<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 28, 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 0-12202
-------
TRAK AUTO CORPORATION
- -----------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 52-1281465
- --------------------------------------- -------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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:
Common Stock, Par Value $.01 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 27, 1995, the registrant had 6,113,646 shares of Common Stock
outstanding and the aggregate market value of such shares held by
non-affiliates of the registrant was approximately $39,094,000.
DOCUMENTS INCORPORATED BY REFERENCE.
1995 Proxy Statement for annual stockholders' meeting to be held June 30,
1995............. Part III Items 10-13.
The exhibit index begins at page 64 of this Form 10-K.
1
<PAGE> 2
Part I
Item 1. Business
Trak Auto Corporation ("Trak Auto") was incorporated in Delaware in 1983 and
operates retail discount auto parts stores. The term "Company" refers
collectively to Trak Auto and its wholly-owned subsidiaries, including Trak
Corporation ("Trak"), Super Trak Corporation ("Super Trak") and Trak DHC
Corporation ("Trak DHC"). Dart Group Corporation ("Dart") owned 64.8% of Trak
Auto's outstanding common stock, par value $.01 per share (the "Common Stock")
as of January 28, 1995. In February 1995 Trak Auto purchased approximately
310,000 shares of the outstanding Common Stock through a tender offer. As a
result of the tender offer, Dart now owns 68.3% of the outstanding common
stock.
Operations
The Company operates retail discount specialty stores in the metropolitan areas
of Washington, D.C.; Richmond, Virginia; Chicago, Illinois; and Los Angeles,
California.
The Company is engaged in the retail sale of a wide range of automobile parts
and accessories for the do-it-yourself market. The Company'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. The Company 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. The Company has
successfully opened or converted 106 Super Traks and seven Super Trak warehouse
stores and will continue to open or convert stores to the Super Trak concepts
aggressively as opportunities present themselves. The Company 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 the
Company's four metropolitan markets as well as new markets.
During the year ended January 28, 1995, the Company 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.
2
<PAGE> 3
Operations (continued)
The Company's merchandise is generally purchased directly from a large number
of manufacturers and suppliers. The Company'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. The Company has a computerized
point of sale ("POS") register system in every store. The Company 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.
The Company'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. The Company 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, the Company
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. The Company'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 the
Company'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>
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
</TABLE>
3
<PAGE> 4
Operations (continued)
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
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 Open at January 31
- ------------------------
Super Trak Stores - - 12 73 106
Super Trak Warehouse Stores - - - - 7
Classic Trak Stores 331 333 305 241 169
</TABLE>
The Company 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, the Company 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. The Company 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 Costs
The Company 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 the Company's 282 stores as of
January 28, 1995, the Company currently expects to close approximately 30
Classic Trak stores that are not providing satisfactory performance and 15
Classic Trak stores in conjunction with the Company's remaining restructuring
efforts. The Company also expects to convert at least eight existing Classic
Trak stores into Super Trak or Super Trak Warehouse stores.
As of January 28, 1995, the Company 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. The
Company 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. The Company 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. The Company 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, the
Company continues to make payments on stores already closed, and has future
lease obligations on those 21 stores of approximately $1,438,000.
4
<PAGE> 5
Store Closings Costs
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,
the Company 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, the Company charged approximately
$2,432,000 and $600,000, respectively, against the restructuring reserve.
During fiscal year 1995, the Company 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 effort. The Company currently estimates that 15 existing Classic
Trak stores will be closed in connection with the Company'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 the Company's consolidated sales during
the year ended January 28, 1995.
Relationship with Dart
Dart provides the Company with certain general and administrative services,
including executive management, accounting, personnel administration, legal and
real estate. Dart charged the Company approximately $712,000 for such services
in the year ended January 28, 1995. In addition, the Company provides similar
services to Dart and its other subsidiaries, including advertising
administration, data processing and loss prevention. The Company charged Dart
and its other subsidiaries approximately $468,000 for such services in the year
ended January 28, 1995. See Note 4 to the Consolidated Financial Statements
and Item 2.- Properties. During the year ended 1995, the Company entered into
a tax sharing agreement with Dart, which would become effective if and when,
the Company is consolidated into Dart's income tax returns.
Competition
The business in which the Company is engaged is highly competitive. The
Company competes with local, regional and national retail sellers of automobile
parts and accessories. To some extent, the Company competes with garages,
service stations, automobile dealers, supermarkets, and department, hardware
and other stores. Some of the Company's competitors furnish service and
installation, which are not offered by the Company. Many of its competitors
have greater resources than the Company and the Company encounters strong price
competition.
Employees
On January 28, 1995, the Company employed approximately 2,200 full-time and
1,600 part-time persons engaged in retail, warehouse and administrative
operations. The Company considers its relations with employees to be good.
5
<PAGE> 6
Executive Officers
The following table sets forth the names, ages and positions of the executive
officers of the Company. Executive officers are appointed to serve until the
meeting of the Board of Directors following the next annual meeting of
stockholders or until their successors are appointed.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Herbert H. Haft 74 Chairman of the Board of
Directors and Chief
Executive Officer
R. Keith Green 44 President
David B. MacGlashan 52 Principal Accounting
Officer
Robert A. Marmon 51 Principal Financial Officer
Robert E. Brann 43 Executive Vice President
Thomas V. Reilly 47 Executive Vice President
Dennis N. Weiss 49 Vice President, Real
Estate
</TABLE>
Herbert H. Haft has been Chairman of the Board and Chief Executive Officer of
the Company since its incorporation in 1983. Mr. Haft is the founder of Dart
and has been its Chairman and Chief Executive Officer since 1960. He is also
Chairman of each of Dart's other subsidiaries, including Crown Books
Corporation ("Crown Books") and Total Beverage Corporation ("Total Beverage"),
and a director of Shoppers Food Warehouse Corp. ("Shoppers Food"), in which
Dart owns a 50% interest.
R. Keith Green has been President of the Company since 1990 and a Director of
the Company since 1991. From 1987 to 1990, Mr. Green was President and Chief
Executive Officer of Whitlock Corporation. Prior to 1987, he served as Vice
President of Stores of Auto Zone.
David B. MacGlashan has been Principal Accounting Officer of Trak Auto since
1991. From 1987 to 1991, Mr. MacGlashan was Vice President of Finance and
Chief Financial Officer of WSR, Inc. (formerly Whitlock Corporation). Prior to
1987, he served as Chief Financial Officer of I. B. Diffusion Ltd.
Robert A. Marmon has been Principal Financial Officer of the Company since
October 1994. At the same time, Mr. Marmon has served as Chief Financial
Officer of Dart and each of its subsidiaries. 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. Marmon was
retained for his current positions on an interim basis pursuant to an agreement
between RPF, Inc. and Dart effective until April 30, 1995. On March 20, 1995,
the contract under which Mr. Marmon provides services was modified and extended
on a month-to-month basis. Under the modified terms, Dart may terminate the
agreement on thirty days notice. However, Mr. Marmon must provide sixty days
notice to Dart if he intends to terminate the agreement.
Robert E. Brann has been Executive Vice President of the Company since 1990.
From 1989 to 1990, Mr. Brann was Vice President of Merchandising of the
Company. Prior to 1989, he served as Vice President of Merchandising and later
Vice President of Store Operations and Administration of Franks Nursery and
Crafts.
6
<PAGE> 7
Executive Officers (Continued)
Thomas V. Reilly has been Executive Vice President of the Company since 1987.
From 1984 to 1987, Mr. Reilly was Assistant Vice President and General Manager
of the Chicago Region of the Company. Prior to 1984, he served as a Regional
Manager of the Company.
Dennis N. Weiss has been Vice President of Real Estate of the Company since
1987. Mr. Weiss is also Vice President, Real Estate of each of Dart, Crown
Books and Total Beverage.
Herbert H. Haft, Chairman and Chief Executive Officer, is the father of Ronald
S. Haft, Director. There is no other family relationship between any director
and executive officer of the Company.
Changes in Management
Effective October 1, 1994, Ron Marshall resigned his position as Principal
Financial Officer of the Company and as interim Chief Operating Officer of
Crown Books and as Chief Financial Officer of Dart and Crown Books. Subsequent
to Mr. Marshall's departure, the Board of Directors of Trak Auto appointed
Robert A. Marmon on an interim basis to serve as Principal Financial Officer of
the Company.
The Board of Directors of each of the Company, Dart and Crown Books was
reconstituted in 1993 to include five new directors, four of whom were neither
officers or employees of the Company. Bonita Wilson and Douglas M. Bregman
were elected directors of the Company, Dart and Crown Books in June 1993.
Ronald S. Haft was elected a director of the Company, Dart and Crown Books, on
July 28, 1993 and was appointed President and Chief Operating Officer of Crown
Books on August 1, 1993. H. Ridgely Bullock and Larry G. Schafran were elected
as directors by the respective boards of the Company, Dart and Crown Books
pursuant to each company's bylaws on December 20, 1993. Robert M. Haft and
Gloria G. Haft ceased to be directors of the Company, Dart and Crown Books in
June 1993.
On September 7, 1994, the Board of Directors of Dart established an Executive
Committee comprised of Dart's outside directors to conduct the affairs of Dart
with respect to matters that are the subject of dispute between the Chairman of
the Board and Chief Executive Officer of Dart, Herbert H. Haft, and the
President and Chief Operating Officer of Dart, Ronald S. Haft. Because both
Herbert H. Haft and Ronald S. Haft are also executive officers and/or directors
of Trak Auto, on October 11, 1994, the Board of Directors of Trak Auto
established an Executive Committee comprised of the same outside directors,
with authority parallel to that of Dart's Executive Committee. The disputes
between Herbert Haft and Ronald Haft concerning issues involving Dart and
Trak Auto have been extensive. Accordingly, the respective Executive
Committees have assumed day-to-day involvement in these disputed issues and
other matters affecting Dart and Trak Auto, in particular matters relating to
litigation to which Dart or Trak Auto is a party. The continuing roles of the
Executive Committees are dependent upon future developments.
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 Dart (the "Standstill Agreement")
provides, among other things, that Dart may not, until further order is entered
7
<PAGE> 8
Changes in Management (Continued)
by the Delaware Court of Chancery, (i) change the current composition of the
board of directors of Dart or any of its subsidiaries, or (ii) change the
current Haft family officers of Dart or any of its subsidiaries. See Item 3. -
Legal Proceedings.
8
<PAGE> 9
Item 2. Properties
The Company subleases from Dart 210,000 square feet of a warehouse and office
facility, located in Landover, Maryland, which it shares with Crown Books. The
sublease is for 30 years and six months, provides for rental payments
increasing approximately 15% every five years over the term of the sublease and
commenced October 1985. The current annual rental is $1,330,000. The sublease
also requires payment for maintenance, utilities, insurance and real estate
taxes allocable to the space subleased. Dart leases the entire 271,000 square
foot warehouse and office facility from a private partnership in which Haft
family members own all of the partnership interests. The Company's sublease is
on the same terms as Dart's lease from the Haft family partnership.
Dart has a lease agreement with a Haft family-owned entity for vacant land
adjacent to the Company's warehouse in Landover, Maryland. The lease is for
the same period as the warehouse and office facility lease described above and
the current annual rental is $35,000 with increases of three percent per year.
The Company has paid the annual rent for the vacant land.
The Company has an agreement with Dart to sublease 6,500 square feet in a
warehouse facility, adjacent to the above warehouse and office facility. Dart
leases the property from a partnership in which Haft family members own all of
the partnership interests (the "Pennsy Leases"). The sublease commenced April
1992 with a term of one year (with nine one-year option periods). Under the
sublease agreement the annual rent is $21,000 and increases to $24,000 for each
of the last five option periods. The sublease agreement also requires the
Company to pay approximately $6,000 annually for its full share of any common
area charges, real estate taxes and insurance premiums. The Company intends to
give notice to terminate the sublease and hold over in the warehouse on a
month-to-month basis.
The Company 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 the Company 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.
The Company 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 the Company
to pay for maintenance, utilities, insurance and real estate taxes on the
warehouse.
The Company leases all of its 282 retail stores. As of January 28, 1995, the
total remaining minimum annual payments for the Company's retail stores
(excluding closed stores) were $94,286,000 to the lease expiration dates. The
lease and license expiration dates (without regard to renewal options) range
from 1995 to 2013. Twenty-four of these leases are with entities in which the
Haft family has substantially all the beneficial interest, two are with
partnerships in which Dart owns the majority interest and the remaining
partnership interests are held by members of the Haft family, and two are
subleased from Crown Books (a total of 28 leases).
9
<PAGE> 10
Item 2. Properties (continued)
The 28 lease agreements involving Haft-owned entities provide for various
termination dates that range from 1995 to 2023 and require payment of future
minimum rentals aggregating $54,237,000 (including renewal options) at January
28, 1995. These lease agreements also require payment of a percentage of sales
in excess of a stated minimum. Annual fees and rentals paid to Haft-owned
entities was $5,991,000 in the year ended January 28, 1995.
The Executive Committee of Dart undertook a legal review of the Pennsy Leases,
which relate to certain warehouses located at 3301 Pennsy Drive in Landover,
Maryland, beginning late in the third quarter of the year ended January 31,
1995. On February 10, 1995, Dart filed a complaint alleging, inter alia,
breaches of fiduciary duty, waste and other irregularities by certain members
of the Haft family in connection with the Pennsy Leases and in particular with
Dart's resumption of rental payments for these warehouses in 1991 following the
bankruptcy of the prior tenant. The complaint seeks rescission of the Pennsy
Leases and restitution of rent paid since 1991 and other monetary damages.
Dart is holding the Company's sublease payments in escrow, pending resolution
of this litigation. See Item 3. - Legal Proceedings. The Executive Committees
of Dart, Trak Auto and Crown Books have also undertaken a legal review of other
leasing arrangements and real estate related transactions between Dart, the
Company or Crown Books, on the one hand, and Haft-owned entities, on the other
hand. 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.
See Notes 4 and 6 to the Consolidated Financial Statements for information
concerning charges and methods of allocation to the Company and the lease and
license arrangements in which Dart or the Haft family has an interest.
10
<PAGE> 11
Item 3. Legal Proceedings
Robert M. Haft Employment Litigation
In August 1993, Robert M. Haft, the former president of Crown Books and Dart,
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 Dart 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 Dart had breached its employment
contract with Robert M. Haft and awarded him damages against Dart (equivalent
to the compensation projected to be due during 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 during 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 Dart, Crown Books and Trak Auto arising from 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 Dart, 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 Dart, 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 case, the court extended
the time for exercise for a period equal to the period
11
<PAGE> 12
Item 3. Legal Proceedings (Continued)
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 Dart'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, Dart 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, Dart, Crown Books and Trak Auto may also file
an appeal challenging some or all of the rulings in this lawsuit.
Derivative Litigation
In September 1993, Alan R. Kahn and the Tudor Trust (the "Kahn Derivative
Plaintiffs"), shareholders of Dart, 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
Dart, Trak Auto, Crown Books, Shoppers Food, Total Beverage, and Cabot-Morgan
Real Estate Company ("CMREC"), a wholly owned Dart subsidiary.
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
Dart and its subsidiaries, the termination of Robert M. Haft, the compensation
paid to Ronald S. Haft and Herbert H. Haft, Dart'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 vlaue per share (the "Class B Common
Stock"), of Dart by Herbert H. Haft to Ronald S. Haft and the compensation paid
to Dart's Executive Committee. Plaintiffs seek an accounting of unspecified
damages incurred by Dart, voiding of the options sold to Ronald S. Haft,
appointment of a temporary custodian to manage the affairs of Dart 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 Dart'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 Dart 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
Dart 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
12
<PAGE> 13
Item 3. Legal Proceedings (Continued)
connection with the sale of shares of the 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 Dart, Crown Books and Trak Auto was appointed by the Board of Directors to
assess, on behalf of Dart, 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 Dart to prosecute other
claims in those derivative lawsuits.
Given that these derivative lawsuits are brought in the name of Dart and its
subsidiaries, recovery in them would inure to the benefit of Dart 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 Dart a letter requesting:
(1) to exercise, effective immediately, stock options for shares of Dart's
Class B Common Stock pursuant to the Agreement (the "Options"), to
purchase, at an exercise price of $89.65 per share, 197,048 shares
(the "Option Shares") and
(2) to exercise his right under the Agreement, effective immediately, to
obtain a loan from Dart 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 Dart a check payable to
Dart 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 Dart in the amount of $17,665,353.20, the balance of the exercise
price for the Option Shares under the Options.
Dart 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 Dart, Dart has returned
his $197,048 check, and Dart has not issued any stock certificate to Ronald S.
Haft for the Option Shares. Dart 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 Dart. These funds are now in an interest
bearing escrow account.
On September 12, 1994, Ronald S. Haft filed a lawsuit against Dart (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 Dart 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.
13
<PAGE> 14
Item 3. Legal Proceedings (Continued)
Dart 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 Dart and Ronald S. Haft was ordered by the
Delaware Court of Chancery. The Standstill Agreement restricts certain actions
by Dart until further order of the court. In particular, Dart 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 Dart
or its subsidiaries; (iii) change the current Haft family officers of Dart or
its subsidiaries; (iv) issue any additional securities of Dart or any of its
subsidiaries; or (v) take any extraordinary actions that would result in (a)
the liquidation of Dart or any of its subsidiaries, (b) the sale of any major
subsidiary of Dart, or (c) the disadvantage of any Class B Common Stockholder
of Dart through any debt transaction.
In December 1994, Ronald S. Haft filed a motion for contempt against Dart,
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
Dart, Trak Auto or Crown Books by approving certain employee stock option
grants pursuant to existing stock option plans of the these companies, and by
approving a form of employment contract for executives of Dart, Trak Auto and
Crown Books that contains a provision for stock option grants. Dart 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 Dart, Trak Auto and Crown Books to grant stock options to its
employees, other than members of the Haft family, in a way that complies with
the past practice of Dart and (ii) allow Dart, Trak Auto and Crown Books 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.
Dart 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.
14
<PAGE> 15
Item 3. Legal Proceedings (Continued)
Pennsy Warehouse Litigation
The Executive Committee of Dart 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, Dart reserved
$32.3 million for the obligations represented by the Pennsy Leases, which is
the present value (discounted at 6%) before estimated future inflation of 4% of
the approximately $82.0 million that Dart 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, Dart 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.
The Executive Committees of Dart, Trak Auto and Crown Books have also
undertaken a legal review of other leasing arrangements and real estate related
transactions between Dart, the Company or Crown Books, on the one hand, and
Haft-owned entities, on the other hand. See Item 2. - Properties 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.
Other
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 Company has recorded expenses of approximately $640,000 and $400,000 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.
15
<PAGE> 16
Item 4. Submission of Matters to a Vote of Security Holders
Inapplicable.
Part II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters
The Common Stock is quoted on the Nasdaq National Market ("Nasdaq") under the
symbol TRKA. The following table sets forth the range of the high and low sale
prices for the Common Stock, as reported by the Nasdaq, for the fiscal quarters
indicated.
<TABLE>
<CAPTION>
Quarter Ended High Low
------------- ---- ---
<S> <C> <C>
May 1, 1993 20 13 3/4
July 31, 1993 15 10 3/4
October 30, 1993 16 1/2 12 1/2
January 29, 1994 14 1/4 10 3/4
April 30, 1994 13 7/8 11
July 30, 1994 17 12 1/4
October 29, 1994 20 14
January 28, 1995 18 15
</TABLE>
There were approximately 175 record holders of the Common Stock as of April 10,
1995.
The Company has not paid dividends during the past two fiscal years and does
not expect to pay dividends in the foreseeable future.
16
<PAGE> 17
Item 6. Selected Financial Data
<TABLE>
<CAPTION>
INCOME STATEMENT DATA: (in thousands, except per share and sales % data)
Fiscal Year
-----------------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
Sales $348,599 $334,798 $315,793 $319,635 $293,075
Interest and other income 1,887 1,562 1,759 1,145 890
Cost of sales, store
occupancy and
warehousing 256,210 255,669 233,472 242,787 229,575
Selling and administrative 69,260 70,838 66,053 64,918 59,522
Depreciation and
Amortization 6,004 6,756 6,029 6,488 5,340
Interest expense 3,849 3,561 3,521 3,549 3,645
Restructuring charge - - 7,400 - -
Unusual item - - 3,894 - -
Income (loss) before
income taxes 15,163 (464) 4,971 3,038 (4,117)
Income (loss) before
cumulative effect of
change in accounting
principle 10,265 81 3,355 2,084 (4,177)
Cumulative effect of change
in accounting principle - - 1,658 - -
Net income (loss) 10,265 81 5,013 2,084 (4,177)
Per share data:
Income (loss) before
cumulative effect of
change in accounting
principle $ 1.67 $ .01 $ .57 $ .36 $ (.72)
Cumulative effect of change
in accounting principle - - .28 - -
Net income (loss) $ 1.67 $ .01 $ .85 $ .36 $ (.72)
Weighted average common
share and common share
equivalents outstanding 6,139 6,107 5,928 5,795 5,780
Percentage change in sales
Total stores 4.1% 6.0% (1.2)% 9.1% 6.4%
Comparative stores 2.1% 1.3% 2.6% 6.1% .3%
</TABLE>
<TABLE>
<CAPTION>
BALANCE SHEET DATA: (in thousands)
at end of Fiscal Year
-------------------------------------------------
1995 1994 1993 1992 1991
-------- -------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
Current assets $137,306 $129,805 $119,831 $101,404 $103,057
Current liabilities 75,293 75,737 59,662 53,370 58,904
Working capital 62,013 54,068 60,169 48,034 44,153
Total assets 187,649 179,149 165,104 144,573 146,209
Long-term obligations 31,797 33,737 36,159 29,800 27,999
Stockholders' equity 80,559 69,675 69,283 61,403 59,306
</TABLE>
17
<PAGE> 18
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
On September 7, 1994, the Board of Directors of Dart established an Executive
Committee comprised of Dart's outside directors to conduct the affairs of Dart
with respect to matters that are the subject of dispute between the Chairman of
the Board and Chief Executive Officer of Dart, Herbert H. Haft, and the
President and Chief Operating Officer of Dart, Ronald S. Haft. Because both
Herbert H. Haft and Ronald S. Haft are also executive officers and/or directors
of Trak Auto, on October 11, 1994, the Board of Directors of Trak Auto
established an Executive Committee comprised of the same outside directors,
with authority parallel to that of Dart's Executive Committee. The disputes
between Herbert Haft and Ronald Haft concerning issues involving Dart and
Trak Auto have been extensive. Accordingly, the respective Executive
Committees have assumed day-to-day involvement in these disputed issues and
other matters affecting Dart and Trak Auto, in particular matters relating to
litigation to which Dart or Trak Auto is a party. The continuing roles of the
Executive Committees are dependent upon future developments.
A Standstill Agreement entered into on September 14, 1994 in connection with a
lawsuit filed by Ronald S. Haft against Dart provides that Dart 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 Dart or any of its subsidiaries, (iii) change the
current Haft family officers of Dart or any of its subsidiaries, (iv) issue any
additional securities of Dart or any of its subsidiaries, or (v) take any
extraordinary actions that would result in (a) the liquidation of Dart or any
of its subsidiaries, (b) the sale of any major subsidiary of Dart, or (c) the
disadvantage of any Class B stockholder of Dart through any debt transaction.
See Item 3. - Legal Proceedings.
In October 1994, Robert A. Marmon was appointed as Principal Financial Officer
for the Company and as Chief Financial Officer of Dart and Crown Books. Mr.
Marmon reports directly to the Executive Committee and the Board of Directors
for each of Dart, the Company and Crown Books.
The Executive Committees of Dart, Trak Auto and Crown Books have undertaken a
legal review of leasing arrangements and other real estate related transactions
between Dart, Trak Auto or Crown Books, on the one hand, and Haft-owned
entities, on the other hand. On February 10, 1995, Dart filed a complaint
alleging breaches of fiduciary duty, waste and other irregularities committed
by former directors and 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 in connection with these matters.
Dart has retained an investment banking firm to provide advice concerning the
value of Dart and its subsidiaries and the option to purchase Class B Common
Stock of Dart claimed by Ronald Haft. This retention relates to Dart'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 Dart's
stock is significantly undervalued and has reviewed with members of the
Executive Committee potential types of transactions that might enhance value
for Dart's stockholders. No final decision has been made whether or not the
Dart 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 and may be opposed by certain controlling stockholders of
Dart.
18
<PAGE> 19
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Liquidity and Capital Resources
Cash, including short-term instruments, is the Company's primary source of
liquidity. Cash, including short-term instruments, increased by $7,816,000 to
$24,134,000 at January 28, 1995 from $16,318,000 at January 29, 1994. The
increase was primarily the result of the current year operating results.
Operating activities provided $17,829,000 in funds to the Company for the year
ended January 28, 1995 compared to $4,734,000 for the year ended January 29,
1994. The increase was primarily due to current period operating results and
to a decrease in merchandise inventories.
Investing activities used $10,530,000 of the Company's funds during the year
ended January 28, 1995, compared to $21,078,000 for the year ended January 29,
1994. The decrease was primarily due to a decrease in capital expenditures as
a result of fewer conversions to Super Trak, and to a net disposition of
marketable debt securities.
Financing activities provided $517,000 to the Company for the year ended
January 28, 1995, compared to $115,000 for the same period last year. The
increase was due to proceeds from the exercise of stock options and was
partially offset by principal payments under capital lease obligations.
The Company has a $6,000,000 revolving line of credit available that it shares
with Dart and Crown Books. In addition, the Company has entered into an
agreement with Dart for a $10,000,000 revolving line of credit. This line is
intended to be used for the Company's short-term working capital needs (see
Note 10 to the Consolidated Financial Statements). The Company has not
borrowed any funds under these lines of credit.
The Company anticipates that the funds necessary for capital expenditures for
new store openings and remodelings, inventory purchases for new stores, and to
meet the Company's long-term lease obligations and current liabilities
(including current and long-term store closing and restructuring reserves) will
come from operations and existing current assets. The Company will attempt to
open or convert 57 stores as Super Trak or Super Trak Warehouse stores during
fiscal 1996. As of January 28, 1995, the Company had a reserve of $6,945,000
for store closings and restructurings. See Item 1. - Business - Store Closings
and Restructuring. The Company currently estimates that it may close 30
Classic Trak stores that have future lease obligations beyond the estimated
closing dates of approximately $4,213,000 and restructure 15 Classic Trak
stores that have future lease obligations beyond the estimated closing dates of
approximately $1,294,000.
The liquid assets maintained by the Company are intended to fund the expansion
of the Company's retail business through opening stores in new markets,
converting Classic Trak stores to Super Trak stores and opening additional
stores in existing markets, and to fund other corporate activities.
19
<PAGE> 20
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
Liquidity and Capital Resources (Continued)
On December 21, 1994, Trak Auto offered to buy back from its shareholders
approximately 24% of the 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 28, 1995
Working capital increased to $62,013,000 during the year ended January 28, 1995
as a result of the Company's record year operating results.
At January 29, 1994
Working capital decreased by $6,101,000 to $54,068,000 at January 29, 1994 from
$60,169,000 at January 30, 1993. The decrease was primarily due to increased
capital expenditures as a result of the conversion or opening of Super Trak
stores and was partially offset by operating results.
Results of Operations
Year Ended January 28, 1995 as Compared to the Year Ended
January 29, 1994
During the year ended January 28, 1995, the Company 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, the Company
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.
20
<PAGE> 21
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations, (Continued)
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) 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). Costs 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 the
Company's efforts to control store hours and administrative overhead and the
maturity of Super Trak stores.
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.
Year Ended January 29, 1994 as Compared to the Year Ended
January 30, 1993
During the year ended January 29, 1994 the Company 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
21
<PAGE> 22
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations, (Continued)
Year Ended January 29, 1994 as Compared to the Year Ended
January 30, 1993
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.
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 73.0%
for the year ended January 30, 1993. This increase was primarily the result of
decreased margins as a result of the Company'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 19.8% 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 the Company'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, the Company recorded a tax benefit of
$545,000 as a result of the Company's book net operating loss in that fiscal
year and the effect of certain permanent book/tax differences.
Effects of Inflation
Inflation in the past several years has not had a significant impact on the
Company's business. The Company believes it will be able to recover future
cost increases due to inflation by increasing selling prices.
22
<PAGE> 23
Item 8. Financial Statements and Supplementary Data
Financial Statements
<TABLE>
<CAPTION>
Page No.
<S> <C>
Report of Independent Public Accountants 24
Consolidated Balance Sheets
As of January 28, 1995 and January 29, 1994 25 - 26
Consolidated Statements of Income
Years ended January 28, 1995 and January 29,
1994 and January 30, 1993 27
Consolidated Statements of Stockholders' Equity
Years ended January 28, 1995 and January 29,
1994 and January 30, 1993 28
Consolidated Statements of Cash Flows
Years ended January 28, 1995 and January 29,
1994 and January 30, 1993 29 - 30
Notes to Consolidated Financial Statements 31 - 52
</TABLE>
23
<PAGE> 24
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO TRAK AUTO CORPORATION:
We have audited the accompanying consolidated balance sheets of Trak Auto
Corporation (a Delaware corporation and a majority-owned subsidiary of Dart
Group Corporation) and subsidiaries as of January 28, 1995 and January 29,
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
28, 1995. These financial statements are the responsibility of the Company'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 Trak Auto Corporation and
subsidiaries as of January 28, 1995 and January 29, 1994, and the results of
their operations and their cash flows for each of the three fiscal years in the
period ended January 28, 1995, in conformity with generally accepted accounting
principles.
As discussed in Note 1 to the consolidated financial statements, effective
February 2, 1992, the Company changed its method of accounting for income
taxes.
ARTHUR ANDERSEN LLP
Washington, D.C.
April 27, 1995.
24
<PAGE> 25
TRAK AUTO CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
January 28, January 29,
------------ ------------
1995 1994
------------ ------------
<S> <C> <C>
Current Assets:
Cash $ 5,196,000 $ 4,931,000
Short-term instruments 18,938,000 11,387,000
Marketable debt securities 10,133,000 8,689,000
Accounts receivable 5,330,000 6,334,000
Merchandise inventories 89,797,000 93,462,000
Deferred income taxes 6,842,000 3,992,000
Due from affiliate - 20,000
Other current assets 1,070,000 990,000
------------ ------------
Total Current Assets 137,306,000 129,805,000
------------ ------------
Property and Equipment, at cost:
Furniture, fixtures and equipment 49,008,000 43,435,000
Leasehold improvements 9,185,000 9,269,000
Property under capital leases 23 667,000 23,667,000
------------ ------------
81,860,000 76,371,000
Accumulated Depreciation
and Amortization 37,638,000 32,608,000
------------ ------------
44,222,000 43,763,000
------------ ------------
Other Assets 247,000 239,000
------------ ------------
Deferred Income Taxes 5,874,000 5,342,000
------------ ------------
Total Assets $187,649,000 $179,149,000
============ ============
</TABLE>
See notes to consolidated financial statements.
25
<PAGE> 26
TRAK AUTO CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
January 28, January 29,
------------ ------------
1995 1994
------------ ------------
<S> <C> <C>
Current Liabilities:
Accounts payable, trade $ 50,403,000 $ 49,926,000
Income taxes payable 393,000 1,155,000
Accrued expenses-
Salary and benefits 10,054,000 8,008,000
Taxes other than income 5,053,000 5,572,000
Other 8,944,000 10,865,000
Current portion of obligations under
capital leases 261,000 211,000
Due to affiliate 185,000 -
------------ ------------
Total Current Liabilities 75,293,000 75,737,000
------------ ------------
Obligations under Capital Leases 26,541,000 26,331,000
------------ ------------
Reserve for Store Closings and
Restructuring 5,029,000 7,047,000
------------ ------------
Other 227,000 359,000
------------ ------------
Total Liabilities 107,090,000 109,474,000
------------ ------------
Stockholders' Equity
Common stock, par value $.01 per
share; 15,000,000 shares
authorized; 6,331,458 and
6,270,497 shares issued at
each year end, respectively 63,000 63,000
Paid-in capital 45,206,000 44,477,000
Unrealized investment losses (110,000) -
Retained earnings 37,216,000 26,951,000
Treasury stock, 217,812 shares
of common stock at cost (1,816,000) (1,816,000)
------------ ------------
Total Stockholders' Equity 80,559,000 69,675,000
------------ ------------
Total Liabilities and Stockholders'
Equity $187,649,000 $179,149,000
============ ============
</TABLE>
See notes to consolidated financial statements.
26
<PAGE> 27
TRAK AUTO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years Ended
----------------------------------------
January 28, January 29, January 30,
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Sales $348,599,000 $334,798,000 $315,793,000
Interest and other income 1,887,000 1,562,000 1,759,000
------------ ------------ ------------
350,486,000 336,360,000 317,552,000
------------ ------------ ------------
Cost of sales, store occupancy
and warehousing 256,210,000 255,669,000 233,472,000
Selling and administrative 69,260,000 70,838,000 66,053,000
Depreciation and amortization 6,004,000 6,756,000 6,029,000
Interest expense 3,849,000 3,561,000 3,521,000
Restructuring charge - - 7,400,000
Unusual item - - (3,894,000)
------------ ------------ ------------
335,323,000 336,824,000 312,581,000
------------ ------------ ------------
Income (loss) before income
taxes 15,163,000 (464,000) 4,971,000
Income taxes (benefit) 4,898,000 (545,000) 1,616,000
------------ ------------ ------------
Net income before
cumulative effect of
change in accounting
principle 10,265,000 81,000 3,355,000
Cumulative effect of
change in accounting
principle - - 1,658,000
------------ ------------ ------------
Net income $ 10,265,000 $ 81,000 $ 5,013,000
============ ============ ============
Weighted average common share
and common share equivalents
outstanding 6,139,000 6,107,000 5,928,000
============ =========== ============
Per share data:
Net income before
cumulative effect of
change in accounting
principle $ 1.67 $ .01 .57
Cumulative effect of
change in accounting
principle - -. .28
------------ ------------ ------------
Net income $ 1.67 $ .01 $ .85
============ ============ ============
</TABLE>
See notes to consolidated financial statements.
27
<PAGE> 28
TRAK AUTO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Years Ended
----------------------------------------
January 28, January 29, January 30,
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Common Stock:
Balance, beginning of
period $ 63,000 $ 63,000 $ 60,000
Stock options exercised - - 3,000
------------ ------------ ------------
Balance, end of period $ 63,000 $ 63,000 $ 63,000
============ ============ ============
Note Receivable:
Balance, beginning of period $ - $ (124,000) $ -
Stock options exercised - (124,000)
Payment of note receivable - 124,000 -
------------ ------------ ------------
Balance, end of period $ - $ - $ (124,000)
============ ============ ============
Paid-in Capital:
Balance, beginning of period $ 44,477,000 $ 44,290,000 $ 41,302,000
Stock options exercised 729,000 187,000 2,988,000
------------ ------------ ------------
Balance, end of period $ 45,206,000 $ 44,477,000 $ 44,290,000
============ ============ ============
Unrealized Investment Losses $ (110,000) $ - $ -
============ ============ ============
Retained Earnings:
Balance, beginning of period $ 26,951,000 $ 26,870,000 $ 21,857,000
Net income 10,265,000 81,000 5,013,000
------------ ------------ ------------
Balance, end of period $ 37,216,000 $ 26,951,000 $ 26,870,000
============ ============ ============
Treasury Stock:
Balance, beginning and
end of period $ (1,816,000) $ (1,816,000) $ (1,816,000)
============ ============ ============
Common Stock Outstanding:
Balance, beginning of period 6,052,685 6,039,386 5,781,265
Stock Options Exercised 60,961 13,299 258,121
------------ ----------- -----------
Balance, end of period 6,113,646 6,052,685 6,039,386
============ =========== ===========
</TABLE>
See notes to consolidated financial statements.
28
<PAGE> 29
TRAK AUTO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended
-----------------------------------------
January 28, January 29, January 30,
1995 1994 1993
------------- ------------ ------------
<S> <C> <C> <C>
Cash Flows from Operating
Activities:
Net Income $ 10,265,000 $ 81,000 $ 5,013,000
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and amortization 6,004,000 6,756,000 6,029,000
Utilization of Trak
Corporation net operating
loss carryforwards - - (1,658,000)
Provision for store closings
and restructuring 1,580,000 (943,000) 8,185,000
Change in assets and
liabilities:
Accounts receivable 1,004,000 1,522,000 (1,712,000)
Merchandise inventories 4,165,000 (16,318,000) (5,942,000)
Prepaid income taxes - 472,000 (472,000)
Due from affiliate 205,000 (20,000) 67,000
Other current assets (80,000) (25,000) (139,000)
Deferred income taxes (3,382,000) (2,401,000) (2,674,000)
Other assets (8,000) 105,000 155,000
Accounts payable, trade 477,000 12,735,000 7,913,000
Accrued expenses 255,000 2,689,000 (49,000)
Due to affiliate - (35,000) 35,000
Income taxes payable (762,000) 1,155,000 (677,000)
Reserve for closed
stores (1,894,000) (1,039,000) (2,239,000)
------------- ------------ ------------
Net cash provided by
operating activities $ 17,829,000 $ 4,734,000 $ 11,835,000
------------- ------------ ------------
Cash Flows from Investing
Activities:
Capital expenditures $ (7,953,000) $(12,389,000) $ (4,933,000)
Purchase of U.S. Treasury
Notes (36,380,000) (25,777,000) -
Dispositions of United States
Treasury Notes 33,097,000 23,414,000 -
Dispositions of marketable
debt securities 4,540,000 1,400,000 -
Disposition of reverse
repurchase agreements (1,023,000) - -
Purchase of marketable
debt securities (2,811,000) (7,726,000) -
------------- ------------ ------------
Net cash used in
investing activities $ (10,530,000) $(21,078,000) $ (4,933,000)
------------- ------------ ------------
</TABLE>
(Continued on following page)
29
<PAGE> 30
TRAK AUTO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
Years Ended
----------------------------------------
January 28, January 29, January 30,
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Cash Flows from Financing
Activities:
Principal payments under
capital lease obligations $ (212,000) $ (196,000) $ (387,000)
Proceeds from redemption
of note receivable - 124,000 -
Proceeds from exercise of
stock options 729,000 187,000 2,867,000
------------ ------------ ------------
Net cash provided
by financing
activities $ 517,000 $ 115,000 $ 2,480,000
------------ ------------ ------------
Net Increase (Decrease) in Cash
and Equivalents $ 7,816,000 $(16,229,000) $ 9,382,000
Cash and Equivalents at
Beginning of Year 16,318,000 32,547,000 23,165,000
------------ ------------ ------------
Cash and Equivalents at
End of Year $ 24,134,000 $ 16,318,000 $ 32,547,000
============ ============ ============
</TABLE>
Supplemental Disclosures of Cash Flow Information:
<TABLE>
<CAPTION>
Cash paid during the year for:
<S> <C> <C> <C>
Interest $ 3,849,000 $ 3,561,000 $ 3,521,000
Income taxes 8,948,000 340,000 4,657,000
</TABLE>
See notes to consolidated financial statements.
30
<PAGE> 31
TRAK AUTO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FISCAL YEARS ENDED JANUARY 28, 1995, JANUARY 29, 1994
AND JANUARY 30, 1993
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying consolidated financial statements reflect the accounts of Trak
Auto Corporation ("Trak Auto") and its wholly-owned subsidiaries. Trak Auto and
its wholly-owned subsidiaries are referred to collectively as the "Company".
All significant intercompany accounts and transactions have been eliminated.
The Company is engaged in the business of operating specialty retail stores.
Fiscal Year
The fiscal year ends on the Saturday nearest to January 31. All fiscal years
presented include 52 weeks.
Cash and Equivalents
For purposes of the statement of cash flows, the Company considers all
short-term instruments, consisting of United States Treasury Bills, purchased
with an original maturity of less than one year 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 Company's operating cash management
program.
Short-term Instruments and Marketable Debt Securities
The Company's short-term instruments included United States Treasury Bills,
money market funds and marketable debt securities included United States
Treasury Notes, corporate notes and municipal securities.
The Company adopted Statement of Financial Accounting Standards ("SFAS") No.
115, Accounting for Certain Investments in Debt and Equity Securities,
effective January 30, 1994. In accordance with SFAS No. 115, prior years'
financial statements have not been restated to reflect the change in accounting
method.
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 28, 1995, market value was $110,000 less than cost, net of
income taxes. At January 28, 1995, the Company had no investments that
qualified as trading or held to maturity.
31
<PAGE> 32
TRAK AUTO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FISCAL YEARS ENDED JANUARY 28, 1995, JANUARY 29, 1994
AND JANUARY 30, 1993
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 interest and other income. 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 after three months through one year $ 17,892,000
Due after one year through three years 6,006,000
Due after three years 3,670,000
------------
$ 27,568,000
============
</TABLE>
Expected maturities will differ from contractual maturities because the issuers
of securities may have the right to prepay obligations without prepayment
penalties.
Fair Value of Financial Instruments
The fair values of current assets and current liabilities are approximately
equal to the reported carrying amounts. No value has been placed on the
Company's line of credit facility as any borrowings would bear interest at
market rates.
Merchandise Inventories
The Company's inventories are priced at the lower of last-in, first-out
("LIFO") cost or market. At January 28, 1995 and January 29, 1994, inventories
determined on a first-in, first-out basis would have been greater by $5,870,000
and $5,520,000, respectively.
Effective January 30, 1994, the Company 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, the Company uses an index
published by United States Bureau of Labor Statistics. Previously, an index
determined by the Company based upon inventory cost changes between financial
reporting periods, was utilized. This change has been accounted for as a
change in accounting principle 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 required under Accounting Principle
Bulletin 20. Accordingly, the change in method is being accounted for on a
prospective basis from January 30, 1994 and the effect on per share data, if
any, is not available.
32
<PAGE> 33
TRAK AUTO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FISCAL YEARS ENDED JANUARY 28, 1995, JANUARY 29, 1994
AND JANUARY 30, 1993
Property and Equipment
Property and equipment are recorded at cost. The Company depreciates
furniture, fixtures and most equipment generally over a ten year period using
the straight-line method. Computer equipment is depreciated over a five year
period using the straight-line method. Computer software is charged to expense
in the year of acquisition. All stores and some equipment are leased.
Improvements to leased premises are amortized 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
$7,912,000 and $7,558,000 as of January 28, 1995 and January 29, 1994,
respectively.
Preopening Expenses
All costs of a noncapital nature incurred in opening a new store are charged to
expense 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.
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
receivables is minimized as a result of deducting such receivables from amounts
payable to the vendors.
Net Income Per Common Share and Common Share Equivalents
Net income per common share has been computed using the weighted average number
of shares of common stock and common stock equivalents (certain stock options)
outstanding during the periods. The difference between primary net income per
common share and fully diluted net income per common share is not significant
for the periods presented.
33
<PAGE> 34
TRAK AUTO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FISCAL YEARS ENDED JANUARY 28, 1995, JANUARY 29, 1994
AND JANUARY 30, 1993
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 28, 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 January 30, 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,
during the year ended January 30, 1993. Adoption of the Standard for income
taxes resulted in the recording of previously unrecorded income tax benefits,
which have been classified as the cumulative effect of a change in accounting
principle. 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 February 3, 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 25, 1997. The Company has
not determined the impact of this recently issued accounting standard on the
Company's consolidated financial statements.
34
<PAGE> 35
TRAK AUTO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FISCAL YEARS ENDED JANUARY 28, 1995, JANUARY 29, 1994
AND JANUARY 30, 1993
NOTE 2 - INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
Fiscal Years
----------------------------------------
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Current:
Federal $ 5,255,000 $ 687,000 $ 3,537,000
State 847,000 108,000 751,000
------------ ------------ ------------
6,102,000 795,000 4,288,000
Deferred:
Federal (1,301,000) (1,052,000) (2,246,000)
State 97,000 (288,000) (426,000)
------------ ------------ ------------
$ 4,898,000 $ (545,000) $ 1,616,000
============ ============ ============
</TABLE>
The effective tax rate is reconciled to the Federal statutory rate as follows:
<TABLE>
<CAPTION>
Fiscal Years
----------------------------------------
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Federal statutory rate 35% 34% 34%
Income taxes at Federal
statutory rate $ 5,307,000 $ (158,000) $ 1,690,000
Increase (decrease) in
taxes resulting from:
State income taxes,
net of Federal
income tax benefit 609,000 (118,000) 214,000
Tax exempt municipal
bond interest income (108,000) (50,000) -
Utilization of former
Trak West net
operating loss (225,000) (219,000) (209,000)
Effect of change in
deferred tax
valuation allowance (728,000) - -
Other 43,000 - (79,000)
------------ ------------ ------------
Income tax provision
(benefit) $ 4,898,000 $ (545,000) $ 1,616,000
============ ============ ============
Effective tax rate 32.3% n/a 32.5%
============ ============ ============
</TABLE>
35
<PAGE> 36
TRAK AUTO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FISCAL YEARS ENDED JANUARY 28, 1995, JANUARY 29, 1994
AND JANUARY 30, 1993
The Company accounts for income taxes in accordance with SFAS 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>
January 28, January 29,
1995 1994
-------------- --------------
<S> <C> <C>
Gross deferred tax assets:
Capitalized leases treated as operating
leases for tax purposes $ 2,326,000 $ 2,128,000
Depreciation 1,321,000 1,259,000
Uniform capitalization of inventory costs 2,099,000 1,931,000
Reserve for expenses related to
unusual item 206,000 421,000
Reserve for stores closings and
restructuring charges 2,782,000 3,281,000
Accrued rent 386,000 289,000
Accrued legal expenses 200,000 86,000
Preacquisition basis adjustment as a
result of purchase accounting for
Trak West 394,000 659,000
Accrued vacation reserve 446,000 -
Accrued self insurance reserve 1,827,000 -
Unrealized loss on investment 71,000 -
State tax credit carryforward 963,000 -
Deferred income 99,000 -
Other 127,000 8,000
-------------- --------------
13,247,000 10,062,000
Valuation allowance - (728,000)
-------------- --------------
Deferred tax assets 13,247,000 9,334,000
-------------- --------------
Deferred tax liability:
Book basis of asset acquired as a
result of involuntary conversion (531,000) -
-------------- --------------
Net deferred tax asset $ 12,716,000 $ 9,334,000
============== ==============
</TABLE>
In conjunction with the adoption of SFAS No. 109, Accounting for Income Taxes,
the Company recorded $1,658,000 as the cumulative effect of a change in
accounting principle during the year ended January 30, 1993. At the date of
the adoption, the Company established a valuation allowance of $728,000 against
the deferred tax asset. During the year ended January 28, 1995, the Company
reversed the $728,000 valuation allowance.
In the opinion of management, the deferred tax asset will be realized through
projected future earnings. The Company has achieved taxable income in each of
the last three years. During the year ended January 28, 1995, the Company
entered into a tax sharing agreement with Dart, which would become effective,
if and when, the Company is consolidated with Dart's income tax returns.
36
<PAGE> 37
TRAK AUTO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FISCAL YEARS ENDED JANUARY 28, 1995, JANUARY 29, 1994
AND JANUARY 30, 1993
During the year ended January 28, 1995, the Company paid $944,000 as a result
of a Federal Income Tax Audit for the fiscal tax years 1988-1992. In
connection with this audit, the Company has recorded a deferred tax asset of
$1,331,000 and approximately $260,000 in interest expense.
NOTE 3 - RESTRUCTURING AND CLOSED STORE CHARGES
Store Closings and Restructuring Costs
The Company 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 the Company's 282 stores as of
January 28, 1995, the Company currently expects to close approximately 30
Classic Trak stores that are not providing satisfactory performance and 15
Classic Trak stores in conjunction with the Company's remaining restructuring
efforts. The Company also expects to convert at least eight existing Classic
Trak stores into Super Trak or Super Trak Warehouse stores.
As of January 28, 1995, the Company 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. The
Company 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. The Company 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. The Company 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, the
Company 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,
the Company 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, the Company charged approximately
$2,432,000 and $600,000, respectively, against the restructuring reserve.
During fiscal year 1995, the Company 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 effort.
37
<PAGE> 38
TRAK AUTO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FISCAL YEARS ENDED JANUARY 28, 1995, JANUARY 29, 1994
AND JANUARY 30, 1993
The Company currently estimates that 15 existing Classic Trak store may be
closed in connection with the Company's restructuring efforts. The future
lease obligations beyond the estimated closing dates of these 15 stores are
approximately $1,294,000.
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 the Company 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.
NOTE 4 - TRANSACTIONS WITH AFFILIATES
Dart Group Corporation ("Dart"), which currently owns 68.3% of the Company's
outstanding common stock, provides the Company with certain general and
administrative services. Some of these services include executive management,
accounting, legal and real estate. In addition, the Company provided similar
services to Dart and its other subsidiaries, including advertising
administration, data processing and loss prevention. In management's opinion,
the intercompany charges for these services were equal to the costs incurred by
Dart or the Company, as the case may be, to provide these functions. It is not
practicable for the Company to estimate the cost it would have incurred for
these services if it had operated as an unaffiliated entity.
In addition to the intercompany charges for general and administrative
services, Dart charged the Company, on a quarterly basis, for actual expenses
which related directly to the Company's operations. Substantially all such
charges were supported by invoices from unrelated parties designating the
Company as recipient of the related goods or services.
38
<PAGE> 39
TRAK AUTO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FISCAL YEARS ENDED JANUARY 28, 1995, JANUARY 29, 1994
AND JANUARY 30, 1993
In the Company's opinion, the methods used for allocating costs described above
constitute a reasonable basis on which to allocate such costs.
Amounts receivable from or payable to affiliate relate to transactions made on
behalf of the Company by Dart or on behalf of Dart by the Company.
The following table summarizes the intercompany transactions:
<TABLE>
<CAPTION>
Fiscal Years
----------------------------------------
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Due to (from) Affiliate,
Beginning of year $ (20,000) $ 35,000 $ (67,000)
------------ ------------ ------------
Direct expense charges-
Rentals (Note 6) 1,339,000 1,407,000 1,434,000
Other expenses 2,893,000 1,586,000 1,235,000
------------ ------------ ------------
4,232,000 2,993,000 2,669,000
------------ ------------ ------------
Allocated charges-
Salaries from Dart 712,000 929,000 923,000
Salaries to Dart (468,000) (490,000) (562,000)
------------ ------------ ------------
Payments (4,271,000) (3,487,000) (2,928,000)
------------ ------------ ------------
Due to (from) Affiliate,
End of year $ 185,000 $ (20,000) $ 35,000
============ ============ ============
</TABLE>
All transactions with Dart included above are made under current payment terms
that, in management's opinion, are comparable to those with unrelated parties
and are free of interest. The average balance of amounts due to affiliate were
$355,000, $175,000, and $127,000 for the years ended January 28, 1995 and
January 29, 1994 and January 30, 1993, respectively.
NOTE 5 - UNUSUAL ITEM
The Company 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 stores remain closed. Payments from insurance
carriers, less related expenses and the cost of the related inventory and fixed
assets lost, were recorded as a gain, and classified as an unusual item during
the year ended January 30, 1993.
39
<PAGE> 40
TRAK AUTO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FISCAL YEARS ENDED JANUARY 28, 1995, JANUARY 29, 1994
AND JANUARY 30, 1993
NOTE 6 - 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 and non-cancelable operating leases and license agreements which have
initial or remaining terms in excess of one year at January 28, 1995. The
imputed interest rate on capital leases is 13.5% in the aggregate.
<TABLE>
<CAPTION>
--in thousands--
---------------------------------------
Capital Leases Operating
(see Related Party Leases) Leases
-------------------------- ---------
Fiscal Fixtures &
Year Buildings Equipment
------ ---------- ----------
<S> <C> <C> <C>
1996 $ 3,355 $ 183 $ 19,800
1997 3,524 - 17,826
1998 3,720 - 16,058
1999 3,918 - 13,337
2000 3,944 - 9,150
2001-2017 67,726 - 22,285
---------- ---------- ---------
Total 86,187 183 $ 98,456
=========
Less-Imputed interest 59,554 14
---------- ----------
Present value of net
minimum lease payments 26,633 169
Less-Current maturities 92 169
---------- ----------
Long-term capital lease
obligations $ 26,541 $ -
========== ==========
</TABLE>
The above table includes $3,952,000 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 rentals of $508,000 receivable in the
future under noncancelable leases. There are no sublease arrangements for the
capital leases.
Rent expense and license fees for operating leases and license agreements are
as follows:
<TABLE>
<CAPTION>
Fiscal Years
----------------------------------------
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Minimum rentals $ 18,906,000 $ 18,101,000 $ 17,822,000
Contingent rentals 564,000 361,000 338,000
------------ ------------ ------------
Total $ 19,470,000 $ 18,462,000 $ 18,160,000
============ ============ ============
</TABLE>
40
<PAGE> 41
TRAK AUTO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FISCAL YEARS ENDED JANUARY 28, 1995, JANUARY 29, 1994
AND JANUARY 30, 1993
Related Party Leases and License Agreements
Members of the Haft family own all the issued and outstanding voting stock of
Dart. Of the Company's 282 stores and three warehouses as of January 28, 1995,
28 stores and the three warehouses are held under leases from entities in which
Haft family members own substantially all beneficial interest. Two stores are
leased from partnerships in which Dart owns the majority interest and the
remaining interest is owned by partnerships in which the Haft family members
own all the partnership interest. In addition, two stores are subleased from
Crown Books Corporation ("Crown Books"), an affiliate of Dart. These 28 store
lease and sublease agreements provide for various termination dates which,
assuming renewal options are exercised, range from 1995 to 2023, and require
the payment of future minimum license fees and rentals aggregating $54,237,000
at January 28, 1995. These agreements also require payment of a percentage of
sales in excess of a stated minimum, and are included in the lease and license
commitments table above as operating leases. Annual fees and rentals for
licenses, leases and subleases involving the Haft family were $5,991,000,
$5,182,000, and $5,010,000 for fiscal 1995, 1994 and 1993, respectively.
The Company 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, which is for 30 years and six months (which
commenced April 27, 1984), 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 also requires the payment of maintenance,
utilities, insurance and taxes on the warehouse. Under the terms of the lease
agreement, Dart is jointly and severally liable for the lease obligations.
This lease agreement has been classified as a capital lease and is included
under the capital lease caption of the lease commitment table above.
The Company subleased from Dart 210,000 square feet of a warehouse and office
facility located in Landover, Maryland which it shares with Dart and Crown
Books. The sublease is for 30 years and six months, provides for rental
payments increasing approximately 15% every five years over the term of the
sublease and commenced October 1985. The current annual rental is $1,330,000.
The sublease agreement also requires the payment for maintenance, utilities,
insurance and taxes allocable to the space subleased. Dart leases the entire
271,000 square foot warehouse and office facility from a private partnership in
which Haft family members own all of the partnership interests. The Company's
sublease is on the same terms as Dart's lease from the Haft partnership and is
classified as a capital lease and is included under the capital lease caption
of the lease commitment table above.
Dart has a lease agreement with a Haft family-owned entity for vacant land
adjacent to the Company's warehouse in Landover, Maryland. The lease is for
the same period as the headquarters building and distribution center lease
described above and the current annual rental is $35,000 with increases of
three percent per year. The Company has paid the annual rent for the vacant
land.
41
<PAGE> 42
TRAK AUTO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FISCAL YEARS ENDED JANUARY 28, 1995, JANUARY 29, 1994
AND JANUARY 30, 1993
On April 20, 1992, the Company entered into an agreement with Dart, to sublease
6,500 square feet in a warehouse facility, adjacent to the above warehouse and
office facility. Dart leases the property from a partnership in which Haft
family members own all of the partnership interest (the "Pennsy Leases"). The
term of the sublease is one year (with nine one-year option periods). Under
the sublease agreement, the annual rent is $21,000 and increases to $24,000
for each of the last five option periods. The sublease agreement also requires
the Company to pay approximately $6,000 annually for its full share of any
common area charges, real estate taxes and insurance premiums. The Company
intends to give notice to terminate this sublease and hold over in the
warehouse on a month-to-month basis. The Pennsy Leases are currently the
subject of litigation (see Note 9).
The Company has a lease agreement with a Haft family-owned entity for a 317,000
square foot distribution center in Ontario, California. The lease is for 20
years, commenced in December 1989, and provides for increasing rental payments,
based upon the Consumer Price Index for the Los Angeles area, over the term of
the lease. Current annual rental is $1,374,000 per year. The lease requires
the payment for maintenance, utilities, insurance and taxes. This lease
agreement has been classified as a capital lease and is included under the
capital lease caption in the lease commitment table above.
On February 10, 1995, after a legal review by Dart's Executive Committee, Dart
filed a complaint for rescission of the Pennsy Leases and for the return of
rent paid since 1991 on such leases. See Note 9. The Executive Committees of
Dart, Trak Auto and Crown Books have also undertaken a legal review of other
leasing arrangements and real estate related transactions between Dart, the
Company and Crown Books, on the one hand, and Haft-owned entities, on the other
hand. 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.
Employment Arrangements
On January 24, 1995, the Company entered into employment agreements with R.
Keith Green, the Company's President, and other key executives. The employment
agreements are for a term of one year (the Company's 1996 fiscal year) and are
automatically extended one year at the end of the fiscal year unless the
individual is terminated with cause (Mr. Green's agreement is for two years and
is automatically extended two years). The agreements provide for annual
compensation increases following review and performance appraisal by the Board
of Directors.
42
<PAGE> 43
TRAK AUTO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FISCAL YEARS ENDED JANUARY 28, 1995, JANUARY 29, 1994
AND JANUARY 30, 1993
NOTE 7 - TENDER OFFER
On December 21, 1994, Trak Auto offered to buy back from its shareholders
approximately 24% of the 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.
NOTE 8 - BOARD OF DIRECTORS
On January 4, 1994, the Board of Directors of Dart established a Special
Litigation Committee to assess, on behalf of the Company, whether to pursue,
settle or abandon, claims raised in the derivative lawsuits filed against the
Company. See Note 9 for a discussion of the derivative lawsuits. 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.
On September 7, 1994, the Board of Directors of Dart established an Executive
Committee comprised of Dart's outside directors to conduct the affairs of Dart
with respect to matters that are the subject of dispute between the Chairman of
the Board and Chief Executive Officer of Dart, Herbert H. Haft, and the
President and Chief Operating Officer of Dart, Ronald S. Haft. Because both
Herbert H. Haft and Ronald S. Haft are also executive officers and/or directors
of Trak Auto, on October 11, 1994, the Board of Directors of Trak Auto
established an Executive Committee comprised of the same outside directors,
with authority parallel to that of Dart's Executive Committee. The disputes
between Herbert Haft and Ronald Haft concerning issues involving Dart and
Trak Auto have been extensive. Accordingly, the respective Executive
Committees have assumed day-to-day involvement in these disputed issues and
other matters affecting Dart and Trak Auto, in particular matters relating to
litigation to which Dart or Trak Auto is a party. The continuing roles of
the Executive Committees are 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 on January 4, 1994,
have been compensated at a salary rate of $250 per hour plus reimbursement of
expenses. Through January 28, 1995, the compensation paid by Dart and its
subsidiaries, including the Company, to members of the respective Executive
Committees for their services on those committees totaled $666,000 ($166,000
paid by the Company), and the compensation paid by Dart and its subsidiaries,
including the Company, to members of the Special Litigation Committee for their
service on that committee totaled $269,000 ($27,000 paid by the Company), in
each case exclusive of expense reimbursement.
43
<PAGE> 44
TRAK AUTO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FISCAL YEARS ENDED JANUARY 28, 1995, JANUARY 29, 1994
AND JANUARY 30, 1993
NOTE 9 - LITIGATION
Robert M. Haft Employment Litigation
In August 1993, Robert M. Haft, the former president of Crown Books and Dart,
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 Dart 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 Dart had breached its employment
contract with Robert M. Haft and awarded him damages against Dart (equivalent
to the compensation projected to be due during 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 during 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 Dart, Crown Books and Trak Auto arising from stock options granted to
him by those corporations and his claim that he has a purchase option for an
interest in Total Beverage.
44
<PAGE> 45
TRAK AUTO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FISCAL YEARS ENDED JANUARY 28, 1995, JANUARY 29, 1994
AND JANUARY 30, 1993
On February 22, 1995, the federal district court in Robert M. Haft's employment
litigation made the following rulings against Dart, 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 Dart, 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 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 Dart'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, Dart 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, Dart, Crown Books and Trak Auto may also file
an appeal challenging some or all of the rulings in this lawsuit.
Derivative Litigation
In September 1993, Alan R. Kahn and the Tudor Trust (the "Kahn Derivative
Plaintiffs"), shareholders of Dart, 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
Dart, Trak Auto, Crown Books and other subsidiaries of Dart.
45
<PAGE> 46
TRAK AUTO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FISCAL YEARS ENDED JANUARY 28, 1995, JANUARY 29, 1994
AND JANUARY 30, 1993
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
Dart and its subsidiaries, the termination of Robert M. Haft, the compensation
paid to Ronald S. Haft and Herbert H. Haft, Dart'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 Dart's Executive Committee. Plaintiffs seek an accounting of unspecified
damages incurred by Dart, voiding of the options sold to Ronald S. Haft,
appointment of a temporary custodian to manage the affairs of Dart 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 Dart'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 Dart 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
Dart 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
the 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 Dart, Crown Books and Trak Auto was appointed by the Board of Directors to
assess, on behalf of Dart, 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 Dart to prosecute other
claims in those derivative lawsuits.
Given that these derivative lawsuits are brought in the name of Dart and its
subsidiaries, recovery in them would inure to the benefit of Dart 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.
46
<PAGE> 47
TRAK AUTO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FISCAL YEARS ENDED JANUARY 28, 1995, JANUARY 29, 1994
AND JANUARY 30, 1993
Ronald S. Haft Stock Options
On September 6, 1994, Ronald S. Haft tendered Dart a letter requesting:
(1) to exercise, effective immediately, stock options for shares of Dart's
Class B Common Stock pursuant to the Agreement (the "Options"), to
purchase, at an exercise price of $89.65 per share, 197,048 shares
(the "Option Shares") and
(2) to exercise his right under the Agreement, effective immediately, to
obtain a loan from Dart 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 Dart a check payable to
Dart 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 Dart in the amount of $17,665,353.20, the balance of the exercise
price for the Option Shares under the Options.
Dart 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 Dart, Dart has returned
his $197,048 check, and Dart has not issued any stock certificate to Ronald S.
Haft for the Option Shares. Dart 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 Dart. These funds are now in an interest
bearing escrow account.
On September 12, 1994, Ronald S. Haft filed a lawsuit against Dart (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 Dart 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.
Dart 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, a Standstill
Agreement (the "Standstill Agreement") agreed to on behalf of Dart and Ronald
S. Haft was ordered by the Delaware Court of Chancery. The Standstill
Agreement restricts certain actions by Dart until further order of the court.
In particular, Dart 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 Dart or its subsidiaries; (iii) change the current
Haft family officers of Dart or its subsidiaries; (iv) issue any additional
47
<PAGE> 48
TRAK AUTO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FISCAL YEARS ENDED JANUARY 28, 1995, JANUARY 29, 1994
AND JANUARY 30, 1993
securities of Dart or any of its subsidiaries; or (v) take any extraordinary
actions that would result in (a) the liquidation of Dart or any of its
subsidiaries, (b) the sale of any major subsidiary of Dart, or (c) the
disadvantage of any Class B Common Stockholder of Dart through any debt
transaction.
In December 1994, Ronald S. Haft filed a motion for contempt against Dart,
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
Dart, Trak Auto or Crown Books by approving certain employee stock option
grants pursuant to existing stock option plans of the these companies, and by
approving a form of employment contract for executives of Dart, Trak Auto and
Crown Books that contains a provision for stock option grants. Dart has
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 Dart, Trak Auto and Crown Books to grant stock options to
its employees, other than members of the Haft family, in a way that complies
with the past practice of Dart and (ii) allow Dart, Trak Auto and Crown Books
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.
Dart 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. 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 Dart 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, Dart reserved
48
<PAGE> 49
TRAK AUTO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FISCAL YEARS ENDED JANUARY 28, 1995, JANUARY 29, 1994
AND JANUARY 30, 1993
$32.3 million for the obligations represented by the Pennsy Leases, which is
the present value (discounted at 6%) before estimated future inflation of 4% of
the approximately $82.0 million that Dart 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, Dart 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 Note 6.
The Executive Committees of Dart, Trak Auto and Crown Books have also
undertaken a legal review of other leasing arrangements and real estate related
transactions between Dart, the Company or Crown Books, on the one hand, and
Haft-owned entities, on the other hand. 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.
Other
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 Company has recorded expenses of approximately $640,000 and $420,000 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.
NOTE 10 - CREDIT AGREEMENTS
The Company has entered into a $10 million revolving credit facility with Dart.
The credit facility is intended to be used for the Company's short-term working
capital purposes. Any advance under this credit facility 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 must be paid monthly in arrears and the agreement
expires May 1, 1996.
Together with Dart and Crown Books, the Company 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 28, 1995, there were no borrowings under these credit agreements.
49
<PAGE> 50
TRAK AUTO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FISCAL YEARS ENDED JANUARY 28, 1995, JANUARY 29, 1994
AND JANUARY 30, 1993
NOTE 11 - EMPLOYEES' PROFIT-SHARING PLAN
The Company maintains a non-contributory profit-sharing plan for all full-time
employees with one year of continuous employment. The Company's annual
contribution's to the plan is based on a discretionary percentage of the
Company's consolidated net income, as defined in the plan, and as determined by
the 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. The Company's contributions were $770,000 and $400,000 in
1995 and 1993, respectively. No contribution was made for fiscal 1994.
NOTE 12 - STOCK OPTION PLAN
Trak Auto Corporation 1993 Stock Option Plan
The Trak Auto Corporation 1993 Stock Option Plan (the "1993 Option Plan") was
approved by the shareholders at the June 1993 annual meeting. The 1993 Option
Plan is for officers, directors and key employees. The total number of shares
that may be issued under the 1993 Option Plan is 1,250,000 and the 1993 Option
Plan will terminate June 30, 2003. Based on options outstanding at January 28,
1995 the maximum shares issuable under options exercisable over the next five
years are: 71,208 in 1996 and 105,849 in each of 1997, 1998, 1999 and 6,000 in
2000.
Information concerning the 1993 Option Plan:
<TABLE>
<CAPTION>
Number of Option Price
Options per Share
----------- ------------
<S> <C> <C>
Outstanding at January 30, 1993 - $ -
Granted 120,810 12.50
Expired (6,120) 12.50
------- ------
Outstanding at January 29, 1994 114,690 12.50
Granted 6,000 14.00
Exercised (7,078) 12.50
Expired (7,763) 12.50
------- ------
Outstanding at January 28, 1995 105,849 $14.00
======= ======
</TABLE>
Options to purchase 36,565 shares were exercisable at January 28, 1995 and
1,137,073 options remained available for grant.
Trak Auto Corporation Stock Option Plan
The Trak Auto Corporation Stock Option Plan (the "Option Plan") has provided
for option grants to officers, directors and key employees of the Company and
its parent and subsidiaries. Based on the options outstanding, as of January
28, 1995, the maximum shares issuable under options exercisable over the next
three years are: 156,271 in 1996, 131,816 in 1997, and 104,749 in 1998. The
Option Plan expired on January 31, 1993 and no new options have been granted
after that date.
50
<PAGE> 51
TRAK AUTO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FISCAL YEARS ENDED JANUARY 28, 1995, JANUARY 29, 1994
AND JANUARY 30, 1993
Information concerning the Option Plan:
<TABLE>
<CAPTION>
Number of Option Price
Options per Share
--------- ---------------
<S> <C> <C>
Outstanding January 30, 1993 265,725 $ 6.00 - 13.75
Exercised (13,299) 6.00 - 12.50
Expired (27,535) 6.00 - 13.75
-------- ---------------
Outstanding January 29, 1994 224,891 6.00 - 13.75
Exercised (53,883) 6.00 - 12.50
Expired (14,737) 6.00 - 13.75
-------- ---------------
Outstanding January 28, 1995 156,271 $ 6.00 - 13.75
======== ===============
</TABLE>
Options to purchase 127,081 shares were exercisable at January 28, 1995.
Options expired and outstanding at January 29, 1994 have been restated to
reflect a ruling delivered on February 22, 1995, by the federal district court
in employment litigation brought by Robert M. Haft against Dart, Crown Books
and Trak Auto. The court found, in part, that Robert M. Haft was entitled to
exercise certain employee stock options under the Option Plan. 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 Option Plan, Robert M. Haft would be
entitled to exercise options for 40,000 Trak Auto shares having exercise prices
of $6.60 - $13.75 per share. See Note 9.
The Board of Directors of the Company has authorized certain officers and
directors of the Company to apply for loans from the Company 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 the stock or at the end of three years, whichever is
earlier, and the borrower must demonstrate to the Company'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
Company.
51
<PAGE> 52
TRAK AUTO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FISCAL YEARS ENDED JANUARY 28, 1995, JANUARY 29, 1994
AND JANUARY 30, 1993
NOTE 13 - INTERIM FINANCIAL DATA - (UNAUDITED)
Selected interim financial data for the years ended January 28, 1995 and
January 29, 1994 are as follows:
<TABLE>
<CAPTION>
---- In Thousands Except Per Share Data -----
QUARTER ENDED: JANUARY OCTOBER JULY APRIL
28, 1995 29, 1994 30, 1994 30, 1994
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Sales $ 82,184 $ 88,848 $ 89,180 $ 88,387
Gross Profit (1)(2) 21,446 21,872 25,338 23,733
Net Income 2,047 2,198 3,490 2,530
Net Income
Per Share (3) $ .33 $ .36 $ .57 $ .42
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED: JANUARY OCTOBER JULY MAY
29, 1994 30, 1993 31, 1993 1, 1993
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Sales $ 86,209 $ 86,352 $ 84,354 $ 77,883
Gross Profit (1) 19,782 19,509 19,708 20,130
Net Income (Loss) (613) 267 335 92
Net Income (Loss)
Per Share (3) $ (.10) $ .04 $ .05 $ .01
</TABLE>
(1) After deduction for cost of sales, store occupancy and warehousing.
(2) After deduction of store closing reserve during the 3rd Quarter.
(3) The sum of these amounts does not equal the annual amount because
of changes in the average number of shares outstanding during the
year.
52
<PAGE> 53
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosures
Inapplicable.
PART III
The following Items 10 through 13 are incorporated herein by reference to the
Company's definitive Proxy Statement to be filed with the Commission pursuant
to Regulation 14A.
Item 10. Directors and Executive Officers of the Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and
Management
Item 13. Certain Relationships and Related Transactions
53
<PAGE> 54
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
3.1 Certificate of Incorporation of Trak Auto Corporation as
amended by Certificate of Amendment dated October 30, 1987
(incorporated by reference to Exhibit 3a to Trak Auto's 1988
Form 10-K).
3.2 By-laws, amended and restated September 14, 1993 (incorporated
by reference to Exhibit 3b to Trak Auto's 1994 Form 10-K).
10.1 Indemnity Agreement dated March 10, 1983, between Dart Drug
Corporation and Trak Auto Corporation (incorporated by
reference to Trak Auto's registration statement Form S-1, Reg.
No. 2-82430).
10.2 Lease Agreement dated January 1, 1980 between Oxon Hill Plaza,
Inc., Agent and Nominee for Combined Properties Corporation,
and Trak Auto Corporation. (incorporated by reference to Trak
Auto's registration statement Form S-1, Reg. No. 2-82430).
(606)
10.3 License Agreement dated March 4, 1983 between Dart Drug
Corporation and Trak Auto Corporation; Addendum to Lease
Agreement dated June 1, 1976 between Kaufman Company S.
Greenhoot Fischer, Carol B. Fisher and Dart Vienna, Inc.;
Lease Agreement dated April 14, 1960. (incorporated by
reference to Trak Auto's registration statement Form S-1, Reg.
No. 2-82430). (616)
10.4 Lease Agreement dated May 26, 1981 between Maryland City
Plaza, Inc., Agent and Nominee for Combined Properties
Corporation, and Trak Auto Corporation. (incorporated by
reference to Trak Auto's registration statement Form S-1, Reg.
No. 2-82430). (623)
10.5 Lease Agreement dated May 26, 1981 between Bradlick, Inc.,
Agent and Nominee for Combined Properties Corporation, and
Trak Auto Corporation. (incorporated by reference to Trak
Auto's registration statement Form S-1, Reg. No. 2- 82430).
(629)
54
<PAGE> 55
10.6 Agreement, dated March 31, 1983, between Dart Drug Corporation
and Trak Auto East Corporation (incorporated by reference to
Trak Auto's registration statement Form S-1, Reg. No.
2-82430).
10.7 Lease Agreement dated April 27, 1984, between Trak Chicago
Limited Partnership I and Trak Auto Corporation.
(incorporated by reference to Trak Auto's registration
statement Form S-1, Reg. No. 2-82430).
10.8 Sublease Agreement dated December 26, 1984, between Dart Group
Corporation and Trak Auto Corporation (75th Avenue)
(incorporated by reference to Exhibit 10(hhhh) to Trak Auto's
1985 Form 10-K).
10.9 Indemnity Agreement, dated June 9, 1986, by and between Dart
Group Corporation and Trak Auto Corporation. (incorporated by
reference to Exhibit 10(pppp) to Trak Auto's 1987 Form 10-K).
10.10 Agreement of Merger dated May 28, 1987 between Trak Auto East
Corporation and Trak Auto West, Inc. (incorporated by
reference to Exhibit 10 (qqqq) to Trak Auto's 1988 Form
10-K).
10.11 1988 Trak Auto Corporation Deferred Compensation Plan for
Directors, effective January 1, 1988. (incorporated by
reference to Exhibit 10(ssss) to Trak Auto's 1988 Form 10-K).
10.12 Lease Agreement dated January 27, 1989 between Trak Auto
Corporation and Combined Properties/Ontario Limited
Partnership (incorporated by reference to Exhibit 10(tttt) to
Trak Auto's 1989 Form 10-K).
10.13 Lease Agreement dated February 3, 1988 between Trak
Corporation and Haft/Equities - General (incorporated by
reference to Exhibit 10(uuuu) to Trak Auto's 1989 Form 10-K).
10.14 Lease Agreement dated June 17, 1987 between Trak Auto West,
Inc. and Haft/Equities/Rose Hill Limited Partnership
(incorporated by reference to Exhibit 10(vvvv) to Trak Auto's
1989 Form 10-K). (670)
10.15 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 Corporation (incorporated by
reference to Exhibit 10(wwww) to Trak Auto's 1990 Form 10-K).
(612)
10.16 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 (incorporated by reference to Exhibit
10(xxxx) to Trak Auto's 1990 Form 10- K). (641)
10.17 Amended Stock Option Plan (incorporated by reference to
Exhibit 10(yyyy) to Trak Auto's 1990 Form 10-K).
55
<PAGE> 56
10.18 Lease Agreement dated May 18, 1990 between Retail Lease
Acquisition Limited Partnership and Trak Corporation and
License Termination Agreement date March 31, 1990 between
Retail Lease Acquisition Limited Partnership and Trak
Corporation re: Enterprise (incorporated by reference to
Exhibit 10(ccccc) to Trak Auto's 1991 Form 10-K)(614).
10.19 Lease Agreement dated May 18, 1990 between Retail Lease
Acquisition Limited Partnership and Trak Corporation and
License Termination Agreement date March 31, 1990 between
Retail Lease Acquisition Limited Partnership and Trak
Corporation re: Rolling Valley (incorporated by reference to
Exhibit 10 (ddddd) to Trak Auto's 1991 Form 10-K) (630).
10.20 Lease Agreement dated May 18, 1990 between Combined Properties
Limited Partnership and Trak Corporation and Lease Termination
Agreement date March 31, 1990 between Combined Properties
Limited Partnership, Retail Lease Acquisition Limited
Partnership and Trak Corporation re: White Flint (incorporated
by reference to Exhibit 10(eeeee) to Trak Auto's 1991 Form
10-K) (632).
10.21 Lease Agreement dated November 6, 1990 between CP Acquisition
Limited Partnership and Trak Corporation and Settlement
Agreement dated November 6, 1990 between CP Acquisition
Limited Partnership and Trak Corporation re: Aspen Manor
(incorporated by reference to Exhibit 10(fffff) to Trak Auto's
1991 Form 10-K) (615).
10.22 Lease Agreement dated November 6, 1990 between CP Acquisition
Limited Partnership and Trak Corporation and Settlement
Agreement dated November 6, 1990 between CP Acquisition
Limited Partnership and Trak Corporation re: Lee and Harrison
(incorporated by reference to Exhibit 10(ggggg) to Trak Auto's
1991 Form 10-K)(633).
10.23 Lease Agreement dated November 6, 1990 between CP Acquisition
Limited Partnership and Trak Corporation and Settlement
Agreement dated November 6, 1990 between CP Acquisition
Limited Partnership and Trak Corporation re: Penn Daw
(incorporated by reference to Exhibit 10(hhhhh) to Trak Auto's
1991 Form 10-K)(642).
10.24 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 (incorporated by reference to Exhibit 10(iiiii)
to Trak Auto's 1991 Form 10-K) (656).
10.25 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 (incorporated by
reference to Exhibit 10 (jjjjj) to Trak Auto's 1991 Form
10-K)(619).
10.26 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 (incorporated by reference to Exhibit
10(kkkkk) to Trak Auto's 1991 Form 10-K)(662).
56
<PAGE> 57
10.27 Lease agreement dated December 23, 1991 between Combined
Properties Limited Partnership and Trak Corporation re:
Manaport Plaza Shopping Center (incorporated by reference to
Exhibit 10 (lllll) to Trak Auto's 1992 Form 10-K) (607).
10.28 Amendment of lease dated December 24, 1991 between
Haft/Equities-Bladen Limited Partnership and Trak Corporation
re: Bladen Plaza (incorporated by reference to Exhibit
10(mmmmm) to Trak Auto's 1992 Form 10-K). (662)
10.29 Sublease Agreement dated February 19, 1992 between Crown Books
Corporation and Trak Corporation re: Vienna (incorporated by
reference to Exhibit 10(nnnnn) to Trak Auto's 1992 Form
10-K)(616).
10.30 Sublease agreement dated February 12, 1991 between Crown Books
Corporation and Trak Corporation re: McLean Shopping Center
(incorporated by reference to Exhibit 10(ooooo) to Trak Auto's
1992 Form 10-K) (627).
10.31 Sublease Agreement dated April 20, 1992 between Dart Group
Corporation and Trak Corporation re: Pennsy Drive Whse 3
(incorporated by reference to Exhibit 10(ppppp) to Trak Auto's
1992 Form 10-K).
10.32 Amendment of lease dated December 11, 1992 between Combined
Properties Limited Partnership and Super Trak Corporation re:
Oxon Hill (incorporated by reference to Exhibit 10(qqqqq) to
Trak Auto's 1993 Form 10-K). (606)
10.33 Amendment of lease dated December 1, 1992 between
Haft/Equities-Bladen Limited Partnership and Super Trak
Corporation re: Bladen Plaza (incorporated by reference to
Exhibit 10(rrrrr) to Trak Auto's 1993 Form 10-K). (662)
10.34 Amendment of lease dated January 8, 1993 between Retail Lease
Acquisition Limited Partnership and Trak Corporation re:
Chantilly Plaza (incorporated by reference to Exhibit
10(sssss) to Trak Auto's 1992 Form 10-K). (609)
10.35 Trak Auto Corporation 1993 Stock Option Plan (incorporated by
reference to Trak Auto's registration statement Form S-8, Reg.
No. 33-53389).
10.36 Amendment of lease dated February 4, 1993 between Retail Lease
Acquisition Limited Partnership and Super Trak re: College
Plaza (incorporated by reference to Exhibit 10(wwwww) to Trak
Auto's 1994 Form 10-K). (610)
10.37 Amendment of lease dated September 13, 1993 between Combined
Properties Limited Partnership and Super Trak Corporation re:
Fair City Mall (incorporated by reference to Exhibit 10(xxxxx)
to Trak Auto's 1994 Form 10-K). (605)
10.38 Amendment of lease dated September 13, 1993 between Combined
Properties Limited Partnership and Super Trak Corporation re:
Maryland City (incorporated by reference to Exhibit 10(yyyyy)
to Trak Auto's 1994 Form 10-K). (623)
57
<PAGE> 58
10.39 Second Amendment of lease dated March 31, 1994 between
Combined Properties Limited Partnership and Super Trak
Corporation re: Oxon Hill (incorporated by reference to
Exhibit 10 (zzzzz) to Trak Auto's 1994 Form 10-K) (606).
10.40 Third Amendment of lease dated March 31, 1994 between Combined
Properties/Montebello Limited Partnership and Trak Auto West,
Inc. Re: Montebello (incorporated by reference to Exhibit
10(B) to Trak Auto's 1994 Form 10-K). (197)
10.41 Lease Agreement dated September 29, 1993 between Combined
Properties/Reseda Associates Limited Partnership and Super
Trak Corporation re: Reseda (incorporated by reference to
Exhibit 10(c) to Trak Auto's 1994 Form 10-K). (193)
10.42 Amendment of lease dated June 30, 1994 between Combined
Properties Limited Partnership and Super Trak Corporation re:
Bradlick (629).
10.43 Employment Agreement with R. Keith Green dated January 25,
1995.
10.44 Tax Allocation Agreement dated December 27, 1994 between Dart
Group Corporation and Trak Auto Corporation.
10.45 Loan Agreement dated February 6, 1995 between Dart Group
Corporation and Trak Auto Corporation. (incorporated by
reference to Exhibit 99(a) (16) to Amendment No. 2 to the Trak
Auto Corporation Statement on Schedule 13E-4/A, Commission
File No. 5-34497, filed with the Commission on February 6,
1995.
10.46 Employment Agreement between Trak Auto and Robert Brann dated
as of January 24, 1995.
10.47 Employment Agreement between Trak Auto and Thomas Reilly dated
as of January 24, 1995.
10.48 Employment Agreement between Trak Auto and David MacGlashan
dated as of January 24, 1995.
10.49 Standstill Agreement executed on behalf of Dart Group 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 Trak Auto on Form 8-K of September 6, 1994
and filed on September 14, 1994).
11 Statement on Computation of Per Share Net Income.
21 Subsidiaries of Trak Auto
23 Consent of Independent Public Accountants
27 Financial Statement Schedules
58
<PAGE> 59
(b) Reports on Form 8-K
During the fourth quarter of fiscal year end January 28, 1995, Trak Auto
filed four Current Reports on Form 8-K.
1. Trak Auto 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. Trak Auto filed a Current Report on Form 8-K on
December 22, 1994 reporting the death of H. Ridgely
Bullock, Chairman of Trak Auto's Executive Committee.
3. Trak Auto filed a Current Report on Form 8-K on
January 3, 1995 reporting Ronald S. Haft's proposed
settlement of his pending lawsuit against Dart Group
Corporation and Dart's rejection of that settlement.
4. Trak Auto 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.), filed a motion for the appointment of a
temporary custodian to manage the affairs of Dart
Group Corporation or a receiver to sell it or oversee
a recapitalization thereof and Dart's opposition
thereto; second, that Larry G. Schafran had been
elected to serve as Chairman of Trak Auto's Executive
Committee.
Since the fiscal year ended January 28, 1995, the Company has also filed
the following two Current Reports on Form 8-K.
1. Trak Auto 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. Trak Auto 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.
59
<PAGE> 60
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULES
TO TRAK AUTO CORPORATION:
We have audited in accordance with generally accepted auditing standards, the
consolidated financial statements of Trak Auto 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
accompanying index (Item 14A2) is the responsibility of the Company'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.
60
<PAGE> 61
SCHEDULE II
TRAK AUTO CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AMOUNTS BALANCE
BEGINNING PAID OR AT END OF
DESCRIPTION OF PERIOD ADDITIONS REVERSED PERIOD
----------- --------- --------- -------- ---------
AS OF JANUARY 28, 1995
----------------------
<S> <C> <C> <C> <C>
Reserve for
closed stores
including
restructuring
charge $ 7,797,000 $ 1,580,000 $ 2,432,000 $ 6,945,000
Obsolete inventory 310,000 - 95,000 215,000
LIFO Reserve 5,520,000 350,000 - 5,870,000
</TABLE>
<TABLE>
<CAPTION>
AS OF JANUARY 29, 1994
----------------------
<S> <C> <C> <C> <C>
Reserve for
closed stores
including
restructuring
charge $10,360,000 $ - $ 2,563,000 $ 7,797,000
Obsolete inventory 854,000 - 544,000 310,000
LIFO Reserve 5,422,000 98,000 - 5,520,000
</TABLE>
<TABLE>
<CAPTION>
AS OF JANUARY 30, 1993
----------------------
<S> <C> <C> <C> <C>
Reserve for
closed stores
including
restructuring
charge $ 4,367,000 $ 8,232,000 $ 2,239,000 $10,360,000
Obsolete inventory 1,134,000 550,000 830,000 854,000
LIFO Reserve 5,388,000 34,000 - 5,422,000
</TABLE>
61
<PAGE> 62
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.
TRAK AUTO CORPORATION
<TABLE>
<S> <C>
Date: April 28, 1995 By: R. Keith Green
------------------------ ---------------------------------
R. Keith Green
Director and President
</TABLE>
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.
<TABLE>
<S> <C>
Date: April 28, 1995 R. Keith Green
------------------------ --------------------------------
R. Keith Green
Director and President
Date: April 28, 1995 Herbert H. Haft
------------------------ --------------------------------
Herbert H. Haft
Chairman of the Board of
Directors
Date: April 28, 1995 Ronald S. Haft
------------------------ --------------------------------
Ronald S. Haft
Director
Date: April 28, 1995 Bonita Wilson
------------------------ --------------------------------
Bonita Wilson
Director
Date: April 28, 1995 Douglas Bregman
------------------------ --------------------------------
Douglas Bregman
Director
Date: April 28, 1995 Larry G. Schafran
------------------------ ---------------------------------
Larry G. Schafran
Director
Date: April 28, 1995 Robert A. Marmon
------------------------ --------------------------------
Robert A. Marmon
Principal Financial Officer
Date: April 28, 1995 David B. MacGlashan
------------------------ --------------------------------
David B. MacGlashan
Principal Accounting Officer
</TABLE>
62
<PAGE> 63
TRAK AUTO CORPORATION
Exhibit Index
<TABLE>
<CAPTION>
Exhibit Page
Number Number
- ------- ------
<S> <C>
10.42 Amendment of lease dated June 30, 1994
between Combined Properties Limited
Partnership and Super Trak Corporation:
Bradlick re: (629).
10.43 Employment Agreement with R. Keith Green
dated January 25, 1995.
10.44 Tax Allocation Agreement dated December 27,
1994 between Dart Group Corporation and
Trak Auto Corporation.
10.46 Employment Agreement between Trak Auto and
Robert Brann dated as of January 24, 1995.
10.47 Employment Agreement between Trak Auto
and Thomas Reilly dated as of January 24,
1995.
10.48 Employment Agreement between Trak Auto
and David MacGlashan dated as of January 24,
1995.
11 Statement on Computation of Per Share
Net Income.
21 Subsidiaries of Trak Auto
23 Consent of Independent Public Accountants
27 Financial Statement Schedules
</TABLE>
63
<PAGE> 1
EXHIBIT 10.42
AMENDMENT OF LEASE
THIS AMENDMENT OF LEASE ("Amendment"), made as of this 30th day of
June, 1994, by and between Combined Properties Limited Partnership,
successor-in-interest to Bradlick, Inc. (hereinafter "Landlord") and Super Trak
Corporation, successor-in-interest to Trak Auto Corporation (hereinafter
"Tenant").
WHEREAS, by indenture of Lease dated May 26, 1981 (hereinafter
referred to as "Lease"), Landlord leased to Tenant certain premises therein
more particularly described located in Store No. 9 in the Bradlick Shopping
Center, Annandale, Virginia ("Premises"), upon terms and conditions, covenants
and agreements contained therein; and
WHEREAS, Tenant desires to expand its business operation into adjacent
premises, known as Store Nos. 8B and 10 which contain an aggregate total or
approximately 3,500 square feet; and
WHEREAS, Landlord is willing to Lease said adjacent premises to
Tenant; and
WHEREAS, the parties desire to amend the lease as set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto intending to be
legally bound, hereby agree that the lease is hereby amended, effective as of
the date hereof, as follows:
FIRST: Landlord and Tenant hereby acknowledge and confirm that Tenant
is already in occupancy (as of the date hereof) of the premises described on
Exhibit "A" of the Lease as Store No. 9 (containing approximately 6,500 square
feet and hereinafter referred to in this Amendment as the "Original Premises").
SECOND: For the purpose of this amendment and the Lease, the parties
have further agreed that from and after the date Landlord delivers possession
of the Expansion Premises (hereinafter defined) to Tenant, the Demised Premises
shall be deemed to refer to the Original Premises and the adjacent premises
known as Store Nos. 8B and 10 (containing an aggregate total of approximately
3,500 square feet and hereinafter referred to in this Amendment as the
"Expansion Premises").
THIRD: The parties, having agreed to increase the size of the Demised
Premises from approximately 6,500 square feet to approximately 10,000 square
feet with dimensions of 100' by 100', hereby agree that for the purposes of the
Lease and all provisions thereof, including but not limited to, those
provisions related to computation of Tenant's Minimum Guaranteed Rent, Tenant's
minimum contribution and pro-rata share of shopping center's common areas
operating cost, Tenant's contribution toward real estate taxes and Tenant's
share of the cost of the promotional program (if and when the same has been
established), the square footage contained within the Demised Premises shall be
10,000 square feet as of the Effective Date set forth in Paragraph Seventh
hereinbelow.
FOURTH: It is agreed that the Demised Premises shall be located in
the area cross-hatched in "red" on Exhibit "A-1" hereto and the parties hereto
covenant and agree that all provisions of the Lease which refer to the Demised
Premises shall be deemed to refer to the area cross-hatched in "red" on
Exhibit
<PAGE> 2
"A-1" hereto and that Exhibit "A" of the Lease shall be and is hereby
deleted in its entirety and shall be substituted with Exhibit "A-1" attached
hereto and by this reference mad a part hereof and all references in the Lease
to Exhibit 'A: shall be deemed to refer to Exhibit "A-1" attached hereto and
all references in the Lease to Demised Premises" or "Premises" shall be deemed
to refer to the Original Premises and the Expansion Premises.
FIFTH: Tenant agrees to accept both the Original Premises and the
Expansion Premises on an "as is" basis and that any and all repairs,
improvements, installations or additions necessary or required for Tenant to
open for business and conduct its business from the premises (consisting of the
Original Premises and the Expansion Premises in a unified store operation)
shall be at the sole cost and expense of Tenant.
SIXTH: Tenant agrees, that as soon as possible after full execution
of this Amendment, Tenant, on behalf of Landlord at Tenant's expense, shall
proceed to cause building plans and specifications to be made, including but
not limited to, where and to the extent Tenant deems appropriate, reworking
electrical and plumbing outlets, repairing and repainting the interior walls,
modifying the present entrances, modifying the interior lighting, modifying the
show windows and storefront, modifying any existing ceiling to Tenant's
standard specifications, and providing for heating, cooling and ventilation to
Tenant's standard requirements and Tenant hereby further agrees to make
application for all necessary permits within sixty (60) days from the date
hereof. After completion of said building plans and specifications and the
obtaining of the necessary contractors' bids, Tenant, on behalf of Landlord at
Tenant's expense, shall supervise and prosecute to completion, in conformance
with said building plans and specifications, said building, remodeling and
modernization work.
Tenant further agrees, as part of Tenant Improvements, to demolish the
existing demising wall separating the Original Premises from the Expansion
Premises and to perform such necessary work required to reconfigure the
acoustical lay-in ceiling and recessed fluorescent lighting fixtures into one
unified ceiling and lighting scheme. In addition, Tenant shall design and
construct a new unified storefront with one (1) set of double entrance doors
for the Premises. Tenant shall also consolidate the electrical service in the
Original Premises and the Expansion Premises. Tenant shall also consolidate
the electrical service in the Original Premises and the Expansion Premises and
install floor covering in the Original Premises and the Expansion Premises.
Tenant understands that it shall also be required to install (a) all interior
partitions and curtain walls within the Premises; (b) all electrical work
involved in actually hooking up fixtures; (c) internal communication system
and alarm systems; (d) store fixtures and furnishings; (e) show window display
and platforms and window backs; (f) all interior finish in show windows; (g)
Tenant's signs, both interior and exterior; and (h) all finish painting and
floor coverings.
All of Tenant's Improvements described in this Paragraph Sixth shall
be of good quality materials, installed in a professional workmanlike condition
and shall be comparable to and consistent with the latest Super Trak retail
store prototype.
SEVENTH: Effective as of the earlier to occur of (i) the one hundred
twenty-first (121st) day following the date Landlord delivers possession of the
Expansion Premises to Tenant or (ii) the date Tenant opens for business in the
Expansion Premises (the "Effective Date") the following provisions shall be in
full force and effect:
<PAGE> 3
1. The first and second paragraphs of Section 3 of the Lease
shall be deleted in their entirety and replaced by the following:
The term of this Lease shall, except as hereinafter provided,
end at midnight on the last day of the one hundred twentieth
(120th) full calendar month following the date Landlord
delivers possession of the Expansion Premises to Tenant unless
that date falls within the months of October, November or
December, in which event the term shall end on the next
succeeding January 31st.
2. Section 6 of the Lease shall be deleted in its entirety and
replaced by the following:
6. MINIMUM GUARANTEED RENT
It is agreed that commencing on the Effective Date and
continuing through the last day of the thirty sixth (36th)
full calendar month following the Effective Date, Tenant shall
pay Landlord an annual Minimum Guaranteed Rent of ONE HUNDRED
TWENTY THOUSAND AND 00/100 DOLLARS ($120,000.00), payable in
monthly installments of TEN THOUSAND AND 00/100 DOLLARS
($10,000.00), payable in advance on or before the first day of
each full calendar month.
Commencing as of the first (1st) day of the calendar month
following the expiration of thirty-six (36) full calendar
months after the Effective Date and thereafter as of each
third (3rd) anniversary of said day throughout the lease term
and option term(s), if any (said day and each third (3rd)
anniversary thereof being a "date of adjustment"), the Minimum
Guaranteed Rent shall be increased by ten percent (10%) of the
Minimum Guaranteed Rent payable in the immediately preceding
twelve (12) month period.
3. Tenant's minimum contribution toward the shopping center's
common areas operating cost set forth in Section 7 of the Lease shall be the
sum of TWELVE THOUSAND TWO HUNDRED AND 00/100 DOLLARS ($12,2000.00) each lease
year, payable in equal monthly installments of ONE THOUSAND SIXTEEN AND 67/100
DOLLARS ($1,016.67). Tenant's minimum contribution toward shopping center's
common areas operating cost shall continue to be subject to adjustment as set
forth in Section 7(c) of the Lease and Tenant shall continue to be responsible
for paying Tenant's proportionate share of excess costs or increases above
Tenant's minimum contribution in accordance with Section 7(c) of the Lease.
4. Tenant's contribution toward real estate taxes on the Demised
Premises set forth in Section 8 of the Lease shall be the sum of EIGHT THOUSAND
FIVE HUNDRED AND 00/100 DOLLARS ($8,500.00) each lease year, payable in equal
monthly installments of SEVEN HUNDRED EIGHT AND 33/100 DOLLARS ($708.33).
Tenant's contribution toward real estate taxes on the Demised Premises shall be
subject to further adjustment in accordance with Section 8 of the Lease.
5. Section 9 of the Lease shall be deleted in its entirety and
replaced by the following:
9. PERCENTAGE RENT
In addition to the payments called for herein, the Tenant
further agrees that with respect to each calendar year during
the term hereof, Tenant shall pay to Landlord, as percentage
rent, a sum equal to the amount by which tree percent (3%) of
all gross sales (as
<PAGE> 4
hereinafter defined) made during such calendar year exceeds
the Minimum Guaranteed Rent for such calendar year. In the
event Section 30 is amended and/or Section 44 or Section
51 is invoked, Landlord expressly reserves the right to
change the percentage rent hereinabove set forth, which right
must be exercised if at all, when Landlord gives its consent
to assign or sublease.
6. The following provision shall be added to the Lease as a new Section
60.
60. OPTIONS
The Tenant shall have the option to renew this Lease for one
(1) additional five (5) year period under the same terms and
conditions called for herein except that during the option
term Tenant shall pay to Landlord annual Minimum Guaranteed
Rent in accordance with Section 6 hereof, as amended.
Said option to be exercised at least six (6) months prior to
the expiration of the original term by written notice sent
certified or registered mail to Landlord provided, however,
that in the event that Tenant fails to give such notice of
extension, Tenant shall not be deemed to have waived the right
to that extension or any extension thereafter until Landlord
gives Tenant written notice of Tenant's failure to exercise
such right of extension and affords Tenant a period of ten
(10) days after receipt of such notice to exercise that right
of extension by giving Landlord written notice thereof. It is
expressly understood and agreed by the parties hereto that in
the event the Lease is assigned to any entity unaffiliated
with Dart Group Corp., then Tenant shall be deemed to have
waived its rights to an extension of the lease term if Tenant
fails to timely notify Landlord of its option exercise at
least six (6) months prior to the expiration of the original
term notwithstanding Landlord's failure to notify Tenant of
Tenant's failure to timely exercise an extension right; it
being understood that Landlord shall only be required to
notify Tenant of Tenant's failure to do so if Tenant remains
an affiliate of Dart Group Corp.
EIGHTH: The parties acknowledge and agree that in the event the
Effective Date occurs on a day other than the first calendar day of a month,
Tenant's Minimum Guaranteed Rent, Tenant's minimum contribution and pro-rata
share of shopping center's common area operating costs and Tenant contribution
toward real estate taxes shall be subject to appropriate proration.
NINTH: Landlord agrees that in consideration of the Tenant's agreeing
to accept the Premises (Original Premises and Expansion Premises) in an "as is"
condition and Tenant's agreeing to perform all Tenant Improvements required
under Paragraph Sixth of this Amendment and provided Tenant (a) has completed
said Tenant improvements in accordance with the terms of Paragraph Sixth of
this Amendment; (b) has provided Landlord with reasonably appropriate
affidavits, lien waivers and the like showing that liens and encumbrances
effected by Tenant's Improvements have been released; (c) has obtained a
certificate of occupancy or non-residential use permit for the Premises
(Original Premises and Expansion Premises) and furnished a copy of the same to
Landlord; (d) has opened its store for business from the Premises (both the
Original Premises and the Expansion Premises as one unified operation) in
accordance with the terms of this Amendment; and (e) has performed all of its
obligations under the provisions of any applicable cure period, then Landlord
shall provide Super Trak Corporation with a credit in the amount of FORTY-TWO
THOUSAND AND 00/100 DOLLARS
<PAGE> 5
($42,000.00), said amount to be credited to the rental account of Super
Trak Corporation for the Premises by amortizing the same, dollar for dollar,
only out of those payments of Minimum Guaranteed Rent becoming due from Tenant
under the terms of the Lease after the date Tenant has satisfied the conditions
set forth in (a) through (e) of this Paragraph Ninth.
TENTH: Tenant understands and agrees that the Expansion Premises is
presently occupied by existing tenants. Accordingly, immediately following
full execution of this Amendment of Lease by the parties hereto, Landlord
agrees to use best efforts to negotiate or obtain a termination of the existing
tenants' rights to occupy the Expansion Premises as soon as possible. After
said existing tenants' rights to occupy the Expansion Premises have been
terminated, Landlord shall make the same available to the Tenant as called for
herein. In the event Landlord is unable to obtain possession of the Expansion
Premises within twenty-four (24) months from the date of execution of this
Amendment of Lease null and void upon written notice to the other without any
liability whatsoever and thereafter this Amendment of Lease shall have no
further force and effect.
ELEVENTH: Except as modified by this Amendment of Lease, the Lease
shall continue in full force and effect in accordance with the terms thereof.
TWELFTH: All the rights and obligations of the parties under this
Amendment of Lease shall bind and inure to the benefit of their respective
heirs, personal representatives, successors and assigns.
THIRTEENTH: The parties hereto agree that this Amendment of Lease
shall supersede that certain Amendment of Lease dated June 1, 1993 by and
between Landlord and Tenant, and as of the date hereof said Amendment of Lease
dated June 1, 1993 shall be of no further force and effect.
FOURTEENTH: The parties hereto hereby acknowledge and agree that Dart
Group Corporation ("Dart Group") is the successor- in-interest to Dart Drug
Corporation, guarantor of the Lease Agreement by and between the parties dated
May 26, 1981. Notwithstanding anything to the contrary set forth hereinabove,
Landlord, Tenant, Dart Group and Trak Auto Corporation ("Trak Auto") hereby
agree that the liability of Dart Group under the Lease shall be limited to the
rental and other amounts set forth in the unamended Lease provided, however,
that Trak Auto guarantees the performance of Tenant and the payment of all rent
and charges under the Lease, as amended, in excess of the liabilities
guaranteed by Dart Group.
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed on the date first above written.
LANDLORD:
COMBINED PROPERTIES
LIMITED PARTNERSHIP
BY: /s/ Ronald S. Haft
----------------------------
Ronald S. Haft
General Partner
TENANT:
SUPER TRAK CORPORATION
BY: /s/ K. Keith Green
----------------------------
R. Keith Green
ITS: President
------------------------
GUARANTOR:
DART GROUP CORPORATION
BY: /s/ Dennis N. Weiss
-------------------------
ITS: Executive Vice President
-------------------------
ATTEST:
ADDITIONAL GUARANTOR:
TRAK AUTO CORPORATION
BY: /s/ R. Keith Green
-------------------------
ITS: President
-------------------------
<PAGE> 1
EXHIBIT 10.43
January 24, 1995
EMPLOYMENT AGREEMENT
This Agreement dated as of January 24, 1995, by and between R Keith
Green ("Employee"), and Trak Auto 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 President 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.
3. COMPENSATION
(a) Base Salary. Employee's annual base salary shall be
Three Hundred Thousand Dollars ($300,000.00), subject to an annual increase as
recommended by the Compensation Committee of the Board of Directors following
review and performance appraisal of Employee, and approved 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.
(c) Bonus Compensation : Employee's Bonus Compensation
shall be paid in accordance with Employee's Bonus Agreement following review
and performance appraisal of Employee by the Compensation Committee of the
Board of Directors, and approval by the Board of Directors. Employee's bonus
shall be paid in one lump sum immediately following approval.
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 within 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.
<PAGE> 3
(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
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 permanently accrued to the Employee (
grandfathered). 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
convenants 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
<PAGE> 4
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 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 and accrued bonus 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; (ii) Employee's conviction of a felony; (iii) Employee's material
breach of any of the terms of this Agreement; or (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
<PAGE> 5
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 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 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,
Employer shall not be required to make any further severance payments for any
period of time after the later of the first anniversary date of termination AND
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 utilize 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, and Employee's
Bonus Agreement, constitutes 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:
R. Keith Green
9500 Foxlair Place
Gaithersburg, Maryland 20882
If to Employer:
Chief Executive Officer
Trak Auto 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 any or 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
<PAGE> 7
by Employee, except that it shall inure to the benefit of and be
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
TRAK AUTO 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/ R. Keith Green
-------------------------------
Name of Employee: R. Keith Green
<PAGE> 1
EXHIBIT 10.44
TAX ALLOCATION AGREEMENT BETWEEN
DART GROUP CORPORATION AND
TRAK AUTO CORPORATION
THIS TAX ALLOCATION AGREEMENT, dated as of December 27, 1994, by and
between Dart Group Corporation, a Delaware corporation ("Dart"), and Trak Auto
Corporation, a Delaware corporation ("Trak Auto"). This agreement shall apply
to taxable years of Trak Auto beginning on or after January 28, 1995.
WITNESSETH:
WHEREAS, Dart and certain of its subsidiaries comprise a consolidated
group, as defined in Section 1.1502-1(h) of the Treasury Regulations issued
under the Internal Revenue Code of 1986, as amended (the "Code") (the "Initial
Group"); and
WHEREAS, Trak Auto and certain of its subsidiaries comprise a
consolidated group, as defined in Section 1.1502-1(h) of the Treasury
Regulations (the "Trak Auto Group"); and
WHEREAS, Trak Auto will become a member, within the meaning of Section
1504(a) of the Code, of the affiliated group of which Dart is the common parent
and, consequently, the members of the Trak Auto Group and the Initial Group
will become members of the same consolidated group (the combined groups shall
hereinafter be collectively referred to as the "Expanded Group"); and
WHEREAS, Dart and Trak Auto have reached an agreement concerning the
allocation of U.S. tax liability between the Initial Group and the Trak Auto
Group based on the economic privileges and rights that would have accrued to
each group from the filing of returns as separate consolidated groups;
NOW, THEREFORE, in consideration of the foregoing and the mutual
agreements hereinafter contained, the parties hereto agree as follows:
1. DEFINITIONS. For purposes of this
Agreement, the following terms shall apply:
1.1 "Expanded Group Taxable Year" shall mean any taxable period in
which the Trak Auto Group is included in a consolidated group, as defined in
section 1.1502-1(h) of the Treasury Regulations, of which Dart is the common
parent.
1.2 "Separate Consolidated Taxable Income" shall mean the amount of
taxable income a group (i.e., the Initial Group, the Trak Auto Group or the
Expanded Group) would have for any taxable period if each group were to file
separate consolidated returns for United States federal income tax purposes,
subject to the following modifications and principles:
(a) Dividends received by the Initial Group from the Trak Auto
Group will be treated as qualifying for the 100 percent
dividends received deduction.
(b) Gain or loss on intercompany transactions, whether deferred or
not, between any members of the Expanded Group will not be
taken into account until required by Section 1.1502-13 of the
Treasury Regulations.
(c) Limitations on the calculation of deductions, the utilization
of credits, or the calculation of liability will be made on a
<PAGE> 2
consolidated basis for the Expanded Group as a whole.
(d) Short and long-term capital gains and losses shall be
separately determined for each group.
(e) Carrybacks and carryforwards of tax attributes will be
determined separately for each group and will be taken into
account when absorbed.
(f) Alternative minimum taxable income will be separately
determined for each group, taking into account the principles
set forth in this Section 1.2.
(g) Other adjustments, consistent with the foregoing modifications
and principles, will be made as appropriate to carry out the
intent of this Agreement.
1.3 "Separate Group Tax Liability" shall mean for any group (i.e.,
the Initial Group, the Trak Auto Group, or the Expanded Group) for any taxable
period, the sum of (a) the amount of United States federal income tax liability
each group would have had if it had filed a consolidated return reporting its
Separate Consolidated Taxable Income and (b) the amount of any state income or
franchise tax liability each group would have had if its members had filed in
each state on a separate basis (though filing combined returns with other
members of their own group where appropriate).
2. CONSOLIDATED RETURN. The Trak Auto Group
shall cooperate with Dart in filing a consolidated
federal income tax return for the Expanded
Group and consolidated or combined state
income tax returns (where beneficial to the
Expanded Group as a whole) for each Expanded
Group Taxable Year. Dart and Trak Auto shall file
such consents and other documents and take such
actions as may be necessary to file consolidated tax
returns for the Expanded Group. Dart or its designee
shall have the responsibility and authority on behalf
of the Expanded Group to make tax payments due to tax
authorities and to collect all refunds due from tax
authorities.
3. INDEMNIFICATION. Dart shall indemnify
the Trak Auto Group against any Separate
Group Tax Liability of the Initial Group
that may be assessed against any member of the Trak
Auto Group for any Expanded Group Taxable Year.
4. TRAK AUTO LIABILITY TO DART FOR EXPANDED GROUP
TAXABLE YEARS.
4.1 Liability. If for any Expanded Group Taxable Year the Trak
Auto Group has a Separate Group Tax Liability, Trak Auto shall be obligated to
pay Dart the amount of the Trak Auto Group's Separate Group Tax Liability in
the manner provided in Sections 4.2 through 4.4.
4.2 Timing and Amount of Payment. Trak Auto shall be required to
make payments of its Separate Group Tax Liability to Dart no later than 120
days after the end of any Expanded Group Taxable Year for which the Expanded
Group has a Separate Group Tax Liability. The amount of Trak Auto's payment
for each such Expanded Group Taxable Year shall equal the lesser of (a) the
Trak Auto Group's Separate Group Tax Liability for such year and all prior
years ("cumulative Separate Group Tax Liability") reduced by any amounts of
such
<PAGE> 3
Separate Group Tax Liability previously paid or (b) the amount of the
Expanded Group's Separate Group Tax Liability for such year. Any portion of
the Trak Auto Group's cumulative Separate Group Tax Liability that is not paid
to Dart for any Expanded Group Taxable Year pursuant to this Section 4.2 shall
be carried forward indefinitely and shall be paid by Trak Auto to Dart in
subsequent years in accordance with the terms of this Section 4.2.
4.3 No Interest or Costs. Trak Auto shall not pay Dart any
interest or costs with respect to any deferral of payment pursuant to Section
4.2.
4.4 Election to Defer Payment. If Trak Auto is required to pay an
amount of its Separate Group Tax Liability to Dart no later than 120 days after
the end of an Expanded Group Taxable Year pursuant to Section 4.2, Trak Auto
may elect to defer payment of such amount for up to five years from the date
payment is otherwise due. Any amount deferred pursuant to this Section 4.4
shall bear interest at the prime rate, adjusted quarterly as of the first day
of each calendar quarter, as published in the "money rates" column of the Wall
Street Journal until such amount is paid.
5. DART LIABILITY TO TRAK AUTO FOR EXPANDED
GROUP TAXABLE YEARS.
5.1 Liability. If for any Expanded Group Taxable Year, the Separate
Group Tax Liability of the Initial Group would be reduced by taking into
account net operating losses or credits of the Trak Auto Group (determined on
the basis of the Trak Auto Group's Separate Taxable Income), Dart shall pay
Trak Auto an amount equal to the amount of such reduction.
5.2 Timing of Payment. Any payment required by Section 5.1 shall
be made within 120 days after the end of the Expanded Group Taxable Year in
which the liability arises. Any amount not paid by the due date shall bear
interest at the prime rate, adjusted quarterly as of the first day of each
calendar quarter, as published in the "money rates" column of the Wall Street
Journal until such amount is paid.
6. TAX ADJUSTMENTS. In the event of any
adjustment of the Separate Group Tax
Liability of the Expanded Group, by reason of the
filing of an amended return or claim for refund
(including a claim for refund by reason of carrying
back a net operating loss), or arising out of an
audit by a taxing authority, the Separate Group Tax
Liabilities of the Trak Auto Group, the Initial Group
and the Expanded Group shall be redetermined for
purposes of this Agreement to give effect to any such
adjustment as if it had been made as part of the
original computation of Separate Group Tax Liability,
and the amount and timing of payments between Dart
and Trak shall be redetermined in accordance with the
terms of Sections 4 and 5; provided however, that no
amount shall be considered due as a consequence of
such adjustment or refund until 120 days after the
adjustment is finally determined or the refund is
paid.
7. FURNISHING OF TAX INFORMATION TO DART.
Trak Auto shall deliver to Dart or its
designee before such date as is reasonably
determined by Dart all data required for the
determination of the Trak Group's Separate Group
Taxable Income and for preparing the Expanded Group's
consolidated return and making estimated tax
payments. Such tax data shall have been
<PAGE> 4
reviewed by the principal financial officer
of Trak Auto, and shall be as full and complete
as would have been required to file a separate
consolidated return for the Trak Auto Group
(or to pay estimated taxes with respect thereto).
vii . EARNINGS AND PROFITS ADJUSTMENTS. This
Agreement is not intended to establish
the method by which the earnings and
profits of each member of the Expanded
Group will be determined. Dart reserves
the right to elect the method for
allocating tax liability for the
purposes of determining earnings and
profits as set forth in Sections
1.1552-1(a) and 1.1502-33(d) of the
Treasury Regulations.
8. MISCELLANEOUS PROVISIONS.
9.1 Authority to Change Agreement. Trak Auto hereby agrees that
Dart as the common parent of the Expanded Group shall have the authority to
make any alterations in this Agreement that are needed to comply with changes
in the provisions of the Code, Treasury Regulations, or state provisions
relating to consolidated income tax returns.
9.2 Consent to Regulations. Trak Auto, for itself and on behalf
of all the members of the Trak Auto Group, consents to joining in the Expanded
Group consolidated return and to reporting in accordance with all regulations
relating to the filing of a consolidated tax return.
9.3 Term of Agreement. This Agreement shall be effective on the
date Trak Auto becomes a member of the Expanded Group and shall remain in
effect between Dart and Trak Auto with respect to any Expanded Group Taxable
Year in which the parties hereto are included as members of the Expanded Group.
9.4 Subsequent Alterations and Modifications. Subject to the
rights of Dart set forth in Section 9.1 hereof to modify the provisions of this
Agreement for purposes of conforming with the applicable provisions of the Code
or Regulations relating to consolidated income tax returns, all alterations and
modifications of this Agreement shall be in writing and signed by all parties.
9.5 Elections. Trak Auto, for itself and on behalf of all members
of the Trak Auto Group, hereby agrees that Dart, as the common parent, shall
have the authority to make any or all elections which are available under the
Code, Regulations, or state provisions.
9.6 Subsidiaries. If at any time the Initial Group or the Trak
Auto Group acquires or creates one or more subsidiary corporations that are
affiliated, within the meaning of section 1504(a), with the Initial Group or
the Trak Auto Group, respectively, such subsidiary corporations shall be
included in the Initial Group or the Trak Auto Group, as the case may be, and
all references to the Initial Group or the Trak Auto Group herein shall
thereafter be interpreted to include such subsidiaries.
7.7 Successors. This Agreement shall be binding on and inure to
the benefit of any successor, by merger, acquisition of assets or otherwise, to
any of the parties hereto (including but not limited to any successor of Dart
or Trak Auto succeeding to the tax attributes of either under Section 381 of
the Internal Revenue Code), to the same extent as if such successor had been an
<PAGE> 5
original party to this Agreement.
IN WITNESS THEREOF, the parties hereto have caused their names to be subscribed
and executed by their respective authorized officers on the date indicated
above.
DART GROUP CORPORATION
BY: /s/ Robert A. Marmon
---------------------
Name: Robert A. Marmon
Title: Chief Financial Officer
TRAK AUTO CORPORATION
BY: /s/ R. Keith Green
---------------------
Name: R. Keith Green
Title: President
<PAGE> 1
January 24, 1995
EMPLOYMENT AGREEMENT
This Agreement dated as of January 24, 1995, by and between Robert
Brann ("Employee"), and Trak Auto 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,
Merchandising 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.
2. TERM
<PAGE> 2
The term of Employee's employment under this Agreement (the
"Employment Period") shall commence on February 1, 1995 and end on January 31,
1996. However, Employer and Employee agree that the term of this agreement
automatically extends for an additional one (1) year at the end of each
Employment Period, unless Employee has been , or is being, terminated pursuant
to Section 7.
3. COMPENSATION
(a) Base Salary. Employee's annual base salary shall be
Two Hundred Forty Thousand Dollars ($240,000.00), subject to an annual increase
as recommended by the Compensation Committee of the Board of Directors
following review and performance appraisal of Employee, and approved 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.
(c) Bonus Compensation : Employee's Bonus Compensation
shall be paid in accordance with Employee's Bonus Agreement following review
and performance appraisal of Employee by the Compensation Committee of the
Board of Directors, and approval by the Board of Directors. Employee's bonus
shall be paid in one lump sum immediately following approval.
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 within 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
<PAGE> 3
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
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 Three (3) 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 permanently accrued to the Employee
(grandfathered). 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 Six Hundred and Fifty Dollars ($650.00) 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
convenants 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
<PAGE> 4
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 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 and accrued bonus 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; (ii) Employee's conviction of a felony; (iii) Employee's material
breach of any of the terms of this Agreement; or (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
<PAGE> 5
unpaid portion, if any, of Employee's compensation 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 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,
Employer shall not be required to make any further severance payments for any
period of time after the later of the first anniversary date of termination AND
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 utilize 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, and Employee's
Bonus Agreement, constitutes 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.
(f) Notice. All notices, requests and other
communications under
<PAGE> 6
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:
Robert Brann
5105 Sheppard Lane
Ellicott City, Maryland 21042
If to Employer:
Chief Executive Officer
Trak Auto 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 any or 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
<PAGE> 7
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
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
TRAK AUTO 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/ Robert Brann
-----------------------------------
Name of Employee: Robert Brann
<PAGE> 1
January 24, 1995
EMPLOYMENT AGREEMENT
This Agreement dated as of January 24, 1995, by and between Thomas
Reilly ("Employee"), and Trak Auto 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,
Operations 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,
1996. However, Employer and Employee agree that the term of this agreement
automatically extends for an additional one (1) year at the end of each
Employment Period, unless Employee has been , or is being, terminated pursuant
to Section 7.
3. COMPENSATION
(a) Base Salary. Employee's annual base salary shall be
Two Hundred Fifteen Thousand Dollars ($215,000.00), subject to an annual
increase as recommended by the Compensation Committee of the Board of Directors
following review and performance appraisal of Employee, and approved 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.
(c) Bonus Compensation : Employee's Bonus Compensation
shall be paid in accordance with Employee's Bonus Agreement following review
and performance appraisal of Employee by the Compensation Committee of the
Board of Directors, and approval by the Board of Directors. Employee's bonus
shall be paid in one lump sum immediately following approval.
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 within 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.
<PAGE> 3
(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
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 permanently accrued to the Employee (
grandfathered). 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 Six Hundred and Fifty Dollars ($650.00) 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
convenants 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
<PAGE> 4
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 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 and accrued bonus 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; (ii) Employee's conviction of a felony; (iii) Employee's material
breach of any of the terms of this Agreement; or (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
<PAGE> 5
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 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 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,
Employer shall not be required to make any further severance payments for any
period of time after the later of the first anniversary date of termination AND
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 utilize 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, and Employee's
Bonus Agreement, constitutes 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:
Thomas Reilly
252 Solway Court
Riva, Maryland 21140
If to Employer:
Chief Executive Officer
Trak Auto 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 any or 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
<PAGE> 7
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
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
TRAK AUTO 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/ Thomas Reilly
----------------------------------
Name of Employee: Thomas Reilly
<PAGE> 1
January 24, 1995
EMPLOYMENT AGREEMENT
This Agreement dated as of January 24, 1995, by and between David
MacGlashan ("Employee"), and Trak Auto 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 Vice President, Principal
Accounting Officer 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,
1996. However, Employer and Employee agree that the term of this agreement
automatically extends for an additional one (1) year at the end of each
Employment Period, unless Employee has been , or is being, terminated pursuant
to Section 7.
3. COMPENSATION
(a) Base Salary. Employee's annual base salary shall be
Two Hundred Thousand Dollars ($200,000.00), subject to an annual increase as
recommended by the Compensation Committee of the Board of Directors following
review and performance appraisal of Employee, and approved 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.
(c) Bonus Compensation : Employee's Bonus Compensation
shall be paid in accordance with Employee's Bonus Agreement following review
and performance appraisal of Employee by the Compensation Committee of the
Board of Directors, and approval by the Board of Directors. Employee's bonus
shall be paid in one lump sum immediately following approval.
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 within 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.
<PAGE> 3
(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
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 Three (3) 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 permanently accrued to the Employee (
grandfathered). 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 Six Hundred and Fifty Dollars ($650.00) 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
convenants 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
<PAGE> 4
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 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 and accrued bonus 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; (ii) Employee's conviction of a felony; (iii) Employee's material
breach of any of the terms of this Agreement; or (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
<PAGE> 5
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 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 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,
Employer shall not be required to make any further severance payments for any
period of time after the later of the first anniversary date of termination AND
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 utilize 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, and Employee's
Bonus Agreement, constitutes 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:
David MacGlashan
1728 Woodlore Road
Annapolis, Maryland 21401
If to Employer:
Chief Executive Officer
Trak Auto 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 any or 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
<PAGE> 7
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
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
TRAK AUTO 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/ David MacGlashan
----------------------------------
Name of Employee: David MacGlashan
<PAGE> 1
Exhibit 11
STATEMENT ON COMPUTATION OF PER SHARE NET INCOME
<TABLE>
<CAPTION>
Years Ended
-----------------------------------------
January 28, January 29, January 30,
1995 1994 1993
------------ ----------- -----------
<S> <C> <C> <C>
Weighted average common
shares outstanding
during the year 6,078,000 6,046,000 5,854,000
Effect of dilutive stock
options, net of shares
assumed repurchased
at average market price 61,000 61,000 74,000
------------ ------------ ------------
Weighted average common
share and common share
equivalents 6,139,000 6,107,000 5,928,000
============ ============ ============
Net income before
cumulative effect of
change in accounting
principle $ 10,265,000 $ 81,000 $ 3,355,000
Cumulative effect of
change in accounting
principle - - 1,658,000
------------ ------------ ------------
Net Income $ 10,265,000 $ 81,000 $ 5,013,000
============ ============ ============
Earnings per share:
Net income before
cumulative effect of
change in accounting
principle $ 1.67 $ .01 $ .57
Cumulative effect of
change in accounting
principle - - .28
------------ ------------ ------------
Net income $ 1.67 $ .01 $ .85
============ ============ ============
</TABLE>
The difference between primary net income per common share and fully diluted
net income per common share is not significant for the periods presented.
<PAGE> 1
Exhibit 21
SUBSIDIARIES OF TRAK AUTO
<TABLE>
<CAPTION>
State of Incorporation
----------------------
<S> <C> <C>
Trak Corporation (A) (100%) Delaware
Trak DHC Corporation (100%) Delaware
Super Trak Corporation (100%) Delaware
Trak Acquisition Corp. (100%) Delaware
</TABLE>
(A) Does business in certain states under the name "Trak Auto
Corporation I".
<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 Trak Auto Corporation's previously
filed Form S-8 File Number 33-3160.
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-28-1995
<PERIOD-START> JAN-30-1994
<PERIOD-END> JAN-28-1995
<CASH> 24,134
<SECURITIES> 10,133
<RECEIVABLES> 5,354
<ALLOWANCES> 24
<INVENTORY> 89,797
<CURRENT-ASSETS> 137,306
<PP&E> 81,860
<DEPRECIATION> 37,638
<TOTAL-ASSETS> 187,649
<CURRENT-LIABILITIES> 75,293
<BONDS> 26,541
<COMMON> 63
0
0
<OTHER-SE> 80,496
<TOTAL-LIABILITY-AND-EQUITY> 187,649
<SALES> 348,599
<TOTAL-REVENUES> 350,486
<CGS> 256,210
<TOTAL-COSTS> 256,210
<OTHER-EXPENSES> 75,264
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,849
<INCOME-PRETAX> 15,163
<INCOME-TAX> 4,898
<INCOME-CONTINUING> 10,265
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,265
<EPS-PRIMARY> 1.67
<EPS-DILUTED> 1.67
</TABLE>
