<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A)
OF THE SECURITIES EXCHANGE ACT OF 1934
/X/ Filed by the Registrant
/ / Filed by a Party other than the Registrant
Check the appropriate box:
<TABLE>
<S> <C>
/ / Preliminary Proxy Statement /X/ Definitive Proxy Statement
/ / Definitive Additional Materials / / Soliciting Material Pursuant to sec.
240.14a-11(c) or sec. 240.14a-12
</TABLE>
Trak Auto Corporation
- --------------------------------------------------------------------------------
(Name of Registrant As Specified in Charter)
Trak Auto Corporation
- --------------------------------------------------------------------------------
(Name of Persons(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), or 14a-6(i)(1), or
14a-6(i)(2).
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and and
0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
4) Proposed maximum aggregate value of transaction:
* Set forth the amount on which the filing fee is calculated and state how
it was determined.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
-----------------------------------------------------------------------
2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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<PAGE> 2
[TRAK AUTO LOGO]
3300 75TH AVENUE
LANDOVER, MARYLAND 20785
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON OCTOBER 10, 1996
The 1996 Annual Meeting of Stockholders of Trak Auto Corporation, a
Delaware corporation ("Trak Auto"), will be held on October 10, 1996 at 1:45
p.m. at the Marriott Courtyard, 8330 Corporate Drive, Landover, Maryland for the
purpose of electing five directors as set forth in the accompanying Proxy
Statement, and to transact such other business as may properly come before the
meeting or any adjournments thereof.
Only stockholders of record as of the close of business on September 6,
1996 will be entitled to notice of and to vote at the meeting.
If you plan to attend the meeting and will need special assistance or
accommodation due to a disability, please include such information on the
enclosed proxy card.
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE VOTE BY MEANS OF
THE ENCLOSED PROXY WHICH YOU ARE REQUESTED TO SIGN, DATE AND RETURN AS SOON AS
POSSIBLE IN THE ENCLOSED POSTAGE PREPAID ENVELOPE. IF YOU ARE PRESENT AT THE
MEETING, YOU MAY, IF YOU WISH, WITHDRAW YOUR PROXY AND VOTE YOUR SHARES
PERSONALLY.
By Order of the Board of Directors
/s/ ELLIOT R. ARDITTI
Elliot R. Arditti
Secretary
September 10, 1996
<PAGE> 3
TRAK AUTO CORPORATION
3300 75TH AVENUE
LANDOVER, MARYLAND 20785
----------------------------
PROXY STATEMENT
----------------------------
ANNUAL MEETING OF STOCKHOLDERS
OCTOBER 10, 1996
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Trak Auto Corporation, a Delaware
corporation ("Trak Auto"), for use at the 1996 Annual Meeting of Stockholders
(the "Meeting") to be held on October 10, 1996 at 1:45 p.m. at the Marriott
Courtyard, 8330 Corporate Drive, Landover, Maryland, and at any adjournments
thereof. This Proxy Statement, and the accompanying notice of the Meeting and
proxy card, are first being sent or given to stockholders on or about September
10, 1996.
Record holders of Trak Auto's common stock, par value $.01 per share (the
"Common Stock"), at the close of business on September 6, 1996 are entitled to
notice of, and to vote at, the Meeting. Each stockholder of record on such date
will be entitled to one vote for each share of Common Stock held. On September
6, 1996, there were 5,904,712 shares of Common Stock outstanding.
Shares of Common Stock cannot be voted at the Meeting unless the owner is
present or represented by proxy. Shares represented by valid proxies received by
Trak Auto in time for the Meeting will be voted as specified in such proxies.
Any stockholder giving a proxy has the right to revoke it at any time before it
is exercised by attending the Meeting and voting in person or by filing with the
Secretary of Trak Auto an instrument of revocation or duly executed proxy
bearing a later date.
With respect to the election of Directors, stockholders of Trak Auto voting
by proxy may vote in favor of the nominees, may withhold their vote for the
nominees, or may withhold their vote as to specific nominees. If no specific
instructions are given, shares of Common Stock represented by a properly
executed proxy will be voted for the election of all five directors listed under
the caption "Election of Directors."
At the Meeting, inspectors of election will determine the presence of a
quorum and tabulate the results of the voting by stockholders. More than
one-third of the outstanding shares of Common Stock must be present in person or
by proxy to constitute a quorum necessary for the transaction of business.
Abstentions and non-votes will be counted for purposes of determining the
presence of a quorum at the Meeting. The election of the five nominees for
Director requires the affirmative vote of a majority of the shares of Common
Stock present in person or by proxy and actually voting at the Meeting. Any
action other than a vote for a nominee (including abstentions and broker
non-votes) will have the practical effect of voting against the nominee.
1
<PAGE> 4
ELECTION OF DIRECTORS
(ITEM 1 ON THE PROXY CARD)
Five directors are to be elected at the Meeting. Unless otherwise
specifically directed, the persons named in the accompanying proxy will vote
such proxy for the election of the nominees listed below as directors of Trak
Auto to serve until the next annual meeting of stockholders and until their
successors are elected and qualified. In the event that a nominee for any reason
should become unavailable for election (which is not anticipated), it is
intended that the shares of Common Stock represented by the proxies will be
voted for a nominee who would be designated by the Board of Directors, unless
the Board of Directors reduces the number of Directors.
Dart Group Corporation ("Dart") owns 3,962,246 shares of Common Stock
(approximately 67% of the outstanding Common Stock) and intends to vote for each
of the nominees listed below. A Standstill Order entered into by the Delaware
Court of Chancery on December 6, 1995 provides, among other things, that Dart
may not, until further order of the court, change the current composition of the
board of directors of Dart or any of its subsidiaries.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" EACH OF THE NOMINEES.
The following information is furnished with respect to the nominees:
HERBERT H. HAFT, age 76, has been Chairman of the Board and Chief Executive
Officer of Trak Auto 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 the chairman of each of Dart's other subsidiaries, including Crown Books
Corporation ("Crown Books") and Total Beverage Corporation and a director of
Shoppers Food Warehouse Corp., in which Dart owns a 50 percent interest.
R. KEITH GREEN, age 45, was named a director of Trak Auto in September
1991. He has been the President of Trak Auto since 1990. Mr. Green was president
and chief executive officer of The Whitlock Corporation, Inc. from 1987 until he
joined Trak Auto.
DOUGLAS M. BREGMAN, age 46, is a partner in the law firm of Bregman,
Berbert & Schwartz, specializing in commercial real estate law. Mr. Bregman is
also an Adjunct Professor of Law at the Georgetown University Law Center. Mr.
Bregman has been a director of Trak Auto, Dart and Crown Books since June 1993.
LARRY G. SCHAFRAN, age 58, is managing general partner of L.G. Schafran &
Associates, a New York based investment advisory firm, and is the chairman of
the board of directors of Delta Omega Technologies, Inc. and is a director of
Publicker Industries, Inc., Capsure Holdings, Corp., Glasstech, Inc. and a
trustee of National Income Real Estate Trust. Mr. Schafran was elected a
director of Trak Auto, Dart and Crown Books on December 20, 1993.
BONITA A. WILSON, age 55, has been a retail consultant for Dalton Brody
since October 1993. Prior to that she was a retailing executive with the May
Company. Ms. Wilson is a director of Wedgewood Capital Management Inc. Ms.
Wilson has been a director of Trak Auto, Dart and Crown Books since June 1993.
There is no family relationship between any of the directors or officers of
Trak Auto.
Information regarding legal proceedings pending against certain directors
of Trak Auto is incorporated herein by reference to Item 3 of Trak Auto's Annual
Report on Form 10-K for the year ended February 3, 1996, which Annual Report may
be obtained without charge upon written request to David B. MacGlashan, Chief
Financial Officer, Trak Auto Corporation, 3300 75th Avenue, Landover, Maryland
20785.
2
<PAGE> 5
THE BOARD OF DIRECTORS, ITS COMMITTEES AND COMPENSATION
The Board of Directors of Trak Auto held six meetings and took action by
written consent on one occasion during the year ended February 3, 1996. The
Board of Directors has an Audit Committee and a Compensation Committee. Trak
Auto does not have a standing committee on nomination. In 1994, the Board of
Directors established an Executive Committee and a Special Litigation Committee.
All Directors attended at least seventy-five percent of the meetings of the
Board of Directors and the committees on which such Directors served during
fiscal 1996.
The Audit Committee currently consists of Larry G. Schafran, Bonita A.
Wilson and Douglas M. Bregman. The Audit Committee, which held three meetings
during fiscal 1996, reviews potential conflicts of interest, reviews the results
of the annual audit with Trak Auto's independent auditors and the adequacy of
Trak Auto's internal accounting controls and practices, and recommends to the
Board of Directors the independent auditors to be retained by Trak Auto.
The Compensation Committee was formed in December 1994 and currently
consists of Douglas M. Bregman, Larry G. Schafran and Bonita A. Wilson. The
Compensation Committee held two meetings in fiscal 1996. Trak Auto's Chief
Executive Officer is to consult with the Compensation Committee prior to
exercising such officer's authority to fix the compensation of Trak Auto's
officers. The Compensation Committee also advises the Board of Directors as to
the compensation of the Chief Executive Officer.
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 were the subject of dispute between the
Chairman of the Board and Chief Executive Officer of Dart, Herbert H. Haft, and
the then President and Chief Operating Officer of Dart, Ronald S. Haft. Because
Herbert H. Haft is and Ronald S. Haft was an executive officer and/or director
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 H. Haft and Ronald S. Haft concerning issues involving Dart and Trak
Auto have been extensive. Accordingly, the respective Executive Committees
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. While the Executive Committee remains
involved in the day-to-day affairs of Dart, its continuing role is dependent
upon future developments.
The Special Litigation Committee currently consists of Larry G. Schafran.
The Special Litigation Committee assesses, on behalf of Trak Auto, whether to
pursue, settle or abandon certain derivative litigation.
A Standstill Order entered into on December 6, 1995 in connection with a
settlement of certain litigation and other related transactions between Dart and
Ronald S. Haft provides, among other things, that Dart may not, until further
order is entered 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.
Compensation. Each director is compensated by Trak Auto at the rate of
$15,000 per year and each outside director is compensated an additional $1,000
per meeting (allocated among Trak Auto, Dart and Crown Books). Those directors
who are members of Trak Auto's audit committee and profit sharing committee
receive an annual fee of $5,000 for each committee (allocated among Trak Auto,
Dart and Crown Books).
Members of the Executive Committee are compensated at a rate of $275 per
hour plus reimbursement of expenses. Members of the Special Litigation Committee
of the Board of Directors have been compensated at
3
<PAGE> 6
a rate of $250 per hour plus reimbursement of expenses. During fiscal 1996, the
compensation paid by Dart and its subsidiaries, including Trak Auto, to members
of the respective Executive Committees for their services on those committees
totaled $1,263,000 ($421,000 paid by Trak Auto). Dart and its subsidiaries,
including Trak Auto, did not make any payments to members of the Special
Litigation Committee for their service on that committee in fiscal 1996.
Trak Auto Corporation 1993 Stock Option Plan. The Trak 1993 Plan specifies
that 1,500 Non-Qualified Stock Options shall be granted to each director who is
not an employee each calendar year, such options to be effective as of July 31
each year and to expire five years from the date of grant.
Deferred Compensation Plan. Trak Auto adopted the 1988 Trak Auto
Corporation Deferred Compensation Plan for Directors, effective January 1, 1988
(the "Compensation Plan"). The Compensation Plan permits Trak Auto's directors
to defer the payment of all or a specified part of future compensation payable
for services as director, including fees for serving on or attending meetings of
committees of the Board of Directors. Each director may elect, on or before
January 31 of any year, to defer payment of compensation, payable on or after
the February 1st following such election, for services to be performed during
the twelve-month period commencing on such February 1 and ending on January 31
of the following calendar year (the "Plan Year"). After such an election, all
subsequent compensation will be deferred until the director notifies Trak Auto,
prior to the commencement of any Plan Year, that compensation for future Plan
Years is to be paid on a current basis.
Deferred compensation will not be paid to a director as earned, but will be
held in Trak Auto's general funds and credited to a bookkeeping account
maintained by Trak Auto in the name of the director. Each participating director
will be treated as a creditor of Trak Auto with respect to such funds. Deferred
compensation will be paid to directors in a lump sum on the February 15th of the
Plan Year after retirement, unless the director elects, at the time he exercises
the deferral option, to be paid in up to ten annual installments.
4
<PAGE> 7
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information concerning all
shareholders known by Trak Auto to be beneficial owners of five percent or more
of the Common Stock as of August 31, 1996.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
BENEFICIAL PERCENT OF
NAME AND ADDRESS OWNERSHIP(1) CLASS
- --------------------------------------------------------------------- ------------ ----------
<S> <C> <C>
Dart Group Corporation(2)............................................ 3,962,246 67.1
3300 75th Avenue
Landover, MD 20785
Heartland Advisors, Inc.(3).......................................... 783,850 13.3
790 N. Milwaukee Street
Milwaukee, WI 53202
Dimensional Fund Advisors Inc.(4).................................... 375,900 6.4
1299 Ocean Avenue
Santa Monica, CA 90401
</TABLE>
- ---------------
(1) Under the rules of the Securities and Exchange Commission (the "SEC"), a
person is deemed to be a beneficial owner of a security if such owner has
or shares the power to vote or direct the voting of such security or the
power to dispose or direct the disposition of such security. Accordingly,
more than one person may be deemed to be a beneficial owner of the same
securities. Unless otherwise indicated by footnote, the persons named in
the table have sole voting and investment power with respect to the shares
of Common Stock beneficially owned.
(2) Under the Voting Trust Agreement, dated October 6, 1995 (the "Voting Trust
Agreement"), among Ronald S. Haft, Dart and the Voting Trustees named
therein, Richard B. Stone, as Voting Trustee, has sole voting power over
374,485 Dart Class A shares and 222,294 Dart Class B shares and Ronald S.
Haft has sole investment power over such shares, subject to (i) the rights
of Dart to exercise a call option to purchase the shares, as provided in
the Buy/Sell/Offering Agreement entered into by Ronald S. Haft and Dart,
and (ii) the rights of Dart and Cabot-Morgan Real Estate Company ("CMREC")
under a Stock and Trust Certificate Pledge Agreement made by Ronald S. Haft
in favor of the initial Voting Trustees, as collateral agents and bailees
for Dart and CMREC. The Voting Trustee may vote the shares in such manner
as he deems to be "in the best interests of Dart and all of its
shareholders as a single class." The Voting Trust Agreement will terminate
on August 1, 2000, unless terminated earlier or later pursuant to the terms
of the Voting Trust Agreement. The Voting Trust Agreement is subject to
legal challenge. See Item 3 of Trak Auto's Annual Report on Form 10-K for
the year ended February 3, 1996.
(3) Based on the holdings reported on the most recent Schedule 13G filed by
Heartland Advisors, Inc., an investment advisor registered under the
Investment Advisors Act of 1940 ("Heartland"), on February 9, 1996. In its
Schedule 13G, Heartland has reported that it has sole voting power over
643,050 of the shares. Heartland has sole investment power over 783,850
shares.
(4) Based on holdings reported on a Schedule 13G filed by Dimensional Fund
Advisors Inc., an investment advisor registered under the Investment
Advisors Act of 1940 ("DFA"), on February 7, 1996. DFA has sole voting
power with respect to 240,400 shares (representing 4.1% of the shares
outstanding). Persons who are officers of DFA also serve as officers of DFA
Investment Dimensions Group Inc. (the "Fund") and the DFA Investment Trust
Company (the "Trust"). In their capacities as officers of the Fund and the
Trust, these persons vote 43,500 shares (representing .7% of the shares
outstanding) owned by the Fund and 92,000 shares (representing 1.6% of the
shares outstanding) owned by the Trust. DFA has sole investment power with
respect to 375,900 shares.
5
<PAGE> 8
POTENTIAL CHANGES IN CONTROL
On October 6, 1995, Dart and Ronald S. Haft entered into a settlement of
certain litigation and other related transactions (collectively, the "RSH
Settlement").
The RSH Settlement transactions are subject to pending litigation and,
through such litigation Robert M. Haft, Gloria G. Haft and Linda G. Haft and,
separately, Herbert H. Haft seek control of Dart. If sustained, the RSH
Settlement transactions were intended to have the effect, by their terms, of
transferring majority control of Dart's voting stock to one or more voting
trustees under the Voting Trust Agreement. On December 28, 1995, the initial
Voting Trustees resigned and appointed Richard B. Stone as successor Voting
Trustee.
If the RSH Settlement is sustained by the Delaware Court of Chancery, a
Buy/Sell/Offering Agreement between Dart and Ronald S. Haft will govern the
ultimate disposition of the shares held by the Voting Trustee. That agreement
gives Ronald S. Haft the right to "put" to Dart the stock held by the Voting
Trustee at any time between January 1, 1997 and December 31, 1999, subject to
certain conditions. With respect to the 222,294 shares of Dart Class B Common
Stock held by the Voting Trustee, Ronald S. Haft may (instead of including them
in the "put") exchange them for 244,523 shares of Dart Class A Common Stock
(i.e., a 1.1 to 1 exchange ratio) and offer those 244,523 shares of Dart Class A
Common Stock to the public. Dart has an option to "call" the shares held by the
Voting Trustee, if they have not previously been disposed of as described above,
at any time during the first seven months of the year 2000.
All of the 222,294 Dart Class B shares in the Voting Trust, as well as the
related voting trust certificates issued to Ronald S. Haft under the Voting
Trust Agreement, have been pledged to Dart and CMREC as security for certain
loans made to Ronald S. Haft and other obligations of Ronald S. Haft arising
under the RSH Settlement.
6
<PAGE> 9
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth information as of August 31, 1996 regarding
the ownership of the Common Stock, Dart's Class A Common Stock, $1.00 par value
per share ("Class A"), and Dart's Class B Common Stock, $1.00 par value per
share ("Class B"), by the following persons: (a) each of Trak Auto's current
directors, (b) Trak Auto's Chief Executive Officer and the other four most
highly paid executive officers of Trak Auto and (c) all of Trak Auto's current
directors and executive officers as a group.
<TABLE>
<CAPTION>
APPROXIMATE
TITLE OF NO. OF PERCENTAGE
NAME CLASS SHARES OF CLASS
- ----------------------------------------------------------- ---------- --------- -----------
<S> <C> <C> <C>
Herbert H. Haft............................................ Class A 252,497(1) 13.37(2)
Class B --(3) --
Trak Auto 7,168(4) *
R. Keith Green............................................. Class A 1,999(5) *(2)
Trak Auto 25,501(6) *
Bonita A. Wilson........................................... Class A 2,250(7) *(2)
Trak Auto 4,500(8) *
Douglas M. Bregman......................................... Class A 2,250(7) *(2)
Trak Auto 4,500(8) *
Larry G. Schafran.......................................... Class A 1,125(9) *(2)
Trak Auto 3,000(10) *
Robert E. Brann............................................ Trak Auto 4,565(11) *
Thomas V. Reilly........................................... Trak Auto 9,788(12) *
David B. MacGlashan........................................ Trak Auto 4,399(13) *
All directors and officers as a group (8 persons).......... Class A 260,121(14) 13.72(2)
Trak Auto 63,421(15) 1.06
</TABLE>
- ---------------
* Less than one percent.
(1) Includes exercisable options for 129,750 Class A shares. These options
include 10,000 shares under Dart's 1983 Executive Non-Qualified Stock Plan
and 99,750 shares under Dart's 1987 Executive Non-Qualified Stock Option
Plan, the validity of which is subject to challenge by Dart.
(2) Calculated based upon a class including shares subject to exercisable stock
options under stock option plans, which are subject to challenge by Dart.
(3) Herbert H. Haft has filed a lawsuit seeking a judgement declaring that
172,730 shares of Class B Common Stock belong to him, that they were
wrongfully sold by Ronald S. Haft to Dart and that Herbert H. Haft is
entitled to restitution of such shares or, alternatively, that his
purported irrevocable proxy on the 172,730 shares continues to be valid.
(4) Includes exercisable options for 6,668 shares.
(5) Exercisable options for 1,999 Class A shares.
(6) Includes exercisable options for 20,501 shares.
(7) Exercisable options for 2,250 Class A shares.
(8) Exercisable options for 4,500 shares.
(9) Exercisable options for 1,125 Class A shares.
(10) Exercisable options for 3,000 shares.
(11) Exercisable options for 4,565 shares.
(12) Includes exercisable options for 6,098 shares.
(13) Exercisable options for 4,399 shares.
(14) Includes exercisable options for 137,374 Class A shares.
(15) Includes exercisable options for 54,231 shares.
7
<PAGE> 10
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Dart provides Trak Auto with certain general and administrative services.
Dart charged Trak Auto approximately $865,000 for such services during the year
ended February 3, 1996. In addition, Trak Auto provides similar services to Dart
and its other subsidiaries. Trak Auto charged Dart and its subsidiaries
approximately $1,235,000 for such services in the year ended February 3, 1996.
In management's opinion, the intercompany charges for these services were equal
to the costs incurred by Dart or Trak Auto to provide these functions. It is not
practicable for Trak Auto to estimate the cost it would have incurred for these
services if it had operated as an unaffiliated entity. In addition, Dart charges
Trak Auto for actual expenses that relate directly to Trak Auto's operations.
Substantially all such charges are supported by invoices from unrelated parties
designating Trak Auto as recipient of the related goods and services or were for
matters related to Dart and all of its affiliated companies (including Trak
Auto) and were allocated on a judgmental basis by management. These direct
charges were $5,154,000 in the year ended February 3, 1996 and included
insurance premiums that were paid by Trak Auto in prior years.
Of Trak Auto's 276 stores as of February 3, 1996, 23 stores were held under
lease or sublease agreements from entities in which members of the Haft family
own substantially all the beneficial interests. Two stores were leased from
joint ventures in which Dart owned the majority interest and the remaining
interests were owned by members of the Haft family. In addition, two stores were
subleased from Crown Books. These 27 store lease agreements provide for various
termination dates from 1996 to 2024 (assuming option periods are exercised) and
require future minimum rentals aggregating $49,979,000 at February 3, 1996.
These lease agreements also require payment of a percentage of sales in excess
of a stated minimum. During the year ended February 3, 1996, the fees and
rentals paid by Trak Auto under these agreements were $2,914,000.
Trak Auto leases a 176,000 square foot warehouse located in Bridgeview,
Illinois from a private partnership in which Haft family members own all of the
partnership interests. The lease (which commenced in 1984) is for thirty years
and six months and provides for rental payments increasing approximately 15%
every five years over the term of the lease. The current annual rental is
$728,000. The lease also requires the payment of maintenance, utilities,
insurance and real estate taxes on the warehouse.
Trak Auto subleases 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 in 1985. The current annual rental is $1,422,000. The sublease also
requires the payment of 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. Trak Auto's lease 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
near Trak Auto's warehouse in Landover, Maryland. The lease is for the same
period as the warehouse and office facility lease described above. Dart, Trak
Auto and Crown Books each pay a pro-rata share of the rent in the proportion to
their use of the warehouse and office facility. Trak Auto's current annual
rental is $25,000 with increases of three percent per year.
On April 20, 1992, Trak Auto 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
8
<PAGE> 11
partnership in which Haft family members own all of the partnership interests
(the "Pennsy Leases"). The term of the sublease is one year (with nine one-year
option periods). Under the sublease agreement the current annual rental is
$21,000 and increases to $24,000 for each of the last five option periods. The
sublease also requires Trak Auto to pay approximately $6,000 annually for its
full share of any common area charges, real estate taxes and insurance premiums.
Trak Auto has given notice to terminate this sublease and hold over in the
warehouse on a month-to-month basis.
Trak Auto 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 1989, and provides for increasing rental payments, based
upon the Consumer Price Index for the Los Angeles area, over the term of the
lease. The current annual rental is $1,374,000. The lease requires the payment
of maintenance, utilities, insurance and real estate taxes.
The total of annual fees and rent paid to Haft-owned entities for stores,
warehouses and office space was $6,295,000 in fiscal 1996.
As part of the RSH Settlement, Ronald S. Haft agreed to transfer the real
estate and partnership interests controlled by him in the Landover, Maryland,
Bridgeview, Illinois and Ontario, California offices and warehouse facilities to
Dart (or its subsidiaries) and to reduce the rent. These transfers and rent
reductions are subject to contingencies, including bankruptcy court approval,
mortgagee approval, challenges brought by Herbert H. Haft concerning the extent
of Ronald S. Haft's ownership interest in the property, and claims asserted by
Robert M. Haft and Linda G. Haft regarding the extent to which Ronald S. Haft
controls the aforementioned partnerships.
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. 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, Trak Auto and
Crown Books, on the one hand, and Haft-owned entities, on the other hand. The
Executive Committees have not yet determined whether other actions will be taken
as a result of this legal review.
9
<PAGE> 12
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
This report describes Trak Auto's compensation policies applicable to its
executive officers during the fiscal year ended February 3, 1996. During fiscal
1996, executive compensation policies were formulated by the Compensation
Committee and an extensive evaluation of executive compensation practices was
completed. An Executive Compensation Program was developed in fiscal 1996 and
will be implemented in fiscal 1997. This new program shifts the former "base
pay" emphasis to one that is more closely tied to company performance.
The key elements of Trak Auto's executive compensation program consist of
base salaries that are determined based upon (a) concerns of competitive pay and
performance, (b) cash bonus awards that are driven solely on performance and (c)
ownership of stock options to align the interests of management with those of
stockholders. Each of these elements are described in more detail below.
Executive compensation during fiscal 1996 consisted principally of salary.
For executive officers other than the Chief Executive Officer, annual salary is
determined by the person to whom such officer reports (in the case of officers
other than the President, in consultation with the Chief Executive Officer),
based on the officer's previous year's salary and his superior's subjective
assessment of the responsibilities of the position held, the competitive market
for retail executives with comparable levels of responsibility, the executive's
performance on the job and other factors that the superior deems relevant or
appropriate.
Trak Auto's President is eligible to receive a bonus based on Trak Auto's
operating results as compared to budget for the fiscal year. The accrual for Mr.
Green's bonus for the fiscal year ended February 3, 1996 was $120,000. No
bonuses were awarded to any other executive officers.
The Compensation Committee believes that annual awards of stock options are
an effective means of aligning an executive's compensation with the interests of
shareholders, since the value of such options are tied directly to increases in
the market value of the Common Stock. The exercise price for such options
granted is the market value of the Common Stock on the date of grant. Options
become exercisable over time. One-third become exercisable one year from the
date of grant, an additional one-third become exercisable two years from the
date of grant and the last third become exercisable three years from the date of
grant. There is no set number of options that can be awarded in any year or any
formula for allocating options among the officers. The amount of options awarded
to each executive officer is based on the Compensation Committee's subjective
evaluation of the relative contributions of the executives to Trak Auto.
During the fiscal year ended January 28, 1995, stock option grants were
approved by the Board of Directors subject to approval by the Delaware Chancery
Court as a result of a Standstill Agreement. As of the end of fiscal 1995, the
court had not approved the grant of options and, consequently, no options were
deemed to have been granted in fiscal 1995. On April 18, 1995, a hearing was
held at which the court issued an order stating that the Standstill Agreement
did not enjoin the issuance of stock options approved by the Board of Directors.
Because the hearing took place after the end of fiscal 1995, there were no stock
options granted during fiscal 1995. Accordingly, in fiscal 1996, Trak Auto
granted stock options to certain executive officers based upon performance
during fiscal 1995. In addition, Trak Auto granted stock options to certain
executive officers during fiscal 1996 based upon performance during fiscal 1996.
FISCAL 1996 COMPENSATION FOR THE CHIEF EXECUTIVE OFFICER
Herbert H. Haft, the Chief Executive Officer, received $250,000 in salary
from Trak Auto in fiscal 1996. Mr. Haft's salary has been the same since 1986
and was not reviewed by the Compensation Committee during the past fiscal year.
10
<PAGE> 13
LIMIT ON DEDUCTIBILITY OF CERTAIN COMPENSATION
It is the responsibility of the Board of Directors to address the issues
raised by a change in the federal income tax laws that has made certain
non-performance based compensation to executive officers of public companies in
excess of $1 million non-deductible to such companies. In this regard, the Board
must determine whether any actions with respect to this new limit should be
taken by Trak Auto. At this time, it is not anticipated that any executive
officer of Trak Auto will receive any such compensation in fiscal 1997.
Therefore, the Board has not taken any action to comply with the $1 million
limitation. The Board will continue to monitor this situation and will take
appropriate action if it is warranted in the future.
STATUS OF REPORT
The foregoing report on Executive Compensation shall not be deemed to be
"soliciting material" or be "filed" with the SEC or subject to Regulation 14A
promulgated by the SEC or Section 18 of the Securities Exchange Act of 1934.
Compensation Committee
Douglas M. Bregman
Larry G. Schafran
Bonita A. Wilson
11
<PAGE> 14
STOCK PRICE PERFORMANCE GRAPH
The following graph compares cumulative total returns (assuming
reinvestment of dividends) on the Common Stock, the S&P Composite-500 Stock
Index and a peer company index (the S&P Retail Store Specialty Index) for the
five-year period ending February 3, 1996. This stock price performance graph
assumes that the value of the investment in the Common Stock and each index was
$100 on January 31, 1991. Through February 3, 1996, no dividends were paid on
the Common Stock. The stock price performance shown on the graph below is not
necessarily indicative of future price performance.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
FOR THE YEAR ENDED FEBRUARY 3, 1996
<TABLE>
<CAPTION>
MEASUREMENT PERIOD TRAK AUTO STANDARD & RETAIL STORE
(FISCAL YEAR COVERED) CORPORATION POOR'S INDEX COMPOSITE
<S> <C> <C> <C>
1991 100.00 100.00 100.00
1992 243.00 123.00 114.00
1993 315.00 136.00 149.00
1994 211.00 153.00 149.00
1995 294.00 163.00 144.00
1996 255.00 173.00 141.00
</TABLE>
12
<PAGE> 15
COMPENSATION OF EXECUTIVE OFFICERS
SUMMARY COMPENSATION TABLE
The following table sets forth in summary form all compensation for all
services rendered in all capacities to Trak Auto and its subsidiaries for the
three years ended February 3, 1996 to (i) the Chief Executive Officer of Trak
Auto and (ii) the other four most highly paid executive officers of Trak Auto
(collectively, the "Named Executive Officers").
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
----------------------------------- ------------
OTHER SECURITIES
ANNUAL UNDERLYING ALL OTHER
NAME AND FISCAL COMPENSATION OPTIONS COMPENSATION
PRINCIPAL POSITION YEAR SALARY($) BONUS($) ($)(1) (#) ($)(2)
- --------------------------------- ------ --------- -------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Herbert H. Haft.................. 1996 250,000 -- 15,000(3) -- 3,000
Chief Executive Officer 1995 250,000 -- 15,000(3) -- 3,000
1994 250,000 -- 12,500(3) 20,000 1,000
R. Keith Green................... 1996 310,200 120,000 20,000(4) 25,000 3,000
President 1995 273,000 97,500 20,000(4) -- 3,000
1994 263,000 -- 12,500(5) 10,000 1,000
Robert E. Brann.................. 1996 247,800 -- -- 7,000 3,000
Executive Vice President 1995 220,000 -- -- -- 3,000
1994 211,100 -- -- 1,600 500
Thomas V. Reilly................. 1996 222,800 -- -- 7,000 3,000
Executive Vice President 1995 198,000 -- -- -- 3,000
1994 187,100 -- -- 1,600 500
David B. MacGlashan.............. 1996 207,800 -- -- 7,000 3,000
Vice President, Chief 1995 183,000 -- -- -- 3,000
Financial Officer 1994 171,700 -- -- 1,600 500
</TABLE>
- ---------------
(1) Excludes perquisites and other personal benefits, unless the aggregate
amount of such compensation is at least $10,000 or 10% of the total annual
salary and bonus reported for the Named Executive Officer.
(2) Includes allocations to the accounts of the Named Executive Officers
pursuant to the profit-sharing plans of Trak Auto.
(3) Includes fees received as a director of Trak Auto.
(4) Includes fees received as a director of Trak Auto ($15,000) and health, life
and disability insurance ($5,000).
(5) Includes fees received as a director of Trak Auto ($12,500).
13
<PAGE> 16
OPTION GRANTS IN LAST FISCAL YEAR
This table provides information with respect to grants of options for
shares of common stock of Trak Auto to the Named Executive Officers during
fiscal 1996 and the exercise price, expiration date and estimates of the
potential realizable values of such options.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL
---------------------------------------------------------- REALIZABLE
% OF TOTAL VALUE AT ASSUMED
OPTIONS ANNUAL RATES OF
GRANTED TO STOCK PRICE
EMPLOYEES MARKET APPRECIATION FOR
OPTIONS IN EXERCISE OR PRICE OPTION TERM(2)
GRANTED FISCAL BASE PRICE DATE OF EXPIRATION ----------------
NAME (#)(1) YEAR ($/SH) GRANT($) DATE 5%($) 10%($)
- -------------------------------------- ------- ---------- ----------- -------- ---------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
Herbert H. Haft....................... None
R. Keith Green........................ 15,000 11.9 16.125 16.125 7/31/00 66,800 147,700
10,000 (3) 11.4 14.00 14.00 7/31/99 38,700 85,500
Robert E. Brann....................... 5,000 4.0 16.125 16.125 7/31/00 22,300 49,200
2,000 (3) 2.3 14.00 14.00 7/31/99 7,700 17,100
Thomas V. Reilly...................... 5,000 4.0 16.125 16.125 7/31/00 22,300 49,200
2,000 (3) 2.3 14.00 14.00 7/31/99 7,700 17,100
David B. MacGlashan................... 5,000 4.0 16.125 16.125 7/31/00 22,300 49,200
2,000 (3) 2.3 14.00 14.00 7/31/99 7,700 17,100
</TABLE>
- ---------------
(1) Options become exercisable over time. One-third become exercisable one year
from the date of grant, an additional one-third become exercisable two years
from the date of grant and the last third become exercisable three years
from the date of grant. Options expire five years from the date of grant.
Options are granted at market price on the date of grant. All options
granted to executive officers are incentive stock options ("ISO's") under
the Internal Revenue Code. ISO's entitle the option holder to special tax
treatment provided that the option holder satisfies certain holding periods
with respect to shares acquired on the exercise of options. In general, if
the holding periods are satisfied, the option holder will incur no taxable
income by reason of exercise of the option, and Trak Auto will not receive
an income tax deduction by reason of the exercise. The option holder will
recognize gain or loss upon a subsequent sale of the common stock, based on
the difference between the amount for which the stock is sold, and the
option price paid.
(2) Potential realizable value is based on an assumption that the price of the
Common Stock appreciates at the annual rate shown (compounded annually) from
the date of grant until the end of the five year option term. These numbers
are calculated based on the rules and regulations promulgated by the
Securities and Exchange Commission and do not reflect an estimate of future
stock price growth.
(3) Represents options for Trak Auto Common Stock granted in fiscal 1995 but not
approved by court action until fiscal 1996.
14
<PAGE> 17
AGGREGATED OPTION EXERCISES IN THE LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
For each of the Named Executive Officers, the following table provides
information regarding the exercise of options during fiscal 1996 and the number
and value of unexercised options held as of February 3, 1996.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
FY-END FY-END($)
------------- -------------
SHARES ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE REALIZED($) UNEXERCISABLE UNEXERCISABLE
- ----------------------------------------- --------------- ----------- ------------- -------------
<S> <C> <C> <C> <C>
Herbert H. Haft.......................... 73,332 277,500 --/ 6,668 --/16,700
R. Keith Green........................... -- -- 8,834/25,001 17,100/15,000
Robert E. Brann.......................... -- -- 1,699/ 6,868 3,200/ 2,700
Thomas V. Reilly......................... 500 2,600 4,732/ 6,868 20,600/ 2,700
David B. MacGlashan...................... -- -- 1,533/ 6,868 2,800/ 2,700
</TABLE>
EMPLOYMENT AGREEMENTS
On January 24, 1995, Trak Auto entered into an employment agreement with
each of Messrs. Green, Brann, Reilly and MacGlashan. Mr. Green's agreement is
for a term of two years from February 1, 1995 to January 31, 1997, and is
automatically extended two years at the end of this term unless Mr. Green is
terminated pursuant to the agreement prior to that time. The other agreements
are for the period from February 1, 1995 to January 31, 1996, and are
automatically extended one year at the end of such term unless the individual is
terminated pursuant to the agreement prior to that time.
The agreements provide for the following rates of annual compensation: Mr.
Green, $300,000; Mr. Brann, $240,000; Mr. Reilly, $215,000; Mr. MacGlashan,
$200,000. Annual compensation is subject to annual increases as recommended to
the Board by the Compensation Committee following review and performance
appraisal by the Compensation Committee and approval by the Board.
Mr. Green is eligible for an annual bonus pursuant to a bonus agreement
based on performance. The bonus base is $75,000 if Trak Auto meets budget, is
increased by a percentage of Trak Auto's net income that exceeds budget and is
decreased by a percentage of net income that is below budget.
INDEPENDENT AUDITORS
Arthur Andersen LLP has served as the independent auditors of Trak Auto for
the fiscal year ended February 3, 1996 and has been appointed by the Board of
Directors to serve as Trak Auto's independent auditors for the fiscal year
ending February 1, 1997. Representatives of Arthur Andersen LLP are expected to
be present at the Meeting with the opportunity to make a statement if they so
desire and to be available to respond to appropriate questions.
STOCKHOLDER PROPOSALS FOR 1997 ANNUAL MEETING
Stockholders who wish to submit a proposal for consideration at the 1997
Annual Meeting of Stockholders should submit the proposal in writing to Trak
Auto at 3300 75th Avenue, Landover, Maryland
15
<PAGE> 18
20785, attention: Elliot R. Arditti, Esq. Proposals must be received by Trak
Auto no later than February 1, 1997 for inclusion in next year's proxy
materials.
OTHER MATTERS
Proxies for the Meeting will be solicited by mail and may be solicited by
telephone and other means of communication. Solicitation may be made by
directors, officers and other regular employees of Trak Auto. The entire cost of
soliciting proxies will be borne by Trak Auto. Trak Auto does not expect to pay
any compensation for solicitation of proxies, but will reimburse brokers,
nominees and fiduciaries for reasonable expenses incurred by them in sending
proxy material to the beneficial owners of Common Stock held by such persons.
The Board of Directors does not intend to present, and has not been
informed that any other person intends to present, any matters for action at the
Meeting other than those specifically referred to herein. If, however, any other
matters should properly come before the Meeting, it is the intention of the
persons named in the enclosed proxy to vote the shares represented thereby in
accordance with their best judgment on such matters.
By order of the Board of Directors
/s/ ELLIOTT R. ARDITTI
Elliott R. Arditti
Secretary
September 10, 1996
A COPY OF TRAK AUTO'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED
FEBRUARY 3, 1996, WHICH HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION, MAY BE OBTAINED WITHOUT CHARGE UPON WRITTEN REQUEST TO DAVID B.
MACGLASHAN, CHIEF FINANCIAL OFFICER, TRAK AUTO CORPORATION, 3300 75TH AVENUE,
LANDOVER, MARYLAND 20785.
16
<PAGE> 19
TRAK AUTO CORPORATION
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON OCTOBER 10, 1996
The undersigned, a stockholder of Trak Auto Corporation, a Delaware
corporation (the "Corporation"), hereby appoints Larry G. Schafran and R. Keith
Green, attorneys and proxies of the undersigned, with full power of
substitution, to vote and act for the undersigned at the Annual Meeting of
Stockholders of the Corporation to be held at the Marriott Courtyard, 8330
Corporate Drive, Landover, Maryland on Thursday, October 10, 1996 and at any
adjournments thereof, as designated for the items set forth below and in the
Notice of Annual Meeting of Stockholders and the Proxy Statement dated
September 10, 1996.
This proxy, when properly executed, will be voted as directed herein
by the undersigned. However, if no direction is given, this proxy will be
voted FOR the election of all directors listed under Item 1.
(Continued and to be signed on reverse side)
- --------------------------------------------------------------------------------
1. Election for Board of Directors of Herbert H. Haft, R. Keith Green
Douglas M. Bregman, Larry G. Schafran and Bonita A. Wilson
/ / FOR all nominees / / WITHHOLD vote for all nominees
(Vote must be indicated /(FILL)/ or /X/ in blue or black ink.)
(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL
NOMINEE, STRIKE A LINE THROUGH THE NOMINEE'S NAME.)
2. IN THEIR DISCRETION, on any other matters that may properly come
before the meeting or any adjournments thereof.
Please date this proxy and sign your name exactly as your name appears
herein. If the stock is held jointly, all owners must sign. When signing as
attorney, executor, administrator, trustee, guardian or in another
representative capacity, please give full title.
Dated , 1996
----------------------------------
---------------------------------------------
Signature of Stockholder
---------------------------------------------
Signature of Stockholder (if held jointly)
Address change or comments, mark here / /
PROXY DEPARTMENT
NEW YORK, N.Y. [ZIP CODE]
Please complete, sign, date and promptly return the proxy in the enclosed
envelope, which requires no postage if mailed in the United States.
