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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K
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CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) November 14, 1994
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DART GROUP CORPORATION
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(Exact name of registrant as specified in its charter)
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<S> <C> <C>
Delaware 0-1946 53-0242973
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(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
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<S> <C>
3300 75th Avenue, Landover, Maryland 20785
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(Address of principal executive offices) (Zip Code)
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Registrant's telephone number, including area code (301) 731-1200
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(Former name or former address, if changed since last report.)
The total number of sequentially numbered pages is 10.
The exhibit index appears on page 3.
Page 1 of 10
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Item 1. Changes in Control of Registrant.
The discussion under Item 5 of this Current Report on Form 8-K is
incorporated herein by reference.
Item 5. Other Events
On November 14, 1994, the Court of Chancery of the State of Delaware
entered a Memorandum Opinion denying plaintiff Ronald S. Haft's motion for
summary judgment in Ronald S. Haft v. Dart Group Corporation, Del. Ch. 13736
(filed September 12, 1994). Separately, the Court has scheduled a trial of
this case in March 1995. The Memorandum Opinion is included as an exhibit to
this report on Form 8-K and incorporated herein by reference.
Item 7. Financial Statements and Exhibits
Exhibit 99(c): Memorandum Opinion entered on November 14, 1994 by
the Court in Ronald S. Haft v. Dart Group
Corporation, Del. Ch. 13736 (filed September 12,
1994).
SIGNATURE
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.
DART GROUP CORPORATION
By: /s/ RONALD T. RICE
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Ronald T. Rice
Assistant Vice President/Controller
Date: November 16, 1994
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EXHIBIT INDEX
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Exhibit Sequential
No. Description Page Number
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99(c) Memorandum Opinion entered on November 4
14, 1994 by the Court in Ronald S. Haft
v. Dart Group Corporation, Del. Ch.
13736 (filed September 12, 1994).
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Page 3 of 10
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EXHIBIT 99(C)
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
IN AND FOR NEW CASTLE COUNTY
RONALD S. HAFT, )
)
Plaintiff, )
)
v. ) Civil Action No. 13736
)
DART GROUP CORPORATION, )
a Delaware corporation, )
)
Defendant. )
MEMORANDUM OPINION
Date Submitted: November 2, 1994
Date Decided: November 14, 1994
Stuart M. Grant, Esquire, of SKADDEN, ARPS, SLATE, MEAGHER & FLOM, Wilmington,
Delaware; OF COUNSEL: HALE AND DORR, Washington, D.C.; Attorneys for
Plaintiff.
Arthur G. Connolly, Jr., Esquire, of CONNOLLY, BOVE, LODGE & HUTZ, Wilmington,
Delaware; Stephen J. Brogan, Esquire, of JONES, DAY, REAVIS & POGUE,
Washington, D.C.; Attorneys for Defendant.
ALLEN, Chancellor
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This case raises the question of the enforceability of an option held
by plaintiff Ronald S. Haft to buy Class B common stock of Dart Group
Corporation, a Delaware corporation. The option was allegedly granted to Mr.
Haft as part of an August 1, 1993 Employment Agreement in which he agreed to
serve as President and Chief Operating Officer of the Company. The Class B
option covered a substantial block of the Company's only class of voting stock.
Ronald Haft asserts that upon exercise of this option he will acquire 44% of
the voting power of the Company.
I.
On August 1, 1993, pursuant to the Employment Agreement, Ronald
accepted the responsibility to serve as Dart's president and chief operating
officer. It also appears that he went on the Dart board of directors that day.
In consideration of the issuance of the option Ronald not only accepted the job
of President and COO of Dart pursuant to the Employment Agreement, but that day
also paid Dart five dollars for each share subject to the option. The terms of
the option were such that upon exercise Ronald Haft is required to pay $89.65
per share, which price is alleged to equal 110% of the last reported trading
price of the Dart Class A common stock on the day prior to the day the Dart
board authorized the transaction. Under the Employment Agreement, Dart is
obligated to lend to Ronald Haft the funds necessary to finance the exercise of
the option at a rate of interest equal to the prime rate charged by a
designated national bank. The option was immediately exercisable and carried a
term
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of fifteen years. While the exercise price of the option was fixed as a small
premium over the then current market price of the Class A common stock, which
does not vote, it is notable that in (the currently unlikely) event that Dart
should be dissolved, the Class B common stock would participate pari passu with
the Class A common stock.
On September 6, 1994 Mr. Haft delivered to Dart a letter stating that
he was thereby exercising the Class B option. He delivered a check for
$197,048 (an amount equalling the par value of the stock subject to the Class B
option) and a duly executed note payable to Dart in the amount of
$17,665,353.20 representing the option exercise price. In addition Mr. Haft
sent a letter to other members of Dart's board of directors explaining that he
intended to use the Class B option shares, in cooperation with other Dart Class
B shareholders, to remove his father, Herbert Haft, from the Dart board of
directors. Herbert Haft, CEO, had apparently long held voting control of Dart.
The Dart board did not issue the shares. It refused.
II.
This action was commenced on September 12, 1994. It seeks a mandatory
injunction requiring Dart to issue 197,048 shares of its Class B common stock
to plaintiff. Pending is Ronald Haft's motion for summary judgment. Dart
asserts a number of defenses to this action, several of which involve the
assertion of contested facts. It claims that the grant of the option was void
or a voidable transaction for a number of reasons.
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First, Dart asserts that (a) because Ronald Haft allegedly was a Dart
director at the time the grant was made and (b) independently, because he was
the owner of a majority of Dart's B stock at the time,(1) he owed fiduciary
duties to the corporation and now bears the burden to establish the fairness of
the terms of the option, which it asserts he cannot do. Ronald Haft has this
burden, in Dart's view, because full disclosure of material facts relevant to
the board's consideration of the option agreement was not made to the Dart
board that authorized the grant. Therefore, according to Dart, under Section
144 of the Delaware General Corporation Law, only a judicial finding of
fairness could affirm the validity of this transaction.
Second, Dart claims that even if Ronald had no fiduciary duty at the
time that the Employment Agreement was entered, nevertheless he understood that
the board had not been told relevant facts relating to Herbert Haft's
motivation in recommending this transaction to the Dart board of directors.
The matters that were not (allegedly) the subject of board disclosure are
claimed by Dart to have been material to a director's consideration of the
Employment Agreement. This argument is, in effect, that Herbert Haft
wrongfully manipulated Dart board processes in inducing the Dart board to
employ Ronald and grant him an option and that Ronald, even if he did not
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(1) Ronald legally owned a majority of the Class B stock at
the time of the Employment Agreement because a few days earlier
his father had transferred such shares to him in a transaction in
which he simultaneously granted his father an irrevocable proxy
to vote all of those shares.
Page 7 of 10
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himself owe fiduciary duties to the company at that time, was a co-venturer or
co-conspirator with his father and cannot now profit from his non-disclosure.
Third, Dart asserts that the Class B option lacked consideration and
is unenforceable for that reason. In asserting that the Class B option lacked
consideration Dart is not contending that it does not have that peppercorn that
the common law, at least since the remission of the medieval concept of "fair
price," regards as sufficient to enforce bargained for promises. Here the
equitable remedy of specific performance is sought and here the contract is one
authorized by fiduciaries in favor (arguably) of another fiduciary. In such
circumstances a court of equity does not end its analysis of consideration once
it finds any consideration no matter how small. Rather a higher standard is
employed. In Beard v. Elster, Del. Supr., 160 A.2d 731 (1960), the court held
that in order to be valid, stock options granted to employees by a board
composed of a majority of disinterested members, were not invalid for lack of
consideration where the board reasonably could expect the achievement of the
corporate benefits sought and where there was "[a] reasonable relationship
between the value of the benefits passing to the corporation and the value of
the options granted." 160 A.2d at 737. In Michelson v. Duncan, Del. Supr.,
407 A.2d 211 (1979), the Court did not cite its decision in Beard, but affirmed
that grants of options will be found to be for consideration when they do not
constitute a gift or waste. The legal test of corporate waste is more
demanding than a peppercorn standard; it asks whether any reasonable person
could conclude, in the particular
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circumstances, that the exchange represented a fair exchange. See Saxe v.
Brady, Del. Ch., 184 A.2d 602 (1954). It is this test that Dart claims cannot
be satisfied in this instance.
III.
In my opinion a summary judgment may not properly be entered at this
time on plaintiff's claim. Most clearly requiring trial in this instance is
Dart's contention that this option contract is not supported by consideration
sufficient to allow for the specific enforcement of the option contract. In
Michelson v. Duncan, the Supreme Court noted the fact that cases subject to a
waste standard are "seldom subject to disposition by summary judgment". 407
A.2d at 223. Plaintiff's claim that the provision of Section 157 of the
Delaware General Corporation Law affords a basis to reject Dart's lack of
consideration argument as a matter of law is not well-founded in light of the
judicial authorities. That provision provides: "In the absence of actual
fraud in the transaction, the judgment of the directors as to the consideration
for the issuance of such rights...and the sufficiency thereof shall be
conclusive." The Delaware Supreme Court in Michelson, however, determined that
a claim of waste, in connection with the issuance of stock options, was not
precluded by this statutory language. See 407 A.2d at 224. Surely, in this
case, substantial consideration was paid for the option ($985,240 cash plus the
assumption of the other obligations of the Employment Agreement), but the
employment contract was terminable by plaintiff at any time upon 60 days
notice. The judgment required would best be made on the evidence at trial.
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As to Dart's other defenses, while I am inclined to think that if
plaintiff negotiated his employment contract at arm's- length, then he cannot
now be held to fiduciary standards with respect to the enforcement of his
contract rights, I need not reach a judgment on that question or its factual
predicate at this point. The remaining issue that defendant seeks to raise --
the extent to which even if plaintiff is himself not a fiduciary with respect
to the Class B option, he may nevertheless be treated as one because of his
father's actions and any knowing participation in Herbert's conduct -- is also
rather intensely factual.
Thus, given the need in all events to deny the pending motion, and the
judgment that addressing any distinctly legal issues that can now be identified
would nevertheless be better postponed for a relatively short time to develop
and present a factual record at trial. I will decline to express any rulings
at this time, other than the foregoing. See Charles Alan Wright, Law of
Federal Courts Section 99 at n.28 (1963) (citing cases on judicial discretion
under Rule 56).
/s/ William T. Allen
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Chancellor
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