<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
(Mark One)
/X/ Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 [Fee Required] for the fiscal year ended January 31, 1995
/ / Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required] for the transition period from
__________ to __________
Commission file number 0-1946
DART GROUP CORPORATION
- ------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 53-0242973
- ------------------------------- -------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
3300 75th Avenue, Landover, Maryland 20785
- ------------------------------------- ---------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (301) 731-1200
---------------------------
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
Class A Common Stock, Par Value $1.00 per share
- ------------------------------------------------------------------------------
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes x . No _____.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. / /
At April 28, 1995, the registrant had 1,458,338 shares of Class A Common Stock
outstanding, and the aggregate market value of such shares held by non-
affiliates of the registrant was approximately $113,845,000. The Class B Common
Stock, of which there are 302,952 shares outstanding, is the only voting stock
and is not publicly traded.
All of the Registrant's voting stock, Class B Common Stock, is held by
affiliates.
The exhibit index begins at page 129 of this Form 10-K.
Page 1
<PAGE> 2
PART I
Item 1. Business
Dart Group Corporation (the "Corporation") was incorporated in Delaware
in 1960 and operates retail discount auto parts stores through Trak Auto
Corporation ("Trak Auto"), retail discount book stores through Crown Books
Corporation ("Crown Books"), retail discount beverage stores through Total
Beverage Corporation ("Total Beverage"), a real estate company through Cabot-
Morgan Real Estate Company ("CMREC"), and a financial business which purchased
bankers' acceptances through Dart Group Financial Corporation ("Dart
Financial"). The Corporation, Trak Auto, Crown Books, Total Beverage, CMREC,
Dart Financial and the Corporation's other direct and indirect wholly-owned and
majority-owned subsidiaries and majority owned partnerships are referred to
collectively as the "Company". The Corporation owned 64.8% of the common stock
of Trak Auto as of January 31, 1995. In February 1995, Trak Auto purchased
approximately 310,000 shares of its outstanding common stock through a tender
offer. As a result of the offer, the Corporation now owns 68.3% of Trak Auto,
51.4% of the common stock of Crown Books, 100% of the common stock of Total
Beverage, 100% of the common stock of CMREC and 100% of the common stock of
Dart Financial. The Corporation engages in the retail discount grocery
business through its ownership of 50% of the common stock of Shoppers Food
Warehouse Corp. ("Shoppers Food"). The common stocks of Trak Auto and Crown
Books are quoted on the Nasdaq National Market ("Nasdaq") under the symbols
TRKA and CRWN, respectively.
On January 31, 1995, there were 282 Trak Auto, 196 Crown Books, 33
Shoppers Food and two Total Beverage stores; and CMREC owned a 75% interest in
two real estate partnerships which own and operate two shopping centers and a
51% interest in three real estate partnerships which own and operate two
shopping centers and an office building. Dart Financial held bankers'
acceptances that matured in the normal course of business during the year ended
January 31, 1995 and, as a result, Dart Financial currently holds no financial
instruments.
Trak Auto Operations
Trak Auto operates retail discount specialty stores in the metropolitan
areas of Washington, D.C.; Richmond, Virginia; Chicago, Illinois; and Los
Angeles, California.
Trak Auto is engaged in the retail sale of a wide range of automobile
parts and accessories for the do-it-yourself market. Trak Auto's products
include "hard parts" (such as alternators, starters, shock absorbers, fan
belts, spark plugs, mufflers, thermostats, and wheel bearings), as well as
motor oil, oil filters, headlights, batteries, waxes, polishes, anti-freeze and
windshield wipers. A typical classic store normally carries 10,000 different
item numbers or SKU's. Trak Auto does not sell tires and does not provide
automotive service or installation.
Super Trak operates retail auto parts stores that offer more services and
merchandise than the "Classic Trak" stores described above. Super Trak stores
carry approximately 5,000 more SKU's, concentrated primarily in application
parts categories. Additionally, Super Trak stores feature special order
services that permit customers to access virtually any automotive part,
including engines. The stores also offer extensive technical assistance
through computerized parts look-up, instruction for repairs, free use of
specialized tools, and factory trained parts people. Trak Auto has
successfully opened or converted 106 Super Traks and seven Super Trak warehouse
stores and will
2
<PAGE> 3
Trak Auto Operations (Continued)
continue to open or convert stores to the Super Trak concepts aggressively as
opportunities present themselves. Trak Auto plans to continue to convert
Classic Trak stores into Super Trak and Super Trak Warehouse stores and open
new stores as opportunities present themselves in Trak Auto's four metropolitan
markets as well as new markets.
During the year ended January 28, 1995, Trak Auto expanded its Super Trak
concept to include Super Trak Warehouse stores. These stores are typically
between 15,000 and 25,000 square feet and carry approximately 35,000 SKU's. The
added SKU's are composed of additional application parts.
Trak Auto's merchandise is generally purchased directly from a large
number of manufacturers and suppliers. Trak Auto's distribution system is
computerized utilizing an automated replenishment and perpetual inventory
system to generate shipments of product from distribution centers in Landover,
Maryland; Bridgeview, Illinois and Ontario, California. The required items are
generally assembled and packaged for delivery in the order in which they will
be unpacked and displayed on the shelves at the retail stores, promoting store
efficiency. Inventories are monitored both at stores and in the distribution
centers to determine purchase requirements. Trak Auto has a computerized point
of sale ("POS") register system in every store. Trak Auto uses scanners to
identify most merchandise at the register and uses a price look-up function to
price the sale. Most merchandise is pre-labeled with bar codes by the
manufacturers.
Trak Auto's merchandising philosophy is to develop strong consumer
recognition and acceptance of its name by use of mass-media advertising to
promote a broad selection of products at low prices. Trak Auto emphasizes
quality customer service through knowledgeable personnel and advanced
technology such as electronic parts look-up, POS and computerized
do-it-yourself aids. During the year ended January 28, 1995, Trak Auto
completed the installation of the electronic parts look-up into all of its
stores.
Classic Trak stores range in size from approximately 5,000 to 6,000
square feet, Super Trak stores range in size from 6,000 to 11,000 square feet,
and Super Trak Warehouse stores range in size from approximately 15,000 to
25,000 square feet. Trak Auto's stores use modern fixtures and equipment and
the interiors have been standardized, so that the interiors of new stores can
be assembled quickly. The stores are open seven days a week.
The following table sets forth by metropolitan area the locations of Trak
Auto's stores for each of the last five fiscal years.
<TABLE>
<CAPTION>
Number of Stores
at end of fiscal year
--------------------------------
Metropolitan Area 1991 1992 1993 1994 1995
- ----------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Washington, D.C. ............ 77 81 84 86 81
Baltimore, Maryland ......... 14 6 0 0 0
Richmond, Virginia .......... 14 15 15 15 11
Chicago, Illinois ........... 100 99 99 97 86
Los Angeles, California ..... 119 121 119 116 104
San Diego, California........ 7 11 0 0 0
---- ---- ---- ---- ----
Total .............. 331 333 317 314 282
</TABLE>
3
<PAGE> 4
Trak Auto Operations (Continued)
The following tables set forth the number of stores of each of Classic
Trak, Super Trak, and Super Trak Warehouse that were opened, closed or
remodeled during each of the last five fiscal years, as well as the total
number of such stores as of the end of each such fiscal year.
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Super Trak Stores
- -----------------
Opened during the year....... - - 1 10 20
Closed during the year....... - - - 1 -
Super Trak Warehouse Stores
- ---------------------------
Opened during the year ....... - - - - 6
1991 1992 1993 1994 1995
---- ---- ---- ---- ----
Classic Trak Stores
- -------------------
Opened during the year....... 26 19 6 1 -
Closed during the year....... 3 17 23 13 58
Converted to Super Trak or
Super Trak Warehouse during
the year............ - - 11 52 14
Remodeled during the year.... 4 - - - -
Total Opened at January 31
- --------------------------
Super Trak Stores - - 12 73 106
Super Trak Warehouse Stores - - - - 7
Classic Trak Stores 331 333 305 241 169
</TABLE>
Trak Auto had 15 stores substantially damaged or completely destroyed in
the Los Angeles civil disturbances at the end of the first fiscal quarter of
1993. Twelve of these stores have subsequently reopened and three stores
remain closed. The Los Angeles earthquake in January of 1994 damaged two Trak
Auto stores and one Super Trak resulting in their closing. The Super Trak
reopened shortly after year-end while the two Trak Auto stores remain closed.
As of January 28, 1995, Trak Auto had signed leases for three new Super
Trak stores and amendments to eight existing leases for conversion of Classic
Trak stores to Super Trak stores. Trak Auto currently anticipates that during
fiscal 1996 approximately 57 Super Trak or Super Trak Warehouse stores will be
opened or converted from Classic Trak stores.
Store Closings and Restructuring
Trak Auto continually evaluates the operations of its stores and the need
to close, relocate, or expand stores or convert existing Classic Trak stores
into Super Trak or Super Trak Warehouse stores. Of Trak Auto's 282 stores as
of January 28, 1995, Trak Auto currently expects to close approximately 30
Classic Trak stores that are not providing satisfactory performance and 15
Classic Trak stores in conjunction with Trak Auto's remaining restructuring
efforts. Trak Auto also expects to convert at least eight existing Classic
Trak stores into Super Trak or Super Trak Warehouse stores.
As of January 28, 1995, Trak Auto had a reserve of $6,945,000 for store
closings and restructurings that relate to 21 stores that had been closed and
45 existing stores that had been earmarked for closing or restructuring. Trak
Auto expects to use approximately $1,916,000 of this reserve during fiscal
1996. The costs associated with closing a store primarily consist of future
4
<PAGE> 5
Trak Auto Operations (Continued)
unrecoverable lease obligations (rent, real estate taxes and common area
charges) after the closing date, net of estimated sublease income, and the
remaining book value of leasehold improvements. Trak Auto recognizes store
closing costs when management determines to close a store. The net charge
(income) for store closings was $1,580,000, $(943,000), and $500,000 during
fiscal 1995, 1994 and 1993, respectively. Income during fiscal 1994 was the
result of early lease terminations, net of cash buyouts. Trak Auto currently
estimates that it may close 30 Classic Trak stores that are not providing
satisfactory performance. The future lease obligations beyond the estimated
closing dates of these 30 stores are approximately $4,213,000. Finally, Trak
Auto continues to make payments on 21 stores already closed, and has future
lease obligations on those stores of approximately $1,438,000.
The costs associated with restructuring, which involves relocating or
expanding and remodeling stores, consists of unrecoverable lease obligations
after the projected closing date of the store or upon remodel or expansion, the
write-off of leasehold improvements and net book values of fixed assets, and
costs associated with inventory conversion. During the year ended January 30,
1993, Trak Auto recorded a restructuring charge of $7,400,000 related to the
relocating or expanding and remodeling of 126 Classic Trak stores and
discontinuing the operations of 38 other Classic Trak stores. During the years
ended January 28, 1995 and January 29, 1994, Trak Auto charged approximately
$2,432,000 and $600,000, respectively, against the restructuring reserve.
During the year ended January 28, 1995, Trak Auto re-evaluated its need for
reserves for store conversions under the remaining restructuring efforts. Many
of the stores originally planned for conversion have been converted as of
January 28, 1995. The remaining restructuring reserve will be utilized
primarily for continuing lease obligations for stores closed in conjunction
with the restructuring effort. Trak Auto currently estimates that 15 existing
Classic Trak stores will be closed in connection with Trak Auto's restructuring
efforts. The future lease obligations beyond the estimated closing dates of
these 15 stores are approximately $1,294,000.
No store contributed more than 1.0% to Trak Auto's consolidated sales
during the year ended January 28, 1995.
Crown Books Operations
Crown Books is a retailer operating discount specialty stores. These
stores offer popular hardback and paperback books, newspapers, magazines, books
on tape, videos, computer software, reference materials and other items and
accessories.
Crown Books responds to the demand for books at prices below the
publishers' suggested retail prices and at the same time provides quality
service to its customers. Crown Books sells hardbacks on The New York Times
best seller list at 40% below the publishers' suggested retail prices,
paperbacks on The New York Times best seller list at 25% below the publishers'
suggested retail prices, other new books at 10% to 25% below the publishers'
suggested retail prices, and magazines at 10% below the publishers' suggested
retail prices. All other merchandise is sold at a discount from the
manufacturers' suggested retail price. Crown Books sells publishers'
over-stock, reprints and former best sellers at significant discounts from the
publishers' original suggested retail prices. In addition, Crown Books allows
customers at all stores
5
<PAGE> 6
Crown Books Operations (Continued)
to special order books not stocked in inventory at discount pricing.
Merchandise is generally purchased directly from a large number of publishers
and suppliers and Crown Books is not dependent on any single publisher or
supplier.
Crown Books advertises intensively, primarily through newspapers and
direct mail, stressing its pricing policy. Crown Books satisfies regional and
local consumer preferences by tailoring the selections and quantities of books
that it makes available in individual stores. Crown Books clusters its stores
in selected market areas to maximize the efficiency of advertising, publicity,
management and distribution. Within those areas, Crown Books generally locates
its stores in retail power centers, strip shopping centers and urban street
locations. These locations typically may be rented at more favorable rates
than locations in large enclosed malls and provide for increased consumer
awareness and convenience of the store locations.
All major merchandising decisions concerning pricing, advertising and
promotional campaigns, as well as the initial ordering of inventory for each
store, are managed centrally at Crown Books' headquarters in Landover,
Maryland. Over 80% of the merchandise is shipped directly from publishers to
the stores. Best sellers and other hardback books that are purchased in large
quantities are often shipped directly from the publishers to Crown Books'
regional warehouses for distribution to the stores. Inventories are monitored
both at stores and in the central office in Landover, Maryland, to determine
purchase requirements. In general, unsold books and magazines can be returned
to the publishers for credit.
Super Crown Books operates discount retail book superstores. The first
Super Crown Books store opened in May of 1990 and Crown Books has been
expanding the Super Crown Books concept since. The stores carry as many as
80,000 titles, nearly eight times the number of titles as a "classic" Crown
Books ("Classic Crown Books") store. Super Crown Books stores also carry a
wider selection of non-book products and accessories.
The following table sets forth by metropolitan area the locations of
Crown Books' stores for each of the last five fiscal years:
<TABLE>
<CAPTION>
Number of Stores
at end of fiscal year
------------------------------------
1991 1992 1993 1994 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Metropolitan Area:
- ------------------
Washington, D.C. ........... 63 61 59 60 47
Los Angeles, California .... 80 79 76 68 59
Chicago, Illinois .......... 44 43 43 43 37
San Francisco, California .. 31 30 30 31 24
San Diego, California ...... 19 20 20 17 12
Houston, Texas ............. 6 5 3 6 6
Seattle, Washington ........ 16 16 16 15 11
---- ---- ---- ---- ----
Total..................... 259 254 247 240 196
==== ==== ==== ==== ====
</TABLE>
6
<PAGE> 7
Crown Books Operations (Continued)
The following tables set forth the number of stores of each of Classic Crown
Books and Super Crown Books that were opened, closed or remodeled during each
of the last five fiscal years, as well as the total number of such stores as of
the end of each such fiscal year.
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Super Crown Books stores:
- -------------------------
Opened during the year.... 6 9 13 37 12
Closed during the year.... - - - 4 3
Classic Crown Books stores:
- ---------------------------
Opened during the year.... 10 4 - 5 2
Closed during the year.... 10 18 20 45 55
Remodeled during the year. 16 7 2 - -
Total Open at January 31
- ------------------------
Super Crown Books stores.... 6 15 28 61 70
Classic Crown Books stores.. 253 239 219 179 126
</TABLE>
Classic Crown Books stores range in size from approximately 2,000 to
3,000 square feet and Super Crown Books stores range in size from approximately
6,500 to 35,000 square feet. All stores use specially-designed display
fixtures. Crown Books' new prototype stores generally range in size from
approximately 12,000 to 35,000 square feet. These new prototype stores permit
more effective and economic utilization of space. The interior of the stores
is standardized, so that the stores can be assembled quickly. Most of the
stores are open seven days a week.
All Super Crown Books stores and all Classic Crown Books stores have
computerized point of sale and inventory management systems ("Systems"). The
Systems enable store personnel to scan bar coded merchandise resulting in less
time to process the sales transaction with more accurate pricing. The Systems
are designed to provide detailed inventory information on an item basis to
store management and the central office providing for better informed
reordering and merchandising decisions. As of January 28, 1995 the Systems
were not fully operational. Crown Books believes the Systems will, when
fully operational, enhance customer service as well as store operating
efficiency.
During the past three fiscal years, Crown Books has recorded charges in
connection with store closings and restructurings. During the year ended
January 30, 1993, Crown Books recorded a restructuring charge of $6,600,000 for
anticipated costs associated with a restructuring plan to close, relocate,
expand and convert approximately 50 Classic Crown Books stores to a Super Crown
Books format. At January 28, 1995, Crown Books had charged approximately
$1,445,000 against this reserve in connection with the closing, relocation,
expansion or conversion of approximately 40 stores. These charges consisted
primarily of unrecoverable lease costs (including buyouts of remaining lease
terms) and the remaining book value of leasehold improvements and store
fixtures for stores that have closed.
In the year ended January 29, 1994, Crown Books determined that seven of
the smaller Super Crown Books stores (typically 6,000 - 10,000 square feet)
opened in prior years were no longer competitive in the current market
environment and in light of the industry's movement to larger stores.
Accordingly, Crown Books recorded an additional restructuring charge of
7
<PAGE> 8
Crown Books Operations (Continued)
$6,200,000 in the year ended January 29, 1994, representing the anticipated
costs (unrecoverable lease costs and the remaining book value of leasehold
improvements and store fixtures subsequent to management's estimate of the
stores' closing dates) associated with closing, relocating and converting these
stores to the new, larger prototype. At January 28, 1995, Crown Books had not
charged any costs in connection with this reserve. Crown Books presently
expects to complete the restructuring related to these seven stores during the
next 24 months. The total restructuring reserve at January 28, 1995 is $10.5
million.
A comprehensive review of Crown Books was begun by its new Chief
Operating Officer and interim Chief Financial Officer shortly after their
appointments in October of 1994. That review, which continued into February,
identified opportunities to improve Crown Books' profitability, organization,
staffing, computer systems, and operating controls. The initial review found
that Crown Books still had a majority of its stores in the original Classic
Crown Books stores format and concluded that many of these Classic Crown Books
stores were not generating, and were not expected to generate, a return on
investment sufficient to justify their continued operation and that Crown
Books's competitors had long since moved to a much larger format. As a result,
Crown Books determined to act aggressively to implement the larger Super Crown
format begun as part of its earlier restructuring and close approximately 100
of these small and under-performing stores over the succeeding 6-18 months.
As a result, Crown Books recorded a closed store reserve of $18.9 million for
the costs to be incurred in these closings.
During the fiscal years 1995, 1994 and 1993, Crown Books recorded net
charges (income) of $18,865,000, $(631,000), and $513,000, respectively for
such closed store costs. The income during the year ended January 28, 1994 was
the result of early lease terminations, net of cash buyouts. At January 28,
1995, 28 of the 100 stores targeted for closing during the third fiscal quarter
had been closed and over 40 stores targeted for closing under the previous
restructuring had been closed. As of January 28, 1995, Crown Books had an
aggregate restructuring and store closing reserve of $29,853,000 of which
approximately $6,936,000 will be utilized over the next 12 months.
During the fourth fiscal quarter an additional 54 stores were targeted
for closure as a result of the continuing analysis of store profitability and
market presence. Additional reserves for store closings were not deemed
necessary as the remaining reserves adequately provide for Crown Books'
obligations for the currently identified stores to be closed due to revisions
to the planned closing dates for certain stores. Crown Books will continue to
evaluate the performance and future viability of its remaining stores and may
close additional stores in the future. No reserves for these stores have been
recorded. The closings of these smaller or underperforming stores may, where
appropriate, be coordinated with the opening of Super Crown Books stores in
those markets where Crown Books plans to maintain or expand its presence. A
commitment has recently been made to accelerate the opening of stores in the
Super Crown Books format.
Management plans to open 28 Super Crown Books stores varying in size from
12,000 to 18,000 square feet over the next 12 to 18 months. These stores will
represent approximately 420,000 square feet of new space opened in the next
12-18 months.
8
<PAGE> 9
Crown Books Operations (Continued)
The review discussed above also identified the need for changes in
officers and key employees to address the other opportunities identified for
improving Crown Books' performance. In this regard, Crown Books has recruited
and hired senior management to address particular issues identified, including
a senior management information systems specialist; a senior loss prevention
specialist; a senior personnel administrator and trainer; and a senior regional
operations manager. Recruiting of other key personnel is underway including: a
permanent chief financial officer; a senior merchandiser; a senior operations
manager; additional management information specialists; and experienced
district and sales managers at several levels. Coupled with this recruiting
effort, Crown Books has also begun replacing certain district and regional
managers.
Finally, as a result of the review discussed above, an increased focus on
enhancing store profitability through efforts to re-engineer operating
processes, procedures and further improve information system capabilities was
initiated. Crown Books believes that there exist opportunities to enhance
store operating performance through the use of updated methodologies and
technology.
Crown Books anticipates that the efforts relating to improved personnel
in strategic areas and local store management, together with Crown Books'
planned re-engineering efforts, will continue and will have a positive impact
on Crown Books' results of operations in the future.
Shoppers Food Operations
Shoppers Food operates retail discount grocery stores that sell
groceries, meats, produce, beer and wine, baked goods, cigarettes, health and
beauty aids and have a deli department. The stores are located in the
Washington, D.C. metropolitan area, a warehouse is located in Landover,
Maryland and office facilities are located in Lanham, Maryland. The
Corporation owns 50% of the common stock of Shoppers Food.
In June 1994, one of the other shareholders of Shoppers Food exercised
his right to reacquire one share of Shoppers Food Class B common stock, thereby
reducing the Corporation's ownership to exactly 50%. As a result, the accounts
of Shoppers Food are consolidated with the Corporation's through May 28, 1994,
but not thereafter.
Shoppers Food's stores are operated on a high volume discount pricing
marketing strategy. Shoppers Food stores are operated primarily on a
self-service basis and customers bag or box their own groceries. The stores
sell popular brand names at discount prices as well as manufacturers' or
distributors' specials.
9
<PAGE> 10
Shoppers Food Operations (Continued)
The following table sets forth the total number of open stores as of the
end of each of the last five fiscal years and the number of stores opened,
closed and remodeled during each of the last five years.
<TABLE>
<CAPTION>
Number of Stores
January 31,
------------------------------------
1991 1992 1993 1994 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Total Open..................... 24 31 34 35 33
Opened during the year......... 3 7 4 2 -
Closed during the year......... - - 1 1 2
Remodeled during the year...... - 1 1 2 -
</TABLE>
Total Beverage Corporation
Total Beverage operates retail discount beverage superstores in the
Washington, D.C. metropolitan area. The stores carry a wide range of foreign
and domestic beers and wines as well as non-alcoholic beverages. The
Corporation organized Total Beverage Corporation on January 26, 1993 and
purchased the assets for the first store on February 27, 1993 from Shoppers
Food for approximately $1,494,000. In October 1993 Total Beverage opened two
additional stores and after 14 months of disappointing sales volume at one
location, closed that store. Total Beverage recorded a closed store reserve of
approximately $5,595,000 for future lease obligations associated with this
store. On April 1, 1995, Total Beverage opened a new store, putting its store
count back to three and is seeking locations for additional stores.
Cabot-Morgan Real Estate Company
CMREC, a wholly-owned subsidiary, was organized under the laws of
Delaware as a real estate development company. CMREC owns the majority
interest in five real estate partnerships that own four shopping centers and an
office building in the Washington, D.C. metropolitan area. CMREC owns 75% of
two of these partnerships (each owning a shopping center) and 51% of the other
three partnerships (two owning shopping centers and one owning an office
building). The remaining partnership interests are owned by partnerships in
which the partners are members of the Haft family. Combined Properties, Inc.,
a Haft controlled entity, manages the shopping centers and office building for
the partnerships. Trak Auto, Crown Books, Shoppers Food and Total Beverage
have stores in some of these shopping centers.
Dart Financial Operations
Dart Financial bought and held bankers' acceptances. As of July 31,
1994, all the bankers' acceptances matured and Dart Financial discontinued
buying and holding financial instruments. The funds were returned to the
Corporation in the form of United States Treasury Bills. All bankers'
acceptances were obligations of Japanese banks with a minimum credit rating of
A1/P1 and were secured further by the underlying commodities.
10
<PAGE> 11
Competition
The market for the products and services provided by the Company's retail
discount specialty operations is highly competitive. The stores compete with
retail outlets, including drug stores, supermarkets, department stores,
hardware stores, variety stores, auto parts stores and book stores.
Competitors range from small independent stores to large regional and national
chains, many of which have greater resources than the Company. The stores
encounter strong competition with respect to the prices at which they sell
their products and services. Many companies are engaged in real estate
development and many have greater resources than CMREC.
Employees
On January 31, 1995, the Company employed approximately 5,000 full-time
and 5,700 part-time persons (including approximately 1,300 full-time and 2,500
part-time persons at Shoppers Food). The Company considers its relations with
employees to be good.
11
<PAGE> 12
Changes in Management
Robert M. Haft's employment as President and Chief Operating Officer of
the Corporation terminated in June 1993. In August 1993, Ronald S. Haft was
elected President and Chief Operating Officer of the Corporation. Robert M.
Haft's employment as Chief Executive Officer and President of Crown Books
concluded in November 1992 upon the employment and election of Glenn Hemmerle
to those two positions. Robert Haft continued to serve as Chairman of Crown
Books until June 25, 1993. Thereafter, Herbert H. Haft resumed the position of
Chairman of the Board of Crown Books.
In June 1994, Glenn E. Hemmerle resigned all positions with Crown Books.
Crown Books then sought to replace Mr. Hemmerle and in the interim Ronald S.
Haft was appointed Crown Books' President and Chief Executive Officer and Ron
Marshall was appointed its interim Chief Operating Officer.
Effective October 1, 1994, Ron Marshall resigned his positions with the
Company. In addition to serving as Crown Books' interim Chief Operating
Officer, Mr. Marshall had served as Chief Financial Officer of the Corporation
and Crown Books and Principal Financial Officer of Trak Auto.
Subsequent to Mr. Marshall's departure, the Board of Directors of Crown
Books appointed E. Steve Stevens as Senior Executive Vice President and Chief
Operating Officer, and, on an interim basis, Robert A. Marmon as Chief
Financial Officer in October 1994. Also in October 1994, Mr. Marmon was
appointed, on an interim basis, as Chief Financial Officer of the Corporation
and Principal Financial Officer of Trak Auto.
The Board of Directors of each of the Corporation, Crown Books and Trak
Auto was reconstituted in 1993 to include five new directors, four of whom are
neither officers or employees of the Company. Bonita A. Wilson and Douglas M.
Bregman were elected directors of the Corporation, Crown Books and Trak Auto in
June 1993. Ronald S. Haft was appointed President and Chief Operating Officer
of the Corporation on August 1, 1993 and was elected a director of the
Corporation, Crown Books and Trak Auto on July 28, 1993. H. Ridgely Bullock
and Larry G. Schafran were elected as directors by the respective boards of the
Corporation, Crown Books and Trak Auto on December 20, 1993. Robert M. Haft
and Gloria G. Haft ceased to be directors of the Corporation, Crown Books and
Trak Auto in June 1993.
On September 7, 1994, the Board of Directors of the Corporation
established an Executive Committee comprised of the Corporation's outside
directors to conduct the affairs of the Corporation with respect to matters
that are the subject of dispute between the Chairman of the Board and Chief
Executive Officer of the Corporation, Herbert H. Haft, and the President and
Chief Operating Officer of the Corporation, Ronald S. Haft. On October 11,
1994, the Boards of Directors of Trak Auto, Crown Books and Total Beverage each
established an Executive Committee of their respective Boards of Directors
comprised of the same outside directors, with authority parallel to that of the
Corporation's Executive Committee. The disputes between Herbert Haft and
Ronald Haft concerning issues involving the Corporation have been extensive.
Accordingly, the Executive Committee has assumed day-to-day involvement in
these disputed issues and other matters affecting the Corporation, in
particular matters relating to litigation to which the Corporation is a party.
The continuing role of the Executive Committee is dependent upon future
developments.
12
<PAGE> 13
Changes in Management (Continued)
The Directors appointed to the Executive Committee were Douglas Bregman,
H. Ridgely Bullock, Larry G. Schafran and Bonita Wilson, with Mr. Bullock as
the Chairman of the Executive Committee. After Mr. Bullock died in December
1994, Mr. Schafran was elected Chairman of the Executive Committee in January
1995.
A Standstill Agreement entered into in September 1994 in connection with
a lawsuit filed by Ronald S. Haft against the Corporation (the "Standstill
Agreement") provides, among other things, that the Corporation may not, until
further order is entered by the Delaware Court of Chancery, (i) change the
current composition of the board of directors of the Corporation or any of its
subsidiaries, or (ii) change the current Haft family officers of the
Corporation or any of its subsidiaries. See Item 3. - Legal Proceedings.
Segment Information
See Note 19 to the Consolidated Financial Statements.
13
<PAGE> 14
Item 2. Properties
Dart Group Corporation
The Corporation leases its headquarters building and distribution center
of approximately 271,000 square feet in Landover, Maryland from a private
partnership in which members of the Haft family own all of the beneficial
interests. The lease is for 30 years and six months, commenced in October
1985, and provides for increasing rental payments over the term of the lease.
The current annual rental is $1,884,000 and the lease requires the payment for
maintenance, utilities, insurance and real estate taxes. The Corporation has
sublet 210,000 square feet of the headquarters building and distribution center
to Trak Auto and 28,000 square feet to Crown Books. In addition, the
Corporation has a lease agreement with the aforementioned partnership for land
adjacent to the headquarters building and distribution center. Trak Auto pays
the carrying cost for the land. The lease is co-terminus with the headquarters
building and distribution center lease and provides for current annual rental
of $35,000 with increases of 3% per year.
Trak Auto
All of Trak Auto's 282 stores are leased. As of January 28, 1995, the
total minimum payments for Trak Auto's retail stores aggregated approximately
$94,286,000 to lease expiration dates. The lease expiration dates (without
regard to renewal options) range from 1995 to 2013. Twenty-four of these
leases, are with entities in which members of the Haft family have all or
substantially all the beneficial interest, two are with CMREC shopping centers
and two are subleased from Crown Books.
Trak Auto leases a 176,000 square foot warehouse located in Bridgeview,
Illinois from a private partnership in which Haft family members own all of the
partnership interests. The lease is for thirty years and six months, provides
for rental payments increasing approximately 15% every five years over the term
of the lease and commenced April 1984. The current annual rental is $651,000.
The lease also requires Trak Auto to pay for maintenance, utilities, insurance
and real estate taxes on the warehouse. Under the terms of the lease
agreement, Dart is jointly and severally liable for the lease obligations.
Trak Auto also leases a 317,000 square foot warehouse located in Ontario,
California from a private partnership in which Haft family members own all of
the partnership interests. The lease is for 20 years and provides for
increasing rental payments, based upon the Consumer Price Index for the Los
Angeles area, over the term of the lease. The lease commenced December 1989.
The current annual rental is $1,374,000. The lease also requires Trak Auto to
pay for maintenance, utilities, insurance and real estate taxes on the
warehouse.
Crown Books
All of Crown Books' 196 stores are leased. As of January 28, 1995, the
total minimum payments for Crown Books' retail stores aggregated approximately
$100,409,000 to the lease expiration dates. The lease expiration dates
(without regard to renewal options) range from 1995 to 2009. Nine of these
leases are with entities in which members of the Haft family have all or
substantially all the beneficial interest and three are with CMREC shopping
centers.
14
<PAGE> 15
Item 2. Properties (Continued)
Crown Books leases 23,300 square feet of office and warehouse space in
Addison, Illinois. The lease commenced in January 1993 and has a term of ten
years with one five-year renewal option. The annual rent is $143,000 for the
each of the first five years and increases to $156,000 for each of the second
five years. The lease also obligates Crown Books to pay maintenance,
utilities, insurance and real estate taxes.
Crown Books leases 28,000 square feet of office and warehouse space in
Mirada, California. The lease commenced in May 1990 and has a term of five
years with two five-year renewal options. The annual rent is $138,000 for the
each of the first five years and, if the option is exercised, increases to
$154,500 for each of the second five years. The lease also obligates Crown
Books to pay maintenance, utilities, insurance and real estate taxes.
Shoppers Food
Shoppers Food leases 32 stores and owns one store. As of January 31,
1995, the total minimum payments for Shoppers Food's 32 retail stores and
equipment under lease aggregated approximately $113,553,000 to the lease
expiration dates. The lease expiration dates (without regard to renewal
options) range from 1995 to 2013. Seven of these leases are with entities in
which members of the Haft family have all or substantially all the beneficial
interest and one is with a CMREC shopping center.
Shoppers Food has a lease agreement with a limited partnership in which
members of the Haft family and the owners of the other 50% interest in Shoppers
Food own all of the beneficial interests for approximately 86,000 square feet
of space in an office building in Lanham, Maryland. The lease commenced
January 1991, is for 20 years and the current annual rental is $1,299,000.
Shoppers Food has sublet approximately 36,000 square feet of the office to
unaffiliated third parties.
Total Beverage
Total Beverage's two stores are leased. As of January 31, 1995, the
total minimum payments for Total Beverage's retail stores under lease
aggregated approximately $7,903,000 to the lease expiration dates. The lease
expiration dates (without regard to renewal options) range from 1995 to 2008.
One lease agreement is with a partnership in which members of the Haft family
have all or substantially all the beneficial interest and one is with a CMREC
shopping center.
CMREC
As of January 31, 1995, CMREC owned a 75% interest in two shopping
centers located in Greenbelt and Silver Spring, Maryland, a 51% interest in a
shopping center and office building located in Fairfax, Virginia and 51%
interest in a shopping center located in Prince William County, Virginia. The
remaining interests in these properties are owned by partnerships in which
members of the Haft family own all the beneficial interests. At January 31,
1995, the total minimum rental revenues for these properties aggregated
approximately $128,259,000 to the lease expiration dates, which range from 1995
to 2011.
15
<PAGE> 16
Item 2. Properties (Continued)
Pennsy Warehouse Facility
As previously disclosed, the Executive Committee undertook a legal review
of leases covering approximately 533,800 square feet of space in certain
warehouses located at 3301 Pennsy Drive, Landover, Maryland (the "Pennsy
Leases"), beginning late in the third quarter of the year ending January 31,
1995. By their terms, the Pennsy Leases, which run to 2016, require annual
rental payments of $855,000 subject to escalation in 1996 and thereafter based
on increases in the Consumer Price Index. The lease terms also require the
lessee to pay real estate taxes, insurance, utilities and maintenance expenses.
Trak Auto has a sublease agreement for 6,500 square feet of warehouse space for
a term of one year with nine one-year options at an annual rent of $21,000 to
increase to $24,000 per year in the last five option periods. Shoppers Food
Warehouse has a month-to-month lease for 6,000 square feet of space at
approximately $2,000 per month.
As a result of this review, on February 10, 1995, the Corporation filed a
complaint in Circuit Court for Prince George's County, Maryland, alleging,
inter alia, breaches of fiduciary duty, waste and other irregularities by
certain members of the Haft family and others in connection with the Pennsy
Leases, and in particular with the resumption of rental payments for these
warehouses in 1991 following the bankruptcy of the prior tenant, Dart Drug
Stores, Inc. The complaint seeks rescission of the Pennsy Leases, restitution
of rent paid since 1991 and other monetary damages. The Corporation is holding
all sublease income received from Trak Auto and Shoppers food Warehouse in
escrow, pending resolution of this litigation. See Item 3. - Legal Proceedings
and Item 13. - Certain Relationships and Related Transactions, and see Notes 4,
5 and 9 to the Consolidated Financial Statements.
The Executive Committees of the Corporation, Crown Books and Trak Auto
have also undertaken a legal review of other leasing arrangements and real
estate related transactions between the Company and Haft-owned entities. This
review is ongoing and the Executive Committees have not yet determined whether
other actions will be taken as a result of this legal review.
16
<PAGE> 17
Item 3. Legal Proceedings
Robert M. Haft Employment Litigation
In August 1993, Robert M. Haft, the former president of Crown Books and
the Corporation, filed a lawsuit in the United States District Court for the
District of Delaware, Robert M. Haft v. Dart Group Corporation, et al. (D. Del.
Civil Action No. 93-384-SLR), naming as defendants the Corporation and two of
its subsidiaries, Crown Books and Trak Auto. The complaint, as amended,
alleged breach of contract regarding various employment, stock option, stock
incentive and loan agreements and sought declaratory judgment regarding a stock
incentive agreement and a possible right by Robert M. Haft to acquire an
interest in Total Beverage, all in connection with the termination of Robert M.
Haft's employment in June 1993. The complaint, as amended, sought unspecified
damages, costs and attorneys' fees.
On September 20, 1994, a jury found that the Corporation had breached its
employment contract with Robert M. Haft and awarded him damages against the
Corporation (equivalent to the compensation projected to be due over a ten-year
period) in the amount of $18,856,964. The jury also found that Crown Books had
breached an employment agreement with Robert Haft and awarded him damages
(equivalent to the compensation projected to be due over a ten-year period)
against Crown Books in the amount of $12,800,910.
The jury also found that Robert M. Haft did not voluntarily terminate his
employment within the meaning of his Incentive Stock Agreement ("ISA") with
Crown Books. Under the terms of the ISA, a voluntary termination by Robert M.
Haft of his employment would have allowed Crown Books to repurchase all or a
portion of 100,000 shares of stock issued to Robert Haft by Crown Books
pursuant to the ISA, subject to certain transfer restrictions, in return for a
non-interest bearing promissory note, discounted at an effective rate of 11%,
for $203,750, due January 2, 2004. The jury's finding would preclude Crown
Books from making such a repurchase.
Robert M. Haft asked the judge presiding over the case to award him
additional damages in the amount of approximately $2.4 million based on the
failure of Crown Books to deliver 100,000 shares of unrestricted common stock
of Crown Books, which he would have a right to receive under the ISA in the
event of his termination without cause by Crown Books, when he demanded them in
August of 1993. Robert M. Haft also requested a declaratory judgment on his
claim against the Corporation, Crown Books and Trak Auto arising from certain
stock options granted to him by those corporations and his claim that he has a
purchase option for an interest in Total Beverage.
On February 22, 1995, the federal district court in Robert M. Haft's
employment litigation made the following rulings against the Corporation, Crown
Books and Trak Auto:
(1) The court found that Robert M. Haft was entitled to damages in
the amount of $2,146,250, plus interest, based on the failure of
Crown Books to deliver 100,000 shares of unrestricted Crown Books
common stock when he demanded them in August of 1993;
(2) The court found that Robert M. Haft was entitled to exercise
certain employee stock options under the 1981 and 1992 Stock
Option Plans of the Corporation, the Crown Books Stock Option
Plan adopted March 12, 1987, and the Trak Auto Corporation Stock
Option Plan adopted March 24, 1987. As to options that had
expired during the pendency of the
17
<PAGE> 18
Item 3. Legal Proceedings (Continued)
case, the court extended the time for exercise for a period equal
to the period from June 30, 1993 to the expiration date. As to
options that had not yet expired, the court extended the exercise
date for a period equal to the period from June 30, 1993 until
final judgment was entered. (Under the relevant plans, Robert M.
Haft would be entitled to exercise options for 50,000 of Class A
Common Stock, $1.00 par value per share (the "Class A Common
Stock"), of Dart having exercise prices of $71.50 - $104.50 per
share, 80,000 shares of Crown Books Common Stock having exercise
prices of $21.45 - $23.93 per share and 40,000 shares of Trak
Auto Common Stock having exercise prices of $6.60 - $13.75 per
share.); and
(3) The Court found that Robert M. Haft has the right to purchase for
$149,400 ten percent of the Corporation's interest in the entity
that acquired the assets of Total Beverage's Chantilly, Virginia
store.
The Court entered final judgment on all claims in this lawsuit on March
23, 1995. On April 6, 1995, the Corporation and Crown Books filed a motion for
a new trial and/or reduction of damages with the court, challenging the Court's
breach of contract findings, damages awards and certain evidentiary rulings.
Depending upon the outcome of this motion, the Corporation, Crown Books and
Trak Auto may also file an appeal challenging some or all of the rulings in
this lawsuit.
The Corporation has reserved approximately $32,200,000 for these
judgments and has expensed the remaining unamortized deferred compensation
associated with the ISA totaling $1,424,000 (before income taxes).
Derivative Litigation
In September 1993, Alan R. Kahn and the Tudor Trust (the "Kahn Derivative
Plaintiffs"), shareholders of the Corporation, filed a lawsuit in the Delaware
Court of Chancery for New Castle County naming as defendants Herbert H. Haft,
Ronald S. Haft, Douglas M. Bregman, Bonita A. Wilson, Combined Properties,
Inc., Combined Properties Limited Partnership, and Capital Resources Limited
Partnership. The suit is brought derivatively and names as nominal defendants
the Corporation, Trak Auto, Crown Books, Shoppers Food, Total Beverage, and
CMREC.
The complaint, as amended on January 12, 1995, alleges waste, breach of
fiduciary duty, violation of securities laws and entrenchment in connection
with various lease agreements between the Combined Properties defendants and
the Corporation and its subsidiaries, the termination of Robert M. Haft, the
compensation paid to Ronald S. Haft and Herbert H. Haft, the Corporation's
employment agreement with Ronald S. Haft dated August 1, 1993 (the
"Agreement"), the sale of 172,730 shares of Class B Common Stock, $1.00 par
value per share (the "Class B common Stock"), of Dart by Herbert H. Haft to
Ronald S. Haft and the compensation paid to the Executive Committee.
Plaintiffs seek an accounting of unspecified damages incurred by the
Corporation, voiding of the options sold to Ronald S. Haft, appointment of a
temporary custodian to manage the affairs of the Corporation or to oversee its
recapitalization or sale and costs and attorneys' fees.
On April 27, 1995, the Kahn Derivative Plaintiffs and the Special
Litigation Committee of the Corporation's Board of Directors filed a
Stipulation and Order which, if entered by the Court, will (1) dismiss claims
against
18
<PAGE> 19
Item 3. Legal Proceedings (Continued)
Douglas M. Bregman and Bonita Wilson; and (2) realign the Corporation as a
party plaintiff to the amended complaint.
In November 1993, Robert M. Haft filed another lawsuit in the Delaware Court of
Chancery for New Castle County. The lawsuit names as defendants Herbert H.
Haft, Ronald S. Haft, Douglas M. Bregman, and Bonita A. Wilson, and also names
the Corporation as a nominal defendant. The complaint derivatively alleges
interested director transactions, breach of fiduciary duty and waste in
connection with the Agreement. Robert M. Haft also brings individual claims for
breach of contract and dilution of voting rights in connection with the sale of
the shares of Class B Common Stock by Herbert H. Haft to Ronald S. Haft and the
Agreement. The complaint seeks rescission of the sale of such shares and the
Agreement, unspecified damages from the individual directors, and costs and
attorneys' fees.
A Special Litigation Committee consisting of two outside, independent
directors of the Corporation, Crown Books and Trak Auto was appointed by the
Board of Directors to assess, on behalf of the Corporation, whether to pursue,
settle or abandon the claims asserted in these two derivative lawsuits. In
September 1994, the Special Litigation Committee moved for dismissal of certain
claims in those derivative lawsuits and for realignment of the parties to
permit the Corporation to prosecute other claims in those derivative lawsuits.
In September 1994, Jolien Lou, a purported shareholder of Crown Books,
filed a lawsuit in the Delaware Court of Chancery for New Castle County naming
as defendants Herbert H. Haft, Glenn E. Hemmerle, Ronald S. Haft, Douglas M.
Bregman, H. Ridgely Bullock, Larry B. Schafran and Bonita A. Wilson. The suit
is brought derivatively and names Crown Books as nominal defendant. The
complaint, as amended on February 24, 1995, alleges waste and breach of
fiduciary duty in connection with the termination of Robert M. Haft from his
position at Crown Books in 1993 and in connection with Herbert H. Haft's
management of Crown Books. The amended complaint also alleges legal
malpractice against a lawyer advising the Corporation at that time. Plaintiff
seeks unspecified damages incurred by Crown Books, and costs and attorneys'
fees. Ronald S. Haft and Glenn E. Hemmerle have been dismissed without
prejudice from this lawsuit. Crown Books and other defendants have filed a
motion to dismiss this lawsuit.
Given that these derivative lawsuits are brought in the name of the
Corporation and its subsidiaries, recovery in them would inure to the benefit
of the Corporation and its subsidiaries if the claims are successfully
litigated or settled. Therefore, in the opinion of management, resolution of
these actions will not have a material adverse effect on the consolidated
financial condition or results of operations of the Company.
Ronald S. Haft Stock Options
On September 6, 1994, Ronald S. Haft tendered to the Corporation a letter
requesting:
(1) to exercise, effective immediately, options (the "Options") to
purchase, at an exercise price of $89.65 per share, 197,048
shares (the "Option Shares") of Class B Common Stock and
(2) to exercise his right under the Agreement, effective immediately,
to obtain a loan from the Corporation in the amount of
$17,665,353.20,
19
<PAGE> 20
Item 3. Legal Proceedings (Continued)
for part of the exercise price of the Options.
Together with that letter, Ronald S. Haft tendered to the Corporation a
check payable to the Corporation in the amount of $197,048 as payment of the
par value of the Option Shares; and an executed unsecured promissory note of
Ronald S. Haft payable to the order of the Corporation in the amount of
$17,665,353.20, the balance of the exercise price for the Option Shares under
the Options.
The Corporation has rejected the validity of Ronald S. Haft's exercise of
the Options and the promissory note tendered in connection therewith. Issuance
of the Option Shares has not been recorded in the stock records of the
Corporation, the Corporation has returned his $197,048 check, and the
Corporation has not issued any stock certificate to Ronald S. Haft for the
Option Shares. The Corporation delivered to Ronald S. Haft a check in the
amount of the $985,000 price (plus interest) previously paid by him for the
Options, but he returned the check to the Corporation. These funds are now in
an interest bearing escrow account.
On September 12, 1994, Ronald S. Haft filed a lawsuit against the
Corporation (Ronald S. Haft v. Dart Group Corporation, Del. Ch., C.A. No.
13736) (the "Options Lawsuit") in the Delaware Court of Chancery for New Castle
County seeking a court order that the Corporation issue the Option Shares and
grant him a loan of $17,665,353.20 to be used as part of the payment for such
shares. See Note 6 to the Consolidated Financial Statements and Item 13 -
Certain Relationships and Related Transactions for a description of the
Agreement.
The Corporation has denied the validity of the Options and the Agreement
and is contesting the Options Lawsuit. On November 14, 1994, the Court of
Chancery entered a Memorandum Opinion denying Ronald S. Haft's motion for
summary judgment.
In connection with this proceeding, on September 14, 1994, the Standstill
Agreement agreed to on behalf of the Corporation and Ronald S. Haft was ordered
by the Delaware Court of Chancery. The Standstill Agreement restricts certain
actions by the Corporation until further order of the court. In particular,
the Corporation may not, without further order of the court: (i) change its
Certificate of Incorporation or Bylaws; (ii) change the current composition of
the Board of Directors of the Corporation or its subsidiaries; (iii) change the
current Haft family officers of the Corporation or its subsidiaries; (iv) issue
any additional securities of the Corporation or any of its subsidiaries; or (v)
take any extraordinary actions that would result in (a) the liquidation of the
Corporation or any of its subsidiaries, (b) the sale of any major subsidiary of
the Corporation, or (c) the disadvantage of any Class B Common Stockholder of
the Corporation through any debt transaction.
20
<PAGE> 21
Item 3. Legal Proceedings (Continued)
In December 1994, Ronald S. Haft filed a motion for contempt against the
Corporation, Herbert H. Haft, Larry G. Schafran and Bonita A. Wilson, alleging
a breach of the Standstill Agreement. In his motion, Ronald S. Haft asserted
that the defendants violated the prohibition on the issuance of additional
securities of the Corporation by approving certain employee stock option grants
pursuant to existing stock option plans of the Company, and by approving a form
of employment contract for executives of the Company that contains a provision
for stock option grants. The Corporation opposed this motion and moved for
clarification or waiver of the Standstill Agreement with respect to the
issuance and exercise of employee stock options that would (i) allow the
Corporation to grant stock options to its employees, other than members of the
Haft family, in a way that complies with the past practice of the Corporation
and (ii) allow the Corporation to issue stock pursuant to the exercise of
options granted prior to September 14, 1994. A hearing on these matters was
held on April 18, 1995 at which the court denied the motion for contempt and
issued an order stating that the Standstill Agreement did not enjoin the
exercise of stock options granted prior to September 14, 1994, or the issuance
of stock options to employees approved by the Board of Directors in December
1994.
In December 1994, the Delaware Court of Chancery granted a motion by the
Kahn Derivative Plaintiffs to intervene permissively as defendants in the
Options Lawsuit on their own behalf. Subsequently, on January 20, 1995, Ronald
S. Haft and the Kahn Derivative Plaintiffs filed a Stipulation and Agreement of
Compromise, Settlement, and Release (the "Settlement Agreement"), in which they
purported to settle the Options Lawsuit. As part of the putative Settlement
Agreement, Ronald S. Haft's exercise of the Options would have been allowed.
The Corporation filed a brief opposing the Settlement Agreement on March
8, 1995, which brief contained as an exhibit a memorandum (the "Memorandum")
responding to the terms of the Settlement Agreement. See Item 7 - Management's
Discussion and Analysis of Financial Condition and Results of Operations for
further description of the Memorandum. On March 10, 1995, the Kahn Derivative
Plaintiffs withdrew from the putative Settlement Agreement. Trial in the
Options Lawsuit is currently scheduled for July 17, 1995.
Pennsy Warehouse Litigation
The Executive Committee of the Corporation undertook a legal review of
the Pennsy Leases, beginning late in the third quarter of the year ended
January 31, 1995. By their terms, the Pennsy Leases, which run to 2016,
require annual rental payments of $885,000 subject to escalation in 1996 and
thereafter based on increases in the Consumer Price Index. The lease terms
also require the lessee to pay real estate taxes, insurance, utilities, and
maintenance expenses. At the end of the third quarter of the year ended
January 31, 1995, the Corporation reserved $32.3 million for the obligations
represented by the Pennsy Leases, which is the present value (discounted at 6%)
before estimated inflation of 4% of the approximately $82.0 million that the
Corporation projects it would be required to expend under the leases over the
balance of the term.
As a result of this review, on February 10, 1995, the Corporation filed a
complaint in Circuit Court for Prince George's County, Maryland, alleging,
inter alia, breaches of fiduciary duty, waste and other irregularities by
certain members of the Haft family and others in connection with the Pennsy
Leases, and in particular with the resumption of rental payments for these
warehouses in 1991 following the bankruptcy of the prior tenant, Dart Drug
Stores, Inc. The
21
<PAGE> 22
Item 3. Legal Proceedings (Continued)
complaint seeks rescission of the Pennsy Leases, restitution of approximately
$3.4 million of rent paid since 1991 and other monetary damages. See Notes 4
and 5 to the Consolidated Financial Statements.
The Executive Committees of the Corporation, Trak Auto and Crown Books
have also undertaken a legal review of other leasing arrangements and real
estate related transactions between the Company, on the one hand, and Haft-
owned entities, on the other hand. See Item 7. - Management's Discussion and
Analysis of Financial Condition and Results of Operation, Item 13. - Certain
Relationships and Related Transactions and Note 4 to the Consolidated Financial
Statements. The review is ongoing and the Executive Committees have not yet
determined whether other actions will be taken as a result of this legal
review.
Robert M. Haft Options Litigation
On February 10, 1995, Robert M. Haft filed a complaint in the United
States District Court for the District of Delaware against the Corporation
seeking specific performance or damages in connection with the refusal of the
Corporation to issue shares of Class A Common Stock to him pursuant to his
exercise of certain options purportedly granted to him by the Corporation.
Robert M. Haft allegedly received these options on three separate occasions:
(1) pursuant to the Dart Drug Corporation Executive Non-Qualified Stock Option
Plan (the "1983 Plan"), pursuant to which Robert M. Haft allegedly received
options to purchase 120,000 shares of Class A Common Stock; (2) pursuant to the
Dart Group Corporation 1987 Executive Non-Qualified Stock Option Plan (the
"1987 Plan"), pursuant to which Robert M. Haft allegedly received options to
purchase 99,750 shares of Class A Common Stock; and (3) pursuant to a Stock
Option Agreement (the "1989 Agreement") dated as of August 30, 1989, among the
Corporation, Dart/SFW Corp. ("Dart/SFW"), a wholly-owned subsidiary of the
Corporation that holds the Corporation's interest in Shoppers Food, and Robert
M. Haft, under which Robert M. Haft allegedly received options to purchase 10
shares (or 10%) of stock of Dart/SFW.
The Executive Committee undertook a legal review of the options granted
to Robert Haft pursuant to the 1983 Plan, the 1987 Plan and the 1989 Agreement.
As a result of this review, the Corporation is contesting the validity of these
options. See Notes 3, 9 and 14 of the Consolidated Financial Statements.
Total Beverage Litigation
In October 1993, the Corporation and two of its wholly-owned
subsidiaries, Total Beverage and Total Beverage G.B., Inc., filed a lawsuit in
the United States District Court for the Eastern District of Virginia styled
The Dart Group Corporation v. The Globe Distributing Company of Virginia, Inc.,
d/b/a The Forman Distributing Company of Virginia, Inc., et al., CA No.
93-1307-A (E.D. Va.). The lawsuit named as defendants The Globe Distributing
Company, Inc. d/b/a The Forman Distributing Company of Virginia, Inc.
("Forman"), four other Virginia wine wholesalers, and several of their
principals. The complaint, as amended, alleged violations of the federal and
Virginia state antitrust laws and intentional tortious interference with
contract by reason of an alleged conspiracy among the wholesalers to divide
territories and allocate customers. The complaint, as amended, sought
injunctive relief and unspecified damages, costs and attorneys' fees. In
January 1994, the defendants filed counterclaims against the plaintiffs for
defamation, conspiracy to injure in reputation, trade and business, conspiracy
to coerce and compel, tortious interference with contractual relations and
business expectancies, and violation of the Lanham Act.
22
<PAGE> 23
Item 3. Legal Proceedings (Continued)
During the year ended January 31, 1995, all claims and counterclaims in
these actions were settled. The terms and conditions of the settlement
agreement has not had a material adverse effect on the consolidated financial
condition or operating results of the Company.
Other
Pursuant to an agreement between the Corporation and the Securities and
Exchange Commission ("SEC") resolving the SEC's investigation of the
Corporation's status as an investment company under the Investment Company Act
of 1940 (the "1940 Act"), on February 28, 1990, the SEC filed with the U.S.
District Court for the District of Columbia a complaint for injunction and
other relief against the Corporation alleging that the Corporation had been
since June 30, 1984 an investment company as defined in the 1940 Act and had
engaged in certain activities prohibited by the 1940 Act without registering as
an investment company. The SEC sought in the complaint an injunction
banning the Corporation and its representatives from engaging in activities
prohibited by the 1940 Act without first registering as an investment company.
At the same time, the Corporation, without admitting or denying these
allegations, consented to the entry of a final judgment (1) enjoining the
Corporation, should it become an investment company in the future, from
engaging in certain activities prohibited by the 1940 Act in the absence of an
applicable exemption or unless the Corporation is registered as an investment
company, and (2) requiring the Corporation, on a quarterly basis for a three
year period, to provide the SEC with certain information concerning the
composition of its assets and income.
In the normal course of business, the Company is involved in various
claims and litigation. In the opinion of management, liabilities, if any, will
not have a material affect upon the consolidated financial condition and
results of operations of the Company.
The Corporation has recorded expenses of approximately $18.4 million and
$8.0 million during the years ended January 31, 1995 and January 31, 1994,
respectively, for legal expenses incurred during these years. These amounts
include estimated future expenses likely to be considered necessary to resolve
all litigation discussed above.
23
<PAGE> 24
Item 4. Submission of Matters to a Vote of Security Holders
Inapplicable.
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
The Class A Common Stock is quoted on the Nasdaq under the symbol DARTA.
The following table sets forth the range of the high and low sale prices for
the Class A Common Stock, as reported by the Nasdaq, and the dividends declared
for the fiscal quarters indicated.
Class A Common Stock
<TABLE>
<CAPTION>
Dividends
Quarter Ended High Low Declared Per Share
- ------------- ---- --- ------------------
<S> <C> <C> <C>
April 30, 1993 87 74 .03 1/3
July 31, 1993 88 76 .03 1/3
October 31, 1993 88 1/2 77 .03 1/3
January 31, 1994 88 1/2 79 .03 1/3
April 30, 1994 87 78 .03 1/3
July 31, 1994 83 70 .03 1/3
October 31, 1994 90 71 3/4 .03 1/3
January 31, 1995 92 72 .03 1/3
</TABLE>
There were approximately 360 record holders of the Class A Common Stock
as of April 10, 1995.
No public trading market exists for the Class B Common Stock. The
Corporation has never paid dividends to the holders of Class B Common Stock and
does not expect to do so in the foreseeable future. There were 4 record
holders of the Class B Common Stock as of April 10, 1995.
24
<PAGE> 25
Item 6. Selected Financial Data
Income Statement Data: (in thousands, except per share data)
<TABLE>
<CAPTION>
Fiscal Year
---------------------------------------------------------------------------
1995 1994 1993 1992 1991
------------- ---------- ---------- ---------- ---------------
<S> <C> <C> <C> <C> <C>
Revenues $ 967,428 $1,376,543 $1,272,677 $1,195,148 $1,083,583
Unusual items - - 3,894 - 1,829
Income (loss) before
minority interests
and income from
unconsolidated
subsidiary (78,022) (225) 11,652 18,113 18,623
Minority interests (1) 4,235 (6,512) (8,143) (11,802) (10,473)
Income (loss) from
unconsolidated
subsidiary (5) - - - -
Income (loss) before
extraordinary item
and cumulative effect
of accounting change (73,792) (6,737) 3,509 6,311 8,150
Extraordinary item:
Repurchase of
debentures (2) - - (885) (1,589) 104
Cumulative effect of
change in accounting
principle (3) - - 1,135 - -
---------- --------- --------- --------- ---------
Net Income (loss) $ (73,792) $ (6,737) $ 3,759 $ 4,722 $ 8,254
========== ========= ========= ========= =========
Per share data:
Income (loss) before
extraordinary item
and cumulative effect
of accounting
change $ (39.57) $ (4.10) $ 1.91 $ 3.46 $ 4.36
Extraordinary item:
Repurchase of
debentures (2) - - (.48) (.87) .06
Cumulative effect of
change in accounting
principle (3) - - .62 - -
---------- ---------- --------- --------- --------
Net Income (loss) $ (39.57) $ (4.10) $ 2.05 $ 2.59 $ 4.42
========== ========== ========= ========= =========
Cash dividends
declared per
share of Class A
common stock $ 0.13 $ 0.13 $ 0.13 $ 0.13 $ 0.13
========== ========== ========= ========= =========
</TABLE>
25
<PAGE> 26
Item 6. Selected Financial Data (Continued)
<TABLE>
<CAPTION>
Balance Sheet Data: (in thousands)
- ------------------- Fiscal Year
---------------------------------------------------------------------
1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Working capital $ 180,415 $ 281,242 $ 267,801 $ 260,374 $ 369,061
Total assets (1) 706,489 802,898 722,379 696,395 704,080
Long-term
Obligations 170,417 151,818 120,231 92,096 178,310
Stockholders'
Equity 199,363 274,307 279,239 276,476 271,896
</TABLE>
(1) As of January 31, 1995 the Corporation owned 64.8% of the common stock of
Trak Auto. Subsequent to January 31, 1995, Trak Auto repurchased
approximately 310,000 shares of its outstanding common stock through a
tender offer. The Corporation now owns 68.3% of the common stock of Trak
Auto. The Corporation owned 51.4% of the common stock of Crown Books.
The accounts of Shoppers Food are consolidated with the Corporation's
through May 28, 1994, but not thereafter, as a result of a reduction of
the Corporations' ownership to 50%. The Corporation's investment in
Shoppers Food is reflected in the financial statements using the equity
method of accounting for periods subsequent to May 28, 1994
On December 31, 1989, partnerships in which CMREC holds a 75% interest
purchased two shopping centers. The operating results of these
partnerships are reported from January 1, 1990. On March 12, 1991, CMREC
acquired a 51% interest in two partnerships that own the Greenbriar Town
Center in Chantilly, Virginia. The operating results of these
partnerships are reported from March 12, 1991. In January 1993, CMREC
acquired a 51% interest in a partnership that owns Bull Run Plaza in
Manassas, Virginia. The operating results of this partnership are
reported from January 1, 1993.
(2) See Note 16 to the Consolidated Financial Statements.
(3) The 1993 cumulative effect of a change in accounting principles was the
result of Trak Auto's adopting Statement of Financial Accounting Standard
No. 109, Accounting for Income Taxes.
26
<PAGE> 27
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
On September 7, 1994, the Board of Directors of the Corporation
established an Executive Committee comprised of the Corporation's outside
directors to conduct the affairs of the Corporation with respect to matters
that are the subject of dispute between the Chairman of the Board and Chief
Executive Officer of the Corporation, Herbert H. Haft, and the President and
Chief Operating Officer of the Corporation, Ronald S. Haft. On October 11,
1994, the Boards of Directors of Trak Auto, Crown Books and Total Beverage each
established an Executive Committee of their respective Board of Directors
comprised of the same outside directors, with authority parallel to that of the
Corporation's Executive Committee. The disputes between Herbert Haft and
Ronald Haft concerning issues involving the Corporation have been extensive.
Accordingly, the Executive Committee has assumed day-to-day involvement in
these disputed issues and other matters affecting the Corporation, in
particular matters relating to litigation to which the Corporation is a party.
The continuing role of the Executive Committee is dependent upon future
developments.
A Standstill Agreement entered into on September 14, 1994 in connection
with a lawsuit filed by Ronald S. Haft against the Corporation provides that
the Corporation may not, until further order is entered by the Delaware Court
of Chancery, (i) change its certificate of incorporation or bylaws, (ii) change
the current composition of the board of directors of the Corporation or its
subsidiaries, (iii) change the current Haft family officers of the Corporation
or its subsidiaries, (iv) issue any additional securities of the Corporation or
any of its subsidiaries, or (v) take any extraordinary actions that would
result in (a) the liquidation of the Corporation or any of its subsidiaries,
(b) the sale of any major subsidiary of the Corporation, or (c) the
disadvantage of any Class B stockholder of the Corporation through any debt
transaction. See Item 3. - Legal Proceedings.
In October 1994, Robert A. Marmon was appointed, on an interim basis, as
Chief Financial Officer for the Corporation, each of its wholly-owned
subsidiaries and Crown Books, and as Principal Financial Officer for Trak Auto.
Robert Marmon reports directly to the Executive Committee and the Board of
Directors of each of these companies.
During the year ended January 28, 1995, Crown Books recorded
approximately $18.9 million in restructuring and closed store reserve charges.
This was in addition to charges recorded for reserves related to the $34
million judgment entered against the Corporation and Crown Books in favor of
Robert Haft (See Item 3. - Legal Proceedings), $23 million in reserves
recorded by the Corporation relating to the Pennsy Leases (See Note 5 to
Consolidated Financial Statements) and reserves for legal expenses anticipated
in future periods.
The Executive Committees of the Corporation, Trak Auto and Crown Books
have undertaken a legal review of leasing arrangements and other real estate
related transactions between the Company and Haft-owned entities. On February
10, 1995, the Corporation filed a complaint alleging, inter alia, breaches of
fiduciary duty, waste and other irregularities by members of the Haft family in
connection with the Pennsy Leases. (See Item 3. - Legal Proceedings). This
review is ongoing and the Executive Committees have not yet determined whether
other actions will be taken as a result of its legal review of leasing
arrangements and other real estate related transactions between the Company and
Haft-owned entities.
27
<PAGE> 28
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
The Executive Committee also has conducted a legal review of certain
options to purchase stock of the Corporation and Dart/SFW that are claimed by
Robert Haft, Herbert Haft, Ronald Haft and other family members of the Haft
family. This review has resulted in the Corporation contesting the validity of
these options in response to Robert Haft's attempted exercise thereof. See
Item 3. - Legal Proceedings.
The Corporation has retained an investment banking firm to provide
advice concerning the value of the Corporation and the option to purchase Class
B Common Stock of the Corporation claimed by Ronald Haft. This retention
relates to the Corporation's defense of the Options Lawsuit and certain other
issues of shareholder value. The investment banking firm has advised that the
current market price of the Corporation's stock is significantly undervalued
and has reviewed with members of the Executive Committee potential types of
transactions that might enhance value for the Corporation's stockholders. No
final decision has been made whether or not the Corporation will engage in any
such transactions, and there can be no assurance as to the timing or terms of
such transactions, if they occur. Any such transaction may require further
order of the Delaware Court of Chancery under the Standstill Agreement any may
be opposed by certain controlling stockholders of the Corporation.
LIQUIDITY AND CAPITAL RESOURCES
Cash, including short-term instruments, and U.S. government and other
marketable debt securities are the Company's primary source of liquidity.
Cash, including short-term instruments, U.S. government and other marketable
debt securities and bankers' acceptances, decreased by $95,673,000 to
$191,704,000 at January 31, 1995 from $287,377,000 at January 31, 1994. This
decrease was primarily due to the accounts of Shoppers Food no longer being
consolidated with the Company. Cash decreases at Crown Books for increased
merchandise inventory and payments for January 31, 1994 accounts payable,
payments for the Company's legal expenses and capital expenditures were
partially offset by Trak Auto's increased cash from current period operating
results.
For the year ended January 31, 1995, the Company realized a pre-tax yield
of approximately 3.3% on the bankers' acceptances, approximately 4.1% on United
States Treasury Bills and approximately 5.9% on the marketable debt securities.
All of the Corporation's bankers' acceptances have matured in the normal
course.
Operating activities (not including Shoppers Food) used $13,421,000 of
the Company's funds for the year ended January 31, 1995 compared to providing
$38,402,000 of the Company's funds (including Shoppers Food) for the same
period one year ago. The primary use of cash for the year ended January 31,
1995 was for the purchase of merchandise inventory, the payments in the current
year for the prior year's accounts payable for both inventory and expenses and
to the decline in operating results at Crown Books. The decrease was partially
offset by the operating results of Trak Auto.
28
<PAGE> 29
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
Investing activities used $36,303,000 of the Company's funds for the year
ended January 31, 1995, compared to $71,327,000 for the same period last year.
The primary use of cash during the year ended January 31, 1995 was due to the
deconsolidation of Shoppers Food (see Note 3 to the Consolidated Financial
Statements). During the year ended January 31, 1995, the Company's net
purchase/disposition of marketable debt securities was less than the same
period last year, a result of the Company's initial purchase of such
securities. The Corporation's bankers acceptances all matured and were
reinvested in United States Treasury Bills. Capital expenditures decreased
$30,655,000 to $15,150,000 compared to last year, primarily due to fewer Super
Crown Books stores and Super Trak stores opening this year.
Financing activities used $4,135,000 of the Company's cash during the
year ended January 31, 1995 primarily due to CMREC's principal payments under
mortgage obligations and CMREC's Greenbriar Center's cash distribution to its
minority partner (Combined Properties, Inc.). During the year ended January
31, 1994, financing activities provided $18,797,000 to the Company primarily
due to CMREC's Bull Run Plaza obtaining a $9,750,000 mortgage.
The Corporation, together with Crown Books and Trak Auto, has a
$6,000,000 revolving credit facility agreement. As of January 31, 1995 there
has been no borrowing under this credit agreement. See Note 10 to the
Consolidated Financial Statements.
At January 31, 1995, Crown Books had two signed leases for Super Crown
stores and four signed agreements for additional space in existing stores, Trak
Auto had eight signed leases for new Super Trak stores and three signed
agreements for additional space in existing stores for conversions to Super
Trak stores and CMREC's Bull Run Plaza had completed renovation and expansion.
The Company anticipates that funds necessary to fund these capital
expenditures, as well as purchase inventory for new stores, meet the Company's
long-term lease obligations, and pay current liabilities (including judgments
in the Robert M. Haft employment litigation) will come from operations,
existing current assets and, if necessary, the aforementioned credit agreement.
During the year ended January 31, 1995, the Corporation recorded reserves
totaling $63 million in administrative expenses. These reserves are discussed
in the footnotes to the accompanying financial statements. The principal
components of the reserves include:
<TABLE>
<S> <C>
Pennsy Warehouse Lease Reserves $23,000,000
Robert M. Haft Employment Litigation 19,000,000
Legal and Other 21,000,000
-----------
$63,000,000
===========
</TABLE>
As a result of the Executive Committee's legal review relating to the
Pennsy Leases, it was determined that the existence of asbestos and the cost of
the Pennsy Leases between the Corporation and a Haft-owned entity, would
substantially impair the future cash flows of the Corporation for the
foreseeable future. Accordingly, the Corporation revised its expectations of
future sublease income and increased the reserve for the obligations
represented by these leases to $32.3 million from $9.6 million, an increase of
$22.7
29
<PAGE> 30
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
million, during the year ended January 31, 1995. As a result of the legal
review, on February 10, 1995 the Corporation filed a complaint for rescission
of the Pennsy Leases for the return of rent paid since the reassumption of the
Pennsy leases. See Item 3. - Legal Proceedings and Note 5 to the Consolidated
Financial Statements.
As a result of the judgment rendered against the Corporation in favor of
Robert M. Haft, the Corporation reserved an additional $19 million.
Finally, included in legal and other is a reserve of approximately $10.0
million for future legal and other expenses related to litigation involving the
Corporation (other than the Robert M. Haft employment litigation) and
approximately $11.0 million for the estimated fair value of the Dart/SFW stock
over the exercise price of the options.
In addition, a comprehensive review of Crown Books was begun by its new
Chief Operating Officer and interim Chief Financial Officer shortly after their
appointments in October of 1994. That review, which continued into February of
1995, identified opportunities to improve Crown Books' profitability,
organization, staffing, computer systems, and operating controls. The initial
review found that Crown Books still had a majority of its stores in the
original Classic Crown Books stores format and concluded that many of these
Classic Crown Books stores were not generating, and were not expected to
generate, a return on investment sufficient to justify their continued
operation and that Crown Books' competitors had long since moved to a much
larger format. As a result, Crown Books determined to act aggressively to
implement the larger Super Crown format begun as part of its earlier
restructuring and close approximately 100 of these small and under-performing
stores over the next 6-18 months. As a result, Crown Books recorded a closed
store reserve of $18.9 million for the costs to be incurred in these closings.
During the fiscal years 1995, 1994 and 1993, Crown Books recorded net
charges (income) of $18,865,000, $(631,000), and $513,000, respectively for
such closed store costs. The income during the year ended January 28, 1994 was
the result of early lease terminations, net of cash buyouts. At January 28,
1995, 28 of the 100 stores targeted for closing during the third fiscal quarter
had been closed and over 40 stores targeted for closing under the previous
restructuring had been closed. As of January 28, 1995, Crown Books had an
aggregate closed store restructuring reserve of $29,853,000 of which
approximately $6,936,000 will be utilized over the next 12 months.
During the fourth fiscal quarter an additional 54 stores were targeted
for closure as a result of the continuing analysis of store profitability and
market presence. Additional reserves for store closings were not deemed
necessary as the remaining reserves adequately proves for Crown Books'
obligations for the currently identified stores to be closed due to revisions
to the planned closing dates for certain stores. Crown Books will continue to
evaluate the performance and future viability of its remaining stores and may
close additional stores in the future. No reserves for these stores have been
recorded.
30
<PAGE> 31
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
The closings of these smaller or underperforming stores may, where
appropriate, be coordinated with the opening of Super Crown Books stores in
those markets where Crown Books plans to maintain or expand its presence. A
commitment has recently been made to accelerate the opening of stores in the
Super Crown Books format.
Management plans to open 28 Super Crown Books stores varying in size from
12,000 to 18,000 square feet over the next 12 to 18 months. These stores will
represent approximately 420,000 square feet of new space opened in the next 12
to 18 months.
The liquid assets maintained by the Company are intended to fund the
expansion of the Company's retail business through the opening of stores in new
markets, converting selected existing stores to superstores, opening additional
stores in existing markets and other corporate purposes.
On December 21, 1994, Trak Auto offered to buy back from its shareholders
approximately 24% of its outstanding common stock, or 1,500,000 shares, at a
price of $17.50 per share. On February 6, 1995, Trak Auto amended the offer by
increasing the purchase price to $20.50 per share, and made certain other
changes. When the offer expired on February 28, 1995, Trak Auto had
repurchased approximately 310,000 shares for a total consideration of
$6,363,000 plus expenses of approximately $600,000.
At January 31, 1995:
Working capital decreased $100,827,000 to $180,415,000 during the year
ending January 31, 1995. The decrease was primarily due to the deconsolidation
of Shoppers Food.
At January 31, 1994:
Working capital increased by $13,441,000 to $281,242,000 at January 31,
1994 from $267,801,000 at January 31, 1993. The increase was primarily due to
an increase in cash (see discussion of cash above). Increased inventory levels
were offset by increased accounts payable, trade.
31
<PAGE> 32
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
RESULTS OF OPERATIONS
Year Ended January 31, 1995 Compared to the Year Ended January 31, 1994
Trak Auto
During the year ended January 28, 1995, Trak Auto closed 58 Classic Trak
stores and opened 20 Super Trak stores and 6 Super Trak Warehouse stores as
well as converted 14 Classic Trak stores to Super Trak stores. The Super Trak
store openings and conversions have had and are expected to continue to have a
positive impact on operating results. Super Trak stores generate increased
sales at converted locations as well as increased gross margins as a result of
the change in product mix (increased hard parts). In addition, Trak Auto
believes that by leasing larger stores it can obtain more favorable lease rates
and that operating expenses as a percentage of sales will decrease as stores
mature.
Sales of $348,599,000 for the year ended January 28, 1995 increased by
$13,801,000 or 4.1% compared to the year ended January 29, 1994. The increases
were primarily attributable to increased sales by Super Trak stores that had
been converted from Classic Trak stores as well as a 2.1% increase in sales for
all stores open more than one year for the year ended January 28, 1995. Sales
for comparable Super Trak stores open more than one year increased 1.0% for the
year ended January 28, 1995. Sales for comparable Classic Trak stores open
more than one year increased 2.5% for the year ended January 28, 1995. Sales
for Super Trak and Super Trak Warehouse stores represented 42.6% of total sales
during the year ended January 28, 1995 compared to 23.3% for the year ended
January 29, 1994.
Interest and other income increased by $325,000 for the year ended
January 28, 1995 when compared to the same period last year. The increase was
primarily due to rental income resulting from a temporary sublease for a
portion of the Ontario, California warehouse. In addition, interest income
increased during the year ended January 28, 1995 compared to the same period
last year as a result of increased funds available for short-term investment.
Cost of sales, store occupancy and warehousing expenses as a percentage
of sales were 73.0% for the year ended January 28, 1995 (excluding the closed
store charge) (see Note 3 to the Consolidated Financial Statements) compared to
76.4% for the year ended January 29, 1994. The decrease was primarily due to
increased store margins as a result of higher overall merchandise margins and a
favorable change in sales mix (increased hard parts and decreased motor oils).
Cost of sales, store occupancy and warehousing expenses include a charge of
$1,580,000 for store closings, during the year ended January 28, 1995 compared
to a net income of $943,000 during the year ended January 29, 1994, which
resulted from early lease terminations, net of cash buyouts.
Selling and administrative expenses as a percentage of sales were 19.9%
for the year January 28, 1995 compared to 21.1% for the year ended January 29,
1994. The decrease was primarily due to lower payroll costs as a result of
Trak Auto's efforts to control store hours and administrative overhead and the
maturity of Super Trak stores.
32
<PAGE> 33
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Depreciation and amortization expenses decreased $752,000 for the year
ended January 28, 1995 when compared to the same period last year. The decrease
was primarily the result of store closings and to the point-of-sale register
systems being fully depreciated.
The effective income tax rate was 32.3% for the year ended January 28,
1995. The effective rate was lower than statutory rates primarily due to the
reversal of a $728,000 deferred tax valuation allowance. Management has
concluded that based on the weight of currently available evidence, it is more
likely than not, that the entire deferred tax asset is realizable. Management
will continue to evaluate the need for a valuation allowance.
Crown Books
Sales of $305,606,000 for the year ended January 28, 1995 increased by
$30,481,000 or 11.1% over the same period one year ago. Comparable sales
(sales for stores open for fifteen months) decreased 2.5% for the year ended
January 28, 1995. Sales for Super Crown Book stores represented 54.7% of total
sales for the year ended January 28, 1995 compared to 39.8% of total sales for
the year ended January 29, 1994. Super Crown sales of $167,200,000 for the
year ended January 28, 1995 increased 52.5% over the prior year sales and
sales for comparable Super Crown Books stores increased 0.2%. Sales for
comparable classic Crown Books stores decreased 4.0% during the year ended
January 28, 1995.
During the year ended January 28, 1995, Crown Books opened 12 Super Crown
Books stores and two Classic Crown Books stores while closing 55 Classic Crown
Books stores and three Super Crown Books stores. These Super Crown Books
stores were closed as a result of opening larger stores in the same area. At
January 28, 1995, Crown Books had 196 stores including 70 Super Crown Books
stores.
Interest and other income decreased by $784,000 during the year ended
January 28, 1995 when compared to one year ago. The decrease was due to
decreased funds available for short-term investment resulting from the lower
cash balances discussed above.
Cost of sales, store occupancy and warehousing (excluding the closed
store reserve) as a percentage of sales was 81.1% for the year ended January
28, 1995 compared to 80.4% for the same period the prior year. The increase
was primarily due to increased occupancy costs for Super Crown Books stores and
was partially offset by an increase in store margins as a result of a positive
turn in the sales mix during the quarter ended January 28, 1995 and to an
increase in overall store margins as a result of controlling purchasing. During
the year ended January 28, 1995, Crown Books recorded a closed store reserve of
$18,963,000 for underperforming stores while last year Crown Book's cost of
sales, store occupancy and warehousing expenses were reduced by a $631,000
reduction in the closed store reserve as a result of the termination of three
leases.
Selling and administrative expenses as a percentage of sales were 20.4%
for the year ended January 28, 1995 compared to 17.1% for the same period the
prior year. The increase was primarily due to the accruals for a $12.8 million
judgement against Crown Books in connection with Robert M. Haft's claim for
breach of his employment contract and related legal costs. See Item 3. - Legal
33
<PAGE> 34
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Proceedings. Excluding these accruals, selling and administrative expenses as
a percentage of sales decreased to 16.2% for the year ended January 28, 1995,
primarily the result of reduced payroll costs.
Depreciation expense increased $1,190,000 for the year ended January 28,
1995 compared to the same period one year ago. The increase was primarily due
to the increase in fixed assets as a result of the expansion of Super Crown
Books stores.
Interest expense increased by $642,000 primarily due to interest accrued
on the judgment against Crown Books in favor of Robert M. Haft.
Crown Books recorded a tax benefit of $7,951,000 for the year ended
January 28, 1995 net of a deferred tax valuation allowance of $2,500,000 as
compared to tax benefit of $276,000 for the same period one year ago. The tax
benefit was the result of taxable temporary differences included in the
$27,331,000 financial reporting net operating loss. In management's opinion, a
valuation allowance of $2,500,000 is necessary for the uncertainty related to
the timing of the reversal of certain of the taxable temporary differences
during periods when Crown Books has taxable income.
Based upon a review of Crown Books initiated by its new Chief Operating
Officer and its interim Chief Financial Officer shortly after their
appointments in October 1994, Crown Books identified the need for changes in
officers and key employees to address the other opportunities identified for
improving Crown Books' performance. In this regard, Crown Books has recruited
and hired senior management to address particular issues identified, including
a senior management information systems specialist; a senior loss prevention
specialist; a senior personnel administrator and trainer; and a senior regional
operations manager. Recruiting of other key personnel is underway including: a
permanent chief financial officer; a senior merchandiser; a senior operations
manager; additional management information specialists; and experienced
district and sales managers at several levels. Coupled with this recruiting
effort, Crown Books has also begun replacing certain district and regional
managers.
Finally, as a result of the review discussed above, an increased focus on
enhancing store profitability through efforts to re-engineer operating
processes, procedures and further improve information system capabilities was
initiated. Crown Books believes that there exist opportunities to enhance
store operating performance through the use of updated methodologies and
technology.
Crown Books anticipates that the efforts relating to improved personnel
in strategic areas and in local store management will continue and will have a
positive impact on Crown Books' results of operations in the future.
Shoppers Food
See Note 3 to the Consolidated Financial Statements for a description of
a change in accounting presentation for the Corporation's ownership for periods
subsequent to May 28, 1994.
34
<PAGE> 35
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Because Shoppers Food's accounts are not consolidated with the Company's
subsequent to May 28, 1994, comparisons with results of operations included in
the Company's consolidated financial statements for the period ended January
31, 1994, would not be meaningful. Shoppers Food sales for the four months
ended May 28, 1994 were $258,476,000. Cost of sales, store occupancy and
warehousing, as a percentage of sales, was 84.3% during that period. Selling
and administrative expenses, as a percentage of sales, was 13.7% during that
period.
Shoppers Food's net income for the year ended January 31, 1995 was
$18,742,000 compared to $12,407,000 for the year ended January 31, 1994. The
Company includes 50% of the Shoppers Food net income, after adjusting for the
amortization of the difference between the original fair value of the assets
acquired and the purchase price and certain tax contingencies recorded in
Equity in Affiliate.
Total Beverage
Total Beverage operated three stores during most of the year ended
January 28, 1995. While two stores maintained sales volume, increased gross
profit and controlled expenses, the Bull Run Plaza store sales were
disappointing and after 14 months management decided to close that store.
Total Beverage and the Corporation's management believe that the Total Beverage
concept is viable and that with more stores to absorb overhead costs,
principally advertising, the stores will generate a reasonable return on
investment. Accordingly, Total Beverage opened a new store April 1, 1995 and
is actively seeking additional store locations.
During the year ended January 28, 1995, Total Beverage sales increased
$8,652,000 to $23,925,000 primarily as a result of the two stores that opened
in October 1993. Store margins increased 2.9% compared to the prior year as a
result of improved control over purchasing and pricing.
Total Beverage recorded a net operating loss of $8,167,000 during the
year ended January 28, 1995, which included a $5.6 million closed store reserve
for the Bull Run Plaza store.
Cabot Morgan Real Estate
Revenues from real estate properties increased by $1,319,000 to
$19,977,000 during the year ended January 31, 1995, when compared to the same
period one year ago. The increase was primarily the result of a higher
occupancy rate at Bull Run Plaza.
Administrative expenses for CMREC partnerships increased $659,000 during
the year ended January 31, 1995 compared to the same period one year ago
primarily due to increased maintenance expenses at all four shopping centers
and to increased real estate taxes.
Depreciation expense increased $190,000 during the year ended January 31,
1995 when compared to the same period one year ago. The increase was due to
the increased basis of the building and improvements at Bull Run Plaza as a
result of the completed renovation of the center.
Interest expense increased $600,000 during the year ended January 31,
1995 primarily due to the mortgage obtained by Bull Run Plaza during fiscal
1994.
35
<PAGE> 36
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
Dart Financial and Other Corporate
Income from bankers' acceptances decreased $2,159,000 during the year
ended January 31, 1995 when compared to the same period in the prior year. The
decrease was the result of the Corporation's decision to no longer invest in
bankers' acceptances. As bankers' acceptances matured during this year they
were reinvested in United States Treasury Bills and Dart Financial currently
has no assets.
Interest and other income increased $1,962,000 during the year ended
January 31, 1995 when compared to the same period in the prior year. The
increase was primarily due to the Corporation investing in United States
Treasury Bills instead of bankers' acceptances.
Trak Auto and Crown Books file separate income tax returns. CMREC, Total
Beverage and Dart Financial are included in the Corporation's income tax
returns. The Corporation's current net operating loss was not tax benefitted.
As a result of the Corporation's operating loss for the year ended
January 31, 1995, a tax net operating loss carryforward of $9,692,000 was
created. The Corporation's cumulative total tax net operating loss
carryforward is $18,335,000. All net operating loss carryforwards will expire
by fiscal 2010. In addition, the Corporation has an Alternative Minimum Tax
credit carryforward of approximately $1,010,000. The Corporation has recorded
a $26,700,000 valuation allowance at January 31, 1995 relating to the tax net
operating loss carryforward. Management believes that it is unlikely that
these tax benefits can be utilized. Management will continue to evaluate the
need for the valuation allowance. As a result of a decrease in the
Corporation's ownership of Shoppers Food to 50% (see Note 3 to the Consolidated
Financial Statements), the Corporation has provided deferred taxes of
$9,321,000 and reduced its valuation allowance by the same amount.
Year Ended January 31, 1994 Compared to the Year Ended January 31, 1993
Trak Auto
During the year ended January 29, 1994 Trak Auto opened ten Super Trak
stores, converted 52 Classic Trak stores to Super Traks and opened one Classic
Trak store while closing one Super Trak (temporarily due to the January 1994
Los Angeles earthquake), and 13 Classic Trak stores. Super Trak stores have
generated increased sales at converted locations as well as increased gross
margin as a result of the change in product mix (increased hard parts).
Sales of $334,798,000 in the year ended January 29, 1994 increased by
$19,005,000 or 6.0% from the prior fiscal year primarily due to increased sales
for stores converted from Classic Trak to Super Trak stores. Sales for stores
open more than one year increased 1.3% for the year ended January 29, 1994.
Super Trak sales increased to $78,054,000 from $6,775,000 one year ago and
comparable Super Trak sales decreased 4.0%. Classic Trak store sales decreased
to $256,744,000 from $309,018,000 as a result of converting over 50 such stores
to Super Traks. Comparable sales for Classic Trak stores increased 1.4%.
Sales for Super Trak stores represented 23.3% and 2.1% of total sales for the
year ended January 29, 1994 and January 30, 1993, respectively.
36
<PAGE> 37
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
Interest and other income decreased by $197,000 during the year ended
January 29, 1994 compared to the year ended January 30, 1993. The decrease was
primarily due to decreased sublease income as a result of the expiration of the
primary lease and was partially offset by an increase in interest income as a
result of increased average balance on funds available for short-term
investment.
Cost of sales, store occupancy and warehousing expenses as a percentage
of sales increased to 76.4% for the year ended January 29, 1994, compared to
73.9% for the year ended January 30, 1993. This increase was primarily the
result of decreased margins as a result of Trak Auto's marketing strategy of
reducing prices to meet increased competition and increased advertising costs
resulting from utilizing alternative advertising media.
Selling and administrative expenses, as a percentage of sales, were 21.2%
of sales for the year ended January 29, 1994 compared to 20.9% for the year
ended January 30, 1993. The increase was primarily due to increased payroll
costs associated with opening and operating Super Trak stores. The increase
was partially offset by favorable settlement of future lease obligations of
$943,000 for stores closed in prior years and by decreased insurance costs as a
result of Trak Auto's safety programs, which reduced workers compensation
claims.
Depreciation and amortization increased $727,000 when compared to fiscal
1993. The increase was due primarily to the increase in fixed assets resulting
from conversions to Super Trak.
Interest expense increased $40,000 for the year ended January 29, 1994
compared to the year ended January 30, 1993 due to amounts owed under capital
lease obligations.
During the year ended January 29, 1994, Trak Auto recorded a tax benefit
of $545,000 as a result of Trak Auto's book net operating loss in that fiscal
year and the effect of certain permanent book/tax differences.
Crown Books
Sales of $275,125,000 for the year ended January 29, 1994 increased by
$34,443,000 or 14.3% compared to the year ended January 30, 1993. Sales for
stores open more than one year decreased 0.6% for the year ended January 29,
1994. Sales for Super Crown Books stores represented 39.8% and 21.0% of total
sales for the twelve months ended January 29, 1994 and January 30, 1993,
respectively. As a result of the adoption of a 52/53 week fiscal year in
December of 1992, fiscal 1994 has one less day than fiscal 1993. If prior year
sales are adjusted to reflect the 52/53 week fiscal year, total sales increased
14.5% for the year ended January 29, 1994 and comparable sales decreased 0.3%.
Super Crown Books stores sales of $109,637,000 increased 116.7% over the prior
year and sales for comparable Super Crown Books stores increased 1.2%. Classic
Crown Books stores sales of $164,886,000 decreased 13.3% over the prior year
and sales for comparable classic Crown Books stores decreased 1.0%.
37
<PAGE> 38
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
During the twelve months ended January 29, 1994, Crown Books opened 37
Super Crown Books stores, five expanded classic Crown Books stores and one
store that primarily sells remainders, while closing 45 classic Crown Books
stores and four Super Crown Books stores. At January 29, 1994, Crown Books had
a total of 240 stores.
Interest and other income increased by $58,000 when compared to the prior
fiscal year. The increase was primarily due to increased income from magazine
distributors for displays in new stores. Interest income decreased $193,000 as
a result of decreased funds available for short term investment.
Cost of sales, store occupancy, and warehousing as a percentage of sales
was 80.4% for the year ended January 29, 1994 compared to 78.5% the prior
fiscal year. The increase was primarily due to a decrease in store margins, as
a result of a less favorable sales mix, increased purchasing from wholesalers
at a higher cost and the impact of closed store liquidation sales, and to an
increase in store occupancy costs for Super Crown Books stores.
Selling and administrative expenses as a percentage of sales were 17.1%
for the year ended January 29, 1994 compared to 16.0% for the same period one
year ago. The increase was due primarily to increased payroll costs at both
the store and administrative levels, largely the result of expansion of Super
Crown Books stores, and to increased legal fees (see Note 9 to the Consolidated
Financial Statements) including the accrual of future estimated legal costs to
be incurred in relation to certain litigation. The increases were partially
offset by decreased insurance costs as a result of Crown Books' efforts to
reduce workers compensation cost.
Depreciation and amortization expense increased by $1,568,000 for the
year ended January 29, 1994 when compared to the prior fiscal year. This
increase was primarily due to the acquisition and installation of a point-of-
sale system in all stores and to the purchase of fixed assets for new Super
Crown Books stores.
Interest expense decreased by $68,000 in fiscal 1994 compared to fiscal
1993 due to the reduction of amounts owed under capital lease obligations.
In the year ended January 29, 1994, Crown Books determined that seven of
the smaller Super Crown Books stores (typically 6,000 - 10,000 square feet)
opened in prior years were no longer competitive in the current market
environment and in light of the industry's movement to larger stores.
Accordingly, Crown Books recorded a restructuring charge of $6,200,000 before
income taxes. The charge included the anticipated costs associated with
closing, relocating, expanding and converting smaller existing Super Crown
Books to a new larger prototype store. This charge reflected the cost of
implementing a decision of management to close smaller Super Crown Books stores
opened over the three years ended January 29, 1994 that proved to be too small
to compete effectively. These costs were primarily unrecoverable lease
obligations and the remaining book value of leasehold improvements. At January
28, 1995, Crown Books had not charged any costs in connection with this
reserve. Crown Books presently expects to complete the restructuring related
to these seven stores during the next 24 months.
Crown Books recorded a $276,000 tax benefit during the year ended January
29, 1994.
38
<PAGE> 39
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Shoppers Food
Shoppers Food sales increased $30,177,000 or 4.4% to $718,144,000 during
the twelve months ended January 31, 1994 when compared to the same period in
the prior year. The increase was primarily due to the opening of two new
stores during 1994. Sales on a comparable basis decreased 3.8% largely due to
new stores opening near existing stores.
Interest and other income increased $1,022,000 during the twelve months
ended January 31, 1994 as a result of increased funds available for short-term
investment.
Cost of sales, store occupancy and warehousing, as a percentage of sales,
decreased to 82.1% during the twelve months ended January 31, 1994 compared to
83.8% for the same period the prior year. The decrease was primarily due to
increased margins as a result of a lessening of competitive pricing pressure in
the Washington, D.C. grocery market.
Selling and administrative expenses, as a percentage of sales, increased
to 14.0% from 12.9% during the twelve months ended January 31, 1994. The
increase resulted primarily from increased payroll and insurance costs and from
a $1,000,000 charge for a closed store reserve.
Depreciation and amortization decreased $599,000 during the twelve months
ended January 31, 1994 when compared to the same period the prior year. The
decrease was primarily the result of an increase in fixed assets the prior year
and Shoppers Food recording a full year depreciation at that time.
Shoppers Food's effective income tax was 39.2% for the year ended January
31, 1994 compared to 39.0% in the prior year.
Total Beverage
Total Beverage purchased the assets of a discount beverage superstore in
February 1993 and opened two additional stores in October 1993. During the
year ended January 29, 1994, Total Beverage sales were $15,273,000 and Total
Beverage recorded a net operating loss of $5,512,000 which included legal
expenses of approximately $3,800,000. See Item 3. - Legal Proceedings and Note
9 to the Consolidated Financial Statements.
Cabot-Morgan Real Estate
Revenues from real estate properties increased by $5,005,000 during the
year ended January 31, 1994 when compared to the same period in the prior year.
The increase was the result of the acquisition of Bull Run Plaza in January
1993 and Greenbriar Town Center's increased occupancy for the whole year.
During the twelve months ended January 31, 1993, Greenbriar Town Center
completed renovation and expansion and the center became fully operational. As
a result, and combined with the acquisition of Bull Run Plaza, CMREC's
administrative expenses increased to $6,107,000 from $3,957,000 and
depreciation expense increased to $4,338,000 from $3,190,000 during the twelve
months ended January 31, 1994.
39
<PAGE> 40
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Interest expense increased by $2,774,000 to $7,683,000 during the twelve
months ended January 31, 1994, primarily due to the full year impact of the
mortgage for Greenbriar Town Center and to the mortgage at Bull Run Plaza.
CMREC is included in the Corporation's federal income tax return but
files separate state returns. Accordingly, during the year ended January 31,
1994, CMREC recorded a $16,000 tax provision.
Dart Financial and Other Corporate
Income from bankers' acceptances decreased $871,000 during the year ended
January 31, 1994 when compared to the same period in the prior year. The
decrease was due to a decrease in the bankers' acceptances portfolio as a
result of funds used for the redemption of the Corporation's debentures in July
1992 and to the Corporation converting bankers' acceptances to higher yielding
instruments in fiscal 1994.
Interest and other income increased $270,000 during the year ended
January 31, 1994 when compared to the same period in the prior year. In its
efforts to maximize total interest income, the Corporation invested funds where
it believed they would generate the highest return consistent with minimizing
principal risk. Accordingly, the Corporation transferred bankers' acceptances
to marketable debt securities.
Administrative expenses for the Corporation increased $2,777,000 during
the year ended January 31, 1994, due primarily to increased payroll and legal
costs. See Note 9 to the Consolidated Financial Statements.
Interest expense for the Corporation decreased by $1,787,000 during the
year ended January 31, 1994 when compared to the same period in the prior year.
The decrease is the result of the Corporation's redemption of the remaining
debentures in July 1992.
As a result of the Corporation's operating loss for the year ended
January 31, 1994, a net tax operating loss carryforward of $7,090,000 was
created. The Corporation's cumulative total net tax operating loss
carryforward was $8,643,000 at January 31, 1994. All net operating loss
carryforwards will expire by fiscal 2009. In addition, the Corporation had an
Alternative Minimum Tax ("AMT") credit carryforward of approximately
$1,010,000.
SEASONALITY
Crown Books' sales, net income and increase in working capital for the
quarter ended January 31 have historically been substantially higher than for
any of the previous three quarters. Crown Books inventory and payable have
historically been higher at the end of the third quarter than for any other
quarter for the year. The fourth quarter results of operations have
historically been sufficient to satisfy to a substantial degree the third
quarter accounts payable requirements. Management does not believe the
Corporation's other partially or wholly-owned businesses are affected by
seasonality to any material extent.
40
<PAGE> 41
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
EFFECTS OF INFLATION
Inflation in the past three years has had no significant impact on the
Corporation's business. The Corporation believes that Trak Auto, Crown Books,
Shoppers Food and Total Beverage will recover most cost increases due to
inflation by increasing selling prices.
41
<PAGE> 42
Item 8. Financial Statements and Supplementary Data
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Report of Independent Public Accountants 43
Consolidated Balance Sheets
January 31, 1995 and 1994 44 - 45
Consolidated Statements of Income
Years ended January 31, 1995, 1994 and 1993 46 - 47
Consolidated Statements of Stockholders' Equity
Years ended January 31, 1995, 1994 and 1993 48
Consolidated Statements of Cash Flows
Years ended January 31, 1995, 1994 and 1993 49 - 52
Notes to Consolidated Financial Statements 53 - 97
</TABLE>
42
<PAGE> 43
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO DART GROUP CORPORATION:
We have audited the accompanying consolidated balance sheets of Dart
Group Corporation (a Delaware corporation) and subsidiaries as of January 31,
1995 and 1994 and the related consolidated statements of income, stockholders'
equity and cash flows for each of the three fiscal years in the period ended
January 31, 1995. These financial statements are the responsibility of the
Corporation's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Dart Group
Corporation and subsidiaries as of January 31, 1995 and 1994, and the results
of their operations and their cash flows for each of the three fiscal years in
the period ended January 31, 1995 in conformity with generally accepted
accounting principles.
As discussed in Note 1 to the Consolidated Financial Statements,
effective February 1, 1992, the Company changed its method of accounting for
income taxes.
ARTHUR ANDERSEN LLP
Washington, D. C.
April 27, 1995.
43
<PAGE> 44
DART GROUP CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
January 31,
-------------------------------
1995 1994
------------ ------------
<S> <C> <C>
Current Assets:
Cash $ 17,984,000 $ 17,955,000
Short-term instruments, including
$44,346,000 and $133,315,000 held
by majority owned subsidiaries
in 1995 and 1994, respectively 84,390,000 138,278,000
Marketable debt securities 89,330,000 68,837,000
Bankers' acceptances - 62,307,000
Accounts receivable 10,108,000 16,395,000
Merchandise inventories 195,675,000 203,036,000
Deferred income tax benefit 17,799,000 6,522,000
Other current assets 1,988,000 4,048,000
------------ ------------
Total Current Assets 417,274,000 517,378,000
------------ ------------
Property and Equipment, at cost:
Furniture, fixtures and equipment 76,713,000 128,982,000
Buildings and leasehold improvements 165,017,000 166,250,000
Land 33,396,000 33,396,000
Property under capital leases 27,129,000 35,792,000
------------ ------------
302,255,000 364,420,000
Accumulated Depreciation and Amortization 76,451,000 104,137,000
------------ ------------
225,804,000 260,283,000
Other Assets 8,643,000 9,369,000
------------ ------------
Share of Equity in Shoppers Food
Warehouse Corporation 40,983,000 -
------------ ------------
Excess of Purchase Price Over Net Assets
Acquired net of accumulated
amortization of $6,074,000 - 3,659,000
------------ ------------
Deferred Income Tax Benefit 13,785,000 12,209,000
------------ ------------
Total Assets $706,489,000 $802,898,000
============ ============
</TABLE>
See notes to the consolidated financial statements.
44
<PAGE> 45
DART GROUP CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
January 31,
---------------------------------
1995 1994
------------ ------------
<S> <C> <C>
Current Liabilities:
Current portion of mortgages payable $ 1,981,000 $ 988,000
Accounts payable, trade 106,292,000 154,926,000
Income taxes payable 7,148,000 4,968,000
Accrued salaries and employee benefits 18,837,000 22,791,000
Accrued taxes other than income taxes 9,475,000 11,831,000
Accrued judgement in favor of
Robert M. Haft 32,199,000 -
Current portion of reserve for closed
facilities and restructuring 10,427,000 -
Other accrued liabilities 50,132,000 40,287,000
Current portion of obligations under
capital leases 368,000 345,000
------------ ------------
Total Current Liabilities 236,859,000 236,136,000
------------ ------------
Mortgages Payable 79,620,000 80,709,000
------------ ------------
Obligations Under Capital Leases 29,792,000 39,295,000
------------ ------------
Reserve for Closed Facilities and
Restructuring 61,005,000 28,595,000
------------ ------------
Other Long-term Liabilities - 3,219,000
------------ ------------
Commitments and Contingencies
Minority Interests 99,850,000 140,637,000
------------ ------------
Stockholders' Equity:
Class A common stock, non-voting, par
value $1.00 per share; 3,000,000
shares authorized; 1,660,678 and
1,655,763 shares issued at each year end 1,661,000 1,656,000
Class B common stock, voting, par value
$1.00 per share; 500,000 shares
authorized; 302,952 shares issued
and outstanding 303,000 303,000
Paid-in capital 65,384,000 65,323,000
Unrealized investment losses (1,024,000) -
Retained earnings 134,788,000 208,774,000
Treasury stock, 202,340 shares of
Class A common stock, at cost (1,749,000) (1,749,000)
------------ ------------
Total Stockholders' Equity 199,363,000 274,307,000
------------ ------------
Total Liabilities and Stockholders' Equity $706,489,000 $802,898,000
============ ============
</TABLE>
See notes to the consolidated financial statements.
45
<PAGE> 46
DART GROUP CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years Ended January 31,
--------------------------------------------------------
1995 1994 1993
-------------- -------------- --------------
<S> <C> <C> <C>
Sales $ 936,606,000 $1,343,340,000 $1,244,442,000
Income from bankers'
acceptances 429,000 2,588,000 3,459,000
Real estate revenue 19,977,000 18,658,000 13,653,000
Other interest and
other income 10,416,000 11,957,000 11,123,000
-------------- -------------- --------------
967,428,000 1,376,543,000 1,272,677,000
-------------- -------------- --------------
Expenses:
Cost of sales, store
occupancy and
warehousing 758,308,000 1,079,553,000 998,894,000
Selling and
administrative 256,307,000 242,286,000 204,813,000
Depreciation and
amortization 19,086,000 28,022,000 25,096,000
Interest 13,448,000 13,513,000 12,549,000
Restructuring charge - 6,200,000 14,000,000
Unusual item - - (3,894,000)
-------------- -------------- --------------
1,047,149,000 1,369,574,000 1,251,458,000
-------------- -------------- --------------
Income (loss) before income
taxes, equity in
affiliate and minority
interests (79,721,000) 6,969,000 21,219,000
Income taxes (benefit) (1,699,000) 7,194,000 9,567,000
-------------- -------------- --------------
Income (loss) before
equity in affiliate and
minority interests (78,022,000) (225,000) 11,652,000
Equity in affiliate (5,000) - -
Minority interests in
income (loss) of consoli-
dated subsidiaries
and partnerships 4,235,000 (6,512,000) (8,143,000)
-------------- -------------- --------------
Income (loss) before extra-
ordinary item and
cumulative effect of
Trak Auto's change
in accounting
principle (73,792,000) (6,737,000) 3,509,000
</TABLE>
(continued on following page)
46
<PAGE> 47
DART GROUP CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (Continued)
<TABLE>
<CAPTION>
Years Ended January 31,
--------------------------------------------------------
1995 1994 1993
-------------- -------------- --------------
<S> <C> <C> <C>
Extraordinary item:
Loss on
reacquisition of
debentures - - (885,000)
Cumulative effect of
change in Trak Auto's
accounting principle,
net of minority
interest - - 1,135,000
-------------- ------------- --------------
Net Income (Loss) $ (73,792,000) $ (6,737,000) $ 3,759,000
============== ============= ==============
Earnings per share:
Income (loss) before
extraordinary item
and cumulative effect
of change in accounting
principle $ (39.57) $ (4.10) $ 1.91
Extraordinary item:
Loss on reacquisition
of debentures - - (.48)
Cumulative effect of
change in Trak Auto's
accounting principle,
net of minority
interest - - .62
-------------- ------------- --------------
Net Income (Loss) $ (39.57) $ (4.10) $ 2.05
============== ============= ==============
</TABLE>
See notes to the consolidated financial statements.
47
<PAGE> 48
DART GROUP CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Years Ended January 31,
--------------------------------------------------------
1995 1994 1993
-------------- -------------- --------------
<S> <C> <C> <C>
Common Stock:
Class A:
Balance, beginning
of period $ 1,656,000 $ 1,649,000 $ 1,648,000
Stock options
exercised 5,000 7,000 1,000
-------------- -------------- --------------
Balance, end of period $ 1,661,000 $ 1,656,000 $ 1,649,000
============== ============== ==============
Class B:
Balance, beginning
and end of period $ 303,000 $ 303,000 $ 303,000
============== ============== ==============
Paid-in Capital:
Balance, beginning
of period $ 65,323,000 $ 63,332,000 $ 64,136,000
Stock options
exercised 368,000 469,000 96,000
Purchase (refund)
of (Class B) stock
option (Note 6) (985,000) 985,000 -
Effect of subsidiary
stock options
exercised 678,000 537,000 (900,000)
-------------- -------------- --------------
Balance, end of period $ 65,384,000 $ 65,323,000 $ 63,332,000
============== ============== ==============
Unrealized Investment losses $ (1,024,000) $ - $ -
============== ============== ==============
Treasury Stock:
Balance, beginning and
end of period $ (1,749,000) $ (1,749,000) $ (1,749,000)
============== ============== ==============
Retained Earnings:
Balance, beginning of
period $ 208,774,000 $ 215,704,000 $ 212,138,000
Net Income (73,792,000) (6,737,000) 3,759,000
Dividends paid (194,000) (193,000) (193,000)
-------------- -------------- --------------
Balance, end of period $ 134,788,000 $ 208,774,000 $ 215,704,000
============== ============== ==============
Dividends paid per share of
Class A Common Stock .13 .13 .13
============== ============== ==============
Class B Common Stock $ - $ - $ -
============== ============== ==============
Common Stock Outstanding
Class A:
Balance, beginning of
period 1,655,763 1,649,013 1,647,654
Stock options exercised 4,915 6,750 1,359
-------------- -------------- ---------------
Balance, end of period 1,660,678 1,655,763 1,649,013
============== ============== ===============
Class B:
Balance, beginning and
end of period 302,952 302,952 302,952
============== ============== ===============
</TABLE>
See notes to the consolidated financial statements.
48
<PAGE> 49
DART GROUP CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended January 31,
-----------------------------------------------------------
1995 1994 1993
------------- -------------- --------------
<S> <C> <C> <C>
Cash Flows from Operating
Activities:
Net income (loss) $ (73,792,000) $ (6,737,000) $ 3,759,000
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Depreciation and
amortization 15,782,000 28,022,000 25,096,000
Write-off deferred
compensation 1,424,000 - -
Equity in affiliate (1,045,000) - -
Gain on sale
of fixed assets - - (22,000)
Cumulative effect of
change in accounting
principle - - (1,135,000)
Amortization of bond
discount and
debenture costs - - 41,000
Write off of debenture
costs and unamortized
discount included in
extraordinary loss - - 344,000
Provision for closing
facilities and
restructuring 45,913,000 4,626,000 23,736,000
Change in assets and
liabilities, net
of effects from
acquisitions by
Cabot Morgan Real
Estate Company in
1993:
Accounts receivable 2,088,000 (1,587,000) (587,000)
Merchandise inventories (19,099,000) (41,242,000) (9,309,000)
Other current assets 636,000 (931,000) 231,000
Deferred income tax
benefit (16,172,000) (7,398,000) (5,640,000)
Other assets 166,000 (1,288,000) (1,186,000)
Accounts payable, trade (15,463,000) 43,487,000 4,519,000
Income taxes payable 2,436,000 2,696,000 (10,296,000)
Accrued salaries and
employee benefits 31,916,000 5,170,000 1,349,000
</TABLE>
(continued on following page)
49
<PAGE> 50
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
<TABLE>
<CAPTION>
Years Ended January 31,
----------------------------------------------------
1995 1994 1993
-------------- -------------- --------------
<S> <C> <C> <C>
Accrued taxes other
than income taxes (401,000) 2,202,000 1,036,000
Other accrued
liabilities 20,552,000 6,662,000 (13,889,000)
Accrued interest - - (1,529,000)
Deferred income - (73,000) 3,292,000
Reserve for closed
facilities (3,574,000) (1,719,000) (2,730,000)
Minority interest (4,788,000) 6,512,000 8,143,000
-------------- -------------- --------------
Net cash provided
by (used for)
operating
activities $ (13,421,000) $ 38,402,000 $ 25,223,000
-------------- -------------- --------------
Cash Flows from Securities and
Capital Investment Activities:
Capital expenditures $ (15,150,000) $ (45,805,000) $ (38,161,000)
Decrease in cash and cash
equivalents as a result
of the deconsolidation of
Shoppers Food Warehouse
Corp. (61,014,000) - -
Purchase of subsidiary
common stock - (1,094,000) -
Sale of bankers'
acceptances - - 22,264,000
Maturities of bankers'
acceptances 90,505,000 470,250,000 517,650,000
Purchase of bankers'
acceptances (28,198,000) (442,188,000) (495,370,000)
Sale of United
States Treasury Bills 35,020,000 296,962,000 298,610,000
Maturity of United States
Treasury Bills 179,393,000 - -
Purchase of United States
Treasury Bills (225,315,000) (290,671,000) (305,308,000)
Purchases of marketable
debt securities (223,509,000) (209,328,000) -
Sale of marketable
debt securities 200,585,000 141,263,000 -
Maturities of marketable
debt securities 12,309,000 9,284,000 -
Disposition from reverse
repurchase agreements (929,000) - -
Cash paid for purchase of
real estate partnership
interest - - (10,897,000)
-------------- -------------- --------------
Net cash used for
securities and
capital invest-
ment activities $ (36,303,000) $ (71,327,000) $ (11,212,000)
-------------- -------------- --------------
</TABLE>
(continued on following page)
50
<PAGE> 51
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
<TABLE>
<CAPTION>
Years Ended January 31,
----------------------------------------------------
1995 1994 1993
-------------- -------------- --------------
<S> <C> <C> <C>
Cash Flows from Financing Activities:
Borrowings from real estate
mortgage $ - $ 13,590,000 $ 38,000,000
Cash dividends (194,000) (193,000) (193,000)
Repurchase of debentures - - (29,120,000)
Stock options exercised 368,000 925,000 5,254,000
Contribution (distribution)
paid to minority
shareholders (1,776,000) 3,418,000 (7,368,000)
Proceeds from (refund of)
option to acquire common
stock (985,000) 985,000 -
Proceeds from redemption
of note receivable - 833,000 -
Principal payments under
mortgage obligations (1,202,000) (277,000) (1,452,000)
Principal payments under
capital lease obli-
gations (346,000) (484,000) (1,422,000)
-------------- -------------- --------------
Net cash provided by
(used for) financing
activities $ (4,135,000) $ 18,797,000 $ 3,699,000
-------------- -------------- --------------
Net Increase (Decrease)
in Cash and Equivalents $ (53,859,000) $ (14,128,000) $ 17,710,000
Cash and Equivalents
at Beginning of Year 156,233,000 170,361,000 152,651,000
-------------- -------------- --------------
Cash and Equivalents
at End of Year $ 102,374,000 $ 156,233,000 $ 170,361,000
============== ============== ==============
</TABLE>
Supplemental Disclosures of Cash Flow Information:
<TABLE>
<S> <C> <C> <C>
Cash paid during the year for:
Interest $ 12,799,000 $ 13,570,000 $ 13,673,000
Income taxes 11,846,000 12,457,000 20,506,000
Reconciliation of Cash and
Equivalents to
Balance Sheet Captions:
Cash $ 17,984,000 $ 17,955,000 $ 14,084,000
Short-term investment of
majority-owned sub-
sidiaries utilized in
their operating cash
management 84,390,000 138,278,000 156,277,000
-------------- -------------- --------------
$ 102,374,000 $ 156,233,000 $ 170,361,000
============== ============== ==============
</TABLE>
(Continued on following page)
51
<PAGE> 52
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
Supplemental Disclosures of Noncash Investing and Financing Activities:
Dart Group Corporation, through its wholly-owned subsidiary, Cabot-Morgan Real
Estate Company, in fiscal 1993 acquired a 51% interest in a real estate
partnership for $10,897,000 (including a $8,250,000 promissory note to Bull Run
Joint Venture). In conjunction with this acquisition, liabilities (including
the minority interest portion) were assumed as follows:
<TABLE>
<CAPTION>
Years Ended January 31,
----------------------------------------------
1995 1994 1993
-------------- -------------- --------------
<S> <C> <C> <C>
Fair value of assets
acquired $ - $ - $ 14,632,000
Cash paid - - 10,897,000
Minority interest not
acquired - - 2,543,000
-------------- -------------- --------------
Liabilities Assumed $ - $ - $ 1,192,000
-------------- -------------- --------------
</TABLE>
See Note 4 re: capital leases.
See notes to consolidated financial statements.
52
<PAGE> 53
DART GROUP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended January 31, 1995, 1994 And 1993
(1) SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying consolidated financial statements reflect the
accounts of Dart Group Corporation (the "Corporation") and its direct and
indirect, wholly-owned and majority-owned subsidiaries and majority-owned
partnerships, including Trak Auto Corporation ("Trak Auto"), Crown Books
Corporation ("Crown Books"), Total Beverage Corporation ("Total Beverage"),
Cabot- Morgan Real Estate Company ("CMREC") and Dart Group Financial
Corporation ("Dart Financial"). The accounts of Shoppers Food Warehouse Corp.
("Shoppers Food") are consolidated with the Corporation's financial statements
through May 28, 1994, but not thereafter, as a result of a reduction of the
Corporation's ownership to 50%. The Corporation's investment in Shoppers Food
is reflected in the financial statements using the equity method of accounting
for periods subsequent to May 28, 1994 (see Note 3). The accounts of CMREC,
through partnerships in which it owns the majority interest, are included from
the date of their purchase. The accounts of Total Beverage are included from
the date of its purchase on February 28, 1993. The Corporation, Trak Auto,
Crown Books, Shoppers Food (for periods through May 28, 1994), Total Beverage,
CMREC, Dart Financial and the Corporation's other direct and indirect
wholly-owned and majority-owned subsidiaries and majority-owned partnerships
are referred to collectively as the "Company". All significant intercompany
accounts and transactions have been eliminated.
Fiscal Year
The Corporation's fiscal year ends on January 31 each year. Trak
Auto, Crown Books, Shoppers Food and Total Beverage are reported to the
Saturday closest to January 31. All fiscal years presented include 52 weeks.
Cash and Equivalents
For purposes of the statements of cash flows, the Company considers
the short-term instruments, consisting of United States Treasury Bills,
purchased with an original maturity of less than one year held by its majority
owned subsidiaries to be cash equivalents. The Company's United States
Treasury Bills primarily consist of instruments with a maturity of less than
four months. These highly liquid instruments are considered to be an integral
part of the operating cash management program of the subsidiaries.
Short-Term Instruments and Marketable Debt Securities
At January 31, 1995, the Company's short-term instruments included
United States Treasury Bills and money market funds. Marketable debt
securities included United States Treasury Notes, corporate notes, municipal
securities and United States Agency Securities Acceptances.
The Company adopted Statement of Financial Accounting Standards
("SFAS") No. 115, Accounting for Certain Investments in Debt and Equity
Securities, effective February 1, 1994. In accordance with SFAS No. 115, prior
years financial statements have not been restated to reflect the change in
accounting method.
53
<PAGE> 54
DART GROUP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Years Ended January 31, 1995, 1994 And 1993
(1) SIGNIFICANT ACCOUNTING POLICIES (Continued)
Management determines the appropriate classification of its
investments in debt securities at the time of purchase and reevaluates such
determination at each balance sheet date. Debt securities for which the
Company does not have the intent or ability to hold to maturity are classified
as available for sale. Securities available for sale are carried at fair
value, with the unrealized gains and losses, net of tax, reported as a separate
component of stockholders' equity. At January 31, 1995, market value of
short-term instruments and marketable debt securities was $1,024,000 less than
cost (adjusted for income taxes). At January 28, 1995, the Company had no
investments that qualified as trading or held to maturity.
The amortized cost of debt securities classified as available for
sale is adjusted for amortization of premiums and accretion of discounts to
maturity. Such amortization and interest are included in interest income.
Realized gains and losses are included in other income or expense. The cost of
securities sold is based on the specific identification method. The following
table (which excludes money market funds) presents the estimated fair value of
debt securities available for sale by contractual maturity at January 28, 1995:
<TABLE>
<S> <C>
Due in one year or less $ 64,756,000
Due in one year 44,199,000
Due after three years 20,772,000
-------------
$ 129,727,000
=============
</TABLE>
Expected maturities will differ from contractual maturities because the
issuers of securities may have the right to prepay obligations without
prepayment penalties.
Bankers' Acceptances
At January 31, 1994, the Corporation, through its wholly-owned
subsidiary, Dart Financial, held bankers' acceptances of approximately
$62,307,000 stated at cost, adjusted for discount amortization, which
approximated market. During the year ended January 31, 1995, the bankers'
acceptances were converted to United States Treasury Bills as they matured.
All of the bankers' acceptances were obligations of Japanese banks with a
minimum credit rating of A1/P1 and were further secured by the underlying
commodity.
Fair Value of Financial Instruments
The fair values of current assets and current liabilities are
approximately equal to the reported carrying amounts. The carrying amounts of
the Company's mortgage payables are based on outstanding principal, and the
fair values of these mortgages were estimated based on borrowing rates
currently available for bank loans with similar terms (see Note 10). No value
has been placed on the Company's line of credit facility as any borrowings
would bear interest at market rates.
54
<PAGE> 55
DART GROUP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended January 31, 1995, 1994 And 1993
(1) SIGNIFICANT ACCOUNTING POLICIES (Continued)
Merchandise Inventories and Cost of Sales
Trak Auto inventories are priced at the lower of last-in, first-out
(LIFO) cost or market. Crown Books' and Total Beverage's inventories are
priced at the lower of first-in, first-out, (FIFO) cost or market. At January
31, 1995, 1994 and 1993 the Company's inventories would have been greater by
$5,870,000, $7,187,000 and $6,453,000 respectively, if it had been valued on
the lower of FIFO cost or market basis.
Effective January 30, 1994, Trak Auto changed its method for
determining the index used to calculate the cost basis of the LIFO inventory
for financial and income tax reporting purposes. Under the new method, Trak
Auto uses an index published by United States Bureau of Labor Statistics.
Previously, an index determined by Trak Auto based upon inventory cost changes
between financial reporting periods, was utilized. This change has been
accounted for as a change in accounting method in the accompanying financial
statements. Due to limitations in the availability of historical information,
it is not possible to determine the effect, if any, on net income for the year
ending January 28, 1995 of the corresponding cumulative catch-up adjustment or
on retained earnings at January 28, 1995. Accordingly, the change in principle
is being accounted for on a prospective basis from January 31, 1994 and the
effect on per share data, if any, is not available.
Property and Equipment and Depreciation
Property and equipment are recorded at cost. The Company
depreciates furniture, fixtures and equipment generally over a ten-year period
using the straight-line method. Computer software is charged to expense in the
year of acquisition. Computer equipment is depreciated over a five-year period
using the straight-line method. All stores are leased. Improvements to
leased premises are amortized generally over a ten-year period, or the term of
the lease, whichever is shorter. Assets (primarily buildings) financed through
asset-based financing arrangements are depreciated over the lives of the
leases. Accumulated amortization for assets under capital lease was $9,604,000
and $9,068,000 as of January 31, 1995 and 1994, respectively.
Pre-Opening Expenses
All costs of a noncapital nature incurred in opening a new store
are charged to expense during the year as incurred.
Self Insurance Programs
The Company is self insured for certain levels of general
liability, workers compensation and employee medical coverage. Estimated costs
of these self insurance programs are accrued at the expected value of projected
settlements for known and anticipated claims.
55
<PAGE> 56
DART GROUP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended January 31, 1995, 1994 And 1993
1) SIGNIFICANT ACCOUNTING POLICIES (Continued)
Concentration of Credit Risk
Financial instruments that potentially subject the Company to
credit risk consist primarily of short-term instruments, marketable debt
securities and accounts receivable from vendors. The Company restricts
investment of temporary cash investments to United States Treasury Notes and
corporate notes and municipal securities with a high credit standing. Credit
risk on accounts receivable is minimized as a result of deducting such
receivables from amounts payable to the vendors.
New Accounting Standards
The Company adopted SFAS No. 119, Disclosure about Derivative
Financial Instruments and Fair Value of Financial Instruments, during the year
ended January 31, 1995. The Company adopted SFAS No. 112, Employers Accounting
for Postemployment Benefits and SFAS No. 115, Accounting for Certain
Instruments in Debt and Equity Securities effective February 1, 1994. Adoption
of these standards had no material effect on the Company's consolidated
financial statements. The Company adopted SFAS No. 109, Accounting for Income
Taxes, effective February 1, 1992. Adoption of the Standard for income taxes
did not have a material effect on the consolidated financial statements. The
Company is required to adopt SFAS No. 114, Accounting by Creditors for
Impairment of a Loan, as amended, no later than its fiscal year ending January
31, 1996. Application of this statement is not expected to have a material
effect on the Company's consolidated financial statements. The Company is also
required to adopt SFAS No. 121, Accounting for Long Lived Assets, no later than
its fiscal year ending January 31, 1997. The Company has not determined the
impact of this recently issued accounting standard on the Company's
consolidated financial statements.
Industry Segments
The Company operates specialty retail stores, grocery and beverage
stores, a real estate company and a financial business that deals primarily in
bankers' acceptances.
Dividends
The holders of Class A Common Stock are entitled to receive, when
and as declared by the Board of Directors, noncumulative preferential dividends
of up to thirty cents per share. If Class A dividends reach thirty cents per
share, in any fiscal year, holders of Class B Common Stock are entitled to
receive dividends not exceeding thirty cents per share. Any dividends
cumulatively in excess of thirty cents per share would be shared as if they
constituted a single class of stock. During the years ended January 31, 1995,
1994 and 1993, the Corporation paid dividends to the holders of Class A Common
Stock at $.13 per share and has not paid dividends to holders of Class B Common
Stock.
56
<PAGE> 57
DART GROUP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended January 31, 1995, 1994 And 1993
(1) SIGNIFICANT ACCOUNTING POLICIES (Continued)
Net income Per Share and Common Share Equivalents
Earnings per share is based on the weighted average number of the
Corporation's Class A Common Stock, $1.00 par value per share ("Class A Common
Stock") and Class B Common Stock, $1.00 par value per share ("Class B Common
Stock") and common stock equivalents (certain stock options) outstanding during
the period. In reporting earnings per share, the Corporation's interest in the
earnings of its majority-owned subsidiaries is adjusted for the dilutive
effect, if any, of these subsidiaries' outstanding stock options. The
difference between primary earnings per share and fully diluted earnings per
share is not significant for any period. Weighted average shares and share
equivalents for the three years ended January 31, 1995, 1994 and 1993 were
1,871,000, 1,867,000 and 1,837,000, respectively. The inclusion of the options
for Class B Common Stock related to Ronald S. Haft's employment agreement would
have no impact on reported earnings per share in fiscal 1995 because they are
anti-dilutive (see Note 6).
(2) INCOME TAXES
Because of its percentage ownership, the Corporation does not
report the results of operations of Crown Books, Trak Auto or Shoppers Food in
its Federal or state tax returns. The Company's tax provision therefore,
represents the combined tax provisions of the Corporation, Crown Books, Trak
Auto and Shoppers Food (through May 28, 1994).
The provision for income taxes on income before minority interests,
equity in affiliate and extraordinary items consists of the following:
<TABLE>
<CAPTION>
- In Thousands -
--------------------------------------
Fiscal Years
--------------------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Current:
Federal $ 9,474 $ 8,590 $ 11,706
State 1,839 2,236 2,701
-------- -------- --------
11,313 10,826 14,407
Deferred:
Federal (11,076) (2,522) (3,812)
State (1,936) (1,110) (1,028)
-------- -------- --------
$ (1,699) $ 7,194 $ 9,567
======== ======== ========
</TABLE>
57
<PAGE> 58
DART GROUP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Years Ended January 31, 1995, 1994 And 1993
(2) INCOME TAXES (Continued)
The combined effective tax rate on income before income taxes,
minority interest, extraordinary items and cumulative change in accounting
principle is reconciled to the Federal statutory rate as follows:
<TABLE>
<CAPTION>
- In Thousands -
---------------------------------------
Fiscal Years
---------------------------------------
1995 1994 1993
---------- ---------- -----------
<S> <C> <C> <C>
Federal statutory rate 34% 34% 34%
Income taxes at Federal statutory
rate $ (27,105) $ 2,439 $ 7,214
Increase (decrease) in taxes
resulting from:
Federal and state net operating
loss carryforward not
benefitted 5,905 4,092 1,077
State income taxes, net of
Federal income tax benefit (89) 838 1,287
Minority interest of CMREC
taxed at minority partner (195) - -
CMREC interest in Total Beverage
closed store reserve (970) - -
Amortization of Goodwill (154) - -
Valuation allowance 21,279 - -
Income taxes at above
statutory rate 92 - -
Total Beverage twenty five
percent loss sharing - 65 -
Tax exempt municipal
bond interest income (494) (295) -
Utilization of former
Trak West net operating loss (225) (219) (209)
Other 257 274 198
---------- ---------- -----------
Income tax provision (benefit) $ (1,699) $ 7,194 $ 9,567
========== ========== ==========
Effective tax rate 2.1% 103.2% 45.1%
========== ========== ===========
</TABLE>
58
<PAGE> 59
DART GROUP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Years Ended January 31, 1995, 1994 And 1993
(2) INCOME TAXES (Continued)
The Company accounts for income taxes in accordance with SFAS No.
109, Accounting for Income Taxes. This standard requires, among other things,
recognition of future tax benefits, measured by enacted tax rates, attributable
to deductible temporary differences between financial statement and income tax
bases of assets and liabilities and for tax net operating loss carryforwards,
to the extent that realization of such benefits is more likely than not. The
components of the net deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
(in thousands)
------------------------
Gross Deferred Tax Assets: January 31, January 31,
- -------------------------- ----------- -----------
1995 1994
----------- -----------
<S> <C> <C>
Reserves for other liabilities $ 361 $ 2,572
Capitalized leases treated as operating
leases for tax purposes 2,721 3,288
Depreciation 1,894 701
Uniform capitalization of inventory
costs 2,661 2,381
Deferred gain from involuntary conversion 206 422
Reserve for store closings and restructuring 26,993 8,722
Accrued rent 695 1,169
Deferred income 99 1,022
Certain officers bonuses 324 1,617
Tax loss carryforwards 6,735 3,164
Tax credit carryforwards 1,973 1,018
Basis adjustment as a result of purchase
accounting for Trak West 394 659
Unrealized investment losses 355 -
Accrued vacation 1,245 -
Accrued self insurance reserves 2,410 -
Accrued legal reserves 5,252 -
Litigation accruals 16,159 -
Other 159 42
------- -------
Gross Deferred Tax Assets 70,636 26,777
Valuation allowance (29,200) (7,921)
------- -------
Net Deferred Tax Assets 41,436 18,856
Deferred Tax Liabilities:
- -------------------------
Basis difference in Shoppers Food investment 9,321 -
Book basis of assets acquired as a result
of involuntary conversion 531 -
Other - 125
------- -------
Gross Deferred Tax Liabilities 9,852 125
------- -------
Net Deferred Tax Asset $31,584 $18,731
======= =======
</TABLE>
59
<PAGE> 60
DART GROUP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Years Ended January 31, 1995, 1994 And 1993
(2) INCOME TAXES (Continued)
A summary of the Company's valuation allowance as of January 31, 1995,
1994 and 1993 by Company is provided below:
<TABLE>
<CAPTION>
(in thousands)
---------------------------------------
Fiscal Years
---------------------------------------
1995 1994 1993
------------ ----------- ------------
<S> <C> <C> <C>
Crown Books $ 2,500 $ - $ -
Trak Auto - 728 728
Dart Group Corporation 26,700 7,193 3,369
------------ ----------- ------------
$ 29,200 $ 7,921 $ 4,097
============ ============ ============
</TABLE>
As a result of the adoption of SFAS No. 109, Accounting for Income
Taxes, the Corporation determined at January 31, 1993 that it required a
valuation allowance of $3,369,000 against all existing net deferred tax assets
at that date. Trak Auto recorded a cumulative benefit resulting from the
adoption of the standard of $1,658,000 and established a valuation reserve of
$728,000 for the remaining net deferred tax assets (principally operating
losses).
During the year ended January 31, 1994, the Corporation increased
its valuation allowance by $3,824,000, which represented the increase in the
Corporation's net deferred tax assets during the period.
During the year ended January 31, 1995, the Corporation recorded an
increase in its valuation allowance of $19,507,000 as a result of continuing
net operating losses offset by the recognition of certain deferred tax
liabilities associated with the deconsolidation of Shoppers Food. As a result
of its earnings in fiscal 1995 and its expectations regarding future earnings,
Trak Auto reversed its valuation allowance. Crown Books recorded a valuation
allowance of $2,500,000 as a result of its evaluation regarding the likelihood
of its utilization of net deferred tax assets.
The Corporation does not recognize deferred tax liabilities on the
excess of the amount for financial reporting over the tax basis of the
investment in its consolidated majority owned subsidiaries. In fiscal 1995,
Shoppers Food was deconsolidated and the Corporation announced that it has
under consideration the liquidation of its interest. Accordingly, the
Corporation has provided deferred taxes of $9,321,000 and reduced its valuation
allowance by the same amount.
As a result of the Corporation's operating loss for the year ended
January 31, 1995, a tax net operating loss carryforward of $9,692,000 was
created. The Corporation's cumulative total tax net operating loss
carryforward is $18,335,000. All net operating loss carryforwards will expire
by fiscal 2010. In addition, the Corporation has an Alternative Minimum Tax
credit carryforward of approximately $1,010,000.
The Corporation will continue to evaluate the need for its
valuation allowance on a periodic basis.
60
<PAGE> 61
DART GROUP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Years Ended January 31, 1995, 1994 And 1993
(3) TRANSACTIONS WITH AFFILIATES
Shoppers Food Warehouse Corp.
In fiscal 1989 the Corporation acquired in excess of 50% of the
common stock of Shoppers Food, which operates the Shoppers Food Warehouse
discount grocery chain in the Washington, D.C. metropolitan area. In June
1994, one of the other shareholders of Shoppers Food exercised his right to
reacquire one share of Shoppers Food Class B common stock, thereby reducing the
Corporation's ownership to exactly 50%. As a result, the accounts of Shoppers
Food are consolidated with the Corporation's through May 28, 1994, but not
thereafter. The Corporation's investment in Shoppers Food is reflected in the
financial statements using the equity method of accounting for periods
subsequent to May 28, 1994. Under the equity method, the Company's investment
is shown in the balance sheet as a single line under Share of Equity in
Shoppers Food Warehouse. Accordingly, assets and liabilities of Shoppers Food
previously shown in the accounts of the Company have been aggregated and are
included in this item. The unamortized difference between the original
purchase price of Shoppers Food and the net assets acquired of $11,260,000 is
also included in this item and continues to be amortized over ten years from
the acquisition date. Similarly, the sales and expenses of Shoppers Food which
were previously included in the accounts of the Company have been aggregated,
subsequent to May 28, 1994 and reflected in the caption Equity in Affiliate on
the Consolidated Statements of Income.
For purposes of the Statements of Cash Flows only, the accounts of
Shoppers Food have been deconsolidated at January 31, 1994. Accordingly, the
Company's consolidated cash position was decreased by $61,014,000 (representing
cash and cash equivalents held by Shoppers Food at January 31, 1994) and net
income excluded the Corporation's share of Shoppers Food net income for the
year ended January 31, 1995.
Summary Income Data for Deconsolidated Subsidiary:
The following information reflects the results of Shoppers Food
from May 29, 1994 to January 31, 1995:
<TABLE>
<S> <C>
Revenue $540,359,000
Gross Profit 100,832,000
Net Income 16,642,000
</TABLE>
The following information presents summarized balance sheet information
of Shoppers Food as of January 31, 1995 (unaudited).
<TABLE>
<S> <C>
Current Assets $125,470,000
Total Assets 150,784,000
Current Liabilities 49,839,000
Total Liabilities 63,908,000
Stockholders' Equity 86,876,000
</TABLE>
The amounts included in net income above do not reflect the
amortization of the difference between the Corporation's original purchase
price and the equity in net assets or certain tax contingencies recorded by the
Company.
61
<PAGE> 62
DART GROUP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Years Ended January 31, 1995, 1994 And 1993
(3) TRANSACTIONS WITH AFFILIATES (Continued)
The Corporation and the other 50% shareholder of Shoppers Food have
a buy/sell agreement whereby either shareholder has the right, at any time, to
initiate procedures under which the initiating party offers both to sell to or
buy from the other party the initiating party's or the other party's shares in
Shoppers Food at the offer price. The recipient of an offer under this
buy/sell agreement has the alternative of accepting the offer to sell or the
offer to buy. The Corporation is unable to determine the effect that would
result if either party initiates this procedure.
The Corporation's interest in Shoppers Food is held through a
wholly-owned subsidiary Dart/SFW Corp. ("Dart/SFW"), a Delaware Corporation.
The Corporation and Dart/SFW had previously executed agreements which by their
express terms provide for options to Herbert H. Haft and Robert M. Haft to each
acquire up to 10% of the stock of Dart/SFW on a fully diluted basis. These
agreements state that the options became exercisable in August 1994 and expire
in August 2004 and that the optionees have the right to require the Corporation
to repurchase the shares at their then fair market value at any time within
three years after receipt of the shares.
The Executive Committee of the Board of Directors (the "Executive
Committee") (see Note 6) has undertaken a legal review of these options and, as
a result, is contesting their validity. Robert M. Haft has filed a lawsuit
seeking specific performance of these options. See Note 9. Pending the
outcome of this lawsuit, the Corporation accrues the estimated fair value of
the stock over the exercise price of the options provided for in these
agreements ($11.4 million at January 31, 1995).
Exercise of Subsidiary Stock Options
Trak Auto and Crown Books stock options have been granted to
officers, directors and key employees. As these options are exercised, the
number of minority shares outstanding, and accordingly the minority share of
the ownership of Trak Auto and Crown Books, increases. The difference
attributable to the Corporation's change in ownership percentage for these
subsidiaries is reflected in Paid-in Capital.
62
<PAGE> 63
DART GROUP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Years Ended January 31, 1995, 1994 And 1993
(4) COMMITMENTS
Lease Commitments
The Company leases stores, warehouses, leasehold improvements,
fixtures and equipment. Renewal options are available on the majority of
leases. In some instances, store leases require the payment of contingent
rentals and license fees based on sales in excess of specified minimums.
Certain properties are subleased with various expiration dates. Certain
capital leases have purchase options at fair market value at the end of the
lease.
Following is a schedule by fiscal year of future minimum payments
under capital leases, license agreements and non-cancelable operating leases
having initial or remaining terms in excess of one year at January 31, 1995
(excluding Shoppers Food). The schedule below includes the operating leases of
the Corporation and its consolidated subsidiaries. The imputed interest rate
on the capital leases is 14.2% in the aggregate.
<TABLE>
<CAPTION>
- In Thousands -
---------------------------------------
Capital Leases
-------------------------
Fixtures
Fiscal and Operating
Year Buildings Equipment Leases
- ------ --------- --------- ---------
<S> <C> <C> <C>
1996 $ 3,909 $ 298 $ 43,686
1997 4,116 - 39,507
1998 4,344 - 34,421
1999 4,604 - 27,060
2000 4,630 - 18,274
2001-2017 81,889 - 55,511
-------- --------- --------
103,492 298 $ 218,459
=========
Less-Imputed interest 73,607 22
-------- ---------
Present value of net minimum 29,885 276
lease payments
Less-Current maturities 92 276
-------- ---------
Long-term capital lease
obligations $ 29,793 $ -
-------- ---------
</TABLE>
The table above includes $15,451,000 for store operating leases
where the store has been closed and the lease obligation has been accrued in
the restructuring or store closing reserves. Minimum operating lease
obligations have not been reduced by total future minimum sublease rental of
$1,555,000 receivable in the future under nine leases. There are no sublease
arrangements for the capital leases.
Rent expense for operating leases and license arrangements are as follows:
<TABLE>
<CAPTION>
Year Ended January 31,
------------------------------------------
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Minimum rentals $ 41,200,000 $ 51,158,000 $44,330,000
Contingent rentals 738,000 529,000 537,000
------------ ------------ -----------
$ 41,938,000 $ 51,687,000 $44,867,000
============ ============ ===========
</TABLE>
63
<PAGE> 64
DART GROUP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Years Ended January 31, 1995, 1994 And 1993
(4) COMMITMENTS (Continued)
Capital Lease Arrangements With Related Parties
The Corporation has a lease with a private partnership in which
Haft family members own all of the partnership interests, for a 271,000 square
foot headquarters building and distribution center in Landover, Maryland. The
lease is for 30 years and six months, commenced in October 1985, and provides
for increasing rental payments over the term of the lease. The current annual
rental is $1,884,000. The lease requires the payment for maintenance,
utilities, insurance and taxes. The distribution center was constructed by the
partnership at a cost of approximately $8,300,000. The Corporation has sublet
approximately 238,000 square feet to Trak Auto and Crown Books at a per square
foot charge which is equal to the Corporation's per square foot cost under the
master lease. The Corporation has a lease agreement with the aforementioned
partnership for land, identified for future Trak Auto expansion, adjacent to
the headquarters building and distribution center. The lease is coterminus
with the headquarters building and distribution center lease and provides for
current annual rental of $35,000 with increases of three percent per year. The
rent will be renegotiated upon commencement of construction of any
improvements. Trak Auto has agreed to bear the annual carrying cost for the
land.
The Corporation's majority-owned subsidiary, Trak Auto, entered
into an agreement to lease a 176,000 square foot distribution center in
Bridgeview, Illinois from a private partnership in which Haft family members
own all of the partnership interests. The lease is for 30 years and six
months, commenced April 1984 and provides for rental payments increasing
approximately 15% every five years over the term of the lease. The current
annual rental is $651,000. The lease requires payment of maintenance,
utilities, insurance and taxes. The Corporation is jointly and severally
liable for the lease obligations. The partnership purchased the warehouse on
March 12, 1984 for approximately $3,100,000.
Trak Auto has an agreement to lease a distribution center in
Ontario, California from a private partnership in which Haft family members own
all of the partnership interests. The lease is for 20 years and commenced in
December 1989. The lease also provides for increasing rental payments, based
upon the Consumer Price Index for the Los Angeles area, over the term of the
lease. The current annual rental is $1,374,000. The lease requires payment of
maintenance, utilities, insurance and taxes. The partnership purchased the
distribution center for approximately $10,800,000.
The capital lease arrangements described above are all included in
the lease commitment table.
64
<PAGE> 65
DART GROUP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Years Ended January 31, 1995, 1994 And 1993
(4) COMMITMENTS (Continued)
The Corporation's affiliate, Shoppers Food, has a lease agreement
for a 86,000 square foot office building in Lanham, Maryland from a private
partnership in which Haft family members and the other shareholders of Shoppers
Food own all of the partnership interests. The lease is for 20 years and
commenced January 9, 1991. The lease provides for yearly increasing rental
payments, based upon the Consumer Price Index for the Washington, D.C.
Metropolitan Statistical Area, however the increases shall not be more than 6%
or less than 3%. The current annual rental is $1,299,000. The lease requires
payment of maintenance, utilities, insurance and taxes. The partnership
purchased the office building for approximately $8,700,000 in July 1990. There
are currently four unaffiliated subtenants in the office building. These
subtenants are leasing approximately 36,000 square feet for a current annual
rent of $518,000.
Pennsy Warehouse Leases
In February 1991 the Corporation resumed payment of the rent under
leases of three warehouses located at 3301 Pennsy Drive, Landover, Maryland
(the "Pennsy Leases"). These leases cover approximately 533,800 square feet of
warehouse space and are with private partnerships in which Haft family members
own all the partnership interests. By their terms, the leases, which run to
2016, require annual rental payments of $855,000 subject to escalation in 1996
and thereafter based on increases in the Consumer Price Index. These lease
terms also require the lessee to pay real estate taxes, insurance, utilities,
and maintenance expenses. At the end of the third quarter of the year ended
January 31, 1995, the Corporation reserved $32.3 million for the obligations
represented by these leases, which is the present value (discounted at 6%)
before estimated future inflation of 4% of the approximately $82.0 million that
the Corporation projects that it would be required to expend under the leases
over the balance of the term. These leases are currently the subject of
litigation. See Notes 5 and 9.
65
<PAGE> 66
DART GROUP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Years Ended January 31, 1995, 1994 And 1993
(4) COMMITMENTS (Continued)
Store Operating Lease Payments to Related Parties
During the fiscal years ended January 31, 1995, 1994 and 1993,
respectively, Trak Auto made rental payments of approximately $2,893,000,
$2,180,000 and $2,008,000, Crown Books made rental payments of approximately
$2,035,000, $1,780,000 and $1,410,000, and Shoppers Food made rental payments
of approximately $4,170,000, $2,873,000 and $2,873,000 and Total Beverage made
rental payments of approximately $893,000 and $361,000 during the years ended
January 31, 1995 and 1994 to CMREC shopping centers and to partnerships in
which members of the Haft family own all or substantially all of the beneficial
interests. None of the stores involved were acquired by the partnerships
within the past two years.
In addition to the Executive Committee's legal review of the Pennsy
Leases, which resulted in litigation filed by the Corporation on February 10,
1995 (See Note 9), the Executive Committees of the Corporation, Trak Auto and
Crown Books have undertaken a legal review of other leasing arrangements and
real estate related transactions between the Company, on the one hand, and
Haft-owned entities, on the other hand. The review is ongoing and the
Executive Committees have not yet determined whether other actions will be
taken as a result of this legal review.
Future Minimum Lease Payments to Related Parties
The Corporation's subsidiaries and affiliate, Trak Auto, Crown
Books, Shoppers Food and Total Beverage lease certain real property from CMREC
and Haft family owned partnerships. The leased properties consist of 54
stores, three warehouses and the Shoppers office building, but excluding the
Pennsy Leases. These leases provide for various termination dates, which,
assuming renewal options are exercised, range from 1996 to 2031 and require the
payment of minimum rentals aggregating approximately $372,657,000 to the lease
expiration dates. Minimum rentals under these leases are approximately
$242,880,000 to the expiration of their original terms. Certain of these
leases also require the payment of a percentage of sales in excess of a stated
minimum, as well as real estate taxes and Consumer Price Index increases.
66
<PAGE> 67
DART GROUP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Years Ended January 31, 1995, 1994 And 1993
(5) PENNSY WAREHOUSE LEASES
The Pennsy Leases cover a 533,800 square foot facility consisting
of office space and three warehouses once occupied and used by the Dart
Drugstore chain, a predecessor of the Corporation. The warehouses and office
space are not required by the Corporation for its operations. These warehouses
are owned by partnerships in which members of the Haft family own all of the
general and limited partnership interests. The office space and warehouses
were built by Haft partnerships between 1965 and 1974: warehouse I and the
offices in 1965, warehouse II in 1971 and warehouse III in 1974. The facility
is located at 3301 Pennsy Drive, Landover, Maryland.
Trak Auto has an agreement with the Corporation to sublease 6,500
square feet of the facility. The term of the sublease is one year (with nine
one-year option periods). The annual rental is $21,000 and will increase to
$24,000 for each of the last five option periods. The sublease requires Trak
Auto to pay approximately $6,000 annually for its share of common area
maintenance, real estate taxes and insurance premiums. Trak Auto intends to
give notice to terminate this sublease and hold over in the warehouse on a
month-to-month basis. In addition, Shoppers Food has an agreement with the
Corporation to rent (on a month to month basis) 6,000 square feet of the above
facility for approximately $2,000 a month.
In 1984, the Corporation sold the Dart Drugstore chain to a new
company owned by its management, DDSI. At that time, the subject leases were
assigned to a subsidiary (Dart Drug Corporation, Maryland) whose stock was
transferred to DDSI, and the Pennsy Leases were extended to 2016 and modified.
The leases were then assigned to DDSI itself. Ownership of DDSI was
subsequently transferred and it commenced operation under the name of Fantles
in 1988. DDSI, dba Fantles, occupied the properties through December of 1990,
more than one year after DDSI filed bankruptcy.
DDSI (Fantles) having rejected the Pennsy Leases in its bankruptcy,
the Corporation in February 1991 resumed paying rent and other expenses to the
Haft family-owned landlords on the theory that the Corporation's obligations to
the landlords survived the 1984 transactions.
The Pennsy Leases expire September 30, 2016 and provide for
increasing rental payments based on the Consumer Price Index. The leases are
"triple net" leases, in that in addition to rental payments the Corporation is
responsible for all expenses, including but not limited to real estate taxes,
all utilities, insurance and maintenance. The following table shows projected
future expenditures (assuming a 4% inflation rate) for the remaining term of
the Pennsy Leases.
67
<PAGE> 68
DART GROUP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Years Ended January 31, 1995, 1994 And 1993
(5) PENNSY WAREHOUSE LEASES (Continued)
Lease Table
<TABLE>
<CAPTION>
Fiscal Rental Payments
---------------------------------------
Year Whse I Whse II Whse III Maintenance Total
- ------ ----------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
1996 $ 325,000 $ 305,000 $ 226,000 $ 500,000 $ 1,356,000
1997 325,000 597,000 398,000 510,000 1,830,000
1998 325,000 1,181,000 729,000 521,000 2,756,000
1999 325,000 1,198,000 729,000 532,000 2,784,000
2000 325,000 1,287,000 729,000 544,000 2,885,000
2001-2016 17,235,000 26,286,000 15,659,000 11,299,000 70,479,000
----------- ----------- ----------- ----------- -----------
$18,860,000 $30,854,000 $18,470,000 $13,906,000 $82,090,000
=========== =========== =========== =========== ===========
</TABLE>
Since DDSI assumed control of the warehouses in 1984, the buildings
have fallen into disrepair. Deferred maintenance is estimated at between $2
million and $3 million dollars (not included in the table above). On November
21, 1994, the Corporation's Executive Committee, which is comprised of the
Corporation's four outside directors, received a report indicating the presence
of friable asbestos in warehouses I and II as well as the existence of asbestos
located in certain intact floor tiles in warehouse III. Some
asbestos-containing material has fallen on particular store fixtures and
material stored in warehouse number I. However, tests demonstrated that the
level of airborne asbestos did not exceed the legal limits.
To remove certain fixtures and material unaffected by the asbestos,
the Corporation allowed limited access to warehouse number I on a temporary
basis, by specially instructed employees with safety garb. The Corporation
will not permit the use of warehouses number I or II, nor will it place
personnel in those warehouses in their present condition except as described
above. The Corporation has taken steps to secure warehouses number I and II to
prevent unauthorized entry. With respect to warehouse number III, the
Corporation has determined that the presence of asbestos-containing materials
in the floor tiles does not render warehouse number III unsafe, because the
materials are intact and the asbestos is non-friable. No friable asbestos is
located in the portion of warehouse III sublet to Trak Auto and Shoppers Food.
As the table above shows, if these leases remain enforceable, the
Corporation will pay in excess of $68.2 million in rent to the Haft interests,
plus an additional $13.9 million in "triple net" expenses. The net present
value of future payments discounted at a risk free rate of 6%, and eliminating
the effect of estimated future inflation of 4% included in the table above is
approximately $32,300,000 and at the end of the lease term the Corporation
retains no residual value in either the land or buildings.
On February 10, 1995, the Corporation filed a complaint concerning
the Pennsy Leases. See Notes 4 and 9.
68
<PAGE> 69
DART GROUP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Years Ended January 31, 1995, 1994 And 1993
(5) PENNSY WAREHOUSE LEASES (Continued)
These estimated outflows would substantially impair the future cash
flows of the Corporation for the foreseeable future. Accordingly, the
Corporation revised its expectations of future sublease income and increased
the reserve for the obligations represented by these leases to $32.3 million
from $9.6 million, an increase of $22.7 million, during the quarter ended
October 31, 1994. As previously disclosed, beginning late in the third quarter
of the current fiscal year, the Corporation's Executive Committee undertook a
legal review of the subject leases from their inception. As a result of this
legal review, on February 10, 1995, the Corporation filed a complaint for
rescission of the Pennsy Leases and for the return of rent paid since the
reassumption of the Pennsy Leases. See Note 9.
Since 1991, the Corporation has received inquiries from unrelated
third parties interested in subletting various portions of the warehouse
properties. Such subleases would serve to mitigate the net effect of these
leases on the Corporation. However, given the poor state of repair and the
recently uncovered asbestos problem in warehouses number I and number II, there
can be no assurance that such subleases can be satisfactorily and timely
negotiated and consummated.
(6) INTEREST OF MANAGEMENT AND OTHERS IN CERTAIN TRANSACTIONS
(See Notes 4 and 11)
Haft Family Employment Agreements and Other Compensation Arrangements
In April 1974, the Corporation entered into an employment agreement
with Herbert H. Haft, Chairman and Chief Executive Officer. The agreement, as
amended, is renewable each year for a successive ten-year term. The agreement,
as amended, provides for a base salary of $544,500 for the year ended January
31, 1986 and for increases in base salary each year thereafter by the greater
of (i) $12,000 plus ten percent of the base salary for the preceding fiscal
year or (ii) the increase in the cost of living. The agreement, as amended,
further provides for an annual bonus equal to 1 1/2% of the Corporation's
consolidated pretax profit not reduced as a result of transactions which are
not ordinary and a supplemental bonus based on certain performance criteria for
the three-year period ended January 31, 1988 and each three-year period
thereafter. The supplemental bonus equals the greatest of (i) 3% of the
increase in the aggregate market value of the Class A Common Stock on the last
day of the three-year period over such market value on the first day of such
period; (ii) 3% of any excess in the Corporation's consolidated stockholders'
equity on the last day of the three-year period over such stockholders' equity
on the first day of such period; (iii) 3% of the aggregate consolidated net
income during the three-year period; and (iv) his base salary and annual bonus
for the last year of the three-year period. Pursuant to the agreement, Herbert
H. Haft may elect to receive all or part of his compensation in the form of an
option for shares of the Class A Common Stock or defer receipt of all or part
of such compensation. The agreement, as amended, also provides that the
Corporation must lend to Herbert H. Haft the funds necessary to purchase a
$3,000,000 life insurance policy on his life and/or the life of his former
wife, Gloria Haft. The Corporation has elected not to charge interest on the
loan. In 1993, a
69
<PAGE> 70
DART GROUP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Years Ended January 31, 1995, 1994 And 1993
(6) INTEREST OF MANAGEMENT AND OTHERS IN CERTAIN TRANSACTIONS
(See Notes 4 and 11) (Continued)
shareholder derivative action was filed challenging certain aspects of this
employment agreement. In 1994, the Special Litigation Committee concluded that
it is in the best interests of the Corporation that claims challenging Herbert
H. Haft's employment agreement be dismissed except to the extent that the
validity of the "evergreen" provision (successive ten-year terms) of the
agreement is challenged. See Note 9.
In August 1993, the Corporation entered into an employment
agreement ("the Agreement") with Ronald S. Haft, President and Chief Operating
Officer, for a term initially ending on January 31, 1997. The term of the
Agreement is to be automatically extended for one year on the first of each
February that Ronald S. Haft is employed by the Corporation. The Agreement
provides that Ronald S. Haft will be nominated to the Board of Directors of the
Corporation at each opportunity during the term of the Agreement, and that he
shall receive standard directors' fees while he is on the Board of Directors.
The Agreement provides for an annual base salary of $400,000, subject to annual
increases as agreed to by Ronald S. Haft and the Board of Directors, with a
minimum annual increase equal to the Consumer Price Index (as defined) to the
base salary unless the Corporation chooses not to increase the compensation of
any executive. The Agreement provides for a supplemental bonus for the
three-year period beginning February 1, 1994 and ending January 31, 1997, and
each subsequent three-year period thereafter, with terms similar to Herbert H.
Haft's supplemental bonus and provides for an annual bonus equivalent to
Herbert H. Haft's. Ronald S. Haft may elect to receive all or part of his
compensation in the form of an option for shares of the Class A Common Stock or
defer the receipt of all or part of his compensation. Under the Agreement,
Ronald S. Haft acquired the Options and the Corporation agreed to loan to
Ronald S. Haft the full amount of the exercise price of any Options that he may
exercise. Any such loan is to bear interest at NationsBank's prime rate
charged as of the date of the loan. The Corporation is contesting the validity
of the Options, the loan for their exercise and the Agreement. See Note 9.
In fiscal 1990, the Corporation signed agreements with Herbert H.
Haft and Robert M. Haft that granted to each of them an option to purchase up
to ten shares of the common stock of Dart/SFW, or 10 percent of such stock on a
fully diluted basis, for approximately $192,688 per share. Under the
agreements each such option is exercisable in whole or in part during the
period beginning on August 30, 1994 and ending on August 30, 2004; provided
that such options become immediately exercisable in the event of a Major
Business Change (as defined in the option agreements) and for a period of ten
years thereafter. At any time within three years after receipt of the Dart/SFW
shares pursuant to the exercise of an option, Herbert Haft or Robert Haft, as
the case may be, may require the Corporation to purchase all or part of such
shares at their then fair market value, as determined by an independent
appraiser selected by the Corporation's Board of Directors. Pursuant to
agreements dated January 11, 1990, Herbert H. Haft assigned and transferred his
option to acquire ten shares of Dart/SFW to his two children, Ronald S. Haft
and Linda G. Haft, and Robert M. Haft assigned
70
<PAGE> 71
DART GROUP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Years Ended January 31, 1995, 1994 And 1993
(6) INTEREST OF MANAGEMENT AND OTHERS IN CERTAIN TRANSACTIONS
(See Notes 4 and 11) (Continued)
and transferred his option to acquire six shares of Dart/SFW to Trusts
established for the benefit of his two children, Michael A. Haft and Nicholas
G. Haft.
The Executive Committee has undertaken a legal review of these
options and, as a result, is contesting their validity. Robert M. Haft has
filed a lawsuit seeking specific performance form the Corporation of these
options. See Notes 3 and 9.
The Corporation accrues the estimated fair value of the Dart/SFW stock
over the exercise price of the options provided for in these agreements ($11.4
million at January 31, 1995).
Incentive Stock Agreement
In fiscal 1990, Crown Books entered into an incentive stock
agreement (the "ISA") with Robert M. Haft, the former President of Crown Books.
Under the terms of the ISA, Crown Books issued 100,000 shares of stock to Mr.
Haft in return for a non-interest bearing promissory note, discounted at an 11%
effective interest rate, of $203,750, due January 2, 2004. The ISA provides
that the stock certificate representing the 100,000 shares state that the
shares are subject to certain transfer restrictions. Crown Books has the
right, expiring ratably over the period from January 2, 1999 to January 2,
2001, to repurchase all or a portion of the shares, subject to certain
conditions, in the event Mr. Haft voluntarily terminates employment with Crown
Books. Pursuant to the terms of the ISA, if Crown Books terminates Robert M.
Haft without cause, it must issue 100,000 shares of unrestricted common stock
to him.
Crown Books recognized deferred compensation to Robert M. Haft
under the ISA with a combination of amortization of the discount on the note
($11,000 annually) and straight-line recognition of the difference between the
market price of Crown Books common stock on the date of grant and the purchase
price for the shares subject to the ISA ($194,000 annually).
When Robert M. Haft's employment with Crown Books terminated in
June 1993, Crown Books maintained that he had voluntarily terminated his
employment, and therefore Crown Books had a right to repurchase these shares.
In August 1993, Robert M. Haft filed a lawsuit against the Corporation, Crown
Books and Trak Auto that, among other claims, contested the right of Crown
Books to repurchase the shares, and alleged that Crown Books had terminated
Robert M. Haft without cause. The jury and the court in this litigation found
in favor of Robert M. Haft on these claims. On February 22, 1995, the court
held that Robert M. Haft was entitled to damages in the amount of $2,146,250,
plus interest, for Robert M. Haft's claims with respect to the ISA. Crown
Books is contesting this judgment. See Note 9 for further discussion of this
litigation.
As a result of this litigation, however, Crown Books expensed the
remaining unamortized deferred compensation totaling $1,424,000 (before income
taxes) associated with the ISA in the year ending January 31, 1995.
71
<PAGE> 72
DART GROUP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Years Ended January 31, 1995, 1994 And 1993
(6) INTEREST OF MANAGEMENT AND OTHERS IN CERTAIN TRANSACTIONS
(See Notes 4 and 11) (Continued)
Other Management Employment Agreements
In October 1994, the Corporation entered into a consulting
agreement with RPF, Inc., a corporation wholly-owned by Robert A. Marmon,
whereby RPF, Inc. supplies the services of Mr. Marmon as Chief Financial
Officer for the Corporation, each of its wholly-owned subsidiaries and Crown
Books, and as Principal Financial Officer for Trak Auto. The agreement, as
amended, provides for a monthly fee of $48,750 and is renewable automatically
for one-month terms commencing April 30, 1995, unless either the Corporation or
RPF, Inc. have given written notice of termination. On March 20, 1995, the
agreement was modified and extended on a month-to-month basis. Under the
modified agreement, the Corporation may terminate the agreement on thirty days
notice. However, Mr. Marmon must provide sixty days notice to the Corporation
if he intends to terminate the agreement.
On January 25, 1995, the Company entered into employment agreements
with several key employees, including R. Keith Green, President of Trak Auto
and E. Steve Stevens, Senior Executive Vice President and Chief Operating
Officer of Crown Books. The agreements are for a term of one year, the
Company's fiscal year, (Mr. Green and Mr. Stevens' agreements are for two years)
and are automatically extended one year (two years for Mr. Green and Mr.
Stevens) unless the individual is terminated with cause. The agreements
provide for annual increases following review and performance appraisal by the
Compensation Committee of the Board of Directors.
Executive Committee and Special Litigation Committee
On January 4, 1994, the Board of Directors of Dart established a
Special Litigation Committee to assess, on behalf of the Corporation, whether
to pursue, settle or abandon, claims raised in the derivative law suits filed
against the Corporation. See Note 9 for a discussion of the derivative law
suits. The Directors appointed to the Special Litigation Committee were H.
Ridgely Bullock and Larry G. Schafran. On September 30, 1994, the Special
Litigation Committee issued its report.
The Board of Directors of the Corporation established an Executive
Committee of the Board of Directors on September 7, 1994. The Executive
Committee has the authority to conduct the affairs of the Corporation with
respect to matters that are the subject of dispute between the present Chairman
of the Board, Mr. Herbert H. Haft, and the present President of the
Corporation, Mr. Ronald S. Haft. The Directors appointed to the Executive
Committee were Douglas M. Bregman, H. Ridgely Bullock, Larry G. Schafran and
Bonita Wilson, with Mr. Bullock as the Chairman of the Executive Committee.
Mr. Bullock died December 18, 1994 and Mr. Schafran was elected Chairman in
January 1995. Any and all actions of the Executive Committee are required to
be without a dissenting vote. On October 11, 1994, the Boards of Directors of
Trak Auto, Crown Books and Total Beverage each established an Executive
Committee of their respective Board of Directors with authority parallel to
that of the Corporation's Executive Committee.
72
<PAGE> 73
DART GROUP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Years Ended January 31, 1995, 1994 And 1993
(6) INTEREST OF MANAGEMENT AND OTHERS IN CERTAIN TRANSACTIONS
(See Notes 4 and 11) (Continued)
Members of the Executive Committee are compensated at a salary rate
of $275 per hour plus reimbursement of expenses. Members of the Special
Litigation Committee of the Board of Directors, which was established on
January 4, 1994, have been compensated at a salary rate of $250 per hour plus
reimbursement of expenses. Through January 31, 1995, the compensation paid by
the Corporation and its subsidiaries to members of the respective Executive
Committees for their services on those committees totaled $666,000, and the
compensation paid by the Corporation and its subsidiaries to members of the
Special Litigation Committee for their service on that committee totaled
$269,000, in each case exclusive of expense reimbursement.
(7) CONTROL PROCEDURE
On August 4, 1994, the Corporation, on the instruction of Herbert
H. Haft, caused to be issued to Herbert H. Haft two bank cashiers checks
totaling $18,000,000 in exchange for a promissory note from Mr. Haft. On
August 8, 1994 Mr. Haft returned to the Corporation the two checks,
unnegotiated. Mr. Haft subsequently paid the Corporation interest on the
amount for the period it was outstanding. The Executive Committee of the
Corporation has conducted a review of this transaction and as a result the
Board of Directors has adopted a policy that no funds of the Corporation will
be advanced to any person who owns of record or has power to vote 10% or more
of the Corporation's Class B Common Stock (except pursuant to contracts
previously approved by the Board of Directors) without prior approval of a
majority of the disinterested Directors.
(8) CERTAIN EVENTS
Sale of Class B Common Stock to Ronald S. Haft
On July 28, 1993, Herbert H. Haft sold his 172,730 shares of Class
B Common Stock to Ronald S. Haft for the purchase price of $80.00 per share,
and Ronald S. Haft granted to Herbert H. Haft an irrevocable proxy to vote
those shares until his death or incapacity. The total acquisition price for
these shares was $13,818,400, of which $2,763,680 was paid at closing; the
remaining $11,054,720 was paid for with a promissory note bearing interest at
6.61%, the applicable federal rate with the principal amount and any accrued
but unpaid interest due and payable on August 1, 2013. Accordingly, as of
January 31, 1995, there were 302,952 issued and outstanding shares of Class B
Common Stock, of which Ronald S. Haft owned 25,246 shares (or 8.33%), and
another 172,730 shares (or 57.02%) without the power to vote, for a total of
197,976 shares (or 65.35%). If all of the shares of Class B Common Stock
covered by options were issued, there would be 500,000 issued and outstanding
shares of Class B Common Stock, of which Ronald S. Haft would then own
395,024 shares (or 79.00%), with voting power over 222,294 shares (or 44.46%),
and Herbert H. Haft would have voting power over 172,730 shares (or 34.54%).
73
<PAGE> 74
DART GROUP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Years Ended January 31, 1995, 1994 And 1993
(9) LITIGATION
Robert M. Haft Employment Litigation
In August 1993, Robert M. Haft, the former president of Crown Books
and the Corporation, filed a lawsuit in the United States District Court for
the District of Delaware, Robert M. Haft v. Dart Group Corporation, et al. (D.
Del. Civil Action No. 93-384-SLR), naming as defendants the Corporation and
two of its subsidiaries, Crown Books and Trak Auto. The complaint, as amended,
alleged breach of contract regarding various employment, stock option, stock
incentive and loan agreements and sought declaratory judgment regarding a stock
incentive agreement and a possible right by Robert M. Haft to acquire an
interest in Total Beverage, all in connection with the termination of Robert M.
Haft's employment in June 1993. The complaint, as amended, sought unspecified
damages, costs and attorneys' fees.
On September 20, 1994, a jury found that the Corporation had
breached its employment contract with Robert M. Haft and awarded him damages
against the Corporation (equivalent to the compensation projected to be due
over a ten-year period) in the amount of $18,856,964. The jury also found that
Crown Books had breached an employment agreement with Robert Haft and awarded
him damages (equivalent to the compensation projected to be due over a ten-year
period) against Crown Books in the amount of $12,800,910.
The jury also found that Robert M. Haft did not voluntarily
terminate his employment within the meaning of his ISA with Crown Books. Under
the terms of the ISA, a voluntary termination by Robert M. Haft of his
employment would have allowed Crown Books to repurchase all or a portion of
100,000 shares of stock issued to Robert Haft by Crown Books pursuant to the
ISA, subject to certain transfer restrictions, in return for a non-interest
bearing promissory note, discounted at an effective rate of 11%, for $203,750,
due January 2, 2004. The jury's finding would preclude Crown Books from making
such a repurchase.
Robert M. Haft asked the judge presiding over the case to award him
additional damages in the amount of approximately $2.4 million based on the
failure of Crown Books to deliver 100,000 shares of unrestricted common stock
of Crown Books, which he would have a right to receive under the ISA in the
event of his termination without cause by Crown Books, when he demanded them in
August of 1993. Robert M. Haft also requested a declaratory judgment on his
claim against the Corporation, Crown Books and Trak Auto arising from certain
stock options granted to him by those corporations and his claim that he has a
purchase option for an interest in Total Beverage.
On February 22, 1995, the federal district court in Robert M.
Haft's employment litigation made the following rulings against the
Corporation, Crown Books and Trak Auto:
(1) The court found that Robert M. Haft was entitled to damages in
the amount of $2,146,250, plus interest, based on the failure
of Crown
74
<PAGE> 75
DART GROUP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Years Ended January 31, 1995, 1994 And 1993
(9) LITIGATION (Continued)
Books to deliver 100,000 shares of unrestricted Crown Books
Common Stock when he demanded them in August of 1993;
(2) The court found that Robert M. Haft was entitled to exercise
certain employee stock options under the 1981 and 1992 Stock
Option Plans of the Corporation, the CrownBooks Stock Option
Plan adopted March 12, 1987, and the Trak Auto Corporation
Stock Option Plan adopted March 24, 1987. As to options that
had expired during the pendency of the case, the court
extended the time for exercise for a period equal to the
period from June 30, 1993 to the expiration date. As to
options that had not yet expired, the court extended the
exercise date for a period equal to the period from June 30,
1993 until final judgment was entered. (Under the relevant
plans, Robert M. Haft would be entitled to exercise options
for 50,000 of Class A Common Stock of Dart having exercise
prices of $71.50 - $104.50 per share, 80,000 shares of Crown
Books Common Stock having exercise prices of $21.45 - $23.93
per share and 40,000 shares of Trak Auto Common Stock having
exercise prices of $6.60 - $13.75 per share.); and
(3) The Court found that Robert M. Haft has the right to purchase
for $149,400 ten percent of the Corporation's interest in the
entity that acquired the assets of Total Beverage's Chantilly,
Virginia store.
The Court entered final judgment on all claims in this lawsuit on
March 23, 1995. On April 6, 1995, the Corporation and Crown Books filed a
motion for a new trial and/or reduction of damages with the court, challenging
the Court's breach of contract findings, damages awards and certain evidentiary
rulings. Depending upon the outcome of this motion, the Corporation, Crown
Books and Trak Auto may also file an appeal challenging some or all of the
rulings in this lawsuit.
The Corporation has reserved approximately $32,200,000 for these
judgments and has expensed the remaining unamortized deferred compensation
associated with the ISA totaling $1,424,000 (before income taxes).
Derivative Litigation
In September 1993, Alan R. Kahn and the Tudor Trust (the "Kahn
Derivative Plaintiffs"), shareholders of the Corporation, filed a lawsuit in
the Delaware Court of Chancery for New Castle County naming as defendants
Herbert H. Haft, Ronald S. Haft, Douglas M. Bregman, Bonita A. Wilson, Combined
Properties, Inc. ("CPI"), Combined Properties Limited Partnership, and Capital
Resources Limited Partnership. The suit is brought derivatively and names as
nominal defendants the Corporation, Trak Auto, Crown Books, Shoppers Food,
Total Beverage, and CMREC.
75
<PAGE> 76
DART GROUP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Years Ended January 31, 1995, 1994 And 1993
(9) LITIGATION (Continued)
The complaint, as amended on January 12, 1995, alleges waste,
breach of fiduciary duty, violation of securities laws and entrenchment in
connection with various lease agreements between the Combined Properties
defendants and the Corporation and its subsidiaries, the termination of Robert
M. Haft, the compensation paid to Ronald S. Haft and Herbert H. Haft, the
Agreement, the sale of 172,730 shares of Class B Common Stock by
Herbert H. Haft to Ronald S. Haft, and the compensation paid to the Executive
Committee. Plaintiffs seek an accounting of unspecified damages incurred by
the Corporation, voiding of the options sold to Ronald S. Haft, appointment of
a temporary custodian to manage the affairs of the Corporation or to oversee
its recapitalization or sale and costs and attorneys' fees.
On April 27, 1995, the Kahn Derivative Plaintiffs and the Special
Litigation Committee of the Corporation's Board of Directors filed a
Stipulation and Order which, if entered by the Court, will (1) dismiss claims
against Douglas M. Bregman and Bonita Wilson; and (2) realign the Corporation
as a party plaintiff to the amended complaint.
In November 1993, Robert M. Haft filed another lawsuit in the
Delaware Court of Chancery for New Castle County. The lawsuit names as
defendants Herbert H. Haft, Ronald S. Haft, Douglas M. Bregman, and Bonita A.
Wilson, and also names the Corporation as a nominal defendant. The complaint
derivatively alleges interested director transactions, breach of fiduciary duty
and waste in connection with the Agreement. Robert M. Haft also brings
individual claims for breach of contract and dilution of voting rights in
connection with the sale of shares of Class B Common Stock by Herbert H. Haft
to Ronald S. Haft and the Agreement. The complaint seeks rescission of the
sale of such shares and the Agreement, unspecified damages from the individual
directors, and costs and attorneys' fees.
A Special Litigation Committee consisting of two outside,
independent directors of the Corporation, Crown Books and Trak Auto was
appointed by the Board of Directors to assess, on behalf of the Corporation,
whether to pursue, settle or abandon the claims asserted in these two
derivative lawsuits. In September 1994, the Special Litigation Committee moved
for dismissal of certain claims in those derivative lawsuits and for
realignment of the parties to permit the Corporation to prosecute other claims
in those derivative lawsuits.
In September 1994, Jolien Lou, a purported shareholder of Crown
Books, filed a lawsuit in the Delaware Court of Chancery for New Castle County
naming as defendants Herbert H. Haft, Glenn E. Hemmerle, Ronald S. Haft,
Douglas M. Bregman, H. Ridgely Bullock, Larry B. Schafran and Bonita A. Wilson.
The suit is brought derivatively and names Crown Books as nominal defendant.
The complaint, as amended on February 24, 1995, alleges waste and breach of
fiduciary duty in connection with the termination of Robert M. Haft from his
position at Crown Books in 1993 and in connection with Herbert H. Haft's
management of Crown Books. The amended complaint also alleges legal
malpractice against a lawyer advising the Corporation at that time. Plaintiff
seeks
76
<PAGE> 77
DART GROUP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Years Ended January 31, 1995, 1994 And 1993
(9) LITIGATION (Continued)
unspecified damages incurred by Crown Books, and costs and attorneys' fees.
Ronald S. Haft and Glenn E. Hemmerle have been dismissed without prejudice from
this lawsuit. Crown Books and other defendants have filed a motion to dismiss
this lawsuit.
Given that these derivative lawsuits are brought in the name of the
Corporation and its subsidiaries, recovery in them would inure to the benefit
of the Corporation and its subsidiaries if the claims are successfully
litigated or settled. Therefore, in the opinion of management, resolution of
these actions will not have a material adverse effect on the consolidated
financial condition or results of operations of the Company.
Ronald S. Haft Stock Options
On September 6, 1994, Ronald S. Haft tendered the Corporation a
letter requesting:
(1) to exercise, effective immediately, options (the "Options"), to
purchase, at an exercise price of $89.65 per share, 197,048 shares
(the "Option Shares") of Class B Common Stock and
(2) to exercise his right under the Agreement, effective immediately, to
obtain a loan from the Corporation in the amount of $17,665,353.20,
for part of the exercise price of the Options.
Together with that letter, Ronald S. Haft tendered to the
Corporation a check payable to the Corporation in the amount of $197,048 as
payment of the par value of the Option Shares; and an executed unsecured
promissory note of Ronald S. Haft payable to the order of the Corporation in
the amount of $17,665,353.20, the balance of the exercise price for the Option
Shares under the Options.
The Corporation has rejected the validity of Ronald S. Haft's
exercise of the Options and the promissory note tendered in connection
therewith. Issuance of the Option Shares has not been recorded in the stock
records of the Corporation, the Corporation has returned his $197,048 check,
and the Corporation has not issued any stock certificate to Ronald S. Haft for
the Option Shares. The Corporation delivered to Ronald S. Haft a check in the
amount of the $985,000 price (plus interest) previously paid by him for the
Options, but he returned the check to the Corporation. These funds are now in
an interest bearing escrow account. The total of the $985,000 (plus interest)
has been reclassified from Paid In Capital to Accrued Expenses as of January
31, 1995.
On September 12, 1994, Ronald S. Haft filed a lawsuit against the
Corporation (Ronald S. Haft v. Dart Group Corporation, Del. Ch., C.A. No.
13736) (the "Options Lawsuit") in the Delaware Court of Chancery for New Castle
County seeking a court order that the Corporation issue the Option Shares and
grant him a loan of $17,665,353.20 to be used as part of the payment for such
shares. See Note 6.
77
<PAGE> 78
DART GROUP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Years Ended January 31, 1995, 1994 And 1993
(9) LITIGATION (Continued)
The Corporation has denied the validity of the Options and the
Agreement and is contesting the Options Lawsuit. On November 14, 1994, the
Court of Chancery entered a Memorandum Opinion denying Ronald S. Haft's motion
for summary judgment.
In connection with this proceeding, on September 14, 1994, the
Standstill Agreement agreed to on behalf of the Corporation and Ronald S. Haft
was ordered by the Delaware Court of Chancery. The Standstill Agreement
restricts certain actions by the Corporation until further order of the court.
In particular, the Corporation may not, without further order of the court: (i)
change its Certificate of Incorporation or Bylaws; (ii) change the current
composition of the Board of Directors of the Corporation or its subsidiaries;
(iii) change the current Haft family officers of the Corporation or its
subsidiaries; (iv) issue any additional securities of the Corporation or any of
its subsidiaries; or (v) take any extraordinary actions that would result in
(a) the liquidation of the Corporation or any of its subsidiaries, (b) the sale
of any major subsidiary of the Corporation, or (c) the disadvantage of any
Class B Common Stockholder of the Corporation through any debt transaction.
In December 1994, Ronald S. Haft filed a motion for contempt
against the Corporation, Herbert H. Haft, Larry G. Schafran and Bonita A.
Wilson, alleging a breach of the Standstill Agreement. In his motion, Ronald
S. Haft asserted that the defendants violated the prohibition on the issuance
of additional securities of the Corporation by approving certain employee stock
option grants pursuant to existing stock option plans of the Company, and by
approving a form of employment contract for executives of the Company that
contains a provision for stock option grants. The Corporation opposed this
motion and moved for a clarification or waiver of the Standstill Agreement with
respect to the issuance and exercise of employee stock options that would (i)
allow the Corporation to grant stock options to its employees, other than
members of the Haft family, in a way that complies with the past practice of
the Corporation and (ii) allow the Corporation to issue stock pursuant to the
exercise of options granted prior to September 14, 1994. A hearing on these
matters was held on April 18, 1995 at which the court denied the motion for
contempt and issued an order stating that the Standstill Agreement did not
enjoin the exercise of stock options granted prior to September 14, 1994 or the
issuance of stock option to employees approved by the Board of Directors in
December 1994.
In December 1994, the Delaware Court of Chancery granted a motion
by the Kahn Derivative Plaintiffs to intervene permissively as defendants in
the Options Lawsuit on their own behalf. Subsequently, on January 20, 1995,
Ronald S. Haft and the Kahn Derivative Plaintiffs filed a Stipulation and
Agreement of Compromise, Settlement, and Release (the "Settlement Agreement"),
in which they purported to settle the Options Lawsuit. As part of the putative
Settlement Agreement, Ronald S. Haft's exercise of the Options would have been
allowed.
78
<PAGE> 79
DART GROUP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Years Ended January 31, 1995, 1994 And 1993
(9) LITIGATION (Continued)
The Corporation filed a brief opposing the Settlement Agreement on
March 8, 1995, which brief contained as an exhibit a memorandum (the
"Memorandum") responding to the terms of the Settlement Agreement. See Item 7
- - Management's Discussion and Analysis of Financial Condition and Results of
Operations for further description of the Memorandum. On March 10, 1995, the
Kahn Derivative Plaintiffs withdrew from the putative Settlement Agreement.
Trial in the Options Lawsuit is currently scheduled for July 17, 1995.
Pennsy Warehouse Litigation
The Executive Committee of the Corporation undertook a legal review
of the Pennsy Leases, beginning late in the third quarter of the year ended
January 31, 1995. By their terms, the Pennsy Leases, which run to 2016,
require annual rental payments of $855,000 subject to escalation in 1996 and
thereafter based on increases in the Consumer Price Index. The lease terms
also require the lessee to pay real estate taxes, insurance, utilities, and
maintenance expenses. At the end of the third quarter of the year ended
January 31, 1995, the Corporation reserved $32.3 million for the obligations
represented by the Pennsy Leases, which is the present value (discounted at 6%)
before estimated inflation of 4% of the approximately $82.0 million that the
Corporation projects it would be required to expend under the leases over the
balance of the term.
As a result of this review, on February 10, 1995, the Corporation
filed a complaint in Circuit Court for Prince George's County, Maryland,
alleging, inter alia, breaches of fiduciary duty, waste and other
irregularities by certain members of the Haft family and others in connection
with the Pennsy Leases, and in particular with the resumption of rental
payments for these warehouses in 1991 following the bankruptcy of the prior
tenant, Dart Drug Stores, Inc. The complaint seeks rescission of the Pennsy
Leases, restitution of approximately $3.4 million of rent paid since 1991 and
other monetary damages. See Notes 4 and 5.
The Executive Committees of the Corporation, Trak Auto and Crown
Books have also undertaken a legal review of other leasing arrangements and
real estate related transactions between the Company, on the one hand, and
Haft-owned entities, on the other hand. See Notes 4 and 5 for further
discussion of the Pennsy Leases. The review is ongoing and the Executive
Committees have not yet determined whether other actions will be taken as a
result of this legal review.
Robert M. Haft Options Litigation
On February 10, 1995, Robert M. Haft filed a complaint in the
United States District Court for the District of Delaware against the
Corporation seeking specific performance or damages in connection with the
refusal of the Corporation to issue shares of Class A Common Stock to him
pursuant to his exercise of certain options purportedly granted to him by the
Corporation. Robert M. Haft allegedly received these options on three
separate occasions:
79
<PAGE> 80
DART GROUP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Years Ended January 31, 1995, 1994 And 1993
(9) LITIGATION (Continued)
(1) pursuant to the Dart Drug Corporation Executive Non-Qualified Stock Option
Plan (the "1983 Plan"), pursuant to which Robert M. Haft allegedly received
options to purchase 120,000 shares of Class A Common Stock; (2) pursuant to the
Dart Group Corporation 1987 Executive Non-Qualified Stock Option Plan (the
"1987 Plan"), pursuant to which Robert M. Haft allegedly received options to
purchase 99,750 shares of Class A Common Stock; and (3) pursuant to a Stock
Option Agreement (the "1989 Agreement") dated as of August 30, 1989, among the
Corporation, Dart/SFW and Robert M. Haft, under which Robert M. Haft allegedly
received options to purchase 10 shares (or 10%) of common stock of Dart/SFW.
The Executive Committee undertook a legal review of the options
granted to Robert Haft pursuant to the 1983 Plan, the 1987 Plan and the 1989
Agreement. As a result of this review, the Corporation is contesting the
validity of these options. See Notes 3 and 14 for additional information.
Total Beverage Litigation
In October 1993, the Corporation and two of its wholly-owned
subsidiaries, Total Beverage and Total Beverage G.B., Inc., filed a lawsuit in
the United States District Court for the Eastern District of Virginia styled
The Dart Group Corporation v. The Globe Distributing Company of Virginia, Inc.,
d/b/a The Forman Distributing Company of Virginia, Inc., et al., CA No.
93-1307-A (E.D. Va.). The lawsuit named as defendants The Globe Distributing
Company, Inc. d/b/a The Forman Distributing Company of Virginia, Inc.
("Forman"), four other Virginia wine wholesalers, and several of their
principals. The complaint, as amended, alleged violations of the federal and
Virginia state antitrust laws and intentional tortious interference with
contract by reason of an alleged conspiracy among the wholesalers to divide
territories and allocate customers. The complaint, as amended, sought
injunctive relief and unspecified damages, costs and attorneys' fees. In
January 1994, the defendants filed counterclaims against the plaintiffs for
defamation, conspiracy to injure in reputation, trade and business, conspiracy
to coerce and compel, tortious interference with contractual relations and
business expectancies, and violation of the Lanham Act.
During the year ended January 31, 1995, all claims and
counterclaims in these actions were settled. The terms and conditions of the
settlement agreements has not had a material adverse effect on the consolidated
financial condition or operating results of the Company.
Other
Pursuant to an agreement between the Corporation and the Securities
and Exchange Commission ("SEC") resolving the SEC's investigation of the
Corporation's status as an investment company under the Investment Company Act
of 1940 (the "1940 Act"), on February 28, 1990, the SEC filed with the U.S.
District Court for the District of Columbia a complaint for injunction and
other relief against the Corporation alleging that the Corporation had been
since June 30, 1984 an investment company as defined in the 1940 Act and had
engaged in certain activities prohibited by the 1940 Act without registering as
an
80
<PAGE> 81
DART GROUP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Years Ended January 31, 1995, 1994 And 1993
(9) LITIGATION (Continued)
investment company. The SEC sought in the complaint an injunction
banning the Corporation and its representatives from engaging in activities
prohibited by the 1940 Act without first registering as an investment company.
At the same time, the Corporation, without admitting or denying these
allegations, consented to the entry of a final judgment (1) enjoining the
Corporation, should it become an investment company in the future, from
engaging in certain activities prohibited by the 1940 Act in the absence of an
applicable exemption or unless the Corporation is registered as an investment
company, and (2) requiring the Corporation, on a quarterly basis for a three
year period, to provide the SEC with certain information concerning the
composition of its assets and income.
In the normal course of business, the Company is involved in
various claims and litigation. In the opinion of management, liabilities, if
any, will not have a material affect upon the consolidated financial condition
and results of operations of the Company.
The Corporation has recorded expenses of approximately $18.4
million and $8.0 million during the years ended January 28, 1995 and January
29, 1994, respectively, for legal expenses incurred during these years. These
amounts include estimated future expenses likely to be considered necessary to
resolve all litigation discussed above.
(10) CREDIT AGREEMENTS
The Corporation has entered into a $10 million revolving credit agreement
with Trak Auto. The credit agreement is intended to be used for the Trak
Auto's short-term working capital purposes. Any advance under this credit
agreement bears interest at an annual rate equal to the prime rate as set
forth in the "Money Rates" column of the Wall Street Journal, as such rate may
change from time to time, plus one percent (1%). Interest shall be paid
monthly in arrears and the agreement expires on May 1, 1996.
The Corporation, together with Trak Auto and Crown Books, is party
to a $6 million revolving credit agreement with a bank. The $6 million is an
aggregate amount and not specifically allocated to any of the parties. The
line is intended to be used for the issuance of standby and trade letters of
credit. This line of credit expires on May 1, 1995.
At January 31, 1995, there had been no borrowings under these credit
agreements.
81
<PAGE> 82
DART GROUP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Years Ended January 31, 1995, 1994 And 1993
(11) CABOT-MORGAN REAL ESTATE COMPANY
In September 1989, the Corporation organized CMREC, a wholly-owned
subsidiary. CMREC was organized under the laws of Delaware as a real estate
development company.
In December 1989, CMREC and Combined Properties/Briggs Chaney Plaza
Limited Partnership ("Combined/Briggs Chaney"), a Delaware limited partnership
of which the partners are members of the Haft family, formed CM/CP Briggs
Chaney Plaza Joint Venture ("CM/CP Briggs Chaney"). On December 31, 1989,
CM/CP Briggs Chaney purchased Briggs Chaney Plaza Shopping Center located in
Silver Spring, Maryland, for approximately $30,000,000, of which land was
approximately $5,986,000, building and improvements was approximately
$24,066,000, including the assumption of mortgages. There have been no
material additions or improvements to land and building and improvements since
acquisition and the carrying amount of these assets was $26,497,000 at January
31, 1995.
In December 1989, CMREC and Combined Properties/Greenway Center
Limited Partnership ("Combined/Greenway"), a Delaware limited partnership of
which the partners are members of the Haft family, formed CM/CP Greenway Center
Joint Venture ("CM/CP Greenway"). On December 31, 1989, CM/CP Greenway
purchased Greenway Center located in Greenbelt, Maryland, for approximately
$39,300,000, of which land was approximately $7,813,000, building and
improvements was approximately $31,376,000, including the assumption of
mortgages. There have been no material additions or improvements to land and
building and improvements since acquisition and the carrying amount of these
assets was $35,030,000 at January 31, 1995.
CMREC owns 75% of CM/CP Briggs Chaney and 75% of CM/CP Greenway.
The remaining 25% interests are owned by the aforementioned limited
partnerships. CPI, which is owned by members of the Haft family, provides
certain services to the shopping centers.
On March 12, 1991, CMREC acquired from an entity owned by Haft
family members, a 51% interest in CM/CP Greenbriar Retail Joint Venture ("CM/CP
Greenbriar Retail") and a 51% interest in CM/CP Greenbriar Office Joint Venture
("CM/CP Greenbriar Office"), which own Greenbriar Town Center Shopping Center
and Greenbriar Town Center Office Building, respectively, located in Fairfax,
Virginia. The purchase price for the Corporation's interest in CM/CP
Greenbriar Retail and CM/CP Greenbriar Office was approximately $20,000,000,
which represents 51% of the original cost to the seller of the entire center
plus interest and other net holding period costs of approximately $1,350,000
(buyers share). The outside members of CMREC's board of directors approved
this transaction. In addition, the Corporation paid fees to CPI for leasing,
acquisition and development of the Center at a cost comparable to that
available from unaffiliated parties. The Corporation's portion of these fees
was approximately $1,300,000. The seller acquired the property on October 24,
1989. The Haft family entity continues to own the remaining 49% interest and
CPI manages CM/CP Greenbriar Retail and CM/CP Greenbriar Office. The initial
cost of land and building and improvements in CM/CP Greenbriar Retail and CM/CP
Greenbriar Office was approximately $41,392,000. Greenbriar Town Center
completed renovation and expansion in fiscal 1993 and the carrying amount of
82
<PAGE> 83
DART GROUP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Years Ended January 31, 1995, 1994 And 1993
(11) CABOT-MORGAN REAL ESTATE COMPANY (Continued):
land and building and improvements was $67,904,000 at January 31, 1995.
On January 18, 1993, CMREC and CP/Bull Run Limited Partnership
("Combined/Bull Run"), a Maryland limited partnership of which the partners are
members of the Haft family, formed CM/CP Bull Run Joint Venture ("CM/CP Bull
Run"). CMREC owns 51% of CM/CP Bull Run and Combined/Bull Run owns 49%. On
January 18, 1993, CM/CP Bull Run purchased a shopping center known as Festival
at Bull Run located in Prince William County, Virginia, for approximately
$14,097,000 of which land was approximately $5,938,000 and building and
improvements was approximately $8,187,000. CMREC's share of the cash portion
of the purchase price was approximately $2,647,000. In addition, CMREC has a
loan agreement with CM/CP Bull Run for up to $15,450,000, of which $8,250,000
had been utilized toward the purchase price of the center and was considered a
bridge loan until CM/CP Bull Run could secure other financing. Subsequently,
CM/CP Bull Run secured other financing and the $8,250,000 was repaid. The
remaining $7,200,000 is intended to fund the construction of certain
improvements to the center. At January 31, 1995, CM/CP Bull Run had borrowed
$5,368,000 against the remaining $7,200,000. CM/CP Bull Run has an agreement
with CPI to manage the center.
CPI charged the four properties for management and related services
$1,955,000, $3,264,000, and $2,365,000 in fiscal 1995, 1994 and 1993,
respectively.
Trak Auto, Crown Books, Shoppers Food and Total Beverage have
leases in several of the properties in which CMREC has an interest. Rental
payments on these leases were $1,582,000, $1,765,000, and $332,000 in 1995,
1994 and 1993, respectively. The future lease commitments on these leases
excluding option periods are $20,966,000 expiring on dates through 2013.
Each of these CMREC partnerships contains a buy/sell option under
which the partners have the right, at any time, to initiate procedures under
which the initiating party offers both to sell to or buy from the other party
the initiating party's or the other party's interests in the partnership at the
offer price. The recipient of the offer has the alternative of accepting the
offer to sell or the offer to buy. The Corporation is unable to determine the
effect that would result if either party initiates this procedure.
83
<PAGE> 84
DART GROUP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Years Ended January 31, 1995, 1994 And 1993
(11) CABOT-MORGAN REAL ESTATE COMPANY (Continued):
Mortgages payable at January 31, 1995, consists of the following:
<TABLE>
<S> <C>
CM/CP Briggs Chaney
-------------------
Mortgage payable, bearing interest at 8.5% per annum
principal due December 1, 2003; collateralized
by first mortgage on land and buildings $15,624,000
CM/CP Greenway
--------------
Mortgage payable, bearing interest at 10.4% per annum,
payments made on a monthly basis with the last
payment due July 1, 2011; collateralized by first
mortgage on land and buildings 9,403,000
Mortgage payable, bearing interest at 9.75% per annum,
payments made on a monthly basis with the last
payment due December 1, 1996; collateralized by
second mortgage on land and buildings 5,996,000
CM/CP Greenbriar
----------------
Mortgage payable, bearing interest at 9.5% per annum,
payments made on a monthly basis with the last
payment due May 1, 2003; secured by the land and
building at the shopping center 39,981,000
CM/CP Bull Run
--------------
Mortgage payable, bearing interest at 8.0% the first
year, 8.5% the second year, and 9.0% the third year,
principal due May 21, 1996; secured by the land and
building at the shopping center. 9,674,000
-----------
Total 80,678,000
Current portion of mortgage payable 1 058,000
-----------
Mortgage payable $ 79,620,000
============
</TABLE>
84
<PAGE> 85
DART GROUP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Years Ended January 31, 1995, 1994 And 1993
(11) CABOT-MORGAN REAL ESTATE COMPANY (Continued):
Maturities of the mortgages payable as of January 31, 1995 are as
follows:
<TABLE>
<CAPTION>
Fiscal Mortgages
Year Payable
------ -----------
<S> <C>
1996 1,058,000
1997 16,590,000
1998 1,181,000
1999 1,296,000
2000 1,423,000
2001 - 2011 59,130,000
-----------
Total $80,678,000
===========
</TABLE>
Based on the borrowing rates currently available for mortgages with
similar terms, the fair value of the mortgages are $88,278,000.
Description of Leasing Arrangements
Renewal options are available to the majority of the tenants of
CMREC properties and the leases require payment of contingent rentals and
license fees based on sales in excess of specified minimums. The net book
value of the property held for lease by CMREC included in land, building and
leasehold improvements on the accompanying balance sheet at January 31, 1995
was $121,412,000.
The following is a schedule by fiscal year of future minimum rental
income under these leases having initial or remaining terms in excess of one
year at January 31, 1995.
<TABLE>
<CAPTION>
Fiscal
Year Minimum Rental Income
------ ---------------------
<S> <C>
1996 $ 15,725,000
1997 15,298,000
1998 14,416,000
1999 13,052,000
2000 12,364,000
2001-2011 57,404,000
------------
Total $128,259,000
============
</TABLE>
85
<PAGE> 86
DART GROUP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Years Ended January 31, 1995, 1994 And 1993
(12) RESTRUCTURING AND STORE CLOSING CHARGES
Trak Auto
Trak Auto continually evaluates the operations of its stores and
the need to close, relocate, or expand stores or convert existing Classic Trak
stores into Super Trak or Super Trak Warehouse stores. Of Trak Auto's 282
stores as of January 28, 1995, Trak Auto currently expects to close
approximately 30 Classic Trak stores that are not providing satisfactory
performance and 15 Classic Trak stores in conjunction with Trak Auto's
remaining restructuring efforts. Trak Auto also expects to convert at least
eight existing Classic Trak stores into Super Trak or Super Trak Warehouse
stores.
As of January 28, 1995, Trak Auto had a reserve of $6,945,000 for
store closings and restructurings that relate to 21 stores that had been closed
and 45 existing stores that had been earmarked for closing or restructuring.
Trak Auto expects to use approximately $1,916,000 of this reserve during fiscal
1996. The costs associated with closing a store primarily consist of future
unrecoverable lease obligations (rent, real estate taxes and common area
charges) after the closing date, net of estimated sublease income, and the
remaining book value of leasehold improvements. Trak Auto recognizes store
closing costs when management determines to close a store. The net charge
(income) for store closings was $1,580,000, $(943,000), and $500,000 during
fiscal 1995, 1994 and 1993, respectively. Income during fiscal 1994 was the
result of early lease terminations, net of cash buyouts. Trak Auto currently
estimates that it may close 30 Classic Trak stores that are not providing
satisfactory performance. The future lease obligations beyond the estimated
closing dates of these 30 stores are approximately $4,213,000. Finally, Trak
Auto continues to make payments on 21 stores already closed, and has future
lease obligations on those stores of approximately $1,438,000.
The costs associated with restructuring, which involves relocating
or expanding and remodeling stores, consists of unrecoverable lease obligations
after the projected closing date of the store or upon remodel or expansion, the
write-off of leasehold improvements and net book values of fixed assets, and
costs associated with inventory conversion. During the year ended January 30,
1993, Trak Auto recorded a restructuring charge of $7,400,000 related to the
relocating or expanding and remodeling of 126 Classic Trak stores and
discontinuing the operations of 38 other Classic Trak stores. During the years
ended January 28, 1995 and January 29, 1994, Trak Auto charged approximately
$2,432,000 and $600,000, respectively, against the restructuring reserve.
During fiscal year 1995, Trak Auto re-evaluated its needs for reserves for
store conversions under the remaining restructuring efforts. Many of the
stores originally planned for conversion have been converted as of January 28,
1995. The remaining restructuring reserve will be utilized primarily for
continuing lease obligations for stores closed in conjunction with the
restructuring efforts. Trak Auto currently estimates that 15 existing Classic
Trak stores may be closed in connection with Trak Auto's restructuring efforts.
The future lease obligations beyond the estimated closing dates of these 15
stores are approximately $1,294,000.
86
<PAGE> 87
DART GROUP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Years Ended January 31, 1995, 1994 And 1993
(12) RESTRUCTURING AND STORE CLOSING CHARGES (Continued)
The following table indicates the fiscal years in which the
restructuring and store closing reserves at January 28, 1995 are expected to be
paid or utilized.
<TABLE>
<CAPTION>
Fiscal Year Total
----------- -----------
<S> <C>
1996 $ 1,916,000
1997 1,795,000
1998 1,325,000
1999 820,000
2000-2004 1,089,000
-----------
$ 6,945,000
===========
</TABLE>
The above lease obligations are for basic lease terms from one to
102 months. The restructuring and store closing reserve has been estimated at
85% of the total lease obligations because Trak Auto believes that certain
alternatives to abandonment may be available. These alternatives include
leasing space, lease termination and lease buy-out.
The amount of unrecoverable lease costs relating to properties
under related party leases (members of the Haft family) is approximately
$634,000.
Crown Books
Restructuring Reserves
During the year ended January 30, 1993, Crown Books recorded a
restructuring charge of $6,600,000 before income taxes. The charge included
the anticipated costs associated with closing, relocating, expanding and
converting existing stores to the Super Crown Books concept. These costs are
primarily unrecoverable lease obligations and the remaining book value of
leasehold improvements from the estimated closing date. During the years ended
January 28, 1995 and January 29, 1994, Crown Books had charged approximately
$1,445,000 and $840,000 against this reserve.
Crown Books has determined that a number of the smaller Super Crown
Books stores opened in previous years (typically 6,000 - 10,000 square feet)
were not a competitive format in the current environment. These stores have
been negatively impacted by the industry's introduction of larger stores.
Accordingly, Crown Books recorded a restructuring charge of $6,200,000 in the
year ended January 29, 1994, representing the anticipated costs (unrecoverable
lease costs and the remaining book value of leasehold improvements and store
fixtures subsequent to management's estimate of the stores' closing dates)
associated with closing, relocating and converting these smaller Super Crown
Books stores to new, larger Super Crown Books. At January 28, 1995, Crown
Books had not charged any costs to this reserve.
87
<PAGE> 88
DART GROUP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Years Ended January 31, 1995, 1994 And 1993
(12) RESTRUCTURING AND STORE CLOSING CHARGES (Continued)
The total restructuring reserve as of January 28, 1995 of
approximately $10,515,000 is comprised of the following components:
<TABLE>
<CAPTION>
Lease Leaseholds
Year Ended Stores Obligations & Fixtures
- ----------------- ------ ----------- ----------
<S> <C> <C> <C>
January 29, 1994 7 $ 5,100,000 $1,100,000
January 30, 1993 30 4,035,000 280,000
------ ----------- ----------
37 $ 9,135,000 $1,380,000
</TABLE>
The above lease obligations are for primary terms from 5 to 107
months.
The amount of unrecoverable lease costs relating to properties
under related party leases is approximately $657,000.
The following table indicates the fiscal years in which the
restructuring reserve is expected to be utilized.
<TABLE>
<CAPTION>
Fiscal Year Amount
----------- -------------
<S> <C>
1996 $ 2,059,000
1997 2,611,000
1998 2,057,000
1999 1,304,000
2000 667,000
2001 to 2005 1,817,000
-------------
$ 10,515,000
=============
</TABLE>
Store Closing Costs
The costs associated with store closings are charged to store
occupancy when management makes a decision to close a store. Such costs
consist primarily of future lease obligations after the closing date, net of
estimated sublease income, and the remaining book value of leasehold
improvements.
During the fiscal years 1995, 1994 and 1993, Crown Books recorded
net charges (income) of $18,865,000, $(631,000) and $513,000, respectively for
such closed store costs. The income during the year ended January 29, 1994 was
the result of early lease terminations, net of cash buyouts.
During the three months ended October 29, 1994, Crown Books
concluded that due to lower than anticipated operating performance as many as
100 of its stores would not generate sufficient return on investment to justify
their continued operation and therefore should be closed. These stores are in
addition to the stores previously scheduled for closing under Crown Books'
restructuring and closed store reserves and accordingly, Crown Books recorded
charges of approximately $18,963,000 during the three months ended October 29,
1994. During the three months ended January 28, 1995 an additional 54 stores
were targeted for closure as a result of the continuing analysis of store
profitability and market presence. Additional reserves for store closings were
not deemed necessary as the remaining reserves adequately provide for Crowns
Books' obligations for the currently identified stores to be closed due to
revisions to the planned closing dates for certain stores. Crown Books will
continue to
88
<PAGE> 89
DART GROUP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Years Ended January 31, 1995, 1994 And 1993
(12) RESTRUCTURING AND STORE CLOSING CHARGES (Continued)
evaluate the performance and future viability of its remaining stores and may
close additional stores in the future.
In addition to the charge recorded during the period ending October
29, 1994, Crown Books has remaining closed store reserves as of January 28,
1995 from charges recorded in prior years of approximately $778,000. The total
closed store reserve as of January 28, 1995 of approximately $19,338,000 is
comprised of the following components:
<TABLE>
<S> <C>
Lease obligations $16,630,000
Leasehold improvements and fixtures 2,708,000
-----------
$19,338,000
</TABLE>
To estimate the future lease obligations, Crown Books considered
lease costs after the planned closing date. The charge is included in cost of
sales, store occupancy and warehousing in Crown Books' consolidated statements
of income. At January 28, 1995, Crown Books had closed 28 stores and charged
approximately $403,000 against this reserve. Crown Books continues to review
store operations and may decide to close additional stores in the future.
The amount of unrecoverable lease costs relating to properties
under related party leases is approximately $1,308,000.
The following table, which does not include previously recorded
restructuring reserves, indicates the fiscal years in which the total closed
store reserves are expected to be utilized:
<TABLE>
<CAPTION>
Fiscal Year Amount
----------- -------------
<S> <C>
1996 $ 4,877,000
1997 5,338,000
1998 4,164,000
1999 2,545,000
2000 1,019,000
2001-2005 1,395,000
-------------
$ 19,338,000
=============
</TABLE>
Total Beverage
During the year ended January 31, 1995 the new interim Chief Financial
Officer of the Corporation concluded that the Bull Run Total Beverage store
would never generate a sufficient return on investment to justify its continued
operation. Accordingly, the Bull Run store was closed during the fourth
quarter of fiscal 1995. The store was located in CMREC's Bull Run Plaza. The
Corporation reserved approximately $2,800,000 for the future lease obligations
and a portion of the fixtures net of recoveries expected through CMREC.
89
<PAGE> 90
DART GROUP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Years Ended January 31, 1995, 1994 And 1993
(13) MINORITY INTERESTS
The $99,850,000 of minority interests reflected in the Consolidated
Balance Sheet as of January 31, 1995 represents the minority portion of real
estate partnership equity owned by Haft family partnerships (CMREC owns the
majority interest in these partnerships), the portion of Trak Auto and Crown
Books equity owned by the public shareholders of Trak Auto and Crown Books.
The minority interests reflected in the Consolidated Balance Sheets as of
January 31, 1994, also included the portion of Shoppers Food equity owned by
the shareholders of Shoppers Food (other than the corporation). No such
minority interests for Shoppers Food are included as of January 31, 1995.
Income attributed to the minority shareholders of Trak Auto was $3,569,000,
$27,000 and $1,529,000 for the years ended January 31, 1995, 1994 and 1993,
respectively. Income (loss) attributed to the minority shareholders of Crown
Books was $(9,428,000), $(101,000), and $2,014,000 for the years ended January
31, 1995, 1994 and 1993, respectively. Income attributed to the minority
ownership of Shoppers Food for the year ended January 31, 1995, 1994 and 1993
was $1,050,000, $6,203,000, and $4,120,000, respectively (no income for
Shoppers Food was attributed to minority interest for periods after May 28,
1994). Income attributed to the minority ownership of the real estate
partnerships was $574,000, $383,000, and $1,003,000 for the years ended January
31, 1995, 1994 and 1993, respectively.
(14) STOCK OPTION PLANS
Dart Group Corporation 1992 Stock Option Plan
The Corporation has adopted a stock option plan (the "1992 Plan")
for officers, key employees and directors. The total number of shares that may
be issued under the 1992 Plan is 400,000 and the 1992 Plan will terminate June
2, 2002. Options granted pursuant to the 1992 Plan may be incentive stock
options, as defined in Section 422 of the Internal Revenue Code or may be
non-qualified options. Based on options outstanding at January 31, 1995, the
maximum shares issuable under options exercisable over the next five years are:
42,236 in 1996, 52,850 in 1997, 54,350 in 1998, 44,100 in 1999, and 6,000 in
2000.
Information concerning stock options under the 1992 Plan is as follows:
<TABLE>
<CAPTION>
No. of Option Price
Shares Per Share
-------- ---------------
<S> <C> <C>
Outstanding at January 31, 1993 28,750 $ 74.00 - 81.40
Granted 32,000 81.50 - 89.65
Exercised (1,500) 74.00
Expired (3,500) 74.00 - 81.40
-------- ---------------
Outstanding at January 31, 1994 55,750 74.00 - 89.65
-------- ---------------
Granted 6,000 73.00
Exercised (2,333) 74.00 - 81.50
Expired (5,067) 74.00 - 81.50
-------- ---------------
Outstanding at January 31, 1995 54,350 $ 73.00 - 89.65
======== ===============
</TABLE>
Options for 341,817 shares remain available for grant and 24,700
options were exercisable at January 31, 1995.
90
<PAGE> 91
DART GROUP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Years Ended January 31, 1995, 1994 And 1993
(14) STOCK OPTION PLANS (Continued)
Dart Group Corporation 1981 Stock Option Plan
The Corporation has a 1981 stock option plan (the "1981 Plan") in
which directors, officers and key employees participate. Based on outstanding
options, on January 31, 1995 the maximum number of shares of Class A Common
Stock subject to options exercisable in each of the next three years is 61,500
in 1996 and 50,000 in 1997. The 1981 Plan terminated December 4, 1991 and no
more options may be granted under the 1981 Plan.
Information concerning stock options under the 1981 Plan is as follows:
<TABLE>
<CAPTION>
No. of Option Price
Shares Per Share
-------- ---------------
<S> <C> <C>
Outstanding at January 31, 1993 109,250 $ 65.00 - 104.50
Exercised (5,250) 65.00 - 77.25
Expired (21,500) 65.00 - 104.50
-------- ----------------
Outstanding at January 31, 1994 82,500 65.00 - 104.50
-------- ----------------
Exercised (2,582) 65.00 - 90.00
Expired (18,418) 67.25 - 104.50
-------- ----------------
Outstanding at January 31, 1995 61,500 $ 65.00 - 104.50
======== ================
</TABLE>
At January 31, 1995 there were 61,500 options exercisable under the
1981 Plan.
Options outstanding and expired at January 31, 1994 have been
restated to reflect Robert M. Haft's options (see Note 9) for both option
plans.
The Board of Directors of the Corporation has authorized certain
officers and directors of the Corporation to apply for loans from the
Corporation to exercise their vested stock options. Under the plan approved by
the board, the loans must bear interest at the prime rate, adjusted annually,
must be secured by all of the stock acquired by exercise of the options, must
be repaid out of the first proceeds of sale of stock or at the end of three
years, whichever is earlier, and the borrower must demonstrate to the
Corporation's chief financial officer both that it would be difficult to
dispose of the number of shares on the open market and that he or she presents
a reasonable credit risk to the Corporation. The Board of Directors for both
Trak Auto and Crown Books have authorized such loans to certain officers and
directors of Trak Auto and Crown Books.
91
<PAGE> 92
DART GROUP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Years Ended January 31, 1995, 1994 And 1993
(14) STOCK OPTION PLANS (Continued)
1983 Executive Non-Qualified Stock Option Plan
The discussion in the next paragraph regarding the 1983 Plan
(defined below) is qualified in its entirety by the succeeding paragraph, which
discusses the Corporation's challenge to the validity of the 1983 Plan and the
options granted thereunder.
In 1983, the Board of Directors of the Corporation voted to approve
an executive non-qualified stock option plan (the "1983 Plan"), the terms of
which provide that a total of 199,500 shares of Class A Common Stock may be
issued. Options for 177,500 shares were purportedly granted under the 1983
Plan in 1983. The exercise price at the time of the grant was equal to 100% of
the fair market value ($82.50 per share) of the Class A Common Stock. The 1983
Plan provides that in the event of a "major business change" the exercise price
of options held by persons who are employees of the Corporation on the day
immediately preceding such a change is reduced to $20.00 per share. The Board
of Directors previously determined that the sale of the Corporation's drug
store division in 1985 constituted a major business change under the terms of
the amended version of the 1983 Plan adopted in September 1983. According to
this determination, outstanding options for 154,400 shares would be exercisable
at $20.00 per share and options for 3,990 shares would be exercisable at $82.50
per share. Options granted under the 1983 Plan purport to be exercisable until
1998. Options for 100 shares were exercised during the fiscal year ended
January 31, 1993. No options were exercised in fiscal 1995 and 1994.
Robert M. Haft has attempted to exercise options to purchase
120,000 shares under the 1983 Plan. The Executive Committee has undertaken a
legal review of the 1983 Plan. Based upon this legal review, the Executive
Committee has determined to cause the Corporation to contest the validity of
the options purportedly granted to Robert Haft under the 1983 Plan, on the
grounds, inter alia, that the grants did not conform with Delaware law, that
they are a waste of corporate assets, and that they were obtained by interested
directors in breach of their fiduciary duties to the Corporation, without the
approval of fully-informed, disinterested directors. Robert Haft has
instituted litigation to enforce his alleged options under the 1983 Plan. See
Note 9. The Corporation makes no assurance regarding the ultimate resolution
to its challenge to the validity of these options.
1987 Executive Non-Qualified Stock Option Plan
The discussion in the next paragraph regarding the 1987 Plan
(defined below) is qualified in its entirety by the succeeding paragraph, which
discuss the Corporation's challenge to the validity of the 1987 Plan and the
options granted thereunder.
In September 1987, the Board of Directors of the Corporation voted
to approve the 1987 Executive Non-Qualified Stock Option Plan (the "1987
Plan"). The terms of the 1987 Plan provide for the granting of options to
purchase, in the aggregate, 199,500 shares of Class A Common Stock and the
purported granting
92
<PAGE> 93
DART GROUP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Years Ended January 31, 1995, 1994 And 1993
(14) STOCK OPTION PLANS (Continued)
to each of Herbert H. Haft and Robert M. Haft of options to purchase 99,750
shares of Class A Common Stock at an exercise price of $148.50 per share, or
fair market value at the time of the grant, which exercise price is reduced to
$36 per share in the event of a "major business change". On December 9, 1987,
the Board of Directors adopted a resolution stating that these options are to
be canceled and new options in the same amount issued with an exercise price of
$68.25 per share, which would be reduced to $16.40 per share in the event of a
"major business change, as defined under the 1987 Plan. Options granted under
the 1987 Plan purportedly are exercisable on or after April 1, 1988 and prior
to September 30, 2002. The options are only transferable by will or by the
laws of descent and distribution.
Robert M. Haft has attempted to exercise options under the 1987
Plan. The Executive Committee has undertaken a legal review of the 1987 Plan.
Based upon this legal review, the Executive Committee has determined to cause
the Corporation to contest the validity of 1987 Plan and the option grants
thereunder, on the grounds, inter alia, that the grants did not conform with
Delaware law, and that they were obtained by interested directors and Haft
family members in breach of their fiduciary duties to the Corporation, without
the approval of fully-informed, disinterested directors.
Robert M. Haft has initiated litigation to enforce his alleged
options under the 1987 Plan. In his complaint, Robert M. Haft contends that
the Corporation's June 30, 1988 purchase of its interest in Shoppers Food and
Robert M. Haft's June 1993 termination each constituted a major business change
under the 1987 Plan allowing him to exercise his options for a price of $16.40
per share. See Note 9. The Corporation makes no assurance regarding the
ultimate resolution to its challenge to the validity of these options.
Stock options granted for Trak Auto would not, if exercised, have a
material dilutive effect on the Corporation's equity interest.
Stock options granted for Crown Books would, if all were exercised,
reduce the Corporation's ownership percentage to 49.3%.
(15) EMPLOYEES' PROFIT-SHARING PLAN
The Corporation, Trak Auto and Crown Books maintain separate
non-contributory profit-sharing plans for all full-time employees with one year
of continuous employment. Annual contributions to the plans are based on a
discretionary percentage of net income, as defined in the respective plan, and
as determined by the respective board of directors. Contributions are
allocated to individual employees based on each employee's salary in relation
to the total salaries of all eligible employees. Contributions paid or accrued
for the Corporation's, Trak Auto's and Crown Books' plans for the years ended
January 31, 1995, 1994 and 1993 were $1,040,000, $115,000, and $1,175,000,
respectively.
93
<PAGE> 94
DART GROUP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Years Ended January 31, 1995, 1994 And 1993
(16) 14% SUBORDINATED DEBENTURES
During the year ended January 31, 1993, the Corporation redeemed
its outstanding 14% Subordinated Debentures in face amount of $29,120,000. The
after tax losses associated with this redemption, including unamortized
discount and issue costs, $885,000 has been classified as an extraordinary
item. As of January 31, 1993, all of the Corporation's debentures had been
redeemed.
(17) UNUSUAL ITEM
Trak Auto had 15 stores substantially damaged or completely
destroyed in the Los Angeles civil disturbances in May of 1992. Twelve of
these stores have subsequently reopened and three remain closed. Payments
from insurance carriers less related expenses and the cost of the related
inventory and fixed assets lost, have been recorded as a gain, classified as an
unusual item during the year ended January 31, 1993.
(18) TENDER OFFER
On December 21, 1994, Trak Auto offered to buy back from its
shareholders approximately 24% of its outstanding common stock, or 1,500,000
shares, at a price of $17.50 per share. On February 6, 1995, Trak Auto amended
the offer by increasing the purchase price to $20.50 per share, and made
certain other changes. When the offer expired on February 28, 1995, Trak Auto
had repurchased approximately 310,000 shares for a total consideration of
$6,363,000 plus expenses of approximately $600,000.
94
<PAGE> 95
DART GROUP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Years Ended January 31, 1995, 1994 And 1993
(19) SEGMENT INFORMATION
The Company's four primary business segments are retail specialty,
retail grocery, a real estate company and a financial company. Shoppers Food
revenue, income from operations and depreciation is included through May 28,
1994. The following is a summary of selected consolidated information for the
business segments during January 31, 1995, 1994 and 1993:
<TABLE>
<CAPTION>
(in thousands)
Year Ended January 31,
----------------------------------------
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Revenue:
Retail, specialty $ 658,381 $ 614,558 $ 561,249
Retail, grocery and beverage 284,706 739,081 692,595
Real estate 20,645 19,011 14,339
Financial company 429 2,588 4,152
Other 3,267 1,305 342
------------ ------------ -----------
$ 967,428 $ 1,376,543 $ 1,272,677
============ ============ ===========
Income from operations:
Retail, specialty $ (10,308) $ (670) $ 8,101
Retail, grocery and beverage (5,013) 14,680 13,784
Real estate 9,722 8,458 6,859
Financial company (1) 384 2,322 3,253
Other (2) (67,954) (11,121) (6,488)
------------ ------------ -----------
Total operating profit (73,169) 13,669 25,509
Interest income 7,457 6,813 6,122
Interest expense (14,009) (13,513) (10,412)
------------ ------------ -----------
Earnings (loss) before
unusual item and
income taxes $ (79,721) $ 6,969 $ 21,219
============ ============ ===========
Identifiable assets:
Retail, specialty $ 400,801 $ 389,426 $ 330,537
Retail, grocery and beverage 7,314 136,839 117,143
Real estate 168,802 172,808 160,332
Financial company - 226,803 224,411
Other (2) 129,572 (122,978) (110,044)
------------ ------------ -----------
$ 706,489 $ 802,898 $ 722,379
============ ============ ===========
</TABLE>
(1) Includes income from bankers' acceptances.
(2) Includes the Corporation and consolidating eliminations and adjustments.
95
<PAGE> 96
DART GROUP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Years Ended January 31, 1995, 1994 And 1993
(19) SEGMENT INFORMATION (Continued)
<TABLE>
<CAPTION>
(in thousands)
Year Ended January 31,
----------------------------------------
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Depreciation and Amortization
Expense:
Retail, specialty $ 11,180 $ 10,742 $ 8,447
Retail, grocery and beverage 2,453 11,587 12,127
Real estate 4,528 4,338 3,190
Other (2) 925 1,355 1,332
------------ ------------ ----------
$ 19,086 $ 28,022 $ 25,096
============ ============ ==========
Capital Expenditures:
Retail, specialty $ 11,669 $ 27,403 $ 11,655
Retail, grocery and beverage 489 6,152 9,576
Real estate 2,457 12,491 29,555
Other 171 193 67
------------ ------------ ----------
$ 14,786 $ 46,239 $ 50,853
============ ============ ==========
</TABLE>
96
<PAGE> 97
DART GROUP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Years Ended January 31, 1995, 1994 And 1993
(20) INTERIM FINANCIAL DATA (Unaudited)
Selected interim financial data for the fiscal years ended 1995 and 1994
are as follows:
<TABLE>
<CAPTION>
-- In Thousands Except Per Share Data --
Three months ended: JANUARY 31, OCTOBER 31, JULY 31, APRIL 30,
1995 1994 1994 1994
---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Revenue $ 197,681 $ 169,650 $ 238,536 $ 361,561
Gross profit (1) (2) 50,839 12,432 48,085 66,942
Net Income (Loss)(3) $ (9,155) $ (68,597) $ 2,863 $ 1,097
========== ========= ========= =========
Earnings per share
Net Income (Loss)(4) $ (4.87) $ (36.91) $ 1.34 $ .52
========== ========= ========= =========
<CAPTION>
Three months ended: JANUARY 31, OCTOBER 31, JULY 31, APRIL 30,
1994 1993 1993 1993
---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Revenue $ 390,282 $ 331,512 $ 334,538 $ 320,211
Gross profit (1) 72,577 62,105 66,659 62,446
Net Income (Loss)(5) $ (7,282) $ (687) $ 682 $ 550
========== ========== ========== =========
Earnings per share
Net Income (Loss)(4) $ (3.98) $ (.44) $ .28 $ .24
========== ========== ========== =========
</TABLE>
(1) After deduction for cost of sales, store occupancy and warehousing
expenses.
(2) After deduction in 3rd Quarter for Crown Books store closing reserve.
(3) After deduction in 3rd Quarter for Pennsy Leases, Robert M. Haft and legal
accruals.
(4) The sum of these amounts may not equal the annual amount because of the
changes in the average number of shares outstanding during the year.
(5) After deduction in 4th Quarter for restructuring charge.
97
<PAGE> 98
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Inapplicable.
98
<PAGE> 99
PART III
Item 10. Directors and Executive Officers of the Registrant
The directors and executive officers of the Corporation are as follows.
<TABLE>
<CAPTION>
Name Age Position with the Registrant
- ---- --- ----------------------------
<S> <C> <C>
Herbert H. Haft 74 Chairman of the Board of Directors
and Chief Executive Officer
Ronald S. Haft 36 President, Chief Operating Officer
and Director
Robert A. Marmon 51 Chief Financial Officer
Dennis N. Weiss 49 Executive Vice President, Real Estate
Bonita Wilson 53 Director
Douglas Bregman 45 Director
Larry G. Schafran 56 Director
</TABLE>
Directors are elected annually by the holders of the Class B Common
Stock. All of the foregoing officers have served in the positions stated in
the previous table for more than five years, except as stated below. Officers
serve at the discretion of the Board of Directors.
Mr. Herbert H. Haft, the founder of the Corporation, has been Chief
Executive Officer and Chairman of the Board of the Corporation since 1960. He
was Co-Chairman or Chairman of the Board of Directors of Crown Books from its
organization until December 1991, when he became Chairman of Crown Books
previous Executive Committee. Mr. Haft became Chairman of the Board of
Directors of Crown Books, again, in June 1993. Mr. Haft has been Chairman of
the Board of Directors and Chief Executive Officer of Trak Auto since its
organization in March 1983. Mr. Haft has been a director of Shoppers Food
since April 1989.
Mr. Ronald S. Haft joined the Corporation as President and Chief
Operating Officer August 1, 1993. Prior to joining the Corporation, Mr. Haft
was President of Combined Properties, Inc., a real estate management company,
from 1984, and continues to hold that position. Mr. Haft was elected a
director of the Corporation, Trak Auto, and Crown Books on July 28, 1993.
Subsequently, Mr. Haft was elected a director of Shoppers Food.
Robert A. Marmon, through a contract with RPF, Inc. has, since
October 1, 1994 served as the Corporation's Chief Financial Officer. He also
serves as Chief Financial Officer for all the Corporation's wholly-owned
subsidiaries, Chief Financial Officer for Crown Books and Principal Financial
Officer for Trak Auto. Mr. Marmon has been a management consultant since 1970
and worked for McKinsey & Company, Inc. from 1970 to 1973. He served in various
capacities at the Palmieri Company from 1973 to 1988. Mr. Marmon has been
president of RPF, Inc. since 1988.
Mr. Weiss joined the Corporation in August 1981, as Director of
Real Estate. He was appointed Vice President, Real Estate, in June 1983,
Senior Vice President, Real Estate, in September 1986, and Executive Vice
President, Real
99
<PAGE> 100
Item 10. Directors and Executive Officers of the Registrant - Continued
Estate in December 1987.
Ms. Bonita A. Wilson has been a retailing executive with Saks
Jandel since February 1994. Prior to that she was a retailing executive with
the May Company. Ms. Wilson serves on the board of directors of Wedgewood
Financial Management, Inc. Ms. Wilson was elected to serve as a director of
the Corporation in June 1993 and was elected to be a director of Trak Auto and
Crown Books on June 30, 1993.
Mr. Douglas M. Bregman is a partner in the law firm of Bregman,
Berbert & Schwarts, specializing in commercial real estate law. Mr. Bregman is
also an Adjunct Professor of Law at the Georgetown University Law Center. Mr.
Bregman was elected to serve as a director of the Corporation in June 1993 and
was elected to be a director of Trak Auto and Crown Books on June 30, 1993.
Mr. Larry G. Schafran is managing general partner of L.G. Schafran
and Associates, a New York based investment advisory firm, and is a director of
Publicker Industries, Inc., Capsure Holdings, Corp. and OXIGENE, Inc. Mr.
Schafran has previously held the positions of vice president and director of
Webb & Knapp, Inc. and its successor General Property Corp. Mr. Schafran was
elected a director of the Corporation, Trak Auto and Crown Books on December
20, 1993.
Pursuant to the terms of the Bylaws of the Corporation, the term of
each director expires at the 1995 Annual Meeting of Stockholders or until a
successor is elected and qualified. The Standstill Agreement provides,
however, that until further order of the Delaware Chancery Court, the
Corporation may not (nor may it recognize any stockholder action that would),
(i) change the current composition of the board of directors of the Corporation
or any of its subsidiaries or (ii) change the current Haft family officers of
the Corporation or any of its subsidiaries. See Item 3. - Legal Proceedings.
The other officers of the Corporation are:
Mr. Robert F. Ampula rejoined the Corporation in November 1988 as
Vice President, Information Services, a position he held from January 1985
until July 1986. Prior to rejoining the Corporation he was most recently with
Coca Cola Enterprises.
Mr. Elliot R. Arditti joined the Corporation in January 1984 as
Associate Counsel. He was appointed Assistant Vice President, Corporate
Counsel in September 1986 and Vice President, Corporate Counsel in December
1987. Prior to joining the Corporation, he was an associate with the law firm
of Pascal, Weiss, Peartree and Habbert.
Herbert H. Haft is the father of Ronald S. Haft. There is no other
family relationship between any director and executive officer of the
Corporation.
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange
Act") requires the Corporation's officers and directors, and persons who
beneficially own more than ten percent of a registered class of the
Corporation's equity securities, to file reports of ownership of the
Corporation's securities and changes in such ownership with the Securities and
Exchange Commission (the "SEC"). Officers, directors and ten percent
shareholders are required by SEC regulations to furnish the Corporation with
copies of all Section 16(a) forms they file.
100
<PAGE> 101
Item 10. Directors and Executive Officers of the Registrant - Continued
Based solely upon its review of such forms received by it, the
Corporation believes that during the fiscal year ended January 31, 1995, all
filing requirements applicable to its officers, directors and ten percent
shareholders were complied with, except that each of Elliot R. Arditti, Dennis
N. Weiss and Ronald T. Rice did not file one Form 5 on a timely basis,
reporting the granting of stock options on July 31, 1993 pursuant to the
Corporation's stock option plan. The granting of such options was reported by
each such person on Forms 5 filed on March 15, 1995.
101
<PAGE> 102
Item 11. Executive Compensation
Summary Compensation Table
The following table sets forth in summary form all compensation for
all services rendered in all capacities to the Corporation and its subsidiaries
for the three years ended January 31, 1995 to (i) the Chief Executive Officer
of the Corporation, (ii) the other four most highly compensated executive
officers of the Corporation and (iii) one former executive officer of the
Corporation who would have been among the Corporation's four most highly
compensated current executive officers had he not resigned (collectively, the
"Named Executive Officers").
<TABLE>
<CAPTION>
Long Term
Compensation
Annual Compensation Awards
----------------------------------- ------------------------
Other
Annual Stock All other
Name of Compen- Options Compen-
Principal Fiscal sation Granted sation
Position Year Salary($) Bonus($) ($) (1) (#) ($) (2)
- --------------- ---- --------- --------- ------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Herbert H. Haft 1995 1,531,000 1,334,000 76,000(3) - 25,000(4)
Chief Executive 1994 1,491,000 3,000 386,000(5) 50,000 37,000
Officer 1993 1,183,000 246,000 61,000(6) 40,000 43,000
Ronald S. Haft 1995 400,000 50,000 63,000(8) - 15,000
President (7) 1994 185,000 3,000 128,000(9) 30,000(10) -
Robert A. Marmon 1995 - - 195,000 - -
Chief Financial
Officer (11)
R. Keith Green 1995 293,000 70,000 - - 5,000
President of 1994 263,000 - - 11,000 1,000
Trak Auto 1993 237,000 115,000 - 6,500 3,000
Dennis N. Weiss 1995 245,000 - - - 2,000
Executive Vice 1994 240,000 - - 2,825 5,000
President 1993 229,000 - - 750 10,000
Ron Marshall 1995 212,000 - - - 2,000
Former Chief 1994 248,000 60,000 - 5,000 5,000
Financial 1993 233,000 50,000 - 1,500 -
Officer (12)
</TABLE>
-----------
(1) Excludes perquisites and other personal benefits, unless the
aggregate amount of such compensation is at least $50,000 or 10% of
the total annual salary and bonus reported for the Named Executive
Officer.
(2) Includes allocations to the accounts of the Named Executive
Officers pursuant to the profit-sharing plans of the Company and,
with respect to Herbert H. Haft in each fiscal year, $30,000
imputed interest on life insurance loans.
(3) Includes fees received as a director of the Corporation ($15,000),
Trak Auto ($15,000), Crown Books ($15,000) and Dart Financial
($10,000), auto usage ($16,000) and health, life and disability
insurance ($5,000).
102
<PAGE> 103
Item 11. Executive Compensation (Continued)
(4) Excludes $147,000, which represents the payments by the Corporation
to Gloria Haft and the cost to the Corporation of certain health
benefits for her. Gloria Haft ceased to be an employee of the
Corporation in June 1993. The Corporation continued to pay her
compensation at the rate, and provide her with benefits and health
insurance as, provided in her employment agreement with the Company
until October 1994. Gloria Haft contends that a contract between
Herbert H. Haft and Gloria Haft, requires that if the Company
failed to continue paying Gloria Haft under her employment
agreement before May 31, 2004, then Herbert H. Haft would pay
Gloria Haft the amounts she would have been entitled to receive
under the employment agreement. A controversy exists concerning
whether Gloria Haft is entitled to any payments and, if so, whether
these payments and benefits were obligations of the Corporation or
Herbert H. Haft. Herbert H. Haft denies that these payments and
benefits are his obligations.
(5) Includes fees received as a director of the Corporation ($15,000),
Trak Auto ($12,500), Crown Books ($12,500), Dart Financial
($10,000) and Shoppers food ($320,000) and auto usage ($16,000).
(6) Includes fees received as a director of the Corporation ($15,000),
Trak Auto ($10,000), Crown Books ($10,000) and Dart Financial
($10,000) and auto usage ($16,000).
(7) Mr. Ronald S. Haft became President of the Corporation on August 1,
1993.
(8) Includes fees received as a director of the Corporation ($15,000),
Trak Auto ($15,000), Crown Books ($15,000) and Dart Financial
($10,000) and auto usage ($8,400).
(9) Includes fees received as a director of the Corporation ($7,500),
Trak Auto ($7,500), Crown Books ($7,500), Dart Financial ($5,000)
and Shoppers Food ($96,000) and auto allowance ($4,200).
(10) Excludes options to purchase 197,048 shares of Class B Common Stock
claimed by Ronald S. Haft, but the validity of which the
Corporation is challenging. See Item 3. - Legal Proceedings.
(11) Pursuant to a consulting agreement between the Corporation and RPF,
Inc., Robert A. Marmon became interim Chief Financial Officer of
the Corporation, each of its wholly-owned subsidiaries and Crown
Books, and Principal Financial Officer of Trak Auto in October
1994.
(12) Ron Marshall became Senior Vice President and Chief Financial
Officer of the Corporation in November 1992 and resigned effective
October 1994.
Option Grants in Last Fiscal Year
No options were granted to the Named Executive Officers to purchase shares of
common stock of the Corporation or its subsidiaries during the year ended
January 31, 1995.
103
<PAGE> 104
Item 11. Executive Compensation - Continued
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-
End Option Values
For each of the Named Executive Officers, the following table sets forth
information about stock options exercised during fiscal 1995 and the value of
unexercised options as of January 31, 1995.
<TABLE>
<CAPTION>
Value of
Number of Unexercisable
Unexercised In-the-Money
Options at Options at
FY-End (#) FY-End ($)
Shares Acquired Value Exercisable/ Exercisable/
Name on Exercise (#) Realized ($) Unexercisable Unexercisable
- ---- --------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
Herbert H. Haft - (1) - 139,749 2,425,000
10,001 28,000
10,000 (2) 30,200 59,998 411,000
20,002 87,000
- (3) - 33,332 -
16,668 -
Ronald S. Haft(4) - (1) - 3,333 9,000
6,667 18,000
- (2) - 3,333 16,000
6,667 32,000
- (3) - 3,333 -
6,667 -
Robert A. Marmon None
R. Keith Green - (1) - 333 1,000
667 2,000
17,665 (2) 145,300 - -
8,835 42,000
Dennis N. Weiss 2,000 (1) 10,800 266 800
784 4,000
1,500 (2) 15,600 416 2,000
1,084 5,000
- (3) - 266 -
534 -
Ron Marshall 2,915 (1) 23,000 - -
- -
1,082 (2) 6,500 - -
- -
- (3) - - -
</TABLE>
- --------------------
(1) Represents options for Class A Common Stock.
(2) Represents options for Trak Auto common stock.
(3) Represents options for Crown Books common stock.
(4) On September 6, 1994, Ronald S. Haft tendered to the Corporation a
letter requesting to exercise 197,048 options for shares of Class B
Common Stock. The Corporation has contested the validity of those
options and Ronald S. Haft has filed an action to compel the
Corporation to issue shares of Class B Common Stock. Therefore, the
totals set forth above for Ronald S. Haft do not reflect these options.
See Item 3. - Legal Proceedings and Note 9 to the Consolidated
Financial Statements.
104
<PAGE> 105
Item 11. Executive Compensation - Continued
Compensation of Directors
Members of the Board of Directors of the Corporation, Trak Auto and
Crown Books are each paid $15,000 per year. Members of the Board of Directors
of Dart Financial are each paid $10,000 per year. Ms. Wilson and Mr. Bregman
are members of the profit sharing and audit committees for the Corporation,
Trak Auto and Crown Books and are compensated $5,000 per year for each such
committee.
On September 7, 1994, the Board of Directors of the Corporation
established an Executive Committee comprised of the Corporation's outside
directors to conduct the affairs of the Corporation with respect to matters
that are the subject of dispute between the Chairman of the Board and Chief
Executive Officer of the Corporation, Herbert H. Haft, and the President and
Chief Operating Officer of the Corporation, Ronald S. Haft. On October 11,
1994, the Boards of Directors of Trak Auto, Crown Books and Total Beverage each
established an Executive Committee of their respective Board of Directors
comprised of the same outside directors, with authority parallel to that of the
Corporation's Executive Committee. The disputes between Herbert Haft and
Ronald Haft concerning issues involving the Corporation have been extensive.
Accordingly, the Executive Committee has assumed day-to-day involvement in
these disputed issues and other matters affecting the Corporation, in
particular matters relating to litigation to which the Corporation is a party.
The continuing role of the Executive Committee is dependent upon future
developments.
Members of the Executive Committee are compensated at a salary rate
of $275 per hour plus reimbursement of expenses. Members of the Special
Litigation Committee of the Board of Directors, which was established in
January 1994, have been compensated at a salary rate of $250 per hour plus
reimbursement of expenses. For the year ended January 31, 1995, the aggregate
compensation paid by the Corporation and its subsidiaries to members of the
respective Executive Committees for their services on those committees
approximated $666,000, and the aggregate compensation paid by the Corporation
and its subsidiaries to members of the respective Special Litigation Committees
for their services on those committees approximated $269,000, in each case
exclusive of expense reimbursement.
During the year ended January 31, 1995, two non-employee directors
received total compensation from the Corporation and its subsidiaries exceeding
the minimum compensation that would have placed them among the five most highly
compensated executive officers of the Corporation had they been executive
officers. Larry G. Schafran and H. Ridgely Bullock received $525,256 and
$411,037, respectively. Such compensation includes fees for serving on the
board of directors of the Corporation, Crown Books and Trak Auto and each of
their respective Executive Committees and Special Litigation Committees.
The stock option plans of each of the Corporation, Trak Auto and
Crown Books specify that each director who is not an employee shall receive
1,500, 1,500 and 2,500 options, respectively, each year. The options expire
five years from the date of grant.
In September 1987, the Corporation adopted the 1988 Dart Group
Corporation Deferred Compensation Plan for Directors, effective January 1, 1988
(the "Compensation Plan"). The Compensation Plan permits the Corporation's
directors to defer the payment of all or a specified part of future
compensation payable for services as director, including fees for serving on or
attending meetings of committees of the board of directors. Each director may
elect, on or before
105
<PAGE> 106
Item 11. Executive Compensation - Continued
January 31 of any year to defer payment of compensation, payable on or after
the February 1st following such election, for services to be performed during
the twelve-month period commencing on such February 1 and ending on January 31
of the following calendar year (the "Plan Year"). After such an election, all
subsequent compensation will be deferred until the director notifies the
Corporation, prior to the commencement of any Plan Year, that compensation for
future Plan Years is to be paid on a current basis.
Deferred compensation will not be paid to the director as earned,
but will be held in the Corporation's general funds and credited to a
bookkeeping account maintained by the Corporation in the name of the director.
Each participating director will be treated as a creditor of the Corporation
with respect to such funds. Deferred compensation will be paid to directors in
a lump sum on the February 15th of the Plan Year after retirement, unless the
director elects, at the time he exercises the deferral option, to be paid in up
to ten annual installments.
Employment Contracts
In April 1974, the Corporation entered into an employment agreement
with Herbert H. Haft, Chairman and Chief Executive Officer. The agreement, as
amended, is renewable each year for a successive ten-year term. The agreement,
as amended, provides for a base salary of $544,500 for the year ended January
31, 1986 and for increases in base salary each year thereafter by the greater
of (i) $12,000 plus ten percent of the base salary for the preceding fiscal
year or (ii) the increase in the cost of living. The agreement, as amended,
further provides for an annual bonus equal to 1 1/2% of the Corporation's
consolidated pretax profit not reduced as a result of transactions that are not
ordinary and a supplemental bonus based on certain performance criteria for the
three-year period ended January 31, 1988 and each three-year period thereafter.
The supplemental bonus equals the greatest of (i) 3% of the increase in the
aggregate market value of the Class A Common Stock on the last day of the
three-year period over such market value on the first day of such period; (ii)
3% of any excess in the Corporation's consolidated stockholders' equity on the
last day of the three-year period over such stockholders' equity on the first
day of such period; (iii) 3% of the aggregate consolidated net income during
the three-year period; and (iv) his base salary and annual bonus for the last
year of the three-year period. Pursuant to the agreement, Herbert H. Haft may
elect to receive all or part of his compensation in the form of an option for
shares of the Class A Common Stock or defer receipt of all or part of such
compensation. The agreement, as amended, also provides that the Corporation
must lend to Herbert H. Haft the funds necessary to purchase a $3,000,000 life
insurance policy on his life and/or the life of his former wife, Gloria Haft.
The Corporation has elected not to charge interest on the loan. In 1993, a
shareholder derivative action was filed challenging certain aspects of this
employment agreement. In 1994, the Special Litigation Committee concluded that
it is in the best interests of the Corporation that claims challenging Herbert
H. Haft's employment agreement be dismissed except to the extent that the
validity of the "evergreen" provision (successive ten-year terms) of the
agreement is challenged. See Item 3. - Legal Proceedings - Derivative
Litigation.
In August 1993, the Corporation entered into the Agreement with
Ronald S. Haft, President and Chief Operating Officer, for a term initially
ending on January 31, 1997. The term of the Agreement is to be automatically
extended for one year on the first of each February that Ronald S. Haft is
employed by the
106
<PAGE> 107
Item 11. Executive Compensation - Continued
Corporation. The Agreement provides that Ronald S. Haft will be nominated to
the Board of Directors of the Corporation at each opportunity during the term
of the Agreement, and that he shall receive standard directors' fees while he
is on the Board of Directors. The Agreement provides for an annual base salary
of $400,000, subject to annual increases as agreed to by Ronald S. Haft and the
Board of Directors, with a minimum annual increase equal to the Consumer Price
Index (as defined) to the base salary unless the Corporation chooses not to
increase the compensation of any executive. The Agreement provides for a
supplemental bonus for the three-year period beginning February 1, 1994 and
ending January 31, 1997, and each subsequent three-year period thereafter, with
terms similar to Herbert H. Haft's supplemental bonus and provides for an
annual bonus equivalent to Herbert H. Haft's. Ronald S. Haft may elect to
receive all or part of his compensation in the form of an option for shares of
the Class A Common Stock or defer the receipt of all or part of his
compensation. Under the Agreement, Ronald S. Haft acquired the Options and the
Corporation agreed to loan to Ronald S. Haft the full amount of the exercise
price of any Options that he may exercise. Any such loan is to bear interest
at NationsBank's prime rate charged as of the date of the loan. The
Corporation is contesting the validity of the Options, the loan for their
exercise and the Agreement. See Item 3. - Legal Proceedings.
In October 1994, the Corporation entered into a consulting
agreement with RPF, Inc., a corporation wholly-owned by Robert A. Marmon,
whereby RPF, Inc. supplies the services of Mr. Marmon as Chief Financial
Officer for the Corporation, each of its wholly-owned subsidiaries and Crown
Books, and as Principal Financial Officer for Trak Auto. The agreement, as
amended, provides for a monthly fee of $48,750 and is renewable automatically
for one-month terms commencing April 30, 1995, unless either the Corporation or
RPF, Inc. have given written notice of termination. On March 20, 1995, the
agreement was modified and extended on a month-to-month basis. Under the
modified agreement, the Corporation may terminate the agreement on thirty days
notice. However, Mr. Marmon must provide sixty days notice to the Corporation
if he intends to terminate the agreement.
In January 1995, Trak Auto entered into a two-year employment
agreement with R. Keith Green, President of Trak Auto, for a term initially
ending on January 31, 1997. The agreement is renewable for successive two-year
terms. The agreement provides for an annual base salary of $300,000, subject
to annual increases as determined by the Board of Directors.
In January 1995, the Corporation entered into a two-year employment
agreement with Dennis Weiss, Executive Vice President - Real Estate of the
Corporation, for a term initially ending on January 31, 1997. The agreement is
renewable for successive two-year terms. The agreement provides for an annual
base salary of $260,000, subject to annual increases as determined by the board
of Directors.
Compensation Committee Interlocks and Insider Participation
Certain members of the Board are directors, officers or employees
of the Corporation and its subsidiaries, as follows: Herbert H. Haft is
Chairman of the Board and Chief Executive Officer of the Corporation, Chairman
of the Board of Crown Books, Chairman of the Board and Chief Executive Officer
of Trak Auto, and Chairman of the Board and Chief Executive Officer of Total
Beverage. Ronald S. Haft is President and Chief Operating Officer and a
Director of the Corporation, Interim President and Chief Executive Officer and
a Director of
107
<PAGE> 108
Item 11. Executive Compensation - Continued
Crown Books and a Director of Trak Auto.
Ronald S. Haft is a beneficial owner of more than 5% percent of the
Class B Common Stock. Herbert H. Haft holds an irrevocable proxy to vote
certain Class B Common Stock owned by Ronald S. Haft. See Item 12. - Security
Ownership of Certain Beneficial Owners and Management. Ronald S. Haft is
Herbert H. Haft's son. See Item 13 - Certain Relations and Related
Transactions for a description of certain relationships and transactions
between the Corporation or its subsidiaries and entities in which members of
the Haft family have an interest.
108
<PAGE> 109
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth, as of March 31, 1995, certain
information with respect to the following persons: (i) all stockholders known
by the Company to be the beneficial owners of more than five percent of the
Corporation's common stock, (ii) each of the Corporation's current Directors,
(iii) the Named Executive Officers, and (iv) the Directors and Named Executive
Officers as a group. Certain information in the table is based upon
information contained in filings made by the beneficial owner of Class A
Common Stock with the Securities and Exchange Commission.
Directors and Executive Officers:
<TABLE>
<CAPTION>
Approximate
Title of No. of Percentage
Name Class Shares of Class
- ---- -------- ------- -----------
<S> <C> <C> <C>
Herbert H. Haft Class A (1) 262,496 16.43(2)
3300 75th Avenue Class B (3) 172,730 57.02(4)
Landover, MD 20785 Trak Auto (5) 60,498 .98
Crown Books (6) 33,832 .62
Ronald S. Haft Class A (7)(9) 123,709 8.46(2)
3300 75th Avenue Class B (3) 197,976(8) 65.35(4)
Landover, MD 20785 Trak Auto (9) 3,333 .05
Crown Books (9) 3,333 .06
Robert A. Marmon None
Ron Marshall None
R. Keith Green Class A (10) 333 .02(2)
Trak Auto 5,000 .08
Dennis N. Weiss Class A (11) 266 .02(2)
Trak Auto (12) 416 .01
Crown Books (11) 266 -
Bonita Wilson Class A (13) 1,125 .08(2)
Trak Auto (14) 3,000 .05
Crown Books (15) 5,000 .09
Douglas Bregman Class A (13) 1,125 .08(2)
Trak Auto (14) 3,000 .05
Crown Books (15) 5,000 .09
Larry G. Schafran Class A (16) 375 .03(2)
Trak Auto (17) 1,500 .02
Crown Books (18) 2,500 .05
- -----------------
All Directors and Class A (19) 389,429 24.27(2)
Executive Officers as Class B 197,976 65.35(4)
a group (9 persons) Trak Auto (20) 76,747 1.24
Crown Books (21) 49,931 .92
</TABLE>
109
<PAGE> 110
Item 12. Security Ownership of Certain Beneficial Owners and Management -
(Continued)
Other Beneficial Owners:
<TABLE>
<CAPTION>
Approximate
Title of No. of Percentage
Name Class Shares of Class
- ---- -------- ------- -----------
<S> <C> <C> <C>
Robert M. Haft Class B 25,246 8.33(4)
Trak Auto (22) 36,666 .60
Crown Books (23) 223,432 4.09
Gloria G. Haft Class B 54,484 17.98(4)
Trak Auto 500 .01
Crown Books 500 .01
Linda G. Haft Class B 25,246 8.33(4)
Crown Books 500 .01
Mellon Bank Corporation Class A (24) 138,000 9.46(2)
One Mellon Center
Pittsburgh, PA 15258
Quest Advisory Corp. Class A (25) 98,200 6.73(2)
1414 Ave. of the Americas
New York, New York 10019
Peter Cundill & Associates Class A (26) 82,500 5.66(2)
c/o Alan G. Johnson, Esq.
101 S. Hanley Rd., Suite 1600
St. Louis, Missouri 63105
</TABLE>
(1) Includes 139,749 shares subject to exercisable stock options. These
stock options include options for 99,750 shares under the 1987
Plan, the validity of which is subject to challenge by the
Corporation. See Item 3. - Legal Proceedings.
(2) Calculated based upon a class including shares subject to
exercisable stock options under the 1983 Plan and the 1987 Plan,
which are subject to challenge by the Corporation. See Item 3. -
Legal Proceedings.
(3) Herbert H. Haft retains sole voting power over 172,730 Class B
shares (owned by Ronald S. Haft)pursuant to a proxy from Ronald S.
Haft. See Note 8 to the Consolidated Financial Statements.
(4) Calculated based upon a class excluding 197,048 shares to which
Ronald S. Haft claims a right to purchase pursuant to stock
options challenged by the Corporation. See Item 3. - Legal
Proceedings.
(5) Includes 59,998 shares subject to exercisable stock options.
(6) Includes 33,332 shares subject to exercisable stock options.
(7) Includes 58,028 shares where the ownership of those
shares is the subject of dispute with Robert M. Haft and Linda G.
Haft.
(8) Excludes 197,048 shares to which Ronald S. Haft claims a right to
purchase pursuant to stock options challenged by the Corporation.
See Item 3. - Legal Proceedings.
(9) Includes 3,333 shares subject to exercisable stock options.
(10) Includes 333 shares subject to exercisable stock options.
(11) Includes 266 shares subject to exercisable stock options.
110
<PAGE> 111
Item 12. Security Ownership of Certain Beneficial Owners and Management -
(Continued)
(12) Includes 416 shares subject to exercisable stock options.
(13) Includes 1,125 shares subject to exercisable stock options.
(14) Includes 3,000 shares subject to exercisable stock options.
(15) Includes 5,000 shares subject to exercisable stock options.
(16) Includes 375 shares subject to exercisable stock options.
(17) Includes 1,500 shares subject to exercisable stock options.
(18) Includes 2,500 shares subject to exercisable stock options.
(19) Includes 146,306 shares subject to exercisable stock options.
(20) Includes 71,247 shares subject to exercisable stock options.
(21) Includes 49,431 shares subject to exercisable stock options.
(22) Includes 36,666 shares subject to exercisable stock options.
(23) Includes 73,332 shares subject to exercisable stock options and 100
shares of Crown Books held by his wife.
(24) Includes shares beneficially owned by Mellon Bank Corporation
(138,000 shares) and its subsidiaries Boston Group Holdings, Inc.
(131,000 shares), The Boston Company, Inc. (131,000 shares), Boston
Safe Deposit & Trust Company (100,000 shares) and Dynamic Equity
Fund (100,000 shares) in their various fiduciary capacities.
(25) Includes 91,800 shares beneficially owned by Quest Advisory Corp.
("Quest") and 6,400 shares beneficially owned by Quest Management
Company ("QMC"). Charles M. Royce may be deemed to be a controlling
person of Quest and QMC and, consequently, may be deemed to
beneficially own these shares.
(26) Includes shares beneficially owned by Peter Cundill & Associates
(Bermuda) Ltd. ("PCB"), Peter Cundill Holdings (Bermuda) Ltd.
("Holdings"), and F. Peter Cundill ("Cundill"). PCB has shared
voting power over 68,000 shares, sole dispositive power over 60,000
shares and shared dispositive power over 22,500 shares. Each of
Holdings and Cundill have shared voting power over 68,000 shares
and shared dispositive power over 82,500 shares.
111
<PAGE> 112
Item 13. Certain Relationships and Related Transactions
The Corporation, Trak Auto, Crown Books, Shoppers Food and Total
Beverage lease certain real property from Haft family-owned partnerships.
Rental payments related to such leases approximated $14.7 million during the
year ended January 31, 1995. The leased properties consist of 54 stores, three
warehouses and Shoppers Food's headquarters building, but excluding the Pennsy
Leases. These leases, which have expiration terms ranging from 1996 to 2031,
require the payment of minimum rentals aggregating approximately $ 242.9 million
(excluding option periods). Certain of these leases also require the payment
of a percentage of sales in excess of a stated minimum, real estate tax,
insurance, maintenance and utilities.
On February 10, 1995, after a legal review by the Executive
Committee, the Corporation filed a complaint for rescission of the Pennsy
Leases and for the return of rent paid since 1991 on such leases. See Item 3.
- - Legal Proceedings. The Executive Committees of the Corporation, Crown Books
and Trak Auto have also undertaken a legal review of other leasing arrangements
and real estate related transactions involving the Company and Haft-owned
entities. See Item 2. - Properties. This review is ongoing and the Executive
Committees have not yet determined whether other actions will be taken as a
result of this legal review.
CMREC owns the majority interest in five real estate partnerships
that own four shopping centers and an office building in the Washington, D.C.
metropolitan area. The remaining partnership interests are owned by
partnerships in which the partners are members of the Haft family. Combined
Properties, Inc., a Haft-controlled entity, manages the shopping centers and
office building for the partnerships. Trak Auto, Crown Books, Shoppers Food
and Total Beverage lease eight stores in some of these shopping centers and
made aggregate rental payments to CMREC of approximately $ 1,582,000 during the
year ended January 31, 1995. These leases, which have expiration terms ranging
from 1996 to 2013, require the payment of minimum rentals aggregating
approximately $20,966,000 million. Certain of these leases also require the
payment of a percentage of sales in excess of a stated minimum, real estate
tax, insurance, maintenance and utilities. The Corporation is conducting a
legal review of certain of these leases. See Item 2. - Properties.
On August 4, 1994, the Corporation, on the instruction of Herbert
H. Haft, caused to be issued to Herbert H. Haft two bank cashiers checks
totaling $18,000,000 in exchange for a promissory note. On August 8, 1994,
Herbert H. Haft returned to the Corporation the two checks, unnegotiated.
Herbert H. Haft subsequently paid the Corporation interest on the amount for
the period it was outstanding. The Executive Committee of the Corporation has
conducted a review of this transaction and, as a result, the Board of Directors
has adopted a policy that no funds of the Corporation will be advanced to any
person who owns of record or has power to vote 10% or more of the Class B
Common Stock (except pursuant to contracts previously approved by the Board of
Directors) without prior approval of a majority of the disinterested Directors.
During the fiscal year ended January 31, 1995, the Corporation made
payments for certain non-business expenses of Herbert H. Haft. The total
amounts of such payments during the period was $151,000. At January 31, 1995,
there were no balances due the Corporation. Interest was charged at the prime
rate on the average outstanding balances and such balances were paid in full on
at least a monthly basis. The Corporation has loaned Herbert H. Haft $165,000
for the purchase of life insurance on Gloria G. Haft pursuant to his employment
contract. The Corporation has elected not to charge interest on that loan.
112
<PAGE> 113
Item 13. Certain Relationships and Related Transactions (Continued)
The Agreement provides that the Corporation would loan to
Ronald S. Haft the full amount of the exercise price of any Options which he
may exercise. See Item 11. - Executive Compensation. Any such loan is to
bear interest at NationsBank's prime rate charged as of the date of the loan.
Principal and interest on any such loan is to be due separately upon the
earlier of (i) the sale of shares of Class B Common Stock purchased with the
loan proceeds, (ii) the fifth anniversary of the loan, or (iii) 90 days from
the termination of the Agreement. On September 6, 1994, pursuant to the
Agreement, Ronald S. Haft tendered to the Corporation a letter requesting to
exercise the Options to purchase, at an exercise price of $89.65 per share,
the Option Shares and to obtain a loan from the Corporation in the amount of
$17,665,353.20, for part of the exercise price of the options. Together with
that letter, Ronald S. Haft tendered to the Corporation a check payable to the
Corporation in the amount of $197,048 as payment of the par value of the
Option Shares; and an executed unsecured promissory note of Ronald S. Haft
payable to the order of the Corporation in the amount of $17,665,353.20, the
balance of the exercise price for the Option Shares under the Options. The
Corporation has rejected the validity of Ronald S. Haft's purported exercise
of the Options and the promissory note tendered in connection therewith. See
Item 3. - Legal Proceedings and Note 9 to the Consolidated Financial Statements.
Gloria Haft ceased to be an employee of the Corporation in June
1993. The Corporation continued to pay her compensation at the rate, and
provide her with benefits and health insurance as, provided in her employment
agreement with the Company until October 1994. Gloria Haft contends that a
contract between Herbert H. Haft and Gloria Haft requires that if the Company
failed to continue paying Gloria Haft under her employment agreement before May
31, 2004, then Herbert H. Haft would pay Gloria Haft the amounts she would have
been entitled to receive under the employment agreement. A controversy exists
concerning whether Gloria Haft is entitled to any payments and, if so, whether
these payments and benefits were obligations of the Corporation or Herbert H.
Haft. Herbert H. Haft denies that these payments and benefits are his
obligations.
Combined Properties, Inc. ("CPI") maintains inter-company accounts with
each of the CMREC partnerships to reflect amounts paid by CPI to third parties
on behalf of the partnerships and fees owing from the partnerships to CPI.
Interest is computed on the outstanding balance at a rate of 10% per annum. The
largest total net amount owing from the CMREC partnerships to CPI at any time
during the 1995 and 1994 fiscal years was $140,000 and $4,437,772,
respectively. As of January 31, 1995 and 1994, CMREC owed CPI $114,000 and
$140,000, respectively. During the fiscal year ended January 31, 1995, a total
of $2,542,647 was transferred from five of the CMREC partnerships to CPI,
including on July 28, 1994 a total of $1.4 million that was transferred from
the CMREC partnerships to CPI. The largest total net amount owing from CPI to
the CMREC partnerships at any time was $1,291,000. These amounts were
subsequently repaid, with interest at the rate of 10% per annum. As of
January 31, 1995 and 1994, CPI owed CMREC $0 and $0, respectively. The
Corporation's Board of Directors is reviewing this practice.
113
<PAGE> 114
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a)
1. Financial Statements
See Item 8.
2. Schedules (Consolidated) -
Report of Independent Public Accountants on Schedules
II - Valuation and Qualifying Accounts
All other schedules are omitted because the required information is
inapplicable or it is presented in the consolidated financial statements or
related notes.
3. Exhibits...............................................
2.1 Purchase agreement dated October 12, 1989 between
Greenway Center Associates Limited Partnership and KANAM Grundbesitz Gmbh,
tenants in common and Mr. Ronald S. Haft, acting on behalf of CM/CP Greenway
Center Joint Venture. The exhibit includes a list identifying the schedules to
the agreement, but does not include the schedules themselves. Copies of the
omitted schedules will be furnished supplementally to the Commission upon
request (incorporated by reference to Exhibit 2a to Dart Fiscal Year 1990
10-K).
2.2 Purchase agreement dated October 12, 1989 between
Briggs Chaney Associates Limited Partnership and Mr. Ronald S. Haft, acting on
behalf of CM/CP Briggs Chaney Plaza Joint Venture. The exhibit includes a list
identifying the schedules to the agreement, but does not include the schedules
themselves. Copies of the omitted schedules will be furnished supplementally
to the Commission upon request (incorporated by reference to Exhibit 2b to Dart
Fiscal Year 1990 10-K).
2.3 Purchase agreement dated March 12, 1991 between (i)
Robert M. Haft, Ronald S. Haft and Linda G. Haft and (ii) Cabot-Morgan Real
Estate Company ("CMREC"). Amended and restated agreement of Limited
Partnership dated March 12, 1991 by and among (i) CM/CP Greenbriar Retail Joint
Venture ("CM/CP Greenbriar Retail"), (ii) CP Greenbriar Retail, Inc. and (iii)
Robert M. Haft, Ronald S. Haft and Linda G. Haft. Joint venture agreement
dated March 12, 1991 between CMREC and CP/Greenbriar Retail Investments Limited
Partnership. Exclusive development, leasing management agreement dated March
12, 1991 between Combined Properties/Greenbriar Limited Partnership
("CP/Greenbriar LP") and Combined Properties Incorporated ("Combined").
Contribution agreement dated March 12, 1991 between CP/Greenbriar LP, CMREC and
Linda G. Haft, Ronald S. Haft and Robert M. Haft (incorporated by reference to
Exhibit 2c to Dart Fiscal Year 1991 10-K).
114
<PAGE> 115
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(Continued)
2.4 Purchase agreement dated March 12, 1991 between (i)
Robert M. Haft, Ronald S. Haft and Linda G. Haft and (ii) CMREC. Amended and
restated agreement of Limited Partnership dated March 12, 1991 by and among (i)
CM/CP Greenbriar Office Joint Venture ("CM/CP Greenbriar Office"), (ii)
CP/Greenbriar Office, Inc. and (iii) Robert M. Haft, Ronald S. Haft and Linda
G. Haft. Joint venture agreement dated March 12, 1991 between CMREC and
CP/Greenbriar Office Investments Limited Partnership. Exclusive development,
leasing and management agreement dated March 12, 1991 between Combined
Properties/Greenbriar Office Limited Partnership ("CP/Greenbriar Office LP")
and Combined. Contribution agreement dated March 12, 1991 between
CP/Greenbriar Office LP, CMREC and Linda G. Haft, Ronald S. Haft and Robert M.
Haft (incorporated by reference to Exhibit 2d to Dart Fiscal Year 1991 10-K).
2.5 Purchase agreement dated January 18, 1993 between
PS-One Real Estate Limited Partnership and CM/CP Bull Run Joint Venture. Joint
venture agreement dated January 18, 1993 between CMREC and CP/Bull Run Limited
Partnership. Exclusive leasing and management agreement dated January 18, 1993
between CM/CP Bull Run Joint Venture and Combined. Promissory note agreement
between CMREC and CM/CP Bull Run Joint Venture dated January 18, 1993
(incorporated by reference to Exhibit 2 to Dart Fiscal Year 1993 10-K).
2.6 Purchase agreement dated February 27, 1993 between
Total Beverage G.B., Inc. (a wholly-owned subsidiary of the Corporation) and
Total Beverage VA Corp. (a wholly-owned subsidiary of Shoppers Food Warehouse
Corp.). Promissory Note between Total Beverage VA Corp. and Total Beverage
G.B. Inc. (incorporated by reference to Dart Fiscal Year 1994 10-K).
3.1 Certificate of Incorporation, incorporated herein by
reference to Exhibit #3a to the Company's Form S-1 Registration Statement (File
#2-99831) filed with the Securities and Exchange Commission ("Dart 1985 S1").
3.2 Certificate of Amendment of the Certificate of
Incorporation of Dart Group Corporation dated January 13, 1987 (incorporated by
reference to Dart Fiscal Year 1987 10-K).
3.3 Bylaws, amended and restated as of September 14, 1993
(incorporated by reference to Dart Fiscal Year 1987 10-K).
4.1 Indenture relating to $250,000,000 Subordinated
Debentures Due 1995, incorporated herein by reference to Exhibit 4 to Dart 1985
S-1.
10.1 Employment agreement with Mr. Herbert H. Haft, as
amended (incorporated by reference to Dart Fiscal Year 1988 10-K).
10.2 Employment agreement with Mr. Robert M. Haft, as
amended (incorporated by reference to Dart Fiscal Year 1988 10-K).
10.3 Indemnity Agreement dated March 10, 1983 between Dart
Drug Corporation and Trak Auto Corporation, incorporated by reference to
exhibit 10(b) filed with the Trak S-1.
115
<PAGE> 116
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(Continued)
10.4 Agreement for the Allocation of United States and
State Income Tax Liability and Benefits Among Members of the Dart Drug
Corporation Group, incorporated by reference to exhibit 10(d) filed with the
Trak S-1.
10.5 Agreement, dated March 31, 1983, between Dart Drug
Corporation and Trak Auto East Corporation, incorporated by reference to
exhibit 10(ffff) filed with the Trak S-1.
10.6 Dart Drug Corporation Executive Non-Qualified Stock
Option Plan, incorporated herein by reference to exhibit (10o) to the Company's
Form 10-K filed with the SEC on May 1, 1984.
10.7 Agreement of Sale dated May 25, 1984 among Dart Drug
Corporation, Dart Delaware Corporation and Dart Drug Acquisition Corporation,
incorporated herein by reference to exhibit (2) to the Company's Form 8-K filed
with the SEC on July 16, 1984.
10.8 Lease dated December 26, 1984 between Dart Group
Corporation and Seventy-Fifth Avenue Associates (incorporated by reference to
Dart Fiscal Year 1986 10-K).
10.9 Sublease dated December 26, 1984 between Dart Group
Corporation and Trak Auto Corporation (incorporated by reference to Dart Fiscal
Year 1986 10-K).
10.10 Sublease dated December 26, 1984 between Dart Group
Corporation and Crown Books Corporation (incorporated by reference to Dart
Fiscal Year 1986 10-K).
10.11 Lease dated April 27, 1984 between Trak Chicago
Limited Partnership I and Trak Auto Corporation (incorporated by reference to
Dart Fiscal Year 1986 10-K).
10.12 Dart Group Corporation 1981 Stock Option Plan, as
amended (incorporated by reference to Dart Fiscal Year 1987 10-K).
10.13 Indemnity Agreement by and between Dart Group
Corporation and Crown books Corporation dated June 9, 1986 incorporated herein
by reference to Exhibit 10(zzzz) to the Crown 10-K.
10.14 Employment Agreement between Crown Books Corporation
and Mr. Robert M. Haft dated February 28, 1987 incorporated herein by reference
to Exhibit 10(xxxx) to the Crown 10-K.
10.15 Agreement of Amendment, dated June 9, 1986, among Dart
Group Corporation, Trak Auto Corporation, Trak Auto West, Inc. and Thrifty
Corporation, of the stockholders Agreement dated March 17, 1982 herein
incorporated by reference to Exhibit 10(oooo) to the Trak 10-K.
10.16 Indemnity Agreement, dated June 9, 1986, by and
between Dart Group Corporation and Trak Auto Corporation herein incorporated by
reference to Exhibit 10(pppp) to the Trak 10-K.
116
<PAGE> 117
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(Continued)
10.17 Agreement of Merger dated May 28, 1987 between Trak
Auto East Corporation and Trak Auto West, Inc. herein incorporated by reference
to Exhibit 10(qqqq) filed with Trak Auto Corporation Fiscal Year 1988 Form
10-K, No. 0-12202 ("Fiscal 1988 Trak 10-K").
10.18 Dart Group Corporation Deferred Compensation Plan for
Directors, effective January 1, 1988 (incorporated by reference to Dart Fiscal
Year 1988 10-K).
10.19 Lease agreement dated November 22, 1988 between Dart
Group Corporation and Seventy-Fifth Avenue Associates (incorporated by
reference to Dart Fiscal Year 1989 10-K).
10.20 Lease agreement dated January 27, 1989 between Trak
Auto Corporation and Combined Properties/Ontario Limited Partnership herein
incorporated by reference to Exhibit 10(tttt) filed with Trak Auto Corporation
Fiscal Year 1989 Form 10-K, No. 0-12202 ("Fiscal 1989 Trak 10-K").
10.21 Lease agreement dated February 27, 1988 between Trak
Corporation and Haft/Equities-General, herein incorporated by reference to
Exhibit 10(uuuu) filed with Fiscal 1989 Trak 10-K.
10.22 Lease agreement dated June 17, 1987 between Trak Auto
West, Inc. and Haft/Equities/Rose Hill Limited Partnership, herein incorporated
by reference to Exhibit 10(vvvv) filed with Fiscal 1989 Trak 10-K.
10.23 Agreement dated May 17, 1988 among Dart Group
Corporation, Shoppers Food Warehouse Corp., Kenneth M. Herman and Robert N.
Herman incorporated herein by reference to Exhibit 1 filed with the
Corporation's Report on Form 8-K on July 15, 1988 (incorporated by reference to
Dart Fiscal Year 1989 10-K).
10.24 Amendment No. 1 to Stockholders' Agreement (Exhibit D
to Stock Purchase Agreement dated May 17, 1988, attached as Exhibit 1 to the
Corporation's Report on Form 8-K filed July 15, 1988) dated as of August 24,
1988 herein (incorporated by reference to Dart Fiscal Year 1989 10-K).
10.25 Assignment and Assumption agreement dated December 30,
1989 between Greenway Center Associates Limited Partnership and CM/CP Greenway
Center Joint Venture, and lease agreement dated March 13, 1980, between
Greenway Center Associates Limited Partnership and Trak Auto (612), herein
incorporated by reference to Exhibit 10(wwww) filed with Trak Auto Corporation
Fiscal Year 1990 Form 10-K, No. 0-12202 ("Fiscal 1990 Trak 10-K").
10.26 Assignment and Assumption agreement dated December 30,
1989 between Briggs Chaney Associates Limited Partnership and CM/CP Briggs
Chaney Plaza Joint Venture, and lease agreement dated June 26, 1981, between
Western Development Corporation and Trak Auto Corporation (641), herein
incorporated by reference to Exhibit 10(xxxx) filed with Fiscal 1990 Trak 10-
K.
117
<PAGE> 118
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(Continued)
10.27 Trak Auto Amended Stock Option Plan, herein
incorporated by reference to Exhibit 10(yyyy) filed with Fiscal 1990 Trak 10-K.
10.28 Incentive stock agreement between Mr. Robert M. Haft
and Crown Books Corporation and promissory note from Mr. Haft to Crown Books
Corporation, both dated September 5, 1989, herein incorporated by reference to
Exhibit 10(ddddd) filed with Crown Books Corporation Fiscal Year 1990 Form 10-K
No. 0-11457 ("Fiscal 1990 Crown 10-K").
10.29 Assignment and Assumption Agreement dated December 30,
1989 between Briggs Chaney Associates Limited Partnership and CM/CP Briggs
Chaney Plaza Joint Venture, and lease agreement dated June 26, 1981 between
Crown Books Corporation and Western Development Corporation, herein
incorporated by reference to Exhibit 10(ggggg) filed with Fiscal 1990 Crown
10-K.
10.30 Lease agreement dated January 5, 1990 between Combined
Properties Limited Partnership and Crown Books Corporation re: Turnpike
Shopping Center (815), herein incorporated by reference to Exhibit 10(iiiii)
filed with Fiscal 1990 Crown 10-K.
10.31 Lease agreement dated January 5, 1990 between Combined
Properties Limited Partnership and Crown Books Corporation re: the Plaza at
Landmark (165), herein incorporated by reference to Exhibit 10(jjjjj) filed
with Fiscal 1990 Crown 10-K.
10.32 Lease agreement dated January 5, 1990 between Combined
Properties Limited Partnership and Crown Books Corporation re: Manaport Plaza
Shopping Center (804), herein incorporated by reference to Exhibit 10(kkkkk)
filed with Fiscal 1990 Crown 10-K.
10.33 Stock option agreement dated August 8, 1989 between
Dart/SFW Corp. and Mr. Herbert H. Haft (incorporated by reference to Dart
Fiscal Year 1989 10-K).
10.34 Stock option agreement dated August 8, 1989 between
Dart/SFW Corp. and Mr. Robert M. Haft (incorporated by reference to Dart Fiscal
Year 1989 10-K).
10.35 Lease agreement dated October 31, 1990 between CP
Acquisitions Limited Partnership and Crown Books Corporation re: McLean
Shopping Center (803), herein incorporated by reference to Exhibit 10(lllll)
Crown Books Corporation Fiscal Year 1991 Form 10-K No. 0-11457 ("Fiscal 1991
Crown 10-K").
10.36 Lease agreement dated May 11, 1990 between CM/CP
Greenway Center Joint Venture and Crown Books Corporation re: Greenway Center
(822), herein incorporated by reference to Exhibit 10(mmmmm) Fiscal 1991 Crown
10-K.
10.37 Lease agreement dated March 20, 1991 between Charles
County Associates Limited Partnership and Crown Books Corporation re: Charles
County Plaza (833), herein incorporated by reference to Exhibit 10(nnnnn)
Fiscal 1991 Crown 10-K.
118
<PAGE> 119
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(Continued)
10.38 Lease agreement dated May 11, 1990 between Combined
Properties/Greenbriar Limited Partnership and Crown Books Corporation, the
First Amendment dated September 13, 1990 and the Second Amendment dated March
14, 1991 re: Greenbriar Town Center (104), herein incorporated by reference to
Exhibit 10(ooooo) Fiscal 1991 Crown 10-K.
10.39 Lease agreement dated May 18, 1990 between Combined
Properties Limited Partnership and Trak Corporation and Lease Termination
Agreement dated March 31, 1990 between Combined Properties Limited Partnership,
Retail Lease Acquisition Limited Partnership and Trak Corporation re: Fair
City Mall (605), herein incorporated by reference to Exhibit 10(zzzz) Trak Auto
Corporation Fiscal Year 1991 Form 10-K No. 0-12202 ("Fiscal 1991 Trak 10-K").
10.40 Lease agreement dated May 18, 1990 between Retail
Lease Acquisition Limited Partnership and Trak Corporation and License
Termination Agreement dated March 31, 1990 between Retail Lease Acquisition
Limited Partnership and Trak Corporation re: Chantilly Plaza (609), herein
incorporated by reference to Exhibit 10(aaaaa) Fiscal 1991 Trak 10-K.
10.41 Lease agreement dated May 18, 1990 between Retail
Lease Acquisition Limited Partnership and Trak Corporation and License
Termination Agreement dated March 31, 1990 between Retail Lease Acquisition
Limited Partnership and Trak Corporation re: College Plaza (610), herein
incorporated by reference to Exhibit 10(bbbbb) Fiscal 1991 Trak 10-K.
10.42 Lease agreement dated May 18, 1990 between Retail
Lease Acquisition Limited Partnership and Trak Corporation and License
Termination Agreement dated March 31, 1990 between Retail Lease Acquisition
Limited Partnership and Trak Corporation re: Enterprise (614), herein
incorporated by reference to Exhibit 10(ccccc) Fiscal 1991 Trak 10-K.
10.43 Lease agreement dated May 18, 1990 between Retail
Lease Acquisition Limited Partnership and Trak Corporation and License
Termination Agreement dated March 31, 1990 between Retail Lease Acquisition
Limited Partnership and Trak Corporation re: Rolling Valley (630), herein
incorporated by reference to Exhibit 10(ddddd) Fiscal 1991 Trak 10-K.
10.44 Lease agreement dated May 18, 1990 between Combined
Properties Limited Partnership and Trak Corporation and Lease Termination
Agreement dated March 31, 1990 between Combined Properties Limited Partnership,
Retail Lease Acquisition Limited Partnership and Trak Corporation re: White
Flint (632), herein incorporated by reference to Exhibit 10(eeeee) Fiscal 1991
Trak 10-K.
10.45 Lease agreement dated November 6, 1990 between CP
Acquisition Limited Partnership and Trak Corporation and Settlement Agreement
dated November 6, 1990 between CP Acquisitions Limited Partnership and Trak
Corporation re: Aspen Manor (615), herein incorporated by reference to Exhibit
10(fffff) Fiscal 1991 Trak 10-K.
119
<PAGE> 120
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(Continued)
10.46 Lease agreement dated November 6, 1990 between CP
Acquisition Limited Partnership and Trak Corporation and Settlement Agreement
dated November 6, 1990 between CP Acquisitions Limited Partnership and Trak
Corporation re: Lee and Harrison (633), herein incorporated by reference to
Exhibit 10(ggggg) Fiscal 1991 Trak 10-K.
10.47 Lease agreement dated November 6, 1990 between CP
Acquisition Limited Partnership and Trak Corporation and Settlement Agreement
dated November 6, 1990 between CP Acquisitions Limited Partnership and Trak
Corporation re: Penn Daw (642), herein incorporated by reference to Exhibit
10(hhhhh) Fiscal 1991 Trak 10-K.
10.48 Lease agreement dated November 6, 1990 between
Combined Properties Limited Partnership and Trak Corporation and Settlement
Agreement dated November 6, 1990 between Combined Properties Limited
Partnership and Trak Corporation re: Fairfax Circle (656), herein incorporated
by reference to Exhibit 10(iiiii) Fiscal 1991 Trak 10-K.
10.49 Lease agreement dated March 23, 1990 between Combined
Properties/Silver Hill Limited Partnership and Trak Corporation and Termination
Agreement dated April 13, 1990 between Combined Properties/Silver Hill Limited
Partnership and Trak Corporation re: Silver Hill (619), herein incorporated by
reference to Exhibit 10(jjjjj) Fiscal 1991 Trak 10-K.
10.50 Lease agreement dated November 6, 1990 between
Haft/Equities-Bladen Limited Partnership and Trak Corporation and Lease
Termination Agreement dated November 6, 1990 between Haft/Equities-Bladen
Limited Partnership and Trak Corporation re: Bladen Plaza (662), herein
incorporated by reference to Exhibit 10(kkkkk) Fiscal 1991 Trak 10-K
(incorporated by reference to Dart Fiscal Year 1991 10-K).
10.51 Lease agreement dated July 19, 1990 between Combined
Properties/4600 Forbes Limited Partnership and Shoppers Food Warehouse Corp.
(incorporated by reference to Dart Fiscal Year 1991 10-K).
10.52 Lease Agreement dated December 27, 1982 between
Combined Properties Limited Partnership and Jumbo Food Stores VA, Inc.,
Amendment dated September 8, 1988 and Amendment dated September 25, 1990 re:
Fair City Mall (incorporated by reference to Dart Fiscal Year 1991 10-K).
10.53 Lease Agreement dated June 28, 1983 between Combined
Properties Limited Partnership and Jumbo Food Stores VA, Inc., Amendment dated
September 8, 1988, Amendment May 10, 1990 and Amendment dated September 25,
1990 re: Rolling Valley Mall (incorporated by reference to Dart Fiscal Year
1991 10-K).
10.54 Lease Agreement dated September 11, 1987 between
Combined Properties Limited Partnership and Jumbo Food Stores Md., Inc.,
Amendment dated September 25, 1990 re: Maryland City Plaza (incorporated by
reference to Dart Fiscal Year 1991 10-K).
10.55 Lease Agreement dated July 7, 1989 between Combined
Properties/Silver Hill Limited Partnership and Jumbo Food Stores Md., Inc.,
Amendment dated May 10, 1990 and Amendment dated September 25, 1990 re: Silver
Hill Plaza (incorporated by reference to Dart Fiscal Year 1992 10-K).
120
<PAGE> 121
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(Continued)
10.56 Lease agreement dated June 21, 1988 between Combined
Properties Limited Partnership and Jumbo Food Stores Md., Inc., First Amendment
dated July 7, 1989, Second Amendment dated September 25, 1990, re: Enterprise
Plaza (incorporated by reference to Dart Fiscal Year 1992 10-K).
10.57 Letter of Agreement dated February 27, 1992 between
Dart Group Corporation and Shoppers Food Warehouse Corp., re: Whse 3, Pennsy
Drive (incorporated by reference to Dart Fiscal Year 1992 10-K).
10.58 Lease agreement dated December 23, 1991 between
Combined Properties Limited Partnership and Trak Corporation, re: Manaport
Plaza (607), herein incorporated by reference to Exhibit 10(lllll) Trak Auto
Corporation Fiscal Year 1992 Form 10-K No. 0-12202 ("Fiscal 1992 Trak 10-K").
10.59 Amendment of lease dated December 24, 1991 between
Haft/Equities-Bladen Limited Partnership and Trak Corporation, re: Bladen
Plaza (662), herein incorporated by reference to Exhibit 10(mmmmm) filed with
Fiscal 1992 Trak 10-K.
10.60 Sublease agreement dated February 19, 1992 between
Crown Books Corporation and Trak Corporation, re: Vienna (616), herein
incorporated by reference to Exhibit 10 (nnnn) filed with Fiscal 1992 Trak 10-K
10.61 Sublease agreement dated February 12, 1992 between
Crown Books Corporation and Trak Corporation, re: McLean Shopping Center (627),
herein incorporated by reference to Exhibit 10(ooooo) filed with Fiscal 1992
Trak 10-K.
10.62 Sublease agreement dated April 20, 1992 between Dart
Group Corporation and Trak Corporation, re: Whse 3 Pennsy Drive, herein
incorporated by reference to Exhibit 10(ppppp) filed with Fiscal 1992 Trak
10-K.
10.63 Lease agreement dated May 8, 1991 between Combined
Properties Limited Partnership and Crown Books Corporation, re: Montgomery
Village (827), herein incorporated by reference to Exhibit 10(qqqqq) filed with
Crown Books Corporation Fiscal Year 1992 Form 10-K No. 0-11457.
10.64 Dart Group Corporation 1992 Stock Option Plan
incorporated herein by reference to Dart 1993 S-8 file No. 33-57010.
10.65 Amendment of lease dated December 11, 1992 between
Combined Properties Limited Partnership and Super Trak Corporation re: Oxon
Hill (606), herein incorporated by reference to Exhibit 10(qqqqq) filed with
Trak Auto Corporation Fiscal Year 1993 Form 10-K No. 0-12202 ("Fiscal 1993 Trak
10-K").
10.66 Amendment of lease dated December 1, 1992 between
Haft/Equities-Bladen Limited Partnership and Super Trak Corporation re: Bladen
Plaza (662), herein incorporated by reference to Exhibit 10(rrrrr) filed with
Fiscal 1993 Trak 10-K.
121
<PAGE> 122
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(Continued)
10.67 Amendment of lease dated January 8, 1993 between
Retail Lease Acquisition Limited Partnership and Trak Corporation re: Chantilly
Plaza (609), herein incorporated by reference to Exhibit 10(sssss) filed with
Fiscal 1993 Trak 10-K.
10.68 Amendment of lease dated December 1, 1992 between
Combined Properties/Montebello Limited Partnership and Super Trak re:
Montebello (520), herein incorporated by reference to Exhibit 10(uuuuu) filed
with Fiscal 1993 Trak 10-K.
10.69 Third Amendment dated June 4, 1992 and Fourth
Amendment dated June 15, 1992 to the Lease agreement between Combined
Properties Limited Partnership and Crown Books Corporation re: Greenbriar Town
Center (104), herein incorporated by reference to Exhibit 10(sssss) filed with
Crown Books Corporation Fiscal Year 1992 Form 10-K No. 0-11457 ("Fiscal 1993
Crown 10-K").
10.70 Third Amendment dated June 17, 1992 to the Lease
agreement between Combined Properties Limited Partnership and Jumbo Food Stores
MD., Inc., Re: Enterprise Plaza (incorporated by reference to Dart Fiscal Year
1993 10-K).
10.71 Lease agreement dated January 21, 1993 between CM/CP
Bull Run Joint Venture and Shoppers Food Warehouse VA Corporation Re: Festival
at Bull Run (incorporated by reference to Dart Fiscal Year 1993 10-K).
10.72 Lease agreement dated November 1, 1990 between Penn
Daw Associates Limited Partnership (A Haft Controlled Entity) and Shoppers Food
Warehouse VA Corporation, the First Amendment dated February 13, 1991 Re: Penn
Daw Shopping Center (incorporated by reference to Dart Fiscal Year 1993 10-K).
10.73 Amendment of lease dated February 4, 1993 between
Retail Lease Acquisition Limited Partnership and Super trak re: College Plaza
(610), herein incorporated by reference to Exhibit 10 (wwwww) filed with Trak
Auto Corporation Fiscal Year 1994 Form 10-K No 0-12202 ("Fiscal 1994 Trak
10-K").
10.74 Amendment of lease dated September 13, 1993 between
Combined Properties Limited Partnership and Super Trak re: Fair City Mall
(605), herein incorporated by reference to Exhibit 10(xxxxx) filed with Fiscal
1994 Trak 10-K.
10.75 Amendment of lease dated September 13, 1993 between
Combined Properties Limited Partnership and Super Trak re: Maryland City (623),
herein incorporated by reference to Exhibit 10(yyyyy) filed with Fiscal 1994
Trak 10-K.
122
<PAGE> 123
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(Continued)
10.76 Second Amendment of lease dated March 31, 1994 between
Combined Properties Limited Partnership and Super Trak Corporation re: Oxon
Hill (606), herein incorporated by reference to Exhibit 10 (zzzzz) filed with
Fiscal 1994 Trak 10-K.
10.77 Lease Amendment dated November 22, 1993 between
Combined Properties Limited Partnership and Super Trak Corporation re: Landmark
(658), herein incorporated by reference to Exhibit 10(A) filed with Fiscal 1994
Trak 10-K.
10.78 Second Amendment of Lease dated August 19, 1993 and
Third Amendment of lease dated August 30, 1993 between Combined Properties
Limited Partnership and Super Crown Books Corporation re: Landmark (165),
herein incorporated by reference to Exhibit 10(wwwww) filed with Crown Books
Corporation Fiscal Year 1994 Form 10-K No. 0-11457 ("Fiscal 1994 Crown 10-K").
10.79 Lease Agreement dated August 19, 1993 between Retail
Lease acquisition Limited Partnership and Super Crown Books Corporation re:
White Flint Plaza (132), herein incorporated by reference to Fiscal 1994 Crown
10-K.
10.80 Employment Agreement dated August 1, 1993, between
Ronald S. Haft and Dart Group Corporation (incorporated by reference to Dart
Fiscal Year 1994 Form 10-K).
10.81 Lease Agreement dated April 2, 1991 between Combined
Properties/Greenbriar Limited Partnership and Total Beverage Corp. First
Amendment dated February 15, 1993 between Combined Properties/Greenbriar
Limited Partnership and Total Beverage VA Corp. Second amendment dated
September 29, 1993 between Combined Properties/Greenbriar Limited Partnership
and Total Beverage G.B., Inc. re: Chantilly (201) (incorporated by reference to
Dart Fiscal Year 1994 Form 10-K).
10.82 Agreement dated August 16, 1993 between Combined
Properties Limited Partnership and Total Beverage Corp. and First Amendment of
Lease dated February 24, 1994 re: Landmark (203) (incorporated by reference to
Dart Fiscal Year 1994 Form 10-K).
10.83 Lease Agreement dated August 16, 1993 between CM/CP
Bull Run Joint Venture and Total Beverage Corp. and First Amendment dated
February 7, 1994 re: Bull Run Plaza (202) (incorporated by reference to Dart
Fiscal Year 1994 Form 10-K).
10.84 Loan Agreement dated May 21, 1993 between Cabot-
Morgan Real Estate Company and CM/CP Bull Run Joint Venture (incorporated by
reference to Dart Fiscal Year 1994 Form 10-K).
10.85 Trak Auto 1993 Stock Option Plan, herein incorporated
by reference to Exhibit 10(vvvvv) filed with Fiscal 1994 10-K .
10.86 Crown Books 1993 Stock Option Plan, herein
incorporated by reference to Exhibit 10(yyyyy) filed with Fiscal 1994 Crown
10-K.
10.87 Lease agreement dated June 8, 1993 between Combined
Properties/Greenbriar Office Limited Partnership and Total Beverage Total
Beverage Corp. (incorporated by reference to Dart Fiscal Year 1994 Form 10-K).
123
<PAGE> 124
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(Continued)
10.88 Consulting Agreement dated October 1, 1994 between RPF
Inc. and Dart Group Corporation relating to the appointment of Robert A.
Marmon, as Treasurer and Chief Financial Officer of Dart Group and its
subsidiaries (excluding Shoppers Food Warehouse Corp.), Chief Financial Officer
of Crown Books Corporation and its subsidiaries and Principal Financial Officer
of Trak Auto Corporation, herein incorporated by reference to Exhibit 10(mmmmm)
filed with Dart Group Corporation Form 10-Q filed December 15, 1994.
10.89 Amendment of lease dated June 30, 1994 between
Combined Properties Limited Partnership and Super Trak Corporation re: Bradlick
(629), herein incorporated by reference to Exhibit 10.45 filed with Trak Auto
Corporation Fiscal Year 1995 Form 10-K No. 0-12202 ("Fiscal 1995 Trak 10-K").
10.90 Employment Agreement between R. Keith Green and Trak
Auto Corporation dated January 25, 1995, herein incorporated by reference to
Exhibit 10.46 to Fiscal 1995 Trak 10-K.
10.91 Tax Allocation Agreement dated December 27, 1994
between Dart Group Corporation and Trak Auto Corporation, herein incorporated
by reference to Exhibit 10.47 to Fiscal 1995 Trak 10-K.
10.92 Loan Agreement dated February 6, 1995 between Dart
Group Corporation and Trak Auto Corporation, herein incorporated by reference
to Exhibit 99(a)(16) to Amendment No. 2 to Trak Auto Corporation Statement on
Schedule 13E-4/A, Commission File No. 5-34497, filed with the Commission on
February 6, 1995.
10.93 Employment Agreement between E. Steve Stevens and
Crown Books Corporation dated January 25, 1995, herein incorporated by
reference to Exhibit 10.28 filed with Crown Books Corporation Fiscal year 1995
Form 10-K No. 0-11457.
10.94 Employment Agreement between Dennis N. Weiss and Dart
Group Corporation dated January 25, 1995.
10.95 Amendment to Consulting Agreement dated March 20, 1995
between RPF, Inc. and Dart Group Corporation.
10.96 Form of Indemnification Agreement dated as of
September 21, 1994 by and between Dart Group Corporation and each of Ronald S.
Haft, Herbert H. Haft, Douglas M. Bregman, Bonita Wilson, H. Ridgley Bullock
and Larry G. Shafran.
10.97 Standstill Agreement executed on behalf of the
Corporation and Ronald S. Haft and ordered on September 14, 1994 by the Court
in Ronald S. Haft v. Dart Group Corporation, Del Ch. 13736 (filed September 12,
1994) (incorporated by reference to Exhibit 99(b) to the Current Report of the
Corporation on Form 8-K of September 6, 1994 and filed on September 16, 1994).
11 Statement on Computation of Per Share Earnings.
21 Subsidiaries of the Corporation.
23 Consent of Independent Public Accountants.
27 Financial Statement Schedules
Note: Dart Drug Corporation changed its name to Dart Group Corporation on
July 3, 1984.
124
<PAGE> 125
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(Continued)
(b) Reports on Form 8-K
During the fourth quarter of fiscal year end January 31, 1995,
the Corporation filed four Current Reports on Form 8-K.
1. The Corporation filed a Current Report on Form 8-K on November
16, 1994 reporting that the Court of Chancery of the State of
Delaware entered a Memorandum Opinion denying plaintiff Ronald
S. Haft's motion for a summary judgement in Ronald S. Haft v.
Dart Group Corporation, Del. Ch. C.A. No. 13736 (filed
September 12, 1994).
2. The Corporation filed a Current Report on Form 8-K on December
22, 1994 reporting the death of H. Ridgely Bullock, Chairman
of the Corporation's Executive Committee.
3. The Corporation filed a Current Report on Form 8-K on January
3, 1995 reporting Ronald S. Haft's proposed settlement of his
pending lawsuit against the Corporation and the Corporation's
rejection of that settlement.
4. The Corporation filed a Current Report on Form 8-K on January
10, 1995 reporting; first, that plaintiffs in the shareholder
derivative action, Alan R. Kahn and The Tudor Trust v. Herbert
H. Haft, et al., C.A. No. 13154 (Del. Ch.), filed a motion
for the appointment of a temporary custodian to manage the
affairs of the Corporation or a receiver to sell it or oversee
a recapitalization thereof and the Corporation's opposition
thereto; second, that Larry G. Schafran had been elected
Chairman of the Corporation's Executive Committee.
Since the year ended January 31, 1995, the Corporation has also filed
the following two Current Reports on Form 8-K.
1. The Corporation filed a Current Report on Form 8-K on March 1,
1995, reporting the February 22, 1995, opinion of the Federal
District Court in Robert M. Haft v. Dart Group Corporation, et
al., D. Del. Civil Action No. 93-384-SLR.
2. The Corporation filed a Current Report on Form 8-K on March
13, 1995, reporting (1) the response of the Executive
Committee to the settlement agreement proposed by Ronald S.
Haft and defendants-intervenors Alan R. Kahn and the Tudor
Trust in Ronald S. Haft v. Dart Group Corporation, Del. Ch.,
C.A. No. 13736; and (2) the defendants-intervenors' withdrawal
from such proposed settlement on March 10, 1995.
125
<PAGE> 126
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULES
TO DART GROUP CORPORATION:
We have audited in accordance with generally accepted auditing
standards, the consolidated financial statements of Dart Group Corporation and
subsidiaries included in this Form 10-K and have issued our report thereon
dated April 27, 1995. Our audits were made for the purpose of forming an
opinion on the basic consolidated financial statements taken as a whole. The
schedule listed in the index (Item 14A2)is the responsibility of the
Corporation's management and is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic
consolidated financial statements. The schedule has been subjected to the
auditing procedures applied in the audits of the basic consolidated financial
statements and, in our opinion, fairly states in all material respects the
financial data required to be set forth therein in relation to the basic
consolidated financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Washington, D.C.
April 27, 1995.
126
<PAGE> 127
Schedule II
Dart Group Corporation and Subsidiaries
Valuation and Qualifying Accounts
<TABLE>
<CAPTION>
Additions
------------------------
Balance Charged Amounts Balance
Beginning Charged to to Other Paid or at end of
Description of Period Expense Accounts (1) Reversed(2) Period
- ----------- ---------- ----------- ------------ ----------- ---------
As of January 31, 1995
----------------------
<S> <C> <C> <C> <C> <C>
Reserve for
closed facil-
ities and re-
structuring
charges $31,395,000 $46,040,000 - $5,928,000 $71,507,000
Obsolete
inventory 310,000 - - 95,000 215,000
LIFO reserve 7,187,000 350,000 - 1,667,000 5,870,000
</TABLE>
<TABLE>
<CAPTION>
As of January 31, 1994
----------------------
<S> <C> <C> <C> <C> <C>
Reserve for
closed facil-
ities and re-
structuring
charges $28,887,000 $ 5,626,000 - $3,118,000 $31,395,000
Obsolete
inventory 854,000 - - 544,000 310,000
LIFO reserve 6,453,000 734,000 - - 7,187,000
</TABLE>
<TABLE>
<CAPTION>
As of January 31, 1993
----------------------
<S> <C> <C> <C> <C> <C>
Reserve for
closed facil-
ities and
restructuring
charges $7,835,000 $15,382,000 $8,400,000 $2,730,000 $28,887,000
Obsolete
inventory 1,134,000 550,000 - 830,000 854,000
LIFO Reserve 5,890,000 563,000 - - 6,453,000
</TABLE>
(1) The 1993 addition was provided by the utilization of reserves related to
the sale of the drug store division in 1985.
(2) The 1995 reduction includes the deconsolidation of Shoppers Food Warehouse
Corp.
127
<PAGE> 128
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
DART GROUP CORPORATION
Date: May 1, 1995 By: Herbert H. Haft
--------------------------- ----------------------------------
Herbert H. Haft
Chairman of the Board of Directors
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date: May 1, 1995 Herbert H. Haft
--------------------------- ----------------------------------
Herbert H. Haft
Chairman of the Board of Directors
and Chief Executive Officer
Date: May 1, 1995 Ronald S. Haft
--------------------------- ----------------------------------
Ronald S. Haft
President, Chief Operating Officer
and Director
Date: May 1, 1995 Bonita Wilson
--------------------------- ----------------------------------
Bonita Wilson
Director
Date: May 1, 1995 Douglas Bregman
--------------------------- ----------------------------------
Douglas Bregman
Director
Date: May 1, 1995 Larry G. Schafran
--------------------------- ----------------------------------
Larry G. Schafran
Director
Date: May 1, 1995 Robert A. Marmon
--------------------------- ----------------------------------
Robert A. Marmon
Chief Financial Officer
128
<PAGE> 129
DART GROUP CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
Exhibit Number Exhibit Index Page Number
- -------------- ------------- -----------
<S> <C>
10.94 Employment Agreement dated January 25, 1995,
between Dennis N. Weiss and Dart Group
Corporation.
10.95 Amendment to Consulting Agreement dated
March 20, 1995 between RPF, Inc. and
Dart Group Corporation.
10.96 Form of Indemnification Agreement dated as of
September 21, 1994 by and between Dart Group
Corporation and each of Ronald S. Haft,
Herbert H. Haft, Douglas M. Bregman, Bonita
Wilson, H. Ridgley Bullock and Larry G. Shafran.
11 Statement on Computation of Per Share
Earnings.
21 Subsidiaries of Dart Group Corporation.
23 Consent of Independent Public Accountants.
27 Financial Statement Schedules
</TABLE>
129
<PAGE> 1
EXHIBIT 10.94
January 24, 1995
EMPLOYMENT AGREEMENT
This Agreement dated as of January 24, 1995, by and between Dennis Weiss
("Employee"), and DART GROUP CORPORATION, a Delaware corporation ("Employer").
WITNESSETH:
WHEREAS, the parties hereto desire by this Agreement to provide for the
employment of Employee by Employer;
NOW THEREFORE, in consideration of the mutual covenants and agreements
contained in this Agreement, and other good and valuable consideration, the
receipt, sufficiency and adequacy of which the parties conclusively
acknowledge, the parties hereto, intending to be legally bound, agree as
follows:
1. EMPLOYMENT
(a) Duties. Employer hereby employs Employee, and Employee
accepts employment by Employer, as Executive Vice President -- Real Estate
during the Employment period (as defined in Section 2), with such duties,
responsibilities and authority as are commensurate with and appropriate to such
position and as are from time to time set forth in the bylaws of the Employer
and otherwise delegated to him or her by the Board of Directors of the
Employer ("the Board of Directors"), and shall report to the Chairman of the
Board, the President, and the Board of Directors. Employee agrees to observe
and comply with the rules and regulations of Employer as adopted by the Board
of Directors respecting the performance of his or her duties and to carry out
and follow the orders, policies and directions stated by Employer to him or her
from time to time, provided, however, that such regulations and directions are
consistent with the authority and responsibility of the position specified
above.
(b) Full Time Employment. During the Employment period Employee
shall devote all his or her time and attention to his services for Employer and
shall diligently perform his or her duties and responsibilities under this
Agreement. Employee acknowledges that the proper performance of his or her
duties and responsibilities may require the rendering of services not only
during normal business hours, but over and beyond those hours as well.
(c) Place of Employment and Travel. Employee's principal place
of employment shall be at the executive offices of Employer in Landover,
Maryland. If Employer's executive offices are moved from Landover, Maryland,
Employee's principal place of employment shall be changed to the location where
such executive offices are moved. Employee agrees to travel for the
performance of his or her duties under this Agreement as Employer may request
from time to time. If Employers executive offices are relocated a distance
greater than 100 miles from Landover, Maryland, Employee's relocation expenses
will be paid by Employer if Employee elects to relocate. At the Employee's
option, if Employee decides not to relocate, the relocation of the executive
offices will be deemed a termination without cause and the Employee will be
eligible to receive severance benefits as outlined in Section 7 (e) of this
Agreement.
<PAGE> 2
2. TERM
The term of Employee's employment under this Agreement (the
"Employment Period") shall commence on February 1, 1995 and end on January 31,
1997. However, Employer and Employee agree that the term of this agreement
automatically extends for an additional two (2) years at the end of each
Employment Period, unless Employee has been, or is being, terminated pursuant
to Section 7. Termination.
3. COMPENSATION
(a) Base Salary. Employee's annual base salary shall be Two
Hundred and Sixty Thousand Dollars ($ 260,000.00), subject to an annual
increase as recommended by the Compensation Committee of the Board of Directors
following review and performance appraisal of Employee, and approval by the
Board of Directors. Employee's base salary shall be paid in accordance with
Employer's normal payroll procedure.
(b) Withholding Tax. All compensation shall be subject to the
customary withholding tax and other employment taxes as required with respect
to compensation paid by a corporation to an employee.
4. STOCK OPTIONS
(a) Stock Options. Employee shall be eligible for the annual
award of stock options pursuant to the stock option plans under which the
Employee is currently a participant, as determined by the Board(s) of Directors
of the company(s), pursuant to the individual company(s) stock option plan(s).
(b) Exercise upon Certain Terminations of Employment. In the
event of the termination of Employee's employment hereunder for any reason
other than pursuant to Section 7 (d), Employee shall have the right to
exercise, on or before the effective date of the termination of this Agreement,
any option which has vested in Employee hereunder coincident with or prior to
the effective date of the termination of Employee's employment hereunder,
subject to the other terms and conditions of such option plan(s). In addition,
in the event of the termination of Employee's employment due to his or her
death, the personal representative of the Employee shall have the right to
exercise any such option with sixty (60) days of the date of Employee's death.
5. EMPLOYEE BENEFITS
During the Employment Period, Employer shall provide
Employee with the following benefits:
(a) Health Plan Coverage. Employer shall provide Employee with
health benefits, including major medical health insurance and Long Term
Disability (LTD), Accidental Death and Dismemberment (AD&D) and such other
benefits that are in effect at the time of this Agreement for the Employee and
his or her immediate family all in accordance with Employer's "Executive Health
Plan" as now in effect.
(b) Further Benefits. Employee shall, during the term of this
Agreement (and thereafter to the extent provided herein), be eligible to
participate in all applicable profit sharing and 401 (k) plans and insurance
benefits in effect for all salaried employees of the Employer, together with
any future improvements in such plans or benefits, subject to the eligibility
<PAGE> 3
requirements of such plans. In addition, Employee shall be entitled during the
term of this Agreement, and thereafter to the extent provided for herein or in
any such plan, to receive such other and further benefits as shall be generally
made applicable to key executive employees of the Employer, and such additional
benefits, as may be granted from time-to-time by the Board of Directors, in
it's sole discretion.
(c) Vacation. Employee shall be entitled to paid vacation leave
of four ( 4 ) weeks in every year of employment, increased pursuant to
Employer's vacation plan. Any accrued vacation previously earned prior to the
date of this Agreement shall be grand fathered. Effective with this Agreement,
all vacation earned subsequent to the date of this Agreement shall be taken no
later than by the end of the following year or be forfeited, unless prior
approval is granted by the Compensation Committee of the Board of Directors.
(d) Business Expenses. Employer shall reimburse Employee
pursuant to Employer's policy of employee expense reimbursement of all items of
travel, entertainment and miscellaneous expenses reasonably incurred by
Employee on behalf of Employer and presented to Employer on the appropriate
voucher.
(e) Automobile Allowance: Employer shall pay to Employee as an
automobile allowance the sum of Eight Hundred and Fifty Dollars ($850.00) per
month.
6. PROPRIETARY DATA
(a) Trade Secrets and Other Confidential Information. During
the Employment Period and for three (3) years thereafter, Employee shall keep
confidential any data, documents, or financial or other information of a trade
secret or confidential nature relating to Employer's past, present or future
operations (the "Proprietary Data"), shall not disclose the Proprietary Data to
any third parties other than officers, employees or agents of Employer on a
"need to know" basis, shall take all necessary steps to ensure that such
officers, employees or agents keep such Proprietary Data confidential, and
shall use the Proprietary Data only in connection with rendering services to
Employer. Upon the end of the Employment Period, Employee shall promptly
return to Employer the originals and all copies of the Proprietary Data in the
possession of Employee, and shall not use any of the Proprietary Data for his
or her own benefit or for the benefit of any third parties. The covenants
contained in this Section 6 (a) shall not apply to Proprietary Data which is or
becomes a matter of general knowledge in the industry otherwise than by a
breach of the provisions of this Section 6 (a).
(b) Injunctive Relief. Employee acknowledges that the convents
contained in Sections 6 (a) are necessary for the protection of the legitimate
business interests of Employer and are reasonable limitations of activities,
that the rights of Employer are of a specialized and unique character, and that
immediate and irreparable damage will result to Employer if Employee fails to
or refuses to perform or comply with such covenants. Therefore,
notwithstanding any election by Employer to claim damages from Employee as a
result of any such failure or refusal, Employer may, in addition to any other
remedies and damages available, seek an injunction in a court of competent
jurisdiction to restrain any such failure or refusal (and no bond or other
security shall be required in connection therewith). In that connection,
Employee represents and warrants that his or her expertise and capabilities are
such that performance or compliance with the covenants (and the enforcement
thereof by injunction or otherwise) will not prevent him
<PAGE> 4
or her from earning a livelihood. If a court refuses to enforce the covenants
set forth in Section 6 (a) because they are found to be unreasonable, Employee
and Employer agree to abide by any lesser restrictions (for instance, as to
duration and geographic area) that are found to be reasonable.
7. TERMINATION
(a) Definition of Compensation: For purposes of termination,
compensation at the time of termination shall be deemed to include accrued sick
and vacation and salary through the effective date of termination, plus any and
all benefits normally granted by Employer to Employees upon termination.
(b) Death. The Employment Period shall forthwith terminate upon
the death of Employee, whereupon Employer shall not have any further
obligations or liability hereunder except to pay the Employee's estate the
unpaid portion, if any, of Employee's compensation accrued for the period up to
the date of Employee's death.
(c) Total Disability. In the event of the Total Disability (as
that term is hereafter defined) of Employee for a period of four (4)
consecutive calendar months, or for eighty percent (80%) or more of the normal
working days during a period of six (6) consecutive full calendar months,
Employer shall have the right to end the Employment Period by giving Employee
ten (10) days' written notice. Upon the expiration of such ten (10) day
period, the Employment Period shall end and Employer shall not have any further
obligations hereunder except to pay Employee the unpaid portion, if any, of
Employee's compensation accrued for the period up to the date of termination of
Employee's employment. As used in this Agreement, the term "Total Disability"
shall mean a mental or physical condition which, in the opinion of Employer and
in the opinion of two consulting physicians, renders Employee unable or
incompetent to carry out his obligations hereunder, provided, however that said
disability must also be in accordance with disability as defined in the
Company's Long Term Disability coverage.
(d) With Cause. Employer shall have the right to terminate the
employment of Employee at any time for cause (as hereinafter defined) upon at
least five (5) days' written notice setting forth the specific details of the
action or inaction of Employee which constitutes cause. For purposes of the
foregoing, "cause" shall mean (i) Employee's commission of any act which shall
be an offense involving moral turpitude under federal, state or local law; or
(ii) Employee's conviction of a felony; (iii)Employee's material breach of any
of the terms of this Agreement; (iv.) Employee's refusal to follow lawful and
reasonable directive(s) of the Board of Directors. Upon such termination,
Employer shall have no further obligations or liability hereunder except to pay
Employee the unpaid portion, if any, of Employee's compensation accrued for the
period up to the date of termination of Employee's employment.
(e) Dissatisfaction by Employer Without Cause. If Employer is
at any time and for any reason dissatisfied with Employee's performance
hereunder, Employer shall have the right to terminate the employment of
Employee upon at least thirty (30) days written notice to Employee. If
Employer shall terminate the employment of Employee pursuant to this Section 7
(e), the Employment Period shall end at the expiration of the notice period
and Employer shall not have any further obligations or liability hereunder
except (i) to pay Employee the unpaid portion, if any, of Employee's
compensation
<PAGE> 5
accrued for the period up to the date of termination of Employee's employment,
together with an additional amount of two (2) years of base salary as severance
in accordance with Employer's normal payroll schedule, to commence immediately
following the effective date of the termination of Employee's employment
hereunder; and (ii) to pay to Employee in a lump sum an amount equal to the
number of days of accrued and unused vacation and sick leave times the
Employee's base salary in effect on the date of termination. If new employment
for the Employee commences at any time within the first year of Employee's
termination, the Employer shall remain obligated to make severance payments in
accordance with this Section 7 (e). Not withstanding the foregoing, if at
anytime following Employee's termination, Employee obtains employment with a
base salary equal to at least 75% of the base salary received from Employer at
the time of termination, if the employment commences after the first
anniversary date of termination, Employer shall not be required to make any
further severance payments for any period of time after the commencement of
Employee's new employment . In addition, for purposes of the Employer's
medical, disability, and life insurance programs, Employee shall be considered
and deemed eligible for two (2) years following such termination or until
Employee attains the age of 65 or until similar benefits are paid or extended
by a new employer, whichever first occurs, to be eligible to participate in
such programs of the Employer on the same basis as other officers or employees.
Lastly, Employee shall be entitled to seek the services of a professional out
placement service. the reasonable cost of which shall be borne by Employer.
(f). Dissatisfaction by Employee. If Employee at any time is
for any reason dissatisfied with the terms and conditions of his or her
employment hereunder, Employee shall have the right to terminate his employment
upon at least thirty (30) days written notice to Employer. If Employee shall
terminate his employment pursuant to this Section 7 (f), the Employment Period
shall end at the expiration of the notice period and Employer shall have no
further obligations or liability hereunder except to pay to Employee the unpaid
portion, if any, of Employee's compensation accrued for the period up to the
date of termination.
8. MISCELLANEOUS
(a) Governing Law. This Agreement shall be governed by the laws
of the State of Delaware applicable to agreements made by and to be performed
by Delaware corporations.
(b) Amendment of Agreement. No amendment or variation of the
terms of this Agreement, with or without consideration, shall be valid unless
made in writing and signed by the Employee and a duly authorized representative
of the Employer (other than Employee).
(c) Waiver of Conditions. Any waiver agreed to between Employer
and Employee of any provision should not be construed as a general waiver of
the provision, or any other provision of this agreement.
(d) Entire Agreement. This Agreement contains the entire
agreement between the parties and supersedes all prior oral and written
agreements, understandings, commitments, and practices between the parties,
whether or not fully performed by Employee before the date of this Agreement.
(e) Headings. The section headings of this Agreement are for
reference purposes only and are to be given no effect in the construction or
interpretation of this Agreement.
<PAGE> 6
(f) Notice. All notices, requests and other communications
under this Agreement shall be in writing and shall be deemed given when
delivered personally or upon receipt when sent by an express mail service,
provided that in each case a copy is mailed by first-class, registered mail,
return receipt requested, addressed as follows (or as may otherwise have been
specified by the intended recipient by notice as herein provided);
If to Employee: Dennis N. Weiss
1721 Wind Haven Way
Vienna, VA 22182
If to Employer: Chief Executive Officer
Dart Group Corporation
3300 75th Avenue
Landover, Maryland 20785
(g) Severability. If any provision of this Agreement is held
invalid or unenforceable, the remainder of this Agreement shall nevertheless
remain in full force and effect. If any provision is held invalid or
unenforceable with respect to particular circumstances, it shall nevertheless
remain in full force and effect in all other circumstances.
(h) Merger or Consolidation. This Agreement shall not be
terminated by any merger, consolidation, transfer of all or substantially all
of the assets of the Employer or voluntary or involuntary dissolution of the
Employer. In the event of a merger or consolidation or upon the transfer of
assets, the surviving or resulting corporation or the transferee of the
Employer's assets shall be bound by and shall have the benefit of the
provisions of this Agreement, and the Employer shall take all actions necessary
to ensure that such corporation or transferee is bound by the provisions of
this Agreement. This Agreement shall be binding upon the Employer
notwithstanding any change in the composition of the Board of Directors or
change in ownership of the Employer.
(i) No Covenants. Employee hereby represents and warrants that he
or she is not subject to or bound by any employment contract, restrictive
covenant or other agreement or any order or decree that prevents him or her
from entering into this Agreement or from performing his or her
responsibilities as contemplated by this Agreement.
(j) Attorney's Fees. If a dispute arises with respect to the
Employer's obligations or the Employee's rights under this Agreement, or if any
legal proceedings shall be brought to enforce or interpret any provisions
contained herein, or to recover damages for breach hereof, or in the event of
any other litigation involving this Agreement, Employee shall recover from the
Employer all reasonable attorney's fees and costs and disbursements incurred as
a result of such dispute. In addition, Employee shall recover from Employer all
reasonable attorney's fees and costs and disbursements incurred as a result of
legal proceeding, unless the Employee's pursuit of legal proceedings is deemed
frivolous or in bad faith as determined by the court in any such action.
(k) Assignment; Binding Effect. This Agreement shall be binding
upon, and shall inure to the benefit of, and be enforceable by , the parties
hereto and their respective successors and assigns, provided, that (i) this
Agreement is a personal service agreement and no right hereunder may be
assigned by Employee, except that it shall inure to the benefit of and be
<PAGE> 7
enforceable by the Employee's personal or legal representatives, executors or
administrators; and (ii) unless Employer shall have complied with Section 8 (h)
hereof, no right hereunder may be assigned or transferred by Employer by
operation of law or otherwise. Any purported assignment or transfer in
violation of this Section 8 (k) shall be null and void..
IN WITNESS WHEREOF, this Agreement has been signed by a duly
authorized officer of Employer and by Employee as of the date first
above-written
DART GROUP CORPORATION
-----------------------
BY:/s/ Herbert H. Haft
------------------------
HERBERT H. HAFT, Chairman
BY:/s/ L.G. Schafran
------------------------
L.G. SCHAFRAN, Chairman
Executive Committee of the
Board of Directors
/s/ Dennis N. Weiss
-----------------------------
Name of Employee: Dennis N. Weiss
<PAGE> 1
EXHIBIT 10.95
AMENDMENT
Amendment to Consulting Agreement dated March 20, 1995, by and between RPF,
Inc., a Pennsylvania Corporation ("Contractor"), and Dart Group Corporation, a
Delaware Corporation.
Witnesseth:
WHEREAS, Dart Group Corporation, and Contractor entered into a Consulting
Agreement dated October 1, 1994 ("the "Agreement"), wherein the Contractor
supplied the services of Robert A. Marmon ("Marmon") to serve as the (i) Chief
Financial Officer for Dart Group Corporation, and all its subsidiary
corporations (excluding Shoppers Food Warehouse Corporation) (ii) Chief
Financial Officer for Crown Books Corporation, and its subsidiary corporations,
and (iii) Principal Financial Officer for Trak Auto Corporation, and its
subsidiary corporations, (Crown Books Corporation, Trak Auto Corporation, and
Dart Group Corporation, and their subsidiary corporations, excluding Shoppers
Food Warehouse Corporation, are collectively referred to as "Dart" or the
"Companies"), and to perform related services as may be assigned by Dart from
time to time.
WHEREAS, the term of the Consulting Agreement is currently set to expire April
30, 1995.
WHEREAS, at a Special Meeting of the Board of Directors of Dart Group
Corporation held on March 7, 1995, the Executive Committee of Dart Group
Corporation wa authorized by resolution to enter into negotiations and to
consummate an agreement with Robert A. Marmon to extend his services on a month
to month basis pending the identification and hiring of a permanent Chief
Financial Officer.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained in this Amendment, and other good and valuable consideration, the
receipt, sufficiency and adequacy of which the parities conclusively
acknowledge, the parties hereto, intending to be legally bound, agree as
follows:
EMPLOYMENT
1. Article 1 (b) of the Agreement is deleted in its entirety and replaced by
the following:
"Unless the Term expires earlier pursuant to Section 4 of the Agreement,
the Term of this Agreement shall be extended past april 30, 1995, on a
month to month basis. Should Dart, at any time after April 30, 1995,
desire to terminate this Agreement, it shall give to Contractor at least
thirty (30) days written notice of termination. Should Contractor, at
any time after April 30, 1995, desire to terminate this Agreement, it
shall give to Dart at least sixty (60) days written notice of
termination."
2. Article 1(d) of the agreement shall be modified to reflect that Marmon
shall have the right to perform services for other clients up to a maximum of
three (3) days per month on a non-cumulative basis.
3. Marmon has advised Dart that he intends to take a vacation during a
portion of the summer of 1995. During Marmon's vacation, he shall receive no
compensation, provided, however, should Marmon be required by Dart to work on
<PAGE> 2
Dart matters during his vacation, he will be reimbursed at the hourly rate of
$281.25. If travel is required during the vacation time to perform services
required by Dart, the hourly billing rate will commence when Marmon leaves his
house, and will stop at the end of his work day, and on the day of his return,
when he arrives at his house.
All other terms and conditions of the Agreement dated October 1, 1994, shall
remain in full force and effect.
IN WITNESS WHEREOF, this Amendment has been signed by the duly authorized
members of the Executive Committee of Dart and by Contractor as of the date
first above written.
DART GROUP CORPORATION
By:/s/ L.D. Schafran
----------------------------
L. G. Schafran
Chairman, Executive Committee
By:/s/ Bonita A. Wilson
----------------------------
Bonita A. Wilson
Member, Executive Committee
By:/s/ Douglas M. Bregman
----------------------------
Douglas M. Bregman
Member, Executive Committee
RPF, Inc.
By:/s/ Robert A. Marmon
----------------------------
Robert A. Marmon
President
<PAGE> 1
EXHIBIT 10.96
INDEMNIFICATION AGREEMENT
This Indemnification Agreement ("Agreement") is made as of the 21st
day of September, 1994, by and between Dart Group Corporation, a Delaware
corporation (the "Company"), and __________, a director of the Company (the
"Indemnitee").
RECITALS
A. The Indemnitee is presently serving as a director of the
Company and the Company desires the Indemnitee to continue in that capacity.
The Indemnitee is willing, subject to certain conditions including, without
limitation, the execution and performance of this Agreement by the Company, to
continue in that capacity.
B. In addition to the indemnification to which the Indemnitee is
entitled under The Delaware General Corporation Law (the "DGCL"), the
certificate of incorporation of the Company, as amended (the "certificate"),
and the by-laws of the Company, as amended, the Company has obtained at its
sole expense insurance protecting its officers and directors, including the
Indemnitee, against certain losses arising out of actual or threatened actions,
suits or proceedings to which such persons may be made or threatened to be made
parties. However, as a result of circumstances having no relation to, and
beyond the control of, the Company and the Indemnitee, there can be no
assurance of the continuation or renewal of that insurance.
<PAGE> 2
- 2 -
Accordingly, and in order to induce the Indemnitee to continue to
serve in his present capacity, the Company and Indemnitee agree as follows:
1. Continued Service. The Indemnitee will continue to
serve as a director of the Company so long as he is duly elected and qualified
in accordance with the by-laws of the Company (the "by-laws") or until he
resigns in writing or is removed in accordance with applicable law.
2. Initial Indemnity. (a) The Company shall indemnify
the Indemnitee when he was or is a party or is threatened to be made a party to
any pending, threatened or completed action, suit or proceeding, whether civil,
administrative, investigative or criminal (other than an action by or in the
name of the Company) by reason of the fact that he is or was or had agreed to
become a director of the Company, or is or was serving or had agreed to serve
at the request of the Company as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise, or
by reason of any action alleged to have been taken or omitted in such capacity,
against any and all costs, charges and expenses (including, without limitation,
attorneys' and others' fees and expenses), judgments, fines and amounts paid in
settlement actually and reasonably incurred by the Indemnitee in connection
therewith and any appeal therefrom if the Indemnitee acted in good faith and in
a manner he reasonably believed to be in or not opposed to the best interests
of the Company, and, with respect to any criminal action or proceeding, had no
reasonable
<PAGE> 3
- 3 -
cause to believe his conduct was unlawful. The termination of any action, suit
or proceeding by judgment, order, settlement, conviction or upon a plea of nolo
contendre or its equivalent shall not, of itself, create a presumption that the
Indemnitee did not satisfy the foregoing standard of conduct to the extent
applicable thereto.
(b) The Company shall indemnify the Indemnitee when
he was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding by or in the right of the
Company to procure a judgment in its favor by reason of the fact that he is or
was or had agreed to become a director of the Company, or is or was serving or
had agreed to serve at the request of the Company as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against costs, charges and expenses (including, without
limitation, attorneys' and others' fees and expenses) actually and reasonably
incurred by him in connection with the defense or settlement thereof or any
appeal therefrom if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the Company, and
except that no indemnification shall be made in respect of any claim, issue or
matter as to which the Indemnitee shall have been finally adjudged to be liable
to the Company unless: (i) the Court of Chancery or the court in which such
action, suit or proceeding was brought shall determine upon application that,
despite the adjudication of liability but in view of all the circumstances of
the case, the Indemnitee is
<PAGE> 4
- 4 -
fairly and reasonably entitled to indemnity for such expenses which the Court
of Chancery or such other court shall deem proper or (ii) such indemnification
is consistent with the maximum permissible indemnity which may exist under
applicable law at the time of any request for indemnity hereunder.
(c) To the extent that the Indemnitee has been
successful on the merits or otherwise, including, without limitation, the
dismissal of an action without prejudice, in defense of any action, suit or
proceeding referred to in Sections 2(a) or 2(b) hereof or in defense of any
claim, issue or matter therein, he shall be indemnified against costs, charges
and expenses (including, without limitation, attorneys' and others' fees and
expenses) actually and reasonably incurred by him in connection therewith.
(d) Any indemnification under Sections 2(a) or 2(b)
(unless ordered by a court) shall be made by the Company only as authorized in
the specific case upon a determination in accordance with Section 4 hereof or
any applicable provision of the certificate, by-laws, other agreement,
resolution or otherwise. Such determination shall be made: (i) by the Board of
Directors of the Company (the "Board"), by a majority vote of directors who
were not parties to such action, suit or proceeding (the "disinterested
directors), even if such disinterested directors constitute less than a quorum
of the Board, or (ii) if there are no disinterested directors or the
disinterested directors by a majority vote so direct, by independent legal
counsel (designated in the manner provided below in this
<PAGE> 5
- 5 -
subsection (d)) in a written opinion or (iii) by a majority vote at a meeting
of the holders of voting stock of the Company (the "Stockholders") in
accordance with the by-laws. Independent legal counsel shall be designated by
vote of a majority of the disinterested directors, subject to the approval of
the Indemnitee (which approval shall be by a majority of the disinterested
directors, if any, and shall not be unreasonably withheld); provided, however,
that if the Board is unable or fails to so designate, such designation shall be
made by the Indemnitee subject to the approval of the Company (which approval
shall be by a majority of the disinterested directors, if any, and shall not be
unreasonably withheld) and provided further that, if there is a change in
control of the Company after this Agreement is executed, then independent legal
counsel shall be selected by the Indemnitee and approved by the Company (which
approval shall not be unreasonably withheld). Independent legal counsel shall
not be any person or firm who, under the applicable standards of professional
conduct then prevailing, would have a conflict of interest in representing
either the Company or the Indemnitee in an action to determine the Indemnitee's
rights under this Agreement. The Company agrees to pay the reasonable fees and
expenses of such independent legal counsel and to indemnify fully such counsel
against costs, charges and expenses (including attorneys' and others' fees and
expenses) actually and reasonably incurred by such counsel in connection with
this
<PAGE> 6
- 6 -
Agreement or the opinion, made in good faith and without gross negligence, of
such counsel pursuant hereto.
(e) All expenses (including attorneys' and others'
fees and expenses) incurred by the Indemnitee in defending a civil, criminal,
administrative or investigative action, suit, proceeding or claim with respect
to which the Indemnitee expects to be entitled to indemnification under this
Section 2 shall be paid by the Company in advance of the final disposition of
such action, suit or proceeding in the manner prescribed by Section 4(b)
hereof.
(f) If the Company shall adopt any amendment to the
certificate or by-laws the effect of which would be to deny, diminish or
encumber the Indemnitee's rights to indemnity pursuant to the certificate,
by-laws, the DGCL, this Agreement or any other applicable law, such amendment
shall not apply to any act or failure to act on the part of the Indemnitee
occurring in whole or in part prior to the date (the "Effective Date") upon
which the amendment was approved by the Board or the Stockholders, as the case
may be, unless such amendment by its terms would have such application and the
Indemnitee shall have voted (other than by a holder of an irrevocable proxy
from the Indemnitee) in favor of such adoption as a director or holder of
record of the Company's voting stock, as the case may be.
(g) Nothing in this Section 2 is intended to limit
the maximum permissible indemnification to be afforded the
<PAGE> 7
- 7 -
Indemnitee by Section 3 of this Agreement, the certificate of incorporation,
by-laws, insurance policies or applicable law.
3. Additional Indemnification. (a) Pursuant to Section
145(f) of the DGCL, without limiting any right which the Indemnitee may have
pursuant to Section 2 hereof, the certificate, the by-laws, the DGCL, any
policy of insurance or otherwise, the Company shall indemnify the Indemnitee to
the maximum extent not prohibited by applicable law at the time any request for
indemnification is made hereunder against any amount which he is or becomes
legally obligated to pay relating to or arising out of any claim, whether
civil, criminal, administrative or investigative, made against him because of
any act or omission which he commits, suffers, permits or acquiesces in while
serving on behalf of the Company, in his capacity as a director of the Company,
or, at the request of the Company, as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise.
The payments which the Company is obligated to make pursuant to this Section 3
shall include, without limitation, damages, judgments, settlements and charges,
costs and expenses, (including, without limitation, reasonable attorneys' and
others' fees and expenses) in connection with all forms of legal action, suits,
proceedings or claims and appeal therefrom, and expenses of appeal attachment
or similar bonds; provided, however, that the Company shall not be obligated
under this Section 3(a) to make any payment in connection with any claim
against the Indemnitee:
<PAGE> 8
- 8 -
(i) to the extent of any fine or similar
governmental levy which the Company is prohibited by
applicable law from paying which is imposed in a
final, nonappealable order; or
(ii) to the extent based upon or
attributable to the Indemnitee gaining in fact a
personal profit to which he was not legally entitled,
including, without limitation, profits made from the
purchase and sale by the Indemnitee of equity
securities of the Company which are recoverable by
the Company pursuant to Section 16(b) of the
Securities Exchange Act of 1934, as amended, and
profits arising from transactions in publicly traded
securities of the Company which were effected by the
Indemnitee in violation of Section 10(b) of the
Securities Exchange Act of 1934, as amended,
including Rule 10b-5 promulgated thereunder.
The determination of whether the Indemnitee shall be entitled to
indemnification under this Section 3(a) may be, but shall not be required to
be, made in accordance with Section 4(a) hereof. If that determination is made
in accordance with Section 4(a) hereof, it shall be binding upon the Company
and the Indemnitee for all purposes.
<PAGE> 9
- 9 -
(b) Expenses (including, without limitation,
attorneys' and others' fees and expenses) incurred by Indemnitee in defending
any actual or threatened civil, criminal, administrative or investigative
action, suit, proceeding or claim with respect to which the Indemnitee expects
to be entitled to indemnification under this Section 3 shall be paid by the
Company in advance of the final disposition thereof as authorized in accordance
with Section 4(b) hereof.
4. Certain Procedures Relating to Indemnification and
Advancement of Expenses. (a) Except as otherwise permitted or required by the
DGCL, for purposes of pursing his rights to indemnification under Sections
2(a), 2(b) or 3 hereof, as the case may be, the Indemnitee may, but shall not
be required to, (i) submit to the Board a sworn statement of request for
indemnification substantially in the form of Exhibit 1 attached hereto and made
a part hereof (the "Indemnification Statement") averring that he is entitled to
indemnification hereunder; and (ii) present to the Company reasonable evidence
of all expenses for which payment is requested. Submission of an
Indemnification Statement to the Board shall create a presumption that the
Indemnitee is entitled to indemnification under Sections 2(a), 2(b) or 3(a)
hereof, as the case may be, and the Board shall be deemed to have determined
that the Indemnitee is entitled to such indemnification unless (i) the
directors who are not parties to the same action, suit or proceeding for which
indemnification is sought do not constitute a quorum of the Board, or (ii)
within 30 calendar days after submission of the Indemnification Statement
<PAGE> 10
- 10 -
the Board shall determine by vote of a majority of disinterested directors at a
meeting at which a quorum of the Board comprised of disinterested directors is
present, based upon clear and convincing evidence (sufficient to rebut the
foregoing presumption) and the Indemnitee shall have received notice within
such period in writing of such determination that the Indemnitee is not so
entitled to indemnification, which notice shall disclose with particularity the
evidence in support of the Board's determination. The foregoing notice shall
be sworn to by all persons who participated in the determination and voted to
deny indemnification. The provisions of this Section 4(a) are intended to be
procedural only and shall not affect the right of the Indemnitee to
indemnification under this Agreement and any determination by the Board that
the Indemnitee is not entitled to indemnification and any failure to make the
payments requested in the Indemnification Statement shall be subject to
judicial review as provided in Section 6 hereof.
(b) For purposes of requesting advancement of
expenses pursuant to Section 2(e) or 3(b) hereof, the Indemnitee shall submit
to the Board a sworn statement of request for advancement of expenses
substantially in the form of Exhibit 2 attached hereto and made a part hereof
(the "Undertaking"), averring that (i) he has reasonably incurred or will
reasonably incur actual expenses in defending an actual civil, criminal,
administrative or investigative action, suit, proceeding or claim and (ii) he
undertakes to repay such amount if it shall ultimately be determined that he is
not entitled to be
<PAGE> 11
- 11 -
indemnified by the Company under this Agreement or otherwise. For purposes of
requesting advancement of expenses pursuant to Section 3(b) hereof, the
Indemnitee may, but shall not be required to, submit an Undertaking or such
other form of request as he determines to be appropriate (an "Expense
Request"). Upon receipt of an Undertaking or Expense Request, as the case may
be, the Board shall within 20 calendar days authorize immediate payment of the
expenses stated in the Undertaking or Expense Request, as the case may be,
whereupon such payments shall immediately be made by the Company. No security
shall be required in connection with any Undertaking or Expenses Request and
any Undertaking or Expense Request shall be accepted without reference to the
Indemnitee's ability to make repayment.
5. Subrogation; Duplication of Payments. (a) In the
event of payment under this Agreement, the Company shall be subrogated to the
extent of such payment to all of the rights of recovery of the Indemnitee, who
shall execute all papers required and shall do everything that may be necessary
to secure such rights, including the execution of such documents necessary to
enable the Company effectively to bring suit to enforce such rights.
(b) The Company shall not be liable under this
Agreement to make any payment in connection with any claim made against the
Indemnitee to the extent the Indemnitee has actually received payment (under
any insurance policy, the certificate, the by-laws or otherwise) of the amounts
otherwise payable hereunder.
<PAGE> 12
- 12 -
6. Enforcement. (a) If a claim for indemnification
made to the Company pursuant to Section 4 hereof is not paid in full by the
Company within 30 calendar days after a written claim has been received by the
Company, or if a claim for advancement of expenses made to the Company pursuant
to Section 4 hereof is not paid in full by the Company within 20 calendar days
after a written claim has been received by the Company, the Indemnitee may at
any time thereafter bring suit against the Company to recover the unpaid amount
of the claim.
(b) In any action brought under Section 6(a) hereof,
it shall be a defense to a claim for indemnification pursuant to Sections 2(a)
or 2(b) hereof (other than an action brought to enforce a claim for expenses
incurred in defending any proceeding in advance of its final disposition where
the Undertaking, if any is required, has been tendered to the Company) that the
Indemnitee has not met the standards of conduct which make it permissible under
the DGCL for the Company to indemnify the Indemnitee for the amount claimed,
but the burden of proving such defense shall be on the Company. Neither the
failure of the Company (including the Board, independent legal counsel or the
Stockholders) to have made a determination prior to commencement of such action
that indemnification of the Indemnitee is proper in the circumstances because
he has met the applicable standard of conduct set forth in the DGCL, nor an
actual determination by the Company (including the Board, independent legal
counsel or Stockholders) that the Indemnitee has not met such applicable
standard of conduct, shall create a
<PAGE> 13
- 13 -
presumption that the Indemnitee has not met the applicable standard of conduct.
(c) It is the intent of the Company that the
Indemnitee not be required to incur the expenses associated with the
enforcement of his rights under this Agreement by litigation or other legal
action because the cost and expense thereof would substantially detract from
the benefits intended to be extended to the Indemnitee hereunder. Accordingly,
if it should appear to the Indemnitee that the Company has failed to comply
with any of its obligations under this Agreement or in the event that the
Company or any other person takes any action to declare this Agreement void or
unenforceable, or institutes any action, suit or proceeding designed (or having
the effect of being designed) to deny, or to recover from, the Indemnitee the
benefits intended to be provided to the Indemnitee hereunder, the Company
irrevocably authorizes the Indemnitee from time to time to retain counsel of
his choice, at the expense of the Company as hereafter provided, to represent
the Indemnitee in connection with the initiation or defense of any litigation
or other legal action, whether by or against the Company or any director,
officer, stockholder or other person affiliated with the Company, in any
jurisdiction. Regardless of the outcome thereof, the Company shall pay and be
solely responsible for any and all costs, charges and expenses, including,
without limitation, attorneys' and others' fees and expenses, reasonably
incurred by the Indemnitee to advance a good faith and non-frivolous position
of the Indemnitee (i) as a result of the Company's failure to
<PAGE> 14
- 14 -
perform this Agreement or any provision thereof or (ii) as a result of the
Company or any person contesting the validity or enforceability of this
Agreement or any provision thereof as aforesaid.
7. Merger or Consolidation. In the event that the
Company shall be a constituent corporation in a consolidation, merger or other
reorganization, the Company, if it shall not be the surviving, resulting or
acquiring corporation therein, shall require as a condition thereto the
surviving, resulting or acquiring corporation to agree to indemnify the
Indemnitee to the full extent provided in this Agreement. Whether or not the
Company is the resulting, surviving or acquiring corporation in any such
transaction, the Indemnitee shall also stand in the same position under this
Agreement with respect to the resulting, surviving or acquiring corporation as
he would have the respect to the Company had its separate existence continued.
8. Nonexclusivity and Severability. (a) The right to
indemnification provided by this Agreement shall not be exclusive of any other
rights to which the Indemnitee may be entitled under the certificate, by-laws,
the DGCL, any other statute, insurance policy, agreement, vote of Stockholders
or of Directors or otherwise, both as to actions in his official capacity and
as to actions in another capacity while holding such office, and shall continue
after the Indemnitee has ceased to be a director, officer, employee or agent
and shall inure to the benefit of his heirs, executors and administrators.
<PAGE> 15
- 15 -
(b) If any provision of this Agreement or the
application of any provision hereof to any person or circumstances is held
invalid, unenforceable or otherwise illegal, the remainder of this Agreement
and the application of such provision to other persons or circumstances shall
not be affected, and the provision so held to be invalid, unenforceable or
otherwise illegal shall be reformed to the extent (and only to the extent)
necessary to make it enforceable, valid and legal.
9. Governing Law. This Agreement shall be governed by
and construed in accordance with the laws of the State of Delaware, without
giving effect to the principles of conflict of laws thereof.
10. Modification; Survival. This Agreement contains the
entire agreement of the parties relating to the subject matter hereof. This
Agreement may be modified only by an instrument in writing signed by both
parties hereto. The provisions or this Agreement shall survive the death,
disability, or incapacity of the Indemnitee or the cessation of the
Indemnitee's service as a director of the Company and shall inure to the
benefit of the Indemnitee's heirs, executors and administrators.
11. Certain Terms. For purposes of this Agreement,
references to "other enterprises" shall include employee benefit plans;
references to "fines" shall include any excise taxes assessed on Indemnitee
with respect to any employee benefit plan; and references to "serving at the
request of the Company" shall include any service as a director, officer,
employee or agent of
<PAGE> 16
- 16 -
the Company which imposes duties on, or involves services by, the Indemnitee
with respect to an employee benefit plan, its participants or beneficiaries;
references to the masculine shall include the feminine; references to the
singular shall include the plural and vice versa; and if the Indemnitee acted
in good faith and in a manner he reasonably believed to be in the interest of
the participants and beneficiaries of an employee benefit plan he shall be
deemed to have acted in a manner "not opposed to the best interests of the
Company" as referred to herein.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first above written.
DART GROUP CORPORATION
By:
---------------------------------
[Title]
---------------------------------
[name]
[INDEMNITEE]
By:
---------------------------------
[Name]
<PAGE> 17
Exhibit 1
INDEMNIFICATION STATEMENT
STATE OF ---------------------)
) SS
COUNTY OF --------------------)
I, ___________________, being first duly sworn, do depose and say as
follows:
1. This Indemnification Statement is submitted pursuant
to the Indemnification Agreement, dated as of September 14, 1994, between Dart
Group Corporation (the "Company"), a Delaware corporation, and the undersigned.
2. I am requesting indemnification against charges,
costs, expenses (including, without limitation, attorneys' and others' fees and
expenses), judgments, fines and amounts paid in settlement, all of which
(collectively, "Liabilities") have been or will be incurred by me in connection
with an actual or threatened action, suit, proceeding or claim to which I am a
party or am threatened to be made a party.
3. With respect to all matters related to any such
action, suit, proceeding or claim, I am entitled to be indemnified as herein
contemplated pursuant to the aforesaid Indemnification Agreement.
4. Without limiting any other rights which I have or may
have, I am requesting indemnification against Liabilities which have or may
arise out of ________________________________
<PAGE> 18
- 2 -
____________________________________________________________________________
___________________________________________________________________________.
-----------------------
Subscribed and sworn to before
me, a Notary Public in and for
said County and State, this
day of , 199 .
- ---- ----------- --
- --------------------------------
Notary Public
[Seal]
My commission expires the
day of , 199 .
- ----- ----------- ---
<PAGE> 19
Exhibit 2
UNDERTAKING
STATE OF ---------------------)
) SS
COUNTY OF --------------------)
I, _________________, being first duly sworn do depose and say as
follows:
1. This Undertaking is submitted pursuant to the
Indemnification Agreement, dated as of September 14, 1994, between Dart Group
Corporation (the "Company"), a Delaware corporation and the undersigned.
2. I am requesting advancement of certain costs, charges
and expenses which I have incurred or will incur in defending an actual or
pending civil or criminal action, suit, proceeding or claim.
3. I hereby undertake to repay this advancement of
expenses if it shall ultimately be determined that I am not entitled to be
indemnified by the Company under the aforesaid Indemnification Agreement or
otherwise.
4. The costs, charges and expenses for which advancement is
requested are, in general, all expenses related to
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________.
-----------------------
<PAGE> 20
- 2 -
Subscribed and sworn to before
me, a Notary Public in and for
said County and State, this
day of , 199 .
- ---- ----------- --
- --------------------------------
Notary Public
[Seal]
My commission expires the
day of , 199 .
- ----- ----------- ---
<PAGE> 1
Exhibit 11
Statement on Computation of
Per Share Earnings
<TABLE>
<CAPTION>
Years Ended January 31,
-----------------------------------------
1995 1994 1993
------------ ------------ -------------
<S> <C> <C> <C>
Weighted average common
shares outstanding
during the year 1,758,000 1,752,000 1,749,000
Effect of dilutive stock
options; net of shares
assumed repurchased at
average market 113,000 115,000 88,000
------------ --------- -----------
Weighted average common
share and common
share equivalents 1,871,000 1,867,000 1,837,000
============ ========= ===========
Income (Loss) before
extraordinary item and
cumulative effect of change
in accounting principle $(73,792,000) $(6,737,000) $ 3,509,000
Extraordinary item
Income (Loss) on reacqui-
sition of debentures - - (885,000)
Cumulative effect of Trak
Auto's change in accounting
principle, net of minority
interest - - 1,135,000
------------ ---------- -----------
Net Income (Loss) as reported (73,792,000) (6,737,000) 3,759,000
============ ========== ===========
Adjustment for dilutive effect
of subsidiary stock options (244,000) (918,000) - (1)
------------ ---------- -----------
Net (Loss) Income Per Earnings
Per Share Calculation $(74,036,000) $(7,655,000) $ 3,759,000
============ =========== ===========
Earnings per share:
Income (Loss) before
extraordinary item $ (39.57) $ (4.10) $ 1.91
Extraordinary item:
Loss on reacquisition
of debentures - - (.48)
Cumulative effect of Trak
Auto's change in accounting
principle, net of minority
interest - - .62
------------ ---------- -----------
Net Income (Loss) as reported $ (39.57) $ (4.10) $ 2.05
============ =========== ===========
</TABLE>
(1) Not dilutive.
See Note 1 to the Consolidated Financial Statements regarding the earnings per
share calculation.
<PAGE> 1
Exhibit 21
SUBSIDIARIES OF THE CORPORATION
<TABLE>
<CAPTION>
State of Incorporation
----------------------
<S> <C> <C>
Trak Auto Corporation (65%) Delaware
Crown Books Corporation (51%) Delaware
Shoppers Food Warehouse Corp. (50%) Delaware
Dart Delaware Corporation (100%) Delaware
Dart/SFW Corporation (100%) Delaware
Discount Books East, Inc. (100%) Delaware
Trak Auto East Holding Corporation (100%) Delaware
Dart Group Financial Corporation (100%) Delaware
Cabot-Morgan Real Estate Company (100%) Delaware
Trak Corporation (100%)(1) Delaware
Super Trak Corporation (100%)(1) Delaware
Trak DHC Corporation (100%)(1) Delaware
Trak Acquisition Corp (100%)(1) Delaware
Crown Books East Corporation (100%)(2) Delaware
Crown Books West Corporation (100%)(2) Delaware
Crown DHC Corporation (100%)(2) Delaware
Super Crown Books Corporation (100%)(2) Delaware
Total Beverage Corp. (100%) Delaware
Total Beverage G.B. (100%)(3) Delaware
</TABLE>
(1) Wholly-owned by Trak Auto Corporation
(2) Wholly-owned by Crown Books Corporation.
(3) Wholly-owned by Total Beverage Corp.
<PAGE> 1
Exhibit 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
of our reports included in this Form 10-K, into Dart Group Corporation's
previously filed Forms S-8, File Number 33-57010 and File Number 33-12149.
ARTHUR ANDERSEN LLP
Washington, D.C.
April 27, 1995.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-31-1995
<PERIOD-START> FEB-01-1994
<PERIOD-END> JAN-31-1995
<CASH> 102,374
<SECURITIES> 89,330
<RECEIVABLES> 10,108
<ALLOWANCES> 0
<INVENTORY> 195,675
<CURRENT-ASSETS> 417,274
<PP&E> 302,255
<DEPRECIATION> 76,451
<TOTAL-ASSETS> 706,489
<CURRENT-LIABILITIES> 236,859
<BONDS> 109,412
<COMMON> 1,964
0
0
<OTHER-SE> 197,399
<TOTAL-LIABILITY-AND-EQUITY> 706,489
<SALES> 936,606
<TOTAL-REVENUES> 967,428
<CGS> 758,308
<TOTAL-COSTS> 758,308
<OTHER-EXPENSES> 275,393
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,448
<INCOME-PRETAX> (79,721)
<INCOME-TAX> (1,699)
<INCOME-CONTINUING> (73,792)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (73,792)
<EPS-PRIMARY> (39.57)
<EPS-DILUTED> (39.57)
</TABLE>
