SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 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): January 7, 2004
---------------
Hanover Direct, Inc.
-------------------------------------------------------------
(Exact Name of Registrant as Specified in Charter)
1-12082
----------------------------------
(Commission File Number)
Delaware 13-0853260
----------------------------------- -----------------------------
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation) Identification Number)
115 River Road
Edgewater, New Jersey 07020
----------------------------------- --------------
(Address of Principal (Zip Code)
Executive Offices)
Registrant's telephone number, including area code: (201) 863-7300
--------------
-------------------------------------------------------------------------------
(Former Name or Former Address, if Changed Since Last Report)
ITEM 5. OTHER EVENTS.
On June 28, 2001, Rakesh K. Kaul, the former President and Chief Executive
Officer of Hanover Direct, Inc., a Delaware corporation (the "Company"), filed a
five-count complaint (the "Complaint") in New York State Court against the
Company, seeking damages and other relief arising out of his separation of
employment from the Company, including severance payments of $2,531,352 plus the
cost of employee benefits, attorneys' fees and costs incurred in connection with
the enforcement of his rights under his employment agreement with the Company,
payment of $298,650 for 13 weeks of accrued and unused vacation, damages in the
amount of $3,583,800, or, in the alternative, a declaratory judgment from the
court that he is entitled to all change of control benefits under the "Hanover
Direct, Inc. Thirty-Six Month Salary Continuation Plan," and damages in the
amount of $1,396,066 or $850,000 due to the Company's purported breach of the
terms of the "Long-Term Incentive Plan for Rakesh K. Kaul" by failing to pay him
a "tandem bonus" he alleges was due and payable to him within the 30 days
following his resignation. The Company removed the case to the U.S. District
Court for the Southern District of New York on July 25, 2001. Mr. Kaul filed an
Amended Complaint ("Amended Complaint") in the U.S. District Court for the
Southern District of New York on September 18, 2001. The Amended Complaint
repeats many of the claims made in the original Complaint and adds ERISA claims.
On October 11, 2001, the Company filed its Answer, Defenses and
Counterclaims to the Amended Complaint, denying liability under each and every
of Mr. Kaul's causes of action, challenging all substantive assertions, raising
several defenses and stating nine counterclaims against Mr. Kaul. The
counterclaims include (1) breach of contract; (2) breach of the Non-Competition
and Confidentiality Agreement with the Company; (3) breach of fiduciary duty;
(4) unfair competition; and (5) unjust enrichment. The Company seeks damages,
including, without limitation, the $341,803 in severance pay and car allowance
Mr. Kaul received following his resignation, $412,336 for amounts paid to Mr.
Kaul for car allowance and related benefits, the cost of a long-term disability
policy, and certain payments made to personal attorneys and consultants retained
by Mr. Kaul during his employment, $43,847 for certain services the Company
provided and certain expenses the Company incurred, relating to the renovation
and leasing of office space occupied by Mr. Kaul's spouse at 115 River Road,
Edgewater, New Jersey, the Company's current headquarters, $211,729 on a tax
loan to Mr. Kaul outstanding since 1997 and interest, compensatory and punitive
damages and attorneys' fees. The Company moved to amend its counterclaims, and
the parties each moved for summary judgment.
The Company sought summary judgment: dismissing Mr. Kaul's claim for
severance under his employment agreement on the ground that he failed to provide
the Company with a general release of, among other things, claims for change of
control benefits; dismissing Mr. Kaul's claim for attorneys' fees on the grounds
that they are not authorized under his employment agreement; dismissing Mr.
Kaul's claims related to change in control benefits based on an administrative
decision that he is not entitled to continued participation in the plan or to
future benefits thereunder; dismissing Mr. Kaul's claim for a tandem bonus
payment on the ground that no payment is owing; dismissing Mr. Kaul's claim for
vacation payments based on Company policy regarding carry over vacation; and
seeking judgment on the Company's counterclaim for unjust enrichment based on
Mr. Kaul's failure to pay under a tax note. Mr. Kaul seeks summary judgment:
dismissing the Company's defenses and counterclaims relating to a release on the
grounds that he tendered a release or that the Company is estopped from
requiring him to do so; dismissing the Company's defenses and counterclaims
relating to his alleged violations of his non-compete and confidentiality
obligations on the grounds that he did not breach the obligations as defined in
the agreement; and dismissing the Company's claims based on his alleged breach
of fiduciary duty, including those based on his monthly car allowance payments
and the leased space to his wife, on the grounds that he was entitled to the
car payments and did not involve himself in or make misrepresentations in
connection with the leased space. The Company concurrently moved to amend its
Answer and Counterclaims to state a claim that it had cause for terminating Mr.
Kaul's employment based on, among other things, after acquired evidence that
Mr. Kaul received a monthly car allowance and other benefits totaling $412,336
that had not been authorized by the Company's Board of Directors and that his
wife's lease and related expense was not properly authorized by the Company's
Board of Directors, and to clarify or amend the scope of the Company's
counterclaims for reimbursement.
On January 7, 2004, the parties received the decision of the Court. The
Court: granted summary judgment in favor of the Company dismissing Mr. Kaul's
claim for severance under his employment agreement on the ground that he failed
to provide the Company with a general release; granted in part the Company's
motion for summary judgment on Mr. Kaul's claim for attorneys' fees, finding as
a matter of law that Mr. Kaul is not entitled to fees incurred in prosecuting
this lawsuit but finding an issue of fact as to the amount of reasonable fees he
may have incurred in seeking advice and representation in connection with the
termination of his employment; granted summary judgment in favor of the Company
dismissing Mr. Kaul's claims related to change in control benefits on the
grounds that Mr. Kaul's participation in the plan was properly terminated when
his employment was terminated, the plan was properly terminated, and the
administrator and appeals committee properly denied Mr. Kaul's claim; granted
summary judgment in favor of the Company dismissing Mr. Kaul's claim for a
tandem bonus payment on the ground that payment is not owed to him; granted
summary judgment in part and denied summary judgment in part on Mr. Kaul's
claims for vacation pay, deeming Mr. Kaul to have abandoned claims for vacation
pay in excess of five weeks but finding him entitled to four weeks vacation pay
based on the Company's policy and finding an issue of fact as to Mr. Kaul's
claim for an additional week of vacation pay in dispute for 2000; and denied
summary judgment on the Company's counterclaim for payment under a tax note
based on disputed issues of fact.
The Court dismissed the Company's affirmative defenses as largely moot and
the Court: granted summary judgment in favor of Mr. Kaul dismissing the
Company's counterclaims relating to his non-compete and confidentiality
obligations on the ground that there is no evidence of actual damage to the
Company resulting from Mr. Kaul's alleged violations of those obligations;
granted summary judgment in favor of Mr. Kaul on the Company's breach of
contract and breach of fiduciary duty claims, including those based on his
monthly car allowance payments and the leased space to his wife, on the grounds
that he did not breach his fiduciary duties in accepting the car payments and
would not be unjustly enriched if he kept them, and on the ground that the
Company would not be able to prove fraud in connection with the leased space
based on the circumstances, including Mr. Kaul's disclosures.
The Court denied in part and granted in part the Company's motion to amend
its Answer and Counterclaims. The Court denied the Company's motion for leave to
state a claim that it had acquired evidence of cause for terminating Mr. Kaul's
employment based on certain
reimbursements on the ground that the payments were authorized, but granted the
Company's motion with respect to its claim for reimbursement of amounts paid to
the Internal Revenue Service ("IRS") on Mr. Kaul's behalf.
Only three claims remain in the case: (i) Mr. Kaul's claim for attorneys'
fees pursuant to Section 12 of the employment agreement; (ii) Mr. Kaul's claim
for an additional week of vacation pay in the amount of approximately $11,500;
and (iii) the Company's counterclaim for $211,729 plus interest it paid to the
IRS on Mr. Kaul's behalf. Unless a settlement can be reached, the claim for
attorneys' fees will be tried to the Court without a jury while the remaining
two claims will be tried to a jury.
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.
HANOVER DIRECT, INC.
--------------------------------
(Registrant)
January 8, 2004 By: /s/ Charles E. Blue
--------------------------------
Name: Charles E. Blue
Title: Senior Vice President and
Chief Financial Officer