales during the back-to-
school season. At the time, Mr. Kanter was drafting the next
business plan for the company to take effect February 1, 1996
(the "Second Business Plan"). At a Board meeting held on
September 13, 1996, Jonas informed the Board that he was upset by
bad business decisions and criticized Mr. Kanter's efforts to
continue the concepts in the First Business Plan that were
reflected in the Second Business Plan for the company, which
would be presented to the Board in December. After the meeting,
individual Directors expressed their outrage and embarrassment at
Jonas conduct and remarks. Jonas later apologized to Mr. Kanter
for his remarks and conduct at the September Board meeting.
19. In light of Jonas' criticism at the prior Board meeting
and the private show of support by the individual Directors and
Jonas, Mr. Kanter now wanted formal Board approval of the Second
Business Plan and Budget. At the December 13, 1995 Board
meeting, Jonas spoke in favor of Mr. Kanters Second Business
Plan, urging the Board to adopt it; and the Board and Jonas
appeared to give Mr. Kanter a vote of confidence by unanimously
approving the Second Business Plan and budget without change at
that meeting.
20. On Friday, January 5, 1996, Jonas called a meeting of
the Management Group, which consisted of the Chief Financial
Officer, the Vice Presidents of Real Estate, Human Resources,
Administration and Stores, and the General Merchandise Manager.
These were the key senior management personnel involved in the
implementation of Mr. Kanter's turnaround business plans.
Unbeknownst to Mr. Kanter, however, the Board and Jonas had a
hidden agenda for the meeting.
21. Given public shareholders' displeasure for the lack of
profitability under Jonas' control and the public confidence now
instilled in the investment public by Mr. Kanter's Plans and
implementation to turn the company around, the hidden agenda was
for Jonas to take control of the company without adverse public
reaction or dissension by its shareholders. This agenda
envisioned forcing Mr. Kanter to resign (now that his Second
Business Plan was ready for implementation), and to make it
appear that Jonas had no other choice but to resume control of
the company in light of Mr. Kanter's voluntary departure. If
successful, this hidden agenda (creating a resignation) would
save the company approximately $1.5 million due Mr. Kanter under
his Contract, and would allow Jonas to take the credit for
Mr. Kanter's Second Business Plan, which was soon to be announced
to the public. Jonas and the Board planned to undercut
Mr. Kanter's authority, and humiliate and degrade him before his
senior management in order to stimulate an outraged resignation
by Mr. Kanter.
22. Before the meeting, Mr. Kanter had called Jonas to ask
what he could prepare for the meeting. Jonas told Mr. Kanter it
was a "motivational meeting" for which no written preparation
would be necessary.
23. At the meeting, Jonas' carried out his motivation,
pursuant to the hidden agenda, and did completely undermine
Mr. Kanter's authority, humiliate and degrade him in front of his
Management Group, but failed to force Mr. Kanter's resignation.
24. Jonas carried out the Board's directive and hidden
agenda, but his statements created confusion and uncertainty,
both by Mr. Kanter and the members of the Management Group, about
who was to be in daily charge of the turnaround of the company.
25. Jonas castigated Mr. Kanter for his decisions, told the
staff he (Jonas) was taking over, and completely undermined and
changed Mr. Kanter's plans to turn the company around.
26. Mr. Kanter did not resign, but left the meeting to pick
up his wife from the hospital and discussed these serious matters
by telephone with Board member, Charles Davis, of Goldman, Sachs
& Co., which company actively promotes, markets and trades
defendant's shares. Mr. Kanter informed Davis of his belief that
Jonas had just fired him, but Davis reminded Mr. Kanter that only
the Board had that power.
27. Mr. Kanter also had a telephone conversation with
Bernard Fischman ("Fischman"), another Board member and outside
counsel for the company, who informed Mr. Kanter that a special
Board meeting had been scheduled for Monday, January 8, 1996 at
9:00 a.m. on the issue Mr. Kanter raised with Mr. Davis.
Mr. Kanter recited the disturbing events of the January 5th
meeting, and indicated his belief that Jonas had undermined his
authority as CEO. Mr. Kanter also said he was drafting a letter
to Jonas and the Board for presentation of the events which took
place in order to protect himself. Fischman instructed and
advised Mr. Kanter not to present the letter and that nothing be
put in writing at that time. Mr. Kanter followed counsel's
advice and instructions, and never delivered any letter to Jonas
or the Board.
28. At all relevant times, Mr. Kanter was a Board member,
but received no written notice of the meeting or its agenda.
29. Because of the blizzard that hit the area on January 7,
and 8, 1996, the offices of the defendant were closed on
January 8 and 9, 1996, and the Board meeting had to be
rescheduled for January 10, 1996.
30. Without Mr. Kanter's knowledge and pursuant to the
hidden agenda, Jonas had arranged and held secret meetings on
January 6, 1996 with members of the Management Group, without
Mr. Kanter's attendance.
31. On January 8 and 9, 1996, Mr. Kanter worked from his
home because of the storm. He communicated with Jonas and others
by telephone and E-Mail. When Jonas questioned whether
Mr. Kanter would be returning to work, Mr. Kanter emphatically
told him there was no question that he would continue to fulfill
his responsibilities, even in light of Jonas' efforts to
undermine his turnaround plan. He explained that this was an
issue for the Board, and Mr. Kanter believed that it would be
worked out at the Board meeting.
32. The Contract between Mr. Kanter and defendant addresses
termination in paragraph 9, which provides that unless the Board
were to terminate Mr. Kanter for certain specified reasons, it
could only terminate Mr. Kanter if it paid him the full amount of
compensation owed him under the full five year term of the
Contract. Under the remaining three year term of the Contract,
Mr. Kanter's compensation totalled $1.35 million in salary plus
various other benefits specified in the Contract.
33. The only reasons under the Contract for which defendant
could terminate Mr. Kanter "for cause" without having to pay him
his full compensation were:
a. disability;
b. conviction of a crime of mortal turpitude or a
felony;
c. gross negligence or willful misconduct; or
d. breach of the Contract after written notice and
failure to correct such breach.
At no time did any of these reasons exist.
34. Mr. Kanter arrived for the January 10, 1996 Board
meeting at approximately 8:30 a.m., and 15 minutes later,
John Wolff, Director of the Executive Committee ("Wolff"), and
Fischman -- both Board members -- asked to speak with Mr. Kanter
privately. They all proceeded to a conference room, and once
inside, Messrs. Wolff and Fischman told Mr. Kanter in substance
that the entire Board was prepared to terminate his contract at
Lechters. While Mr. Kanter was a Board member, he had never
participated in any meeting or discussion with any Board member
at which his termination was discussed, much less approved.
35. The actions of Wolff and Fischman were part of
defendant's hidden agenda deception, bad faith and outrageous
conduct to obtain a resignation by Mr. Kanter or to falsely
characterize Mr. Kanter's departure to the public as a
resignation. First, they attempted to threaten and intimidate
Mr. Kanter into resigning in return for accepting a lesser
settlement of $300,000 in cash (or $15,000 a month for 30 months,
but the payments would stop upon Mr. Kanter entering into any
sort of employment or any consulting positions). Wolff and
Fischman then threatened that if Mr. Kanter rejected these two
proposals, the Board would terminate his Contract without any
payment, and falsely stated that the Board had grounds to support
such a termination for cause. They further told Mr. Kanter he
would have to sue defendant with respect to a "for cause"
termination of his Contract at great expense to him and at the
risk of possible harm to his reputation. Messrs. Wolff and
Fischman ended their ultimatum by noting that Mr. Kanter had five
minutes to decide or the Board meeting would proceed to terminate
him.
36. Mr. Kanter rejected the Boards demand, refused to
resign and noted that he had a Contract with Lechters that
prevented the Board from acting as they threatened to do.
37. The Board meeting proceeded, but when Mr. Kanter
attempted to attend, the Board ejected Mr. Kanter from the
meeting -- even though he was a member -- informing him they
would call him when they needed him. At no time was Mr. Kanter
permitted to engage in any discussions with the Board regarding
the matter at issue.
38. At approximately 11:45 a.m., Mr. Fischman came out of
the Board room and indicated to Mr. Kanter that the Board should
be able to talk with him in 15 to 20 minutes. Soon after,
however, the Board informed Mr. Kanter it was recessed for lunch
and would reconvene at 1:45 p.m.
39. Mr. Kanter returned to the Board room at 1:30 p.m., but
only Messrs. Fischman and Wolff were present. They informed
Mr. Kanter that the Board had accepted his resignation, even
though Mr. Kanter had never submitted his resignation. They
further informed Mr. Kanter that Donald Jonas replaced him as
President and CEO of Lechters, and that a press release had been
issued to that effect.
40. Messrs. Wolff and Fischman then informed Mr. Kanter
that he could not return to his office at Lechters, and that
arrangements were to be made through the Vice President of Human
Resources for the return of his personal belongings.
41. At approximately 2:00 p.m. on January 10, 1996, a news
report entitled "Lechters' Vice Chairman, CEO Kanter, Resigned"
was disseminated over the AP wire. A true copy of that report is
attached hereto and incorporated herein as Exhibit "B".
42. The press release was false and deceptive, and omitted
material facts. It omitted the hidden agenda as outlined above,
and it was false in that Mr. Kanter did not resign, but was
terminated as Vice Chairman and CEO of Lechters. This created
the false public impression that Mr. Kanter left voluntarily,
thereby forcing Jonas to resume control by default rather than by
design. Had defendant revealed the truth, the stock price would
have been adversely affected.
43. The press release also omitted facts explaining that
the Board had engineered Mr. Kanter's ouster in order for Jonas
to return to operational control of the company without public or
shareholder dissension or financial detriment. These false
statements and omissions were material because the ouster of
Mr. Kanter, as opposed to his resignation, would have revealed a
significant and detrimental change in the turnaround operations
of the company. The truth would show that defendant was
abandoning the turnaround plan developed by Mr. Kanter in favor
of the prior disastrous management of Jonas, who had not
developed a turnaround plan, and that the company was once again
without leadership on any level to reverse its poor performance
while under the directive of Jonas.
44. The press release was further false and misleading
because it failed to disclose that (a) the company had to pay
Mr. Kanter full compensation owed him under his Contract, which
was approximately $1.5 million, or (b) that the company had
offered to pay Mr. Kanter up to $450,000 to settle this
obligation for his resignation.
45. The effect of the false and misleading press release
was to maintain an artificially inflated price for the company's
stock above the level it would otherwise be. Despite notice of
the falsity of the press release, defendant has failed to issue
any correction.
46. Mr. Kanter is the beneficial owner of 220 shares of
common stock of defendant through his 401(k) plan. In addition,
as a part of his compensation, he owns options to purchase 20,000
shares of stock at prices of $11.50, and is entitled to receive
additional options to purchase another 35,000 shares beginning at
the end of this month.
47. As an officer and director of Lechters, Mr. Kanter
knows the defendant has made false and misleading statements of
material fact to the public, but he cannot purchase any
additional shares to protect his prior investment nor sell any
shares he either owns or has under option.
48. Unless and until the defendant corrects its false and
misleading public statements, Mr. Kanter is be unable to trade
any of the securities of the defendant in the market.
COUNT I
INJUNCTION TO HALT CONTINUED VIOLATIONS OF
SECTION 10(B) OF THE EXCHANGE ACT AND RULE 10B-5
49. Plaintiff incorporates by reference the allegations in
paragraphs 1-48 above as if set forth at length herein.
50. As set forth above, defendant has engaged in a plan,
scheme and course of conduct, pursuant to which it knowingly
and/or recklessly engaged in acts, transactions, practices and
courses of business which operated as a fraud upon plaintiff and
the public, and made various untrue statements of material fact
and omitted to state material facts necessary in order to make
the statements made, in light of the circumstances under which
they were made, not misleading, to the public concerning the
termination of plaintiff. The purpose and effect of said scheme
was to artificially inflated the prices of the company's common
stock.
51. By reason of the foregoing, defendant violated
Section 10(b) of the Exchange Act and Rule 10b-5 promulgated
thereunder in that it (a) employed devices, schemes and artifices
to defraud, (b) made untrue statements of material fact or
omitted to state material facts necessary in order to make the
statements made, in light of the circumstances under which they
were made, not misleading, or (c) engaged in acts, practices and
a course of business which operated as a fraud or deceit upon
plaintiff and the public.
52. As a result of the foregoing, the market price of the
Company's common stock was and continues to be artificially
inflated and has affected and continues to affect adversely the
integrity of the market both as to price and as to whether to
purchase these securities. Such conditions will continue unless
and until the defendant publicly discloses the true facts.
53. Until the defendant publicly discloses the true facts,
plaintiff will be unable to purchase or sell any of his
securities of the defendant to his detriment.
54. Plaintiff has no adequate remedy at law for the
continuing harm he is suffering as a result of plaintiff's
actions.
55. Plaintiff is entitled to an award of attorneys' fees
under the federal securities laws.
COUNT II
BREACH OF CONTRACT
56. Plaintiff incorporates by reference the allegations in
paragraphs 1-55 above as if set forth at length herein.
57. As set forth above, defendant breached its Contract
with Mr. Kanter as of January 10, 1996, when it barred him from
his office and from the performance of his duties and
responsibilities pursuant to his Contract.
58. Mr. Kanter was never served any notice of termination
by the company, and has always remained willing and able to
perform his duties, and is still entitled to all the rights,
compensation and other benefits described in the Contract.
59. Defendant owes Mr. Kanter $1.35 million in pay, plus
options to acquire shares of stock that pursuant to the terms of
paragraph 3(b) of the Contract, plus the Cost for the next three
years of health and insurance programs in which Mr. Kanter is now
enrolled, as well as automobile allowance and related expenses
and 401(k) payments.
60. As set forth above, defendant acted so egregiously and
outrageously in a willful bad faith scheme in breach of the
Contract by, inter alia, knowingly and intentionally, and to
deceive, intimidate, threaten and humiliate the plaintiff,
causing him significant pain, suffering and emotional distress.
61. Defendant's outrageous breach of the Contract justifies
an award of punitive damages against defendant.
WHEREFORE, plaintiff requests this Court to grant judgment
in his favor and:
(a) on Count I, preliminarily and permanently enjoin
defendant from further violations of the Securities
Laws, and direct the defendant to correct the false
statements in the market place;
(b) on Count II, award damages of $1.35 million plus the
stock options and other financial benefits to which
plaintiff to entitled under the Contract;
(c) on Count II, award punitive damages against defendant
in an amount sufficient to deter such outrageous
conduct in the future;
(d) award plaintiff the costs of this action, including
reasonable attorneys' fees; and
(e) Award such other relief as is just and appropriate.
Respectfully submitted,
SPECTOR GADON & ROSEN, P.C.
/s/ Paul R. Rosen, Esquire
By: /s/ Daniel J. Dugan, Esquire
Paul R. Rosen, Esquire
Daniel J. Dugan, Esquire
1700 Market Street,
29th Floor
Philadelphia, PA 19103
(215) 241-8888
January 16, 1996 Attorneys for Plaintiff,
Steen Kanter
IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
STEEN KANTER : CIVIL ACTION
5 Beth Drive :
Lower Gwynedd, PA 19002 : NO. 96-CV-232
:
Plaintiff, :
:
v. :
:
LECHTERS, INC. :
One Cape May Street :
Harrison, NJ 07029 :
:
Defendant. :
ANSWER
Defendant, Lechters, Inc., answers the factual
averments of the Complaint according to each of the numbered
paragraphs, as follows:
1. Defendant admits that securities of Lechters, Inc.
are traded on the over-the-counter public market and that Steen
Kanter was Vice Chairman of the Board of Directors and Chief
Executive Officer at the time of his employment with Lechters,
Inc. Defendant denies all other allegations of Paragraph 1 of
the Complaint.
2. Defendant denies the allegations of Paragraph 2 of
the Complaint.
3. Defendant admits that Steen Kanter resides at 5
Beth Drive, Lower Gwynedd, PA 19002 and that until January 10,
1996, he was Vice Chairman of the Board and Chief Executive
Officer of Lechters, Inc., who defendant hired to perform his
duties "subject to the direction of the Board of Directors of the
Company". Defendant does not have knowledge or information
sufficient to form a belief about the truth of the averment that
Steen Kanter is a citizen of the Commonwealth of Pennsylvania.
Defendant denies all other allegations of Paragraph 3 of the
Complaint.
4. Defendant admits the allegations in Paragraph 4 of
the Complaint that Lechters, Inc. is a New Jersey corporation,
that its principal office is at One Cape May Street, Harrison,
NJ, that Lechters, Inc. is "the largest housewares specialty
retailer in the county", and that it has 642 retail outlets.
Defendant denies all other allegations of the Complaint.
5. Defendant admits the citizenship of the parties is
diverse. Defendant denies all other allegations of Paragraph 5
of the Complaint.
6. Defendant admits that the stock of Lechters, Inc.
is publicly held and is traded on the over-the-counter market;
that Lechters, Inc. had 17,333,000 shares of common stock
outstanding as of July 29, 1995; that Lechters, Inc. had sales of
$399.3 million for fiscal year 1994; that Donald Jonas was the
largest single shareholder (24.4%) of Lechters, Inc. during all
times relevant to the allegations in the Complaint; and that
Donald Jonas is Chairman of the Board and the former and present
Chief Executive Officer of Lechters, Inc. Defendant denies all
other allegations of Paragraph 6 of the Complaint.
7. Defendant denies the allegations of Paragraph 7 of
the Complaint.
8. Defendant denies the allegations of Paragraph 8 of
the Complaint.
9. Defendant admits that Mr. Kanter was employed by
Ikea before he was employed by Lechters, Inc. Defendant does not
have knowledge or information sufficient to form a belief about
the truth of the other allegations of Paragraph 9, and therefore
denies those allegations.
10. Defendant admits the allegations of Paragraph 10
of the Complaint that Mr. Jonas had discussions with Mr. Kanter;
that following those discussions Mr. Kanter entered into a
written employment agreement with Lechters, Inc., effective
January 11, 1994; that Exhibit "A" attached to the Complaint is a
true copy of that employment agreement (the "Contract"); and that
Mr. Kanter had the duties of a CEO subject to the direction of
the Board of Directors. Defendant denies all other allegations
of Paragraph 10 of the Complaint.
11. Defendant admits the allegations in Paragraph 11
of the Complaint that after discussions between Mr. Kanter and
Lechters, Mr. Kanter and Lechters entered into the Contract.
Defendant denies all other allegations of Paragraph 11 of the
Complaint. Defendant refers to the Contract for the terms
thereof.
12. Defendant admits that Mr. Kanter and Lechters,
Inc. entered into the Contract. Defendant refers to the Contract
for the terms thereof. Defendant denies all other allegations of
Paragraph 12 of the Complaint.
13. Defendant denies the allegations of Paragraph 13
of the Complaint.
14. Defendant admits a 579-day business plan was
created for Lechters, Inc. Defendant does not have knowledge or
information sufficient to form a belief about the truth of the
allegations about the extent of interest in Lechters' stock based
on the plan as distinguished from all other factors concerning
Lechters, Inc. and thus denies those allegations. Defendant
denies all other allegations of Paragraph 14 of the Complaint.
15. Defendant admits that the amount of Mr. Kanter's
compensation provided under the Contract was increased by $50,000
effective February 1, 1995 and that in the discretion of the
Board of Directors Lechters, Inc. paid Mr. Kanter a bonus of
$50,000 for services rendered during fiscal year 1994. Defendant
denies all other allegations of Paragraph 15 of the Complaint.
16. Defendant admits that Mr. Kanter had press
interviews and appearances for Lechters, Inc. which included
television and radio interviews and investment seminars.
Defendant denies all other allegations of Paragraph 16 of the
Complaint.
17. Defendant denies the allegations of Paragraph 17
of the Complaint.
18. Defendant does not have knowledge or information
sufficient to form a belief about the truth of the allegations as
to all the reasons for the decline in the price of Lechters'
stock during the summer of 1995, and as to any alleged
expressions of outrage and embarrassment by individual Directors.
Defendant denies all other allegations of Paragraph 18 of the
Complaint.
19. Defendant admits that at its meeting on December
13, 1995 the Board of Directors of Lechters, Inc. approved the
Second Business Plan by a unanimous vote. Defendant denies all
other allegations of Paragraph 19 of the Complaint.
20. Defendant admits the allegations of Paragraph 20
of the Complaint that Mr. Jonas, Mr. Kanter and members of the
Management Group held a meeting on Friday, January 5, 1996; and
that the Management Group included the Senior Vice President and
Chief Merchandise Manager, Vice President and Chief Financial
Officer, and the Vice Presidents of Real Estate, Human Resources,
Administration, and Stores. Defendant denies all other
allegations of Paragraph 20 of the Complaint.
21. Defendant denies the allegations of Paragraph 21
of the Complaint.
22. Defendant admits that Mr. Jonas and Mr. Kanter had
a discussion about the January 5, 1996 Management Group Meeting.
Defendant denies all other allegations of Paragraph 22 of the
Complaint.
23. Defendant denies the allegations of Paragraph 23
of the Complaint.
24. Defendant denies the allegations of Paragraph 24
of the Complaint.
25. Defendant denies the allegations of Paragraph 25
of the Complaint.
26. Defendant admits that on Friday, January 5, 1996
Mr. Kanter spoke to Charles Davis, a member of the Board of
Directors of Lechters, Inc. and a Limited Partner of Goldman,
Sachs & Co., by telephone; that in the conversation Mr. Kanter
stated that Mr. Jonas had fired him; and that Mr. Davis stated
that only the Board of Directors had the power to fire Mr.
Kanter. Defendant avers that during the conversation Mr. Davis
told Mr. Kanter that he should go back to work, and Mr. Kanter
replied, "I cannot do that; I won't do that." Defendant denies
all other allegations in Paragraph 26 of the Complaint.
27. Defendant admits the allegations of Paragraph 27
of the Complaint that Mr. Kanter had a telephone conversation on
January 5, 1996 with Bernard Fischman; that Mr. Fischman is a
member of the Board of Directors and outside counsel for
Lechters, Inc.; that among the matters discussed during the
telephone conversation were the following: that Mr. Fischman told
Mr. Kanter a board meeting had been scheduled for Monday, January
8, 1996; that Mr. Kanter spoke to Mr. Fischman about the January
5 meeting; that Mr. Kanter stated he would not return to work
unless and until Mr. Jonas apologized in writing for Mr. Jonas'
statements at the January 5 meeting and also agreed to apologize
in person in the presence of Mr. Kanter at a meeting with the
Management Group, and that his demand for the apology was non-
negotiable; that Mr. Fischman told Mr. Kanter that Mr. Jonas
would not apologize; and that Mr. Kanter stated he was drafting a
demand for the apology to fax to Mr. Jonas. Defendant denies all
other allegations in Paragraph 27 of the Complaint.
28. Defendant admits Mr. Kanter was a member of the
Board of Directors of Lechters, Inc. from the time of his
employment until his resignation was accepted by the Board on
January 10, 1996; and that Mr. Kanter received oral notice of the
meeting and the agenda. Defendant denies all other allegations
of Paragraph 28 of the Complaint.
29. Defendant admits the allegations of Paragraph 29
of the Complaint.
30. Defendant denies the allegations of Paragraph 30
of the Complaint.
31. Defendant admits that on January 8 and 9, 1996 Mr.
Kanter communicated with Mr. Jonas. Defendant does not have
knowledge or information sufficient to form a belief about other
individuals to whom plaintiff refers. Defendant denies all other
allegations of Paragraph 31 of the Complaint.
32. Defendant denies the allegations of Paragraph 32
of the Complaint because they do not state factual averments for
which an answer is required, but rather state legal conclusions
for which no answer is required. Defendant refers to the
Contract for the terms thereof.
33. Defendant denies the allegations of Paragraph 33
of the Complaint because they do not state factual averments for
which an answer is required, but rather state legal conclusions
for which no answer is required. Defendant refers to the
Contract for the terms thereof.
34. Defendant admits that Bernard Fischman and John
Wolff are members of the Board of Directors of Lechters, Inc.;
that John Wolff is a member of the Executive Committee; that Mr.
Wolff and Mr. Fischman asked to speak with Mr. Kanter privately
when he arrived for the January 10, 1996 Board meeting; and that
they spoke together prior to the Board meeting. Defendant denies
all other allegations of Paragraph 34 of the Complaint.
35. Defendant denies the allegations of Paragraph 35
of the Complaint.
36. Defendant denies the allegations of Paragraph 36
of the Complaint.
37. Defendant denies the allegations of Paragraph 37
of the Complaint.
38. Defendant denies the allegations of Paragraph 38
of the Complaint.
39. Defendant admits the allegations in Paragraph 39
of the Complaint that after the Board meeting Messrs. Fischman
and Wolff told Mr. Kanter that the Board had voted to accept his
resignation and had named Donald Jonas as President and CEO of
Lechters, and that a press release stating those actions would be
issued. Defendant denies the allegation that "Mr. Kanter had
never submitted his resignation", and denies all other
allegations of Paragraph 39 of the Complaint.
40. Defendant admits the allegations of Paragraph 40
of the Complaint.
41. Defendant does not have knowledge or information
sufficient to form a belief about the truth of the allegations of
Paragraph 41 of the Complaint, and therefore denies those
allegations.
42. Defendant denies the allegations of Paragraph 42
of the Complaint.
43. Defendant denies the allegations of Paragraph 43
of the Complaint.
44. Defendant denies the allegations of Paragraph 44
of the Complaint.
45. Defendant denies the allegations of Paragraph 45
of the Complaint.
46. Defendant admits that Mr. Kanter is the beneficial
owner of certain shares of the common stock of Lechters, Inc.
through his 401(k) plan and that he holds options to purchase
certain shares of Lechters, Inc. at a price of $11.50 per share.
Defendant denies all other allegations in Paragraph 46 of the
Complaint.
47. Defendant denies the allegations of Paragraph 47
of the Complaint.
48. Defendant denies the allegations of Paragraph 48
of the Complaint.
49. In response to Paragraph 49 of the Complaint,
Defendant has previously stated its answers to the allegations in
Paragraphs 1 - 48 of the Complaint which Defendant hereby
incorporates by reference as if set forth at length herein.
50. Defendant denies the allegations of Paragraph 50
of the Complaint.
51. Defendant denies the allegations of Paragraph 51
of the Complaint.
52. Defendant denies the allegations of Paragraph 52
of the Complaint.
53. Defendant denies the allegations of Paragraph 53
of the Complaint.
54. Defendant denies the allegations of Paragraph 54
of the Complaint.
55. Defendant denies the allegations of Paragraph 55
of the Complaint.
56. In response to Paragraph 56 of the Complaint,
Defendant has stated its answers to the allegations in Paragraphs
1 - 55 of the Complaint, which Defendant hereby incorporates by
reference as if set forth at length.
57. Defendant denies the allegations of Paragraph 57
of the Complaint.
58. Defendant admits that Lechters, Inc. did not serve
a notice of termination on Mr. Kanter. Defendant denies all
other allegations of Paragraph 58 of the Complaint.
59. Defendant denies the allegations of Paragraph 59
of the Complaint.
60. Defendant denies the allegations of Paragraph 60
of the Complaint.
61. Defendant denies the allegations of Paragraph 61
of the Complaint.
WHEREFORE, Defendant, Lechters, Inc., requests the
Court to enter judgment in favor of Lechters, Inc. on all claims
alleged in the Complaint.
AFFIRMATIVE DEFENSES
FIRST AFFIRMATIVE DEFENSE
1. The Complaint fails to state claim for which
relief can be granted.
SECOND AFFIRMATIVE DEFENSE
2. Plaintiff lacks standing to bring a claim under
Section 10(b) of the Securities Exchange Act of 1934 and Rule
10b-5 thereunder.
THIRD AFFIRMATIVE DEFENSE
3. Plaintiff's claim under Section 10(b) of the
Securities Exchange Act of 1934 and Rule 10b-5 thereunder is
barred because Plaintiff's claim is not in connection with the
purchase or sale of a security.
FOURTH AFFIRMATIVE DEFENSE
4. Plaintiff's claim under Section 10(b) of the
Securities Exchange Act of 1934 and Rule 10b-5 thereunder does
not allege fraud with the specificity required by applicable law,
rule, and statute.
FIFTH AFFIRMATIVE DEFENSE
5. Defendant at all times acted in good faith and
without knowledge of wrongdoing and did not directly or
indirectly induce any act or acts constituting any purported
violation or purported cause of action alleged in the Complaint.
SIXTH AFFIRMATIVE DEFENSE
6. Plaintiff has suffered neither harm nor
"irreparable harm".
SEVENTH AFFIRMATIVE DEFENSE
7. In refraining from trading shares of Lechters,
Inc. stock, Plaintiff assumed the risk related thereto.
EIGHTH AFFIRMATIVE DEFENSE
8. Any injury, harm or loss sustained by Plaintiff
was not proximately caused by any unlawful act or omission by
Defendant.
NINTH AFFIRMATIVE DEFENSE
9. Any harm or injury suffered by Plaintiff resulted
from his own decisions and conduct.
TENTH AFFIRMATIVE DEFENSE
10. Plaintiff's alleged decision not to trade shares
of Lechters, Inc. stock was made in reliance on facts or factors
other than the alleged misrepresentations or omissions contained
in the Complaint.
ELEVENTH AFFIRMATIVE DEFENSE
11. Defendant owed no duty to disclose the allegedly
omitted information in the press release, and at all times
Plaintiff concedes he had knowledge of the alleged omissions and
misrepresentations contained in the Complaint.
TWELFTH AFFIRMATIVE DEFENSE
12. The alleged omitted information and
misrepresentations were in the public domain on January 16, 1996,
and a copy of the Complaint and Defendant's position with respect
thereto is being filed on Form 8K on February 9, 1996 with the
Securities and Exchange Commission, and Plaintiffs request for
injunctive relief is moot.
THIRTEENTH AFFIRMATIVE DEFENSE
13. The alleged omitted information did not constitute
material information.
FOURTEENTH AFFIRMATIVE DEFENSE
14. No breach of contract by Defendant has occurred,
because Plaintiff resigned his position and Defendant accepted
his resignation.
FIFTEENTH AFFIRMATIVE DEFENSE
15. No breach of contract occurred because Defendant
was entitled to terminate Plaintiff's employment because
Plaintiff acted with gross negligence in the performance of his
duties under the Contract between Plaintiff and Defendant.
SIXTEENTH AFFIRMATIVE DEFENSE
16. Plaintiff's Complaint fails to state a claim upon
which punitive damages can be awarded.
SEVENTEENTH AFFIRMATIVE DEFENSE
17. Plaintiff has failed to mitigate his damages and
failed to comply with Paragraph 9(c) of the Contract between
Plaintiff and Defendant, including that he "shall use his best
efforts to obtain employment commensurate with his ability and
experience."
EIGHTEENTH AFFIRMATIVE DEFENSE
18. Any damages or compensation to which Plaintiff is
entitled is controlled by Paragraph 9(c) of the Contract between
Plaintiff and Defendant, including that Plaintiff is only
entitled to receive such compensation expressly stated therein,
"less any amounts received by employee as results of other
employment."
/s/ STEPHEN W. ARMSTRONG
Stephen W. Armstrong
Identification No. 16218
MONTGOMERY, McCRACKEN, WALKER & RHOADS
Twentieth Floor, Three Parkway
Philadelphia, Pa. 19102
(215) 665-7552
/s/ JAY G. SAFER
Jay G. Safer
LeBoeuf, Lamb, Greene & MacRae, L.L.P.
125 West 55th Street
New York, NY 10019-4513
(212) 424-8287
Attorneys for Defendant, Lechters, Inc.
Dated: February 9, 1996
CERTIFICATE OF SERVICE
I certify that on this date I caused a copy of this
Complaint to be served upon counsel for the plaintiff by mail
addressed to:
Paul R. Rosen
Daniel J. Dugan
1700 Market Street, 29th Floor
Philadelphia, PA 19103
(215)241-8800
Attorneys for Plaintiff, Steen Kanter
/s/ STEPHEN W. ARMSTRONG
Stephen W. Armstrong
Date: February 9, 1996
