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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 for the fiscal year ended January 31, 1998
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( ) Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from to
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Commission file number 0-12202
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TRAK AUTO CORPORATION
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(Exact name of registrant as specified in its charter)
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Delaware 52-1281465
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3300 75th Avenue, Landover, Maryland 20785
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(Address of principal executive offices) (Zip Code)
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Registrant's telephone number, including area code (301) 226-1200
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Securities registered pursuant to Section 12(b) of the Act: NONE
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, Par Value $.01 Per Share
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(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
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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 30, 1998, the registrant had 5,909,179 shares of Common Stock
outstanding and the aggregate market value of such shares held by
non-affiliates of the registrant was approximately $23,363,000.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's 1998 proxy statement for the annual stockholders'
meeting to be held June 26, 1998 are incorporated by reference in Part III of
this Form 10-K
The exhibit index begins at page 69 of this Form 10-K.
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Table of Contents
Part I
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Page
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Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Item 4. Submission of Matters to a Vote of
Security Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Part II
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Item 5. Market for the Registrant's Common Equity and
Related Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of
Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Item 8. Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . 29
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure . . . . . . . . . . . . . . . . . . . . . . 60
Part III
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Item 10. Directors and Executive Officers of the
Registrant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Item 12. Security Ownership of Certain Beneficial Owners
and Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Item 13. Certain Relationships and Related Transactions . . . . . . . . . . . . . . . . . . . 61
Part IV
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Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
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PART I
Forward-looking Statements
Statements in this report that are not historical in nature, including
references to beliefs, anticipations or expectations, are forward-looking. Such
statements are subject to a wide variety of risks and uncertainties that could
cause actual results to differ materially from those projected, including
without limitation the consummation of the Merger (as defined below), the
ability of the Company (as defined below) to open new stores and close other
stores, the sufficiency of recorded reserves for store closings, the
availability of capital to fund operations, the effect of national and regional
economic conditions, the effect of increased competition in the markets in
which the Company operates and other risks described from time to time in the
Company's filings with the Securities and Exchange Commission. The Company
undertakes no obligation and does not intend to update, revise or otherwise
publicly release the result of any revisions to these forward-looking
statements, which revisions may be made to reflect any future events or
circumstances, other than through its regular quarterly and annual financial
statements, and through the accompanying discussion and analysis contained in
the Company's Quarterly Reports on Form 10-Q and Annual Report on Form 10-K.
Item 1. Business
Trak Auto Corporation ("Trak Auto") was incorporated in Delaware in 1983 and
operates retail discount auto parts stores in the United States. The term
"Company" refers collectively to Trak Auto and its wholly-owned subsidiaries,
including Trak Corporation, Super Trak Corporation ("Super Trak") and Trak DHC
Corporation. Dart Group Corporation ("Dart") owns 67.1% of Trak Auto's
outstanding common stock, par value $.01 per share (the "Common Stock").
Operations
The Company operates retail discount auto parts stores in the metropolitan
areas of Washington, D.C., Richmond, Virginia, Chicago, Illinois and Milwaukee,
Wisconsin, and central Pennsylvania. During the year ended January 31, 1998,
the Company sold its operations in the Los Angeles, California market and
closed its Pittsburgh, Pennsylvania operations.
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. The Company does not sell tires and does not provide automotive
service or installation.
Trak Auto characterizes its stores as "Classic Trak" stores, "Super Trak"
stores and "Super Trak Warehouse" stores. Classic Trak stores are typically
between 5,000 and 6,000 square feet and carry 10,000 different product item
numbers or "SKU's".
Super Trak stores are typically between 6,000 and 11,000 square feet and carry
approximately 5,000 more SKU's than Classic Trak stores, concentrated primarily
in hard part categories.
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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 personnel.
Super Trak Warehouse stores are typically between 11,000 and 24,000 square feet
and carry approximately 30,000 SKU's. The added SKU's are composed of
additional application parts.
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. No store contributed more
than 1.0% to the Company's consolidated sales during the year ended January 31,
1998.
Trak Auto believes that Super Trak stores represent the strongest segment of
its business. Since 1993, Trak Auto has successfully opened or converted 87
Super Trak stores excluding the Los Angeles and Pittsburgh markets. Trak Auto
anticipates that all of its new stores will be Super Trak stores in existing
and possibly new markets. As of January 31, 1998, Trak Auto had entered into
lease agreements to open two new stores in Chicago, Illinois.
The Company generally purchases merchandise 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 and Bridgeview, Illinois. 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 the 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 provided 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 in all stores.
The following table sets forth by metropolitan area the locations of the
Company's stores for each of the last five fiscal years.
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Item 1. Business (Continued)
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Number of Stores
at end of fiscal year
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Metropolitan Area 1994 1995 1996 1997 1998
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Chicago, Illinois 97 86 79 82 81
Los Angeles, California 116 104 96 93 -
Pittsburgh, Pennsylvania - - 14 16 -
Central Pennsylvania - - - 2 7
Richmond, Virginia 15 11 10 9 9
Milwaukee, Wisconsin - - - 7 8
Washington, D.C. 86 81 77 77 76
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Total 314 282 276 286 181
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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.
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Super Trak Stores 1994 1995 1996 1997 1998
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Opened during the year 62 34 17 14 9
Closed or converted to Super Trak Warehouse
during the year 1 1 10 5 12
Sold during the year - - - - 32
Super Trak Warehouse Stores
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Opened during the year - 7 23 14 1
Closed or converted to Super Trak during
the year - - - - 5
Sold during the year - - - - 14
Classic Trak Stores
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Opened during the year 1 - - - -
Closed or converted to Super Trak or Super
Trak Warehouse during the year 65 72 36 13 16
Sold during the year - - - - 36
Total Open at End of Year
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Super Trak Stores 73 106 113 122 87
Super Trak Warehouse Stores - 7 30 44 26
Classic Trak Stores 241 169 133 120 68
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Sales and Closing of Stores
On October 6, 1997, Trak Auto entered into a purchase agreement (the "Purchase
Agreement") with CSK Auto, Inc. ("CSK") pursuant to which Trak Auto agreed to
sell to CSK its interest in its California operations (including inventory,
store fixtures and the assignment of store leases). Trak Auto and CSK closed
the transaction on December 8, 1997 for an aggregate purchase price of
approximately $32.8 million. Ninety percent (90%) of the aggregate purchase
price, or $30.2 million, was paid in cash at the closing. The remaining ten
percent (10%) was paid upon finalization of the inventory valuation. The
Company realized a pre-tax loss of $8.2 million (net of a reduction in the LIFO
reserve of approximately $2.3 million) on the sale to cover losses associated
with the sale of assets and exposure under remaining lease obligations. The
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Item 1. Business (Continued)
Company has recorded this estimated loss in the accompanying Consolidated
Statements of Operations.
On January 31, 1998, Trak Auto closed 15 stores in the Pittsburgh, Pennsylvania
market. The stores were closed as a result of disappointing operating results
and Trak Auto recorded a loss of approximately $14.9 million, primarily as a
closed store reserve.
The Company intends to continue its practice of reviewing the profitability
trends and prospects of existing stores. The Company may from time to time
close, relocate or sell stores (or groups of stores) that are not satisfying
certain performance objectives.
Store Closing Reserves
The Company continually evaluates its store operations and the need to close,
relocate, or expand stores or convert existing Classic Trak stores into Super
Trak or Super Trak Warehouse stores. The Company recognizes store closing
costs when management decides to close a store. In prior years, the Company
has also recognized the anticipated costs for closing, relocating, expanding
and converting existing stores to the Super Trak and Super Trak Warehouse
concepts. The costs associated with store closings are primarily unrecoverable
lease obligations (rent, real estate taxes and common area charges, net of
estimated sublease income) and the book value of leasehold improvements as of
the actual store closing date.
As of January 31, 1998, the Company had a reserve of $12,838,000 for store
closings. The reserve relates to 30 stores that have been closed stores. The
activity in the closed store reserve during the last two years is as follows:
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(dollars in thousands)
1998 1997
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Reserves, beginning of year $ 2,644 $ 4,491
Net provision recorded/(charges) 10,194 (1,847)
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Reserves, end of year $ 12,838 $ 2,644
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The increase in fiscal 1998 is primarily due to closing 15 stores in the
Pittsburgh, Pennsylvania market as a result of the poor performance of the
stores.
The total unrealizable lease obligation of Trak Auto at January 31, 1998 is
$12,838,000 and the amount of such unrealizable lease obligation allocable to
related party leases is approximately $834,000. The closed store reserve as of
January 31, 1998 is expected to be utilized as follows:
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Item 1. Business (Continued)
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(dollars in thousands)
Fiscal
Year Total
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1999 $ 2,086
2000 1,434
2001 1,271
2002 1,107
2003 969
2004-2005 5,971
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Total $12,838
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The amount recorded for future lease obligations has been estimated at 95% of
the total lease obligation after the closing date because the Company believes
that certain alternatives (subleasing and favorable lease buy-outs) to
abandonment may be available.
The Company will continue to evaluate the performance and future viability of
its stores and may close or convert additional stores in the future.
Relationship with Dart
Dart provides the Company with certain general and administrative services.
Dart also pays certain "common expenses" for the Company and its affiliates and
allocates such expenses on a judgmental basis. Dart charged the Company
approximately $1,873,000 for such services in the year ended January 31, 1998.
In addition, the Company provides similar services to Dart and its other
subsidiaries. The Company charged Dart and its other subsidiaries
approximately $768,000 for such services in the year ended January 31, 1998.
See Note 4 to the Consolidated Financial Statements and Item 2.- Properties.
Planned Merger of Dart
On April 9, 1998, Dart entered into an Agreement and Plan of Merger (the
"Merger Agreement") with Richfood Holdings, Inc. (Richfood Holdings") and a
subsidiary of Richfood Holdings ("Acquisition Subsidiary") pursuant to which
Dart has agreed to become a wholly owned subsidiary of Richfood Holdings.
Pursuant to the terms of the Merger Agreement, Richfood Holdings will (1) make
a cash tender offer (the "Offer")for all of the issued and outstanding shares
of common stock of Dart at a price of $160.00 per share and (2) take all steps
necessary to cause Acquisition Subsidiary to merge with and into Dart (the
"Merger") in a transaction in which Dart will become a wholly owned subsidiary
of Richfood Holdings. As a result of the Merger, Richfood Holdings will
indirectly own 67.1% of the outstanding Common Stock.
The Merger is subject to the tender in the offer of a majority of shares of
common stock of Dart on a fully diluted basis and to other customary
conditions, including the receipt of regulatory approvals and the absence of
material adverse effects on the business or financial conditions of Dart and
its subsidiaries, taken as a whole, with certain limited exceptions. There can
be no assurance that the Offer or the Merger will be consummated.
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Item 1. Business (Continued)
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 offer installation
services, which are not offered by the Company. Many of its competitors have
greater resources than the Company and the Company encounters strong price
competition.
Seasonality
The Company's business is somewhat seasonal in nature, with the highest sales
occurring in the second and third fiscal quarters (May through October). Sales
for the combined second and third quarters in fiscal years 1998 and 1997 were
55% and 52%, respectively, of total annual sales. The Company's business is
also affected by weather conditions. Extremely hot or cold weather tends to
enhance sales by causing a higher incidence of parts failure, thus increasing
sales of seasonal products. Rain or snow, however, tends to reduce sales by
causing deferral of elective maintenance.
Employees
On January 31, 1998, the Company employed approximately 1,400 full-time and
1,100 part-time persons engaged in retail, warehouse and administrative
operations. Approximately 100 of these employees were located in the Ontario
distribution center and as a result of the sale of California operations were
no longer employed by the Company as of April 25, 1998. The Company considers
its relationship with its employees to be good.
Executive Officers
The following table sets forth the names, ages and positions of the executive
officers of Trak Auto. 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.
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Name Age Position
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Richard B. Stone 69 Chairman of the Board and
Chief Executive Officer
R. Keith Green 47 President and Director
David B. MacGlashan 54 Senior Vice President and
Chief Financial Officer
Robert E. Brann 46 Executive Vice President
Robert H. Thomas 48 Senior Vice President, Operations
</TABLE>
Richard B. Stone was elected Chairman of the Board and Chief Executive Officer
in October 1997. Senator Stone serves as Chairman and Chief Executive Officer
of Dart. He is also Chairman and Chief Executive Officer of each of Dart's
other subsidiaries, including Crown Books Corporation ("Crown Books"), Total
Beverage Corporation ("Total Beverage") and Shoppers Food Warehouse Corp.
("Shoppers"). Since December 1995, Senator Stone had been Voting Trustee of a
trust that held all of the voting stock of Dart until February 1998 when Dart's
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Item 1. Business (Continued)
Class A shareholders were given voting power. From 1992 to 1994, Senator Stone
was a Director of International Service System. He served as United States
Ambassador to Denmark from 1992 to 1993, and he is currently a member of the
Council of American Ambassadors. He was Chief Operating Officer of Capital
Bank, N.A. from 1989 to 1991, and was Vice Chairman of the Board of Directors
of Capital Bank, N.A. from 1985 to 1991. Senator Stone served as President
Reagan's Special Envoy for Central American Affairs and Ambassador-at-Large
from 1983 to 1984. He was a United States Senator from 1975 to 1981,
representing the State of Florida.
R. Keith Green has been President of Trak Auto since 1990 and a Director of
Trak Auto 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 Senior Vice President and Chief Financial Officer
of Trak Auto since December 1995. From 1991 to 1995, he was Principal
Accounting Officer of Trak Auto. 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 E. Brann has been Executive Vice President of Trak Auto since 1990.
From 1989 to 1990, Mr. Brann was Vice President of Merchandising of Trak Auto.
Prior to 1989, he served as Vice President of Merchandising and later Vice
President of Store Operations and Administration of Franks Nursery and Crafts.
Robert H. Thomas was appointed Senior Vice President of Operations in June
1997. Mr. Thomas has held various positions with Trak Auto's store operations.
He joined Trak Auto in May 1984 as a District Manager.
There is no family relationship between any director and executive officer of
Trak Auto.
Changes in Management of Dart
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 disputes between the then
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. For a
description of such disputes and their resolutions, see Item 3 - Legal
Proceedings. On October 11, 1994, the Board of Directors of Trak Auto, Crown
Books and Total Beverage each established an Executive Committee of their
respective Boards of Directors comprised of the same outside directors, with
authority parallel to that of Dart's Executive Committee. The disputes between
Herbert H. Haft and Ronald S. Haft concerning issues involving Dart were
extensive. Accordingly, the Executive Committee assumed day-to-day involvement
in these disputed issues and other matters affecting Dart, in particular
matters relating to litigation to which Dart was then a party. The Executive
Committee remains active in the day-to-day affairs of the Company. Its
continuing role is dependent on future developments.
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Item 1. Business (Continued)
In October 1995, Dart and Ronald S. Haft entered into a settlement of certain
litigation and other related transactions (collectively, the "RSH Settlement").
Among other things, the RSH Settlement transferred majority control of Dart's
voting stock to one or more voting trustees under a Voting Trust Agreement (the
"Voting Trust Agreement"), by and among Ronald S. Haft, Dart and Larry G.
Schafran and Sidney B. Silverman, as initial Voting Trustees. On December 28,
1995, the initial Voting Trustees resigned and appointed Richard B. Stone as
successor Voting Trustee.
On September 24, 1997, Richard B. Stone, in his capacity as Voting Trustee and
Herbert H. Haft, in his capacity as the holder of the purported Proxy from
Ronald S. Haft to vote 172,730 shares of Dart's Class B common stock, removed
Larry G. Schafran from Dart's Board of Directors and appointed Richard B. Stone
to Dart's Board of Directors. For a description of the Proxy, see Item 3 -
Legal Proceedings - Herbert H. Haft Proxy Litigation. In addition, Richard B.
Stone was named Chairman of the Executive Committee of Dart's Board of
Directors, and Acting Chief Executive Officer of Dart and he replaced Larry G.
Schafran as a director of Trak Auto, Crown Books, Shoppers and Total Beverage.
Richard B. Stone also assumed the positions of Acting Chief Executive Officer
of Trak Auto and Chairman of the Executive Committee of both Trak Auto and
Crown Books.
On October 21, 1997, Howard M. Metzenbaum and Harry M. Linowes were elected to
fill new positions on the Board of Directors of Dart, which was increased from
five to seven members. On December 19, 1997, Richard B. Stone, in his capacity
as Voting Trustee, and Herbert H. Haft, in his capacity as holder of the
purported Proxy, executed a unanimous written consent in lieu of an annual
meeting of stockholders pursuant to which (i) Dart's bylaws were amended to
provide for a board of directors composed of four directors and (ii) Richard B.
Stone, Howard M. Metzenbaum, Harry M. Linowes and Herbert H. Haft were elected
directors of Dart. Accordingly, Ronald S. Haft is no longer a director of
Dart. At the same time, Douglas M. Bregman and Bonita A. Wilson jointly
stepped down as directors and Executive Committee members of Dart and its
subsidiaries.
In February 1998, pursuant to the Settlements (as defined in Item 3 - Legal
Proceedings), Herbert H. Haft among other things (i) resigned from all of his
positions with Dart and its subsidiary corporations, (ii) relinquished his
claim to voting control of Dart, and (iii) terminated his employment contract
with Dart. In addition, all outstanding litigation and disputes between Dart
and Herbert H. Haft were dismissed or resolved. For a description of the
Settlements, see Item 3 - Legal Proceedings - Resolution of Haft Family and
Related Litigation.
In February 1998, Richard B. Stone was appointed Chief Executive Officer of
Dart and its subsidiaries instead of Acting Chief Executive Officer.
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Item 2. Properties
The Company subleases from Dart 210,000 square feet of a distribution center
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 in 1985. The current annual rental is $1,647,000. The
sublease also requires the additional payment of maintenance, utilities,
insurance and real estate taxes allocable to the space subleased. Dart
originally leased the entire 271,000 square foot distribution center and office
facility from a private partnership in which Haft family members owned all of
the partnership interests. As a result of the various settlements with members
of the Haft family, a Dart subsidiary now owns the warehouse and office
facility. The Company's sublease is on the same terms as Dart's lease was
from the Haft family partnership.
Dart had a lease agreement with a Haft family-owned entity for vacant land near
the Company's distribution center in Landover, Maryland. The lease was for the
same period as the distribution center and office facility lease described
above. The Company's current annual rental is $26,000 with increases of three
percent per year. As a result of the various settlements with members of the
Haft family, the same Dart subsidiary discussed above now owns this land and
the Company no longer pays rent for the land.
The Company has an agreement with Dart to use space in a warehouse facility,
adjacent to the above distribution center and office facility. Dart originally
leased this property from a partnership in which Haft family members owned all
of the partnership interests until the RSH Settlement. This warehouse is now
owned by a Dart subsidiary. The rental is variable dependent on square footage
used. In fiscal 1998 the rental was $177,000. The arrangement also requires
the Company to pay a prorated share of utilities, real estate taxes and
maintenance.
The Company leased a 176,000 square foot distribution center located in
Bridgeview, Illinois from a private partnership in which Haft family members
own all of the partnership interests. As a result of the various settlements
with members of the Haft family, the Company's lease is now with a subsidiary
of Dart. 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 in 1984. The current annual rental is $754,000. The lease
also requires the Company to pay for maintenance, utilities, insurance and real
estate taxes on the warehouse.
The Company leases a 317,000 square foot distribution center 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 in 1989. The
current annual rental is $1,516,000. The lease also requires the Company to
pay for maintenance, utilities, insurance and real estate taxes on the
distribution center.
As part of the RSH Settlement, Ronald S. Haft agreed to transfer the real
estate and partnership interests controlled by him in the Ontario, California
office and distribution center to Dart (or its subsidiaries). The transfer was
subject
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Item 2. Properties (Continued)
to contingencies, including bankruptcy court approval, mortgagee approval and
challenges brought by Herbert H. Haft concerning the extent of Ronald S. Haft's
ownership interest in the property. As a result of the Settlements with Herbert
H. Haft and Ronald S. Haft the contingencies that still remain are agreements
with mortgage and bankruptcy reorganization plans.
The Company leases all of its 181 retail stores. As of January 31, 1998, the
total remaining minimum annual payments for the Company's retail stores
(excluding closed stores) were $85,404,000 to the lease expiration dates and
(including closed stores) were $98,032,000 to the lease expiration dates. The
lease and license expiration dates (without regard to renewal options) range
from 1998 to 2014.
Twenty-two of these store leases are with entities in which the Haft family has
substantially all the beneficial interest, two are subleased from Crown Books
and one is subleased from Shoppers Food (a total of 25 leases). These 22
leases provide for various termination dates that range from 1998 to 2024 and
require payment of future minimum rentals aggregating $42,293,000 (including
renewal options) at January 31, 1998. 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 for stores and office and warehouse
space was $5,999,000 in the year ended January 31, 1998.
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Item 3. Legal Proceedings
Lawsuits Against Trak Auto
In January 1998 Trak Auto was named as a defendant in two class action lawsuits
(Richard Amezcua, Augustin Dominquez, and other members of the general public
similarly situated v. Trak Auto Corporation, Superior Court of California.
Action No. BC183900) and (D'Artanyon Tett, Linda Wendt and individuals on
behalf of themselves and all others similarly situated v. Trak Auto
Corporation., Superior Court of the State of California. Action No. BC 186931)
involving former California employees of the Company alleging improper wage and
hour practices. The suit claims that former salaried employees should have
been paid overtime. Management and outside legal counsel are in the process of
evaluating these claims. The Company is unable to express an opinion as to the
merit, if any, or potential liability, if any, of these lawsuits as of the
filing date of this report.
Resolution of Haft Family and Related Litigation
The litigation discussed below involving Dart Group Corporation ("Dart"), its
affiliates, including Trak Auto and members of the Haft family settled prior to
January 31, 1998. On February 5, 1998, Dart closed the settlement agreement
with Herbert H. Haft (the "HHH Settlement") and a Second Supplemental
Settlement Agreement with Ronald S. Haft ("Second Supplemental Agreement").
The RSH Settlement, the First Supplemental Agreement, the Second Supplemental
Agreement, the RGL Settlement and the HHH Settlement are collectively referred
to herein as the "Settlements". The RSH Settlement, the First Supplemental
Agreement, the Second Supplemental Agreement and the RGL Settlement are
described below. As part of the closing of the HHH Settlement, Herbert H.
Haft (i) sold to Dart all of his shares of, and options to purchase, Dart Class
A Common Stock, and sold his capital stock of Dart's subsidiaries Trak Auto and
Crown Books Corporation ("Crown Books"),(ii) resigned from all of his positions
with Dart and its subsidiary corporations, (iii) relinquished his claim to
voting control of Dart, and (iv) terminated his employment agreement with Dart.
In addition, all outstanding litigation and disputes between Dart and Herbert
H. Haft were resolved. As consideration for the HHH Settlement, Dart paid
Herbert H. Haft approximately $28 million at the closing. In connection with
the closing of the Settlements, Dart also made a $10 million loan to a
partnership owned by Ronald S. Haft, the proceeds of which were used to repay a
$10 million note to Herbert H. Haft. As a result of the consummation of the
Settlements all litigation between Dart and members of the Haft family has been
settled and dismissed, and the Company is no longer subject to the Standstill
Order previously imposed by the Delaware Court of Chancery.
In October, 1995, Dart entered into a settlement agreement with Ronald S. Haft,
to settle certain litigation to which Dart was a party ("RSH Settlement").
Pursuant to the RSH Settlement, Ronald S. Haft transferred 172,730 shares of
Dart's Class B Common Stock, par value $1.00 (Dart's sole voting stock prior to
February, 1998 when Dart discontinued its dual class common stock structure,
"Class B Common Stock"), in exchange for 288,312 shares of Dart's Class A
Common Stock, par value $1.00 (Dart's non-voting, publicly traded class of
stock prior to February 1998, "Class A Common Stock"). Ronald S. Haft also
exercised an option to purchase 197,048 shares of Class B Common Stock, and
paid the exercise price by paying cash and issuing a promissory note to Dart
for approximately $27.4 million. Dart also loaned Ronald S. Haft approximately
$37.9 million and
13
<PAGE> 14
Item 3. Legal Proceedings (Continued)
he issued a $37.7 million promissory note to Dart. Then, Ronald S. Haft placed
the 288,312 shares of Class A Common Stock and the Class B Common Stock which
he owned or in which he had an interest, into a voting trust. Dart also (i)
transferred approximately $11.6 million to Ronald S. Haft in exchange for an
additional promissory note (which was repaid in May 1996), and (ii) entered
into a variety of agreements with Ronald S. Haft regarding the sale of certain
properties owned by Dart or affiliates of Dart at that time. As a part of the
RSH Settlement, Ronald S. Haft resigned all positions he had with Dart and its
subsidiaries and consented to the termination of all of his outstanding options
with Dart and its affiliates.
On November 19, 1997, the real estate related transactions contemplated in the
First Supplemental Agreement to the RSH Settlement were closed and include:
completion of bankruptcy plans of reorganization for partnerships owing Dart
and the Company's headquarters in Landover, Maryland and a distribution center
leased to the Company in Bridgeview, Illinois; payment by Dart of $7.0 million
to reduce outstanding mortgage loans on these properties, which thereafter are
wholly-owned by Dart and/or its affiliates; and Ronald S. Haft paid $2.2
million to Dart from escrowed funds previously earmarked for him.
Trak Auto advanced approximately $3.3 million to a wholly-owned subsidiary of
Dart for the Bridgeview distribution center. The $3.3 million advance is in
the form of a promissory note and is expected to be repaid in May 1998.
The Second Supplemental Agreement to the RSH Settlement closed in February 1998
and Dart required that the shares held in the Voting Trust for the benefit of
Ronald S. Haft to be transferred to Dart. Dart's Class A Common Stock and
Class B Common Stock from the Voting Trust was then placed in treasury and on
February 17, 1998, the distinctions between Dart's Class A Common Stock and
Class B Common Stock were eliminated.
On September 26, 1997, Dart closed an agreement to settle certain litigation
and enter other related transactions (the "RGL Settlement") with Robert M.
Haft, Gloria G. Haft and Linda G. Haft (collectively "RGL").
In addition to mutual dismissal of claims against or by RGL (including control
of Dart), Trak Auto's portion of the RGL Settlement was $205,000 for repurchase
of certain Trak Auto stock options. Dart also acquired all of Robert M. Haft
and Linda G. Haft's interest in partnership owning Dart and Trak Auto's
headquarters building in Landover, Maryland and a distribution center leased by
Trak Auto in Bridgeview, Illinois for $4.4 million.
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. ("CPI"),
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 Warehouse Corp. ("Shoppers"), a
wholly-owned subsidiary of Dart, and other affiliated companies. The
complaint, as amended on January 12, 1995, alleged waste, breach of fiduciary
duty,
14
<PAGE> 15
Item 3. Legal Proceedings (Continued)
violation of securities laws and entrenchment in connection with various lease
agreements between the CPI defendants and Dart and its subsidiaries, the
termination of Robert M. Haft, the compensation paid to Ronald S. Haft and
Herbert H. Haft, the employment agreement entered into by Ronald S. Haft and
Dart on August 1, 1993 (the "RSH Employment Agreement"), the sale of 172,730
shares of Class B Common Stock by Herbert H. Haft to Ronald S. Haft, and the
compensation paid to the Executive Committee. Plaintiffs sought 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.
In January 1994, 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 the derivative lawsuit. (After the death of one
member in December 1994, the Special Litigation Committee has consisted of one
director.) In September 1994, the Special Litigation Committee moved for
dismissal of certain claims in the derivative lawsuit and for realignment of
the parties to permit Dart to prosecute other claims in the derivative lawsuit.
Thereafter, the Special Litigation Committee amended its motion and advised the
court that it had instituted certain lawsuits concerning Dart related party
real estate transactions, and was considering asserting additional claims,
certain of which were subsequently asserted. See the Lawsuit Against Herbert
H. Haft Concerning Haft-Owned Real Estate, described below. The Court did not
act upon the amended motion.
As a result of the Settlements, the derivative litigation has been dismissed
with prejudice and Dart paid approximately $3.5 million in attorney's fees to
derivative plaintiffs' counsel (approximately $0.5 million of such fees remain
payable by Dart in December 1998).
Herbert H. Haft Proxy Litigation
In connection with Herbert H. Haft's sale of 172,730 shares of Class B Common
Stock to Ronald S. Haft on July 28, 1993 (the "Stock Sale Agreement"), Ronald
S. Haft purportedly granted Herbert H. Haft an irrevocable proxy (the "Proxy")
to vote these shares of stock "to the same extent and with the same effect as
Ronald S. Haft might or could do under any applicable laws or regulations
governing the rights and powers of shareholders of Dart," until Herbert H.
Haft's death or incapacitation. On June 30, 1995, Ronald S. Haft sent a letter
to Herbert H. Haft purportedly revoking this proxy.
On July 18, 1995, Ronald S. Haft filed a lawsuit against Herbert H. Haft and,
nominally, Dart in the Delaware Court of Chancery for New Castle County for
Herbert H. Haft's alleged breach of contract and breach of fiduciary duties to
Ronald S. Haft and to Dart in connection with the Proxy (Ronald S. Haft v.
Herbert H. Haft, et al., Civ. A. No. 14425). In this action, Ronald S. Haft
sought a declaration that the Proxy was revocable or would be revocable under
certain conditions, as well as costs and attorneys' fees. Ronald S. Haft also
requested that the court require Dart to refuse to recognize the validity of
the Proxy. On August 9, 1995, Herbert H. Haft filed an Answer and Counterclaim
denying liability and requesting rescission of the Stock Sale Agreement because
of Ronald S. Haft's alleged breach of contract and other grounds. On September
15
<PAGE> 16
Item 3. Legal Proceedings (Continued)
25, 1995, Dart filed its answer in this action. Both Ronald S. Haft and
Herbert H. Haft moved for summary judgment in this lawsuit. On November 14,
1995, the court denied Ronald S. Haft's motion for summary judgment; Herbert
H. Haft's motion for summary judgment was not acted upon.
In October 1995, Dart and Ronald S. Haft entered into a settlement of certain
litigation and other related transactions (collectively the "RSH Settlement").
As part of the RSH Settlement Dart purchased from Ronald S. Haft the 172,730
shares of Class B Common Stock that were subject to the Proxy and placed the
shares in treasury.
As a result of the Settlements, this litigation has been dismissed with
prejudice.
Challenge to RSH Settlement by Herbert H. Haft
On November 6, 1995, Herbert H. Haft filed a lawsuit captioned Herbert H. Haft
v. Dart Group Corporation, et al., Del. Ch., Civ. A. No. 14685, in the
Delaware Court of Chancery for New Castle County naming as defendants Dart, all
of its directors (except Herbert H. Haft), Robert M. Haft, Gloria G. Haft and
Linda G. Haft (collectively, "RGL") , John L. Mason, Ellen V. Sigal and Michael
Ryan. Herbert H. Haft sought a judgment (i) declaring the RSH Settlement
unlawful, hence null and void; (ii) declaring either that 172,730 shares of
Class B Common Stock belong to him 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 purportedly irrevocable proxy on the 172,730 shares
continues to be valid; (iii) declaring that Herbert H. Haft retains voting
control of Dart or, at a minimum, 34.55% of Dart's voting power; (iv) declaring
that the Trust Shares may not be lawfully voted; and (v) declaring that
defendants John L. Mason, Ellen V. Sigal and Michael Ryan are not duly elected
directors of Dart.
On December 5, 1996, Herbert H. Haft filed a motion for partial summary
judgment in which he asserted two arguments based upon Section 160(c) of the
Delaware General Corporation Law. Section 160(c) provides that the shares of
capital stock "belonging to" a corporation are not entitled to vote. Herbert
H. Haft maintained that (i) notwithstanding Section 160(c), the 172,730 Class B
shares that Dart purchased in the RSH Settlement on October 6, 1995 do not
"belong to" Dart and are still subject to the Proxy, and (ii) Section 160(c)
does not permit the Trust Shares to be voted because those shares "belong to"
Dart, not Ronald S. Haft. Dart opposed this motion for partial summary
judgment and, on March 14, 1997, the Delaware Court of Chancery denied Herbert
H. Haft's motion in its entirety.
As a result of the Settlements, all claims in this litigation against or on
behalf of Dart have been dismissed with prejudice.
Standstill Order
In connection with the legal challenges to the RSH Settlement raised by RGL,
and by Herbert H. Haft, on December 6, 1995, the Delaware Court of Chancery
entered the Standstill Order, which restricted certain actions by Dart.
Without further order of the court, Dart could not (i) change its Certificate
of Incorporation or Bylaws; (ii) change the current composition of Dart's Board
of Directors or
16
<PAGE> 17
Item 3. Legal Proceedings (Continued)
any of its subsidiaries; (iii) change the Haft family officers of Dart or any
of its subsidiaries; or (iv) issue any additional securities of Dart or any of
its subsidiaries (except employee stock options issued in the ordinary course
of business). In addition, without first giving Herbert H. Haft and the other
parties to the Section 225 Action not less than seven days written notice, Dart
could not take any extraordinary actions, including but not limited to 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. For purposes of the
Standstill Order, the phrase "extraordinary actions" means any transaction,
contract or agreement, the value of which exceeds $3 million.
As a result of the Delaware Court of Chancery approval of the Settlements in
November 1997, Dart is no longer subject to the Standstill Order.
Lawsuit Against Herbert H. Haft Concerning Haft-Owned Real Estate
On December 17, 1996, Dart, Crown Books and Trak Auto filed a lawsuit captioned
Dart Group Corporation, et al. v. Herbert H. Haft, Civ. A. No. 96-26474, in the
Circuit Court for Prince George's County, Maryland, seeking damages from
Herbert H. Haft for breach of fiduciary duty, fraud and waste arising from a
series of lease transactions between Dart and certain partnerships owned
beneficially by members of the Haft family. The complaint alleged that Herbert
H. Haft exploited the dominance and control he enjoyed as an officer, director
and controlling stockholder of Dart to enrich himself and other members of the
Haft family unlawfully and unfairly at the expense of the public stockholders
of Dart, Crown Books and Trak Auto. In particular, the complaint charged that
Herbert H. Haft (i) caused Trak Auto to surrender favorable retail store
leases and subleases in Haft-owned shopping centers in exchange for new leases
less favorable to Trak Auto; (ii) required Crown Books to relinquish its
favorable lease in the McLean Chain Bridge Road Shopping Center and to enter
into a new lease with a Haft family partnership for a new location in the same
shopping center at a rent rate equal to 450 percent of the prior lease; (iii)
caused Dart, Crown Brooks and Trak Auto to enter into exorbitant long-term
leases for warehouse and distribution facilities that were purchased and
developed by Haft family partnerships for the purpose of leasing those
facilities to these companies as captive tenants; (iv) induced Dart and Trak
Auto to lease retroactively from a Haft family partnership a 2.66 acre wooded
lot for which the companies had no use; and (v) caused Trak Auto to purchase
certain used warehouse equipment from a Haft family partnership for more than
700 percent of the price contemplated by the original equipment lease.
As a result of the Settlements, this litigation was dismissed with prejudice.
Lawsuit Against Herbert H. Haft in Washington, D.C.
On December 17, 1996, Dart, Crown Books and Trak Auto also filed a lawsuit
captioned Dart Group Corporation, et al. v. Herbert H. Haft, Civ. A. No.
96-CV-2788 (D.D.C.) in the U.S. District Court for the District of Columbia
naming Herbert H. Haft as defendant. In this action, Dart, Crown Books and
Trak Auto have advanced claims for breach of fiduciary duty, civil conspiracy
and tortious interference with contracts. The companies alleged that Herbert
H. Haft wrongfully imposed Robert M. Haft's excessively generous employment
contracts
17
<PAGE> 18
Item 3. Legal Proceedings (Continued)
upon Dart and Crown Books, later breached those contracts for personal reasons
and then, due in large part to a personal conflict of interest, mishandled the
defense to Robert M. Haft's wrongful termination lawsuit. Dart, Crown Books
and Trak Auto seek to recover the approximately $38 million paid to Robert M.
Haft in satisfaction of the judgment in his wrongful termination suit,
approximately $5 million in attorneys' fees incurred by the companies in
defense of that litigation, and punitive damages.
As a result of the Settlements, this litigation has been dismissed with
prejudice.
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 adverse effect, if established, upon the consolidated financial
condition and results of operations of the Company.
The Company recorded legal expenses of approximately $961,000, $1,685,000 and
$780,000 during the years ended January 31, 1998, February 1, 1997 and February
3, 1996, respectively.
18
<PAGE> 19
Item 4. Submission of Matters to a Vote of Security Holders
Inapplicable.
19
<PAGE> 20
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 4, 1996 20 1/2 14 3/4
August 3, 1996 17 3/4 16
November 2, 1996 17 3/4 16 1/4
February 1, 1997 17 1/4 14
May 3, 1997 14 3/8 10 5/8
August 2, 1997 13 10 1/2
November 1, 1997 16 3/4 9
January 31, 1998 13 1/8 10 3/4
</TABLE>
There were approximately 120 record holders of the Common Stock as of April 30,
1998.
The Company has not paid dividends during the past two fiscal years and does
not expect to pay dividends in the foreseeable future.
20
<PAGE> 21
Item 6. Selected Financial Data
INCOME STATEMENT DATA: (in thousands, except per share and sales % data)
<TABLE>
<CAPTION>
Fiscal Year
--------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Sales $319,440 $345,984 $342,242 $348,599 $334,798
Interest and other income 2,181 1,586 2,358 1,887 1,562
Cost of sales, store occupancy
and warehousing 246,632 262,472 253,582 256,210 255,669
Selling and Administrative 68,862 72,050 69,208 67,680 71,781
Provision for loss on sale
of California operations 8,193 - - - -
Depreciation and Amortization 8,481 7,495 6,292 6,004 6,756
Interest expense 3,753 3,705 3,638 3,849 3,561
Closed store provision 13,929 402 418 1,580 (943)
Income (loss) before
income taxes (28,229) 1,446 11,462 15,163 (464)
Net income (loss) (17,673) 1,084 7,290 10,265 81
Per share data:
Basic income (loss) per
share $ (2.99) $ .18 $ 1.24 $ 1.69 $ .01
Diluted income (loss) per
share (2.99) .18 1.23 1.67 .01
Weighted average common
share and common share
equivalents outstanding
Basic 5,909 5,900 5,867 6,078 6,046
Diluted 5,909 5,942 5,928 6,139 6,107
Percentage increase
(decrease) in sales
Total stores (7.7)% 1.1% (1.8)% 4.1% 6.0%
Comparative stores (8.7)% (1.7)% (2.7)% 2.1% 1.3%
</TABLE>
<TABLE>
<CAPTION>
BALANCE SHEET DATA: (dollars in thousands)
at end of Fiscal Year
--------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Current assets $114,156 $136,813 $133,993 $137,306 $129,805
Current liabilities 70,167 80,298 75,348 75,293 75,737
Working capital 43,989 56,515 58,645 62,013 54,068
Total assets 173,506 192,220 187,595 187,649 179,149
Long-term obligation 37,597 28,509 30,064 31,797 33,737
Stockholders' equity 65,742 83,413 82,183 80,559 69,675
</TABLE>
21
<PAGE> 22
Item 7. Management's Discussion and Analysis of Financial Conditions
and Results of Operations
Control of Dart
Dart owns 67.1% of the outstanding common stock of Trak Auto. Prior to the
Settlements Dart's voting stock, the Class B Common Stock, was beneficially
owned by Haft family members.
On April 9, 1998, Dart entered into an Agreement and Plan of Merger (the
"Merger Agreement") with Richfood Holdings, Inc. (Richfood Holdings") and a
subsidiary of Richfood Holdings ("Acquisition Subsidiary") pursuant to which
Dart has agreed to become a wholly owned subsidiary of Richfood Holdings.
Pursuant to the terms of the Merger Agreement, Richfood Holdings will (1) make
a cash tender offer (the "Offer") for all of the issued and outstanding shares
of common stock of Dart at a price of $160.00 per share and (2) take all steps
necessary to cause Acquisition Subsidiary to merge with and into Dart (the
"Merger") in a transaction in which Dart will become a wholly owned subsidiary
of Richfood Holdings. As a result of the Merger, Richfood Holdings will
indirectly own 67.1% of the outstanding Common Stock.
The Merger is subject to the tender in the offer of a majority of shares of
common stock of Dart on a fully diluted basis and to other customary
conditions, including the receipt of regulatory approvals and the absence of
material adverse effects on the business or financial conditions of Dart and
its subsidiaries, taken as a whole with certain limited exceptions. There can
be no assurance that either the Offer or the Merger will be consummated.
Outlook
Except for historical information, statements in this Management's Discussion
and Analysis of Financial Condition and Results of Operations are
forward-looking. Actual results may differ materially due to a variety of
factors, including without limitation the consummation of the Merger (as
defined below), the ability of the Company to open new stores and close other
stores, the sufficiency of recorded reserves for store closings, the
availability of capital to fund operations, the effect of national and regional
economic conditions and other risks described from time to time in the
Company's filings with the Securities and Exchange Commission. The Company
undertakes no obligation and does not intend to update, revise or otherwise
publicly release the result of any revisions to these forward-looking
statements that may be made to reflect future events or circumstances.
The Company believes that its superstore concept represents the strongest
segment of its business and anticipates that all of its new stores will be
opened within this concept as Super Trak stores in existing and possibly new
markets. In the past, these superstores have generated higher sales at
locations converted from Classic Trak stores as well as higher gross margins as
a result of a change in product mix (increased hard parts). The Company
believes that as superstores mature, operating expenses as a percentage of
sales will decrease.
The Company intends to continue its practice of reviewing the profitability
trends and prospects of existing stores. The Company may from time to time
close, relocate or sell stores (or groups of stores) that are not satisfying
22
<PAGE> 23
Item 7. Management's Discussion and Analysis of Financial Conditions and
Results of Operations (Continued)
certain performance objectives. As a result of this ongoing review, on October
6, 1997, the Company sold its California operations. While the California
operations represented approximately thirty percent (30%) of annual revenues
the operating results have historically been weak and declining because of the
highly competitive Los Angeles market. The Company sold all inventory, store
fixtures and assigned store leases, but has retained the lease obligation on
the distribution center in Ontario, California. The transaction closed on
December 8, 1997. The Company recorded a pre-tax loss related to this
transaction of $8.2 million (net of reduction in LIFO reserve of $2.3 million).
In addition, on January 31, 1998 the Company closed 15 stores in Pittsburgh,
Pennsylvania as a result of continued poor performance.
The automotive aftermarket is a highly competitive market place. As a result,
the industry is consolidating with independent operators and small chains
either going out of business or being acquired by larger competitors.
Additionally, the do-it-yourself customer base is shrinking due to the
increased complexity of automobiles, increased incidences of leasing, and the
availability of well maintained leased vehicles entering the used car market.
Management believes that the markets in which it operates will remain highly
competitive in the foreseeable future and, as a result, that the Company will
be challenged to improve operating results.
Liquidity and Capital Resources
Cash, including short-term instruments, is the Company's primary source of
liquidity. Cash, including short-term instruments, increased by $6,164,000 to
$17,887,000 at January 31, 1998 from $11,723,000 at February 1, 1997. The
increase was primarily the result of proceeds from the sale of California
operations, partially offset by loans to Dart for the Settlements (discussed
below).
Operating activities used $7,702,000 of the Company's funds for the 52 weeks
ended January 31, 1998 ("fiscal 1998") compared to providing $1,027,000 for the
52 weeks ended February 1, 1997 ("fiscal 1997"). The change was primarily due
to payments for California liabilities.
Investing activities provided $14,077,000 to the Company in fiscal 1998
compared to $5,000,000 in fiscal 1997. The increase was due to the proceeds
from the sale of California assets and was partially offset by loans to Dart
for the Settlements (discussed below).
Financing activities used $211,000 of the Company's funds in fiscal 1998 for
payments for capital lease obligations.
In December 1996, the Company entered into a revolving credit facility with a
finance company to borrow up to $25.0 million. The credit facility has an
original term of three years. Borrowings are limited to eligible inventory
levels and are secured by the Company's inventory, accounts receivable and
proceeds from the sale of those assets. The credit facility contains certain
restrictive covenants and an interest rate that fluctuates with the Company's
ratio of funded debt to equity. The covenants include a limitation of $25.0
million on amounts paid (including a $20.0 million limitation on amounts
23
<PAGE> 24
Item 7. Management's Discussion and Analysis of Financial Conditions and
Results of Operations (Continued)
guaranteed) to settle disputes with Haft family members. The Company did not
borrow under the credit facility during the year ended January 31, 1998.
The Company funds its requirements for working capital and capital expenditures
with net cash generated from operations, existing cash resources, expected
income tax refunds and, if necessary, borrowings under the Company's new
revolving credit facility. The Company's primary capital requirements relate to
remodelings and new store openings (including purchases of inventory and the
costs of store fixtures and leasehold improvements). As of January 31, 1998,
the Company had entered into lease agreements to open two new stores.
Funding of Settlements
Dart and certain of its subsidiaries (including Trak Auto) closed an agreement
to settle certain litigation and enter other related transactions with RGL.
Trak Auto contributed approximately $205,000 for this settlement in addition to
its dismissal of claims against RGL. In exchange for a $3.3 million demand
note from a wholly-owned subsidiary of Dart, Trak Auto funded payments of
approximately $1.3 million to Robert M. Haft and Linda G. Haft to acquire their
interests in a partnership that owns a distribution center leased by Trak Auto
in Bridgeview, Illinois and $2.0 million to the wholly-owned Dart subsidiary to
reduce the principal mortgage balance on that property. Dart expects to repay
the demand note in May 1998.
Dart and certain of its subsidiaries (including Trak Auto) closed an agreement
to settle certain related transactions with Herbert H. Haft and Ronald S. Haft.
As consideration for the settlements with Herbert H. Haft and Ronald S. Haft,
Dart paid Herbert H. Haft approximately $28 million upon closing. Dart also
made a $10 million loan to a partnership owned by Herbert H. Haft and Ronald S.
Haft, which loan is personally guaranteed by Ronald S. Haft and is secured by
the partnership's interest in three shopping centers located in suburban
Washington, D.C. and by a one-half indirect interest in an office building in
Lanham, Maryland leased by a wholly-owned Dart subsidiary Shoppers Food
Warehouse Corp. ("Shoppers"). Dart paid substantially all of these amounts
with loans from Trak Auto ($15 million) and Shoppers ($25 million). In
addition, certain derivative litigation was dismissed with prejudice and Dart
paid approximately $3.5 million in attorney's fees to derivative plaintiff's
counsel. Trak Auto paid its portion of the Settlements of approximately $1.4
million prior to January 31, 1998.
At January 31, 1998
Working capital decreased $12,526,000 to $43,989,000 during the 52 weeks ended
January 31, 1998. The decrease was primarily due to the $15.0 million loan to
Dart and was partially offset by cash received from the sale of the California
operations.
At February 1, 1997
Working capital decreased $2,130,000 to $56,515,000 in fiscal 1997 primarily
due to capital expenditures for new or converted Super Trak and Super Trak
Warehouse stores.
24
<PAGE> 25
Item 7. Management's Discussion and Analysis of Financial Conditions and
Results of Operations (Continued)
Results of Operations
Year Ended January 31, 1998 Compared to the Year Ended February 3, 1997
During fiscal 1998, Trak Auto opened nine Super Trak stores and one Super Trak
Warehouse store. Including the Pittsburgh, Pennsylvania store closings, Trak
Auto closed or converted 16 Classic Trak stores, closed or converted 12 Super
Trak stores and closed or converted five Super Trak warehouse stores. As a
result of the sale of its California operations, the Company reduced the number
of Classic Trak stores by 36, Super Trak stores by 32 and Super Trak Warehouses
by 14. At January 31, 1998, Trak Auto had 181 stores, including 87 Super Trak
stores and 26 Super Trak Warehouse stores.
Sales of $319,440,000 for fiscal 1998(52 weeks) decreased by $26,544,000 or
7.7% compared to fiscal 1997 (52 weeks). The decrease was primarily due to the
mild winter conditions in the Midwest and East coast markets during the first
quarter as well as the sale of the operations and weak performance of the
stores in the highly competitive Los Angeles market. Comparable sales (stores
open more than one year) decreased 8.7% in fiscal 1998 compared to fiscal 1997.
Sales for comparable Super Trak Warehouse stores decreased 6.2% in fiscal 1998.
Sales for comparable Super Trak stores decreased 9.9% in fiscal 1998. Sales
for comparable Classic Trak stores decreased 8.3% in fiscal 1998. Sales for
Super Trak and Super Trak Warehouse stores represented 69.8% of total sales
during fiscal 1998 compared to 64.6% for fiscal 1997.
Interest and other income increased by $595,000 in fiscal 1998 when compared to
fiscal 1997. The increase was primarily due to increase income from recoveries
from audits of prior years vendor allowances and increased interest income.
Cost of sales, store occupancy and warehousing expenses as a percentage of
sales were 77.2% in fiscal 1998 compared to 75.9% in fiscal 1997. The
increases were primarily due to higher store occupancy costs for larger stores
with newer leases, and increased distribution costs due to broader geographical
delivery areas and increased SKU's supplied to Super Trak Warehouse stores.
Selling and administrative expenses as a percentage of sales were 21.6% in
fiscal 1998 compared to 20.8% in fiscal 1997. The increase was primarily due
to increased payroll costs, as a percentage of sales (actual payroll dollars in
fiscal 1998 were less than fiscal 1997) and to the HHH Settlement (see Note 8
to the Consolidated Financial Statements).
The provision for loss on sale of California operations of $8,193,000 is an
estimate of the loss associated with the sale of the Company's California
assets (see Note 5 to the Consolidated Financial Statements).
Depreciation and amortization expenses increased $986,000 in fiscal 1998
compared to fiscal 1997. The increase was due to the write-off of favorable
lease rights in conjunction with closing the Pittsburgh stores and was
partially offset by a reduction in depreciation as a result of fixed assets
becoming fully depreciated and fixed assets sold or taken out of service.
Interest expense increased $48,000 in fiscal 1998 compared to fiscal 1997.
25
<PAGE> 26
Item 7. Management's Discussion and Analysis of Financial Conditions and
Results of Operations (Continued)
The Company recorded a closed store provision of $13.9 million in fiscal 1998
primarily for the stores closed in the Pittsburgh market.
The net loss of $17,673,000 in fiscal 1998 compared to net income of $1,084,000
in fiscal 1997 was a result of the foregoing factors, primarily the closed
store reserve and loss from the sale of the California operations.
The effective income tax rate was 37.4% in fiscal 1998 compared to 25.0% in
fiscal 1997. The increase was primarily the result of a net operating loss
generated and fully utilized while a permanent tax difference remained
relatively unchanged.
Year Ended February 1, 1997 Compared to the Year Ended February 3, 1996
During fiscal 1997, the Company opened or converted 14 Super Trak stores and 14
Super Trak Warehouse stores and closed or converted 13 Classic Trak stores and
five Super Trak stores. At February 1, 1997, the Company had 286 stores,
including 122 Super Trak stores and 44 Super Trak Warehouse stores.
Sales of $345,984,000 for fiscal 1997 (52 weeks) increased by $3,742,000 or
1.1% compared to fiscal 1996 (53 weeks). The increase was primarily due to the
Company's entry into the Pittsburgh, Pennsylvania market in January 1996 and to
increased sales in the Washington, D.C. and Chicago, Illinois markets during
the first quarter of fiscal 1997 resulting from harsh winter conditions. The
increases were partially offset by a decline in sales for the Los Angeles,
California market where three stores were closed in fiscal 1997. The extra
sales week in fiscal 1996 was approximately $6,000,000. Comparable sales
(stores open more than one year) decreased 1.7% in fiscal 1997 compared to the
52 weeks ended February 3, 1996. Sales for comparable Super Trak Warehouse
stores increased 0.3% in fiscal 1997. Sales for comparable Super Trak stores
decreased 1.6% in fiscal 1997. Sales for comparable Classic Trak stores
decreased 2.3% in fiscal 1997. Sales for Super Trak and Super Trak Warehouse
stores represented 64.6% of total sales during fiscal 1997 compared to 56.2%
for fiscal 1996.
Interest and other income decreased by $772,000 in fiscal 1997 when compared to
fiscal 1996. The decrease was primarily due to reduced interest income as a
result of a decrease in funds available for short-term investments.
Cost of sales, store occupancy and warehousing expenses as a percentage of
sales were 75.9% in fiscal 1997 compared to 74.1% in fiscal 1996. The
increases were primarily due to a decrease in gross margins as a result of
competitive pressures, higher store occupancy costs for larger stores with
newer leases, and increased distribution costs due to broader geographical
delivery areas and increased SKU's supplied to Super Trak Warehouse stores.
Selling and administrative expenses as a percentage of sales were 20.8% in
fiscal 1997 compared to 20.2% in fiscal 1996. The increase was primarily due
to increased payroll costs.
Depreciation and amortization expenses increased $1,203,000 in fiscal 1997
compared to fiscal 1996. The increase was primarily due to increases in store
26
<PAGE> 27
Item 7. Management's Discussion and Analysis of Financial Conditions and
Results of Operations (Continued)
fixed assets as a result of the opening and conversion of stores to Super Trak
or Super Trak Warehouse stores and the stores in new markets.
Interest expense increased $67,000 in fiscal 1997 compared to fiscal 1996.
Net income decreased $6,206,000 from $7,290,000 in fiscal 1996 to $1,084,000 in
fiscal 1997 as a result of the foregoing factors.
The effective income tax rate was 25.0% in fiscal 1997 compared to 36.4% in
fiscal 1996. The decrease was primarily the result of a decrease in taxable
earnings while a permanent tax difference remained relatively unchanged.
Year Ended February 3, 1996 Compared to the Year Ended January 28, 1995
During fiscal 1996, the Company opened or converted 17 Super Trak stores and
23 Super Trak Warehouse stores and closed or converted 36 Classic Trak stores
and ten Super Trak stores. At February 3, 1996, the Company had 276 stores,
including 113 Super Trak stores and 30 Super Trak Warehouse stores.
Sales of $342,242,000 for fiscal 1996 decreased by $6,357,000 or 1.8% compared
to fiscal 1995. The decrease was primarily due to lower sales during the 13
weeks ended April 29, 1995 compared to the 13 weeks ended April 30, 1994, as a
result of the mild winter conditions in Chicago and Washington, D.C.
metropolitan areas. (Extremely cold weather tends to enhance sales by causing a
higher incidence of parts failure and the need for anti-freeze). In addition,
sales were down due to a net decrease in the number of stores. The sales
decrease was partially offset by 53 weeks of sales during fiscal 1996 compared
to 52 weeks of sales in fiscal 1995. The extra sales week was approximately
$6,000,000. Comparable sales (stores open more than one year) decreased 2.7%
in fiscal 1996 compared to the 53 weeks ended February 4, 1995. Sales for
comparable Super Trak stores increased 0.1% in fiscal 1996. Sales for
comparable Classic Trak stores decreased 3.9% in fiscal 1996. Sales for Super
Trak and Super Trak Warehouse stores represented 56.2% of total sales during
fiscal 1996 compared to 42.6% for fiscal 1995.
Interest and other income increased by $471,000 in fiscal 1996 when compared to
fiscal 1995. The increase was primarily due to higher interest rates on the
Company's short-term investments.
Cost of sales, store occupancy and warehousing expenses (excluding closed store
reserves) as a percentage of sales were 74.1% in fiscal 1996 compared to 73.0%
in fiscal 1995. The increases were primarily due to a decrease in net
advertising income as a result of increased advertising costs and increased
occupancy costs for Super Trak and Super Trak Warehouse stores and were
partially offset by increased gross margins.
The Company recorded closed store reserves of $418,000 and $1,580,000 in fiscal
1996 and 1995, respectively. These reserves are for future lease obligations
and net book value of leasehold improvements for under performing stores.
Selling and administrative expenses as a percentage of sales were 20.3% in
fiscal 1996 compared to 19.9% in fiscal 1995. The increase was primarily due
27
<PAGE> 28
Item 7. Management's Discussion and Analysis of Financial Conditions and
Results of Operations (Continued)
to increased payroll costs as a percentage of sales (actual payroll dollars
remained almost the same) and to increased health benefit costs.
Depreciation and amortization expenses increased $288,000 in fiscal 1996
compared to fiscal 1995. The increase was primarily the result of increased
fixed assets for new Super Trak and Super Trak Warehouse stores.
Interest expense decreased $211,000 in fiscal 1996 compared to fiscal 1995.
Net income decreased $2,975,000 (29.0%) from $10,265,000 in fiscal 1995 to
$7,290,000 in fiscal 1996 as a result of the foregoing factors.
The effective income tax rate was 36.4% in fiscal 1996 compared to 32.3% in
fiscal 1995. The increase was primarily the result of the valuation allowance
reversal in fiscal 1995 and is partially offset by a lower pre-tax income in
fiscal 1996 compared to fiscal 1995.
Year 2000 Compliance
Trak Auto is currently in the process of conducting a review of the impact of
Year 2000 on its information systems, as well as reviewing its impact on
relationships with key customers and vendors. Based on the results to date of
this review, much of the Company's store hardware, and software used to run the
hardware and provide information will have to be replaced in order to be Year
2000 compliant. Additionally, the Company's warehouse distribution and
merchandising system is not Year 2000 compliant and could potentially begin to
affect operations as early as the coming fiscal year. The Company is
considering a plan to ensure minimal disruption to the Company, however, there
can be no guarantee that the plan will be adopted in its current form or that
there will be sufficient time to implement the plan by the Year 2000. The
aggregate costs associated with the plan are currently estimated at $5.7 million
for the store related hardware and software plus unidentified internal and
contracted labor costs to modify and enhance store, warehouse distribution and
merchandising systems.
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.
28
<PAGE> 29
Item 8. Financial Statements and Supplementary Data
<TABLE>
<CAPTION>
Financial Statements
- --------------------
Page
----
<S> <C>
Report of Independent Public Accountants 30
Consolidated Balance Sheets 31-32
Consolidated Statements of Operations 33
Consolidated Statements of Stockholders' Equity 34
Consolidated Statements of Cash Flows 35-36
Notes to Consolidated Financial Statements 37-59
</TABLE>
29
<PAGE> 30
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 31, 1998 and February 1,
1997, and the related consolidated statements of operations, stockholders'
equity, and cash flows for each of the three fiscal years in the period ended
January 31, 1998. 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 31, 1998 and February 1, 1997, and the results of
their operations and their cash flows for each of the three fiscal years in the
period ended January 31, 1998, in conformity with generally accepted accounting
principles.
As discussed in Note 1 to the consolidated financial statements, in fiscal 1997
the Company changed its method of accounting for cash equivalents and in fiscal
1998 changed its method of accounting for purchased computer software costs.
ARTHUR ANDERSEN LLP
Washington, D.C.
April 28, 1998
30
<PAGE> 31
TRAK AUTO CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
<TABLE>
<CAPTION>
January 31, February 1,
1998 1997
------------ ------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable, trade $ 41,325 $ 47,690
Income taxes payable - 1,581
Accrued expenses-
Salaries and benefits 11,177 11,440
Taxes other than income 5,518 5,569
Other 11,688 13,791
Current portion of obligations under
capital leases 282 209
Due to affiliate 177 18
--------- ---------
Total Current Liabilities 70,167 80,298
--------- ---------
Obligations under Capital Leases 26,846 26,912
--------- ---------
Reserve for Store Closings 10,751 1,597
--------- ---------
Total Liabilities 107,764 108,807
--------- ---------
Commitments and Contingencies
Stockholders' Equity
Common stock, par value $.01 per share;
15,000,000 shares authorized; 6,437,869
and 6,437,469 shares issued, respectively 64 64
Paid-in capital 46,481 46,476
Unrealized investment gains 7 3
Retained earnings 27,917 45,590
Treasury stock, 528,690 and 528,190 shares,
respectively, of common stock at cost (8,727) (8,720)
--------- ---------
Total Stockholders' Equity 65,742 83,413
--------- ---------
Total Liabilities and Stockholders'
Equity $ 173,506 $ 192,220
========= =========
</TABLE>
See notes to consolidated financial statements.
32
<PAGE> 32
TRAK AUTO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Years Ended
----------------------------------
January 31, February 1, February 3,
1998 1997 1996
---------- ---------- ----------
(52 weeks) (52 weeks) (53 weeks)
<S> <C> <C> <C>
Sales $319,440 $345,984 $342,242
Interest and other income 2,181 1,586 2,358
-------- -------- --------
321,621 347,570 344,600
-------- -------- --------
Cost of sales, store occupancy
and warehousing 246,632 262,472 253,582
Selling and administrative 68,862 72,050 69,208
Provision for loss on sale of
California operations 8,193 - -
Depreciation and amortization 8,481 7,495 6,292
Interest expense 3,753 3,705 3,638
Closed store provision 13,929 402 418
-------- -------- --------
349,850 346,124 333,138
-------- -------- --------
Income (loss) before income taxes (28,229) 1,446 11,462
Income tax (benefit) (10,556) 362 4,172
-------- --------- --------
Net income (loss) $(17,673) $ 1,084 $ 7,290
======== ======== ========
Per share data:
Basic earnings (loss) per share $ (2.99) $ .18 $ 1.24
Diluted earnings (loss) per share (2.99) .18 1.23
Weighted average common share and
common share equivalents outstanding
Basic 5,909 5,900 5,867
Diluted 5,909 5,942 5,928
</TABLE>
See notes to consolidated financial statements.
33
<PAGE> 33
TRAK AUTO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF
STOCKHOLDERS' EQUITY
(dollars and shares in thousands)
<TABLE>
<CAPTION>
Years Ended
----------------------------------
January 31, February 1, February 3,
1998 1997 1996
---------- ---------- ----------
(52 weeks) (52 weeks) (53 weeks)
<S> <C> <C> <C>
Common Stock:
Balance, beginning of period $ 64 $ 64 $ 63
Stock options exercised - - 1
-------- -------- --------
Balance, end of period $ 64 $ 64 $ 64
======== ======== ========
Paid-in Capital:
Balance, beginning of period $ 46,476 $ 46,236 $ 45,206
Stock options exercised 5 240 1,030
-------- -------- --------
Balance, end of period $ 46,481 $ 46,476 $ 46,236
======== ======== ========
Unrealized Investment Gains (Losses) $ 7 $ 3 $ 97
======== ======== ========
Retained Earnings:
Balance, beginning of period $ 45,590 $ 44,506 $ 37,216
Net income (loss) (17,673) 1,084 7,290
-------- -------- --------
Balance, end of period $ 27,917 $ 45,590 $ 44,506
======== ======== ========
Treasury Stock:
Balance, beginning of period $ (8,720) $ (8,720) $ (1,816)
Common Stock repurchased (7) ,- (6,904)
-------- -------- --------
Balance, end of period $ (8,727) $ (8,720) $ (8,720)
======== ======== ========
Common Stock Outstanding:
Balance, beginning of period 5,909 5,888 6,114
Stock Options Exercised 1 21 84
Common Stock repurchased - - (310)
-------- -------- --------
Balance, end of period 5,910 5,909 5,888
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
34
<PAGE> 34
TRAK AUTO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
<TABLE>
<CAPTION>
Years Ended
----------------------------------
January 31, February 1, February 3,
1998 1997 1996
---------- ---------- ----------
(52 weeks) (52 weeks) (53 weeks)
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income (loss) $(17,673) $ 1,084 $ 7,290
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization 8,481 7,495 6,292
Provision for loss on sale of
California operations 8,193 - -
Interest in excess of capital lease
payments 216
Provision for store closings 13,929 402 418
Deferred income taxes (5,315) (525) 1,227
Changes in assets and liabilities:
Accounts receivable (1,812) (2,132) 738
Merchandise inventories 7,338 (6,722) (6,871)
Prepaid income taxes (3,670) - -
Other current assets (111) (2,049) 36
Other assets 309 285 42
Accounts payable, trade (6,365) 1,259 (4,088)
Accrued expenses (7,613) 3,345 4,953
Due to affiliate 159 (53) (137)
Income taxes payable (1,581) 883 305
Reserve for closed stores (2,187) (2,245) (2,607)
-------- -------- --------
Net cash provided by (used in)
operating activities $ (7,702) $ 1,027 $ 7,598
-------- -------- --------
Cash Flows from Investing Activities:
Capital expenditures $ (2,288) $ (8,638) $ (7,835)
Proceeds from sale of California
assets 32,828 - -
Purchase of Pittsburgh store assets - - (5,767)
Purchases of United States Treasury
Bills - - (19,550)
Dispositions of United States
Treasury Bills - 4,299 8,180
Maturities of United States
Treasury Bills 50 3,345 3,368
Purchases of United States Treasury
Notes - - (499)
Maturities of United States Treasury
Notes 1,150 - -
Dispositions of United States
Treasury Notes - - 500
Dispositions of marketable
debt securities - 4,370 1,092
</TABLE>
35
<PAGE> 35
TRAK AUTO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(dollars in thousands)
<TABLE>
<CAPTION>
Years Ended
----------------------------------
January 31, February 1, February 3,
1998 1997 1996
---------- ---------- ----------
(52 weeks) (52 weeks) (53 weeks)
Cash Flows from Investing Activities (Continued):
<S> <C> <C> <C>
Notes Receivable from Dart Group (18,215) - -
Maturities of marketable
debt securities 552 1,624 470
-------- --------- ---------
Net cash provided by (used in)
investing activities $ 14,077 $ 5,000 $ (20,041)
-------- --------- ---------
Cash Flows from Financing Activities:
Principal payments under capital
lease obligations $ (209) $ (101) $ (261)
Purchase of treasury shares (7) - (6,904)
Proceeds from exercises of stock
options 5 240 1,031
-------- -------- --------
Net cash provided by (used in)
financing activities $ (211) $ 139 $ (6,134)
-------- -------- --------
Net Increase (Decrease) in Cash
and Equivalents $ 6,164 $ 6,166 $(18,577)
Cash and Equivalents at Beginning
of Year (Note 1) 11,723 5,557 24,134
-------- -------- --------
Cash and Equivalents at End
of Year (Note 1) $ 17,887 $ 11,723 $ 5,557
======== ======== ========
Supplemental Disclosures of Cash
Flow Information:
Cash paid during the year for:
Interest $ 3,753 $ 3,705 $ 3,638
Income taxes 178 450 3,339
Supplemental Schedule of Noncash
Activities:
Write-off book value of fixed assets
to restructuring and closed store
reserves $ 1,549 $ - $ 521
</TABLE>
See notes to consolidated financial statements.
36
<PAGE> 36
TRAK AUTO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fiscal Years Ended January 31, 1998, February 1, 1997
And February 3, 1996
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 in
the United States.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities as of the date of
the financial statements, and the reported amounts of revenues and expenses
during the reporting period. Accordingly, actual results could differ from
those estimates.
Fiscal Year
The Company's fiscal year ends on the Saturday nearest to January 31. The
fiscal year ended February 3, 1996 included 53 weeks and all other fiscal years
presented include 52 weeks.
Cash and Equivalents
Effective in fiscal 1997, and applied retroactively to all years presented
herein, the Company changed its accounting policy to include only investments
with a maturity of three months or less as cash equivalents. The impact of
this change was to reclassify amounts previously presented in the accompanying
consolidated balance sheets and statements of cash flows.
Short-term Instruments and Marketable Debt Securities
The Company's short-term instruments include United States Treasury Bills with
a maturity of three months or less and money market funds. Marketable debt
securities include United States Treasury Bills with a maturity greater than
three months, United States Treasury Notes, and United States Agency
Securities.
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'
37
<PAGE> 37
TRAK AUTO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Fiscal Years Ended January 31, 1998, February 1, 1997
And February 3, 1996
equity. At January 31, 1998, market value was $7,000 greater than cost, net of
income taxes. At January 31, 1998, the Company had no investments that
qualified as trading or held-to-maturity.
The amortized cost of debt securities classified as available-for-sale is
adjusted for amortization of premiums and accretion of discounts to maturity.
Such amortization and interest are included in interest income. Realized gains
and losses are included in 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 31, 1998:
<TABLE>
<CAPTION>
(dollars in thousands)
<S> <C>
Due in one year or less $ -
Due after one year through three years 666
--------
$ 666
========
</TABLE>
Expected maturities may 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 financial assets and liabilities are approximately
the reported carrying amounts.
Merchandise Inventories
The Company's inventories are priced at the lower of last-in, first-out
("LIFO") cost or market. At January 31, 1998 and February 1, 1997, inventories
determined on a first-in, first-out basis would have been greater by $3,846,000
and $6,733,000, respectively. The Company had a reduction in the LIFO reserve
of approximately $2.3 million as a result of the sale of its California
operations (see Note 5). This amount has been recorded in the accompanying
Statement of Operations as a reduction in the loss on sale of California
operations.
The Company takes a physical count of its store inventories semiannually and
uses a gross profit method combined with available perpetual inventory
information to determine inventories for quarters when complete physical counts
are not taken. The Company took a physical inventory for all stores during the
quarter ended January 31, 1998.
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
38
<PAGE> 38
TRAK AUTO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Fiscal Years Ended January 31, 1998, February 1, 1997
And February 3, 1996
using the straight-line method. Effective February 2, 1997, the Company
changed its accounting policy from expensing purchased computer software costs
in the year of acquisition to capitalizing and depreciating these costs over
the estimated useful life, not to exceed five years. Management has determined
that these costs benefit future periods. During the 52 weeks ended January 31,
1998, the Company did not record amortization of purchased computer software as
the software was not placed into service. The effect of capitalizing purchased
computer software was to reduce the Company's loss by approximately $198,000
($.03 per share) net of income tax benefits. 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 $9,173,000 and $8,253,000 as of January 31, 1998 and February 1, 1997,
respectively.
Long Lived Assets
Long-lived assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying value should be assessed. Impairment
is measured by comparing the carrying value to the estimated undiscounted
future cash flows expected to result from the use of the assets and their
eventual disposition. The Company has determined that as of January 31, 1998,
there has been no impairment in the carrying value of long-lived assets.
Preopening Expenses
All costs of a noncapital nature incurred in opening a new store are charged to
expense as incurred.
Advertising Expense
The Company records the costs of advertising as expense as the costs are
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 Bills and Notes and
corporate notes
39
<PAGE> 39
TRAK AUTO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Fiscal Years Ended January 31, 1998, February 1, 1997
And February 3, 1996
and municipal securities with a high credit standing. Credit risk on accounts
receivable is minimized as a result of deducting such receivables from amounts
payable to the related vendors.
Earnings Per Share
The computation of diluted earnings per share is based on the weighted average
number of common shares and common stock equivalents outstanding during the
year. Common Stock equivalents were anti-dilutive for fiscal 1998. The
Company adopted Statement of Financial Accounting Standards ("SFAS") No. 128,
Earnings Per Share, in the fourth quarter of fiscal 1998 and has restated all
previously presented earnings per share. Dilutive stock options represent the
only difference between basic and diluted earnings per share.
New Accounting Standards
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130
Reporting Comprehensive Income. SFAS No. 130 requires that an enterprise (a)
classify items of other comprehensive income by their nature in a financial
statement and (b) display the accumulated balance of other comprehensive income
separately from retained earnings and additional paid-in capital in the equity
section of a statement of financial position. The Company will adopt SFAS No.
130 in the first quarter of fiscal 1999 and will provide the necessary
disclosures.
Reclassifications
Certain reclassifications have been made to prior year statements to conform to
current year presentation.
40
<PAGE> 40
TRAK AUTO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Fiscal Years Ended January 31, 1998, February 1, 1997
And February 3, 1996
NOTE 2 - INCOME TAXES
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 and liabilities, 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 provision (benefit) for income taxes consists of the following:
<TABLE>
<CAPTION>
(dollars in thousands)
Fiscal Years
----------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Current:
Federal $ (4,495) $ 1,279 $ 2,474
State (681) 53 477
-------- -------- --------
(5,176) 1,332 2,951
Deferred:
Federal (5,315) (730) 829
State (65) (240) 392
-------- -------- --------
Total provision (benefit) $(10,556) $ 362 $ 4,172
======== ======== ========
</TABLE>
The effective tax rate is reconciled to the Federal statutory rate as follows:
<TABLE>
<CAPTION>
(dollars in thousands)
Fiscal Years
----------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Federal statutory rate 34% 34% 35%
Income taxes at Federal statutory rate $ (9,598) $ 492 $ 4,012
Increase (decrease) in taxes
resulting from:
State income taxes, net of Federal
income tax benefit (916) 4 439
Tax exempt municipal bond interest
income (24) (12) (64)
Utilization of former Trak West
net operating loss - (208) (225)
Travel and entertainment 54 26 18
Other (72) 60 (8)
-------- -------- --------
Income taxes $(10,556) $ 362 $ 4,172
======== ======== ========
Effective tax rate 37.4% 25.0% 36.4%
======== ======== ========
</TABLE>
41
<PAGE> 41
TRAK AUTO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Fiscal Years Ended January 31, 1998, February 1, 1997
And February 3, 1996
The effect of each type of temporary difference and carryforward that generates
a significant portion of the net deferred tax assets is as follows:
<TABLE>
<CAPTION>
(dollars in thousands)
January 31, February 1,
1998 1997
------------ ------------
<S> <C> <C>
Deferred tax assets:
Capitalized leases treated as operating
leases for tax purposes $ 2,401 $ 2,399
Depreciation 2,981 2,344
Uniform capitalization of inventory costs 1,372 2,098
Reserve for stores closings and
restructuring charges 5,980 1,037
Accrued rent 531 616
Preacquisition basis adjustment for Trak West 164 164
Accrued vacation reserve 576 537
Accrued self-insurance reserve 2,717 2,312
Deferred compensation 150 138
Deferred acquisition costs - 81
State tax credit carryforward - 757
Deferred income 49 65
Asset disposal reserve 983 -
Capital loss carryfoward 64 73
Other 246 175
-------- ---------
Deferred tax assets 18,214 12,796
-------- ---------
Deferred tax liability:
Book basis of asset acquired as a
result of involuntary conversion (269) (331)
--------- ---------
Net deferred tax asset $ 17,945 $ 12,465
========= =========
</TABLE>
In the opinion of management, the deferred tax asset will be realized through
future earnings. The Company has a $202,000 capital loss carryforward which
will expire in fiscal year 2012. During the year ended January 31, 1998, the
Company incurred a tax net operating loss of approximately $11.3 million which
can be carried back to prior years.
During the year ended February 3, 1996, 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.
NOTE 3 - CLOSED STORE CHARGES
The Company continually evaluates its store operations and the need to close,
relocate, or expand stores or convert existing Classic Trak stores into Super
Trak or Super Trak Warehouse stores. The Company recognizes store closing
costs when management decides to close a store. In prior years, the Company
has also recognized the anticipated costs for closing, relocating, expanding
and
42
<PAGE> 42
TRAK AUTO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Fiscal Years Ended January 31, 1998, February 1, 1997
And February 3, 1996
converting existing stores to the Super Trak and Super Trak Warehouse concept.
The costs associated with store closings are primarily unrecoverable lease
obligations (rent, real estate taxes and common area charges, net of estimated
sublease income) and the book value of leasehold improvements as of the actual
store closing date.
As of January 31, 1998, the Company had a reserve of $12,838,000 for store
closings. The reserve relates to 30 stores that have been closed. The
activity in the closed store reserve during the last two years is as follows:
<TABLE>
<CAPTION>
(dollars in thousands)
1998 1997
------------ ------------
<S> <C> <C>
Reserves, beginning of year $ 2,644 $ 4,491
Net provision recorded/(Charges) 10,194 (1,847)
--------- ---------
Reserves, end of year $ 12,838 $ 2,644
========= =========
</TABLE>
The increase in fiscal 1998 was primarily due to closing 15 stores in the
Pittsburgh , Pennsylvania market as a result of the poor performance of the
stores.
The total unrealizable store lease obligation of Trak Auto of January 31, 1998
is $12,838,000 and the amount of such unrealizable lease obligation allocable
to related party leases is approximately $834,000. The closed store reserve as
of January 31, 1998 is expected to be utilized as follows:
<TABLE>
<CAPTION>
Fiscal (in thousands)
Year Total
------ -------
<S> <C>
1999 $ 2,086
2000 1,434
2001 1,271
2002 1,107
2003 969
2004-2005 5,971
-------
Total $12,838
=======
</TABLE>
The amount recorded for future lease obligations has been estimated at 95% of
the total lease obligation after the closing date because the Company believes
that certain alternatives (subleasing and favorable lease buy-outs) to
abandonment may be available.
The Company will continue to evaluate the performance and future viability of
its stores and may close or convert additional stores in the future.
NOTE 4 - TRANSACTIONS WITH AFFILIATES
Dart Group Corporation ("Dart"), which currently owns 67.1% of the Company's
outstanding common stock, provides the Company with certain general and
administrative services. In addition, the Company provided similar services
43
<PAGE> 43
TRAK AUTO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Fiscal Years Ended January 31, 1998, February 1, 1997
And February 3, 1996
to Dart and its other subsidiaries. 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 monthly 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 or were for matters
related to all of Dart's affiliated companies and were allocated on a
judgmental basis by management. 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.
In the Company's opinion, the methods used for allocating costs described above
constitute a reasonable basis on which to allocate such costs.
The following table summarizes the intercompany transactions:
<TABLE>
<CAPTION>
(dollars in thousands)
Fiscal Years
----------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Due to Affiliate,
Beginning of year $ 18 $ 71 $ 185
-------- -------- --------
Expense charges-
Direct rentals (Note 9) 1,826 1,625 1,382
Salaries from Dart 1,873 1,111 865
Salaries to Dart (768) (1,447) (1,235)
Other expenses 4,121 4,529 5,154
-------- -------- --------
7,052 5,818 6,166
-------- -------- --------
Payments (6,893) (5,871) (6,280)
-------- -------- --------
Due to (from) Affiliate, End of year $ 177 $ 18 $ 71
======== ======== ========
</TABLE>
All transactions with Dart included above are free of interest and made under
current payment terms that, in management's opinion, are comparable to those
with unrelated parties. The average balances of amounts due to affiliate were
$163,000, $73,000, and $526,000 for the years ended January 31, 1998, February
1, 1997 and February 3, 1996, respectively.
Dart Group Corporation Loans
On April 28, 1998, the Company amended a loan agreement entered into on January
27, 1998 with Dart to lend Dart $15.0 million. The loan is secured by the
common stock of Trak Auto, bears interest at a rate equal to the prime rate as
44
<PAGE> 44
TRAK AUTO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Fiscal Years Ended January 31, 1998, February 1, 1997
And February 3, 1996
set forth in the Wall Street Journal plus one and one-half percent (1.5%) and
is payable in two equal installments on February 3, 1999 and July 31, 1999.
Also, see Note 9 - Commitments, Related Party Leases and License Agreements.
NOTE 5 - SALE OF CALIFORNIA OPERATIONS
On October 6, 1997, Trak Auto entered into a purchase agreement (the "Purchase
Agreement") with CSK Auto, Inc. ("CSK") pursuant to which Trak Auto agreed to
sell to CSK its interest in its California operations (including inventory,
store fixtures and the assignment of store leases). Trak Auto and CSK closed
the transaction on December 8, 1997 for an aggregate purchase price of
approximately $32.8 million. Ninety percent (90%) of the aggregate purchase
price, or $30.2 million, was paid in cash at the closing. The remaining ten
percent (10%) was paid upon finalization of the inventory valuation. The
Company realized a pre-tax loss of $8.2 million (net of a reduction in the LIFO
reserve of approximately $2.3 million) on the sale to cover losses associated
with the sale of assets and exposure under remaining lease obligations. The
Company has recorded this estimated loss in the accompanying Consolidated
Statements of Operations.
NOTE 6 - BOARD OF DIRECTORS
In January 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 7 for a discussion of the derivative lawsuits.
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 disputes 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. In October 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 were 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 was then a
party. The Executive Committee remains involved in the day-to-day affairs of
Dart. Its continuing role is dependent upon future developments.
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, which was established on January 4, 1994, were
compensated at a salary rate of $250 per hour plus reimbursement of expenses.
Compensation paid by Dart and its subsidiaries, including the Company, to
45
<PAGE> 45
TRAK AUTO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Fiscal Years Ended January 31, 1998, February 1, 1997
And February 3, 1996
members of the Executive Committees for their services on those committees
totaled $1,137,000, $1,299,000 and $1,263,000 in fiscal 1998, 1997 and, 1996
respectively ($379,000, $438,000 and $421,000 paid by the Company in fiscal
1998, 1997 and 1996 respectively). There were no fees paid to members of the
Special Litigation Committee in fiscal 1998, 1997 or fiscal 1996.
NOTE 7 - LITIGATION
Resolution of Haft Family and Related Litigation
The litigation discussed below involving Dart, its affiliates, including Trak
Auto and members of the Haft family settled prior to January 31, 1998. On
February 5, 1998, Dart closed the settlement agreement with Herbert H. Haft
(the "HHH Settlement") and a Second Supplemental Settlement Agreement with
Ronald S. Haft ("Second Supplemental Agreement"). The settlements with the
various Haft family members described in Note 8 are referred to as the
"Settlements". As part of the HHH Settlement, Herbert H. Haft (i) sold to Dart
all of his shares of, and options to purchase, Dart Class A Common Stock, and
his capital stock of Dart's subsidiaries Trak Auto and Crown Books Corporation
("Crown Books"),(ii) resigned from all of his positions with Dart and its
subsidiary corporations, (iii) relinquished his claim to voting control of
Dart, and (iv) terminated his employment agreement with Dart. In addition, all
outstanding litigation and disputes between Dart and Herbert H. Haft were
resolved. As consideration for the HHH Settlement, Dart paid Herbert H. Haft
approximately $28 million at the closing. An accrual for the HHH Settlement of
approximately $28.0 million has been reflected in Dart's January 31, 1998
Consolidated Financial Statements. Subsequent to January 31, 1998 and in
connection with the closing of the Settlements, Dart also made a $10 million
loan to a partnership owned by Ronald S. Haft, the proceeds of which were used
to repay a $10 million note to Herbert H. Haft. Consummation of the
Settlements also means that all litigation (discussed below) between Dart and
members of the Haft family has been settled and dismissed, and the Company is
no longer subject to a Standstill Order (discussed below) imposed by the
Delaware Court of Chancery.
Derivative Litigation
In September 1993, Alan R. Kahn and the Tudor Trust (the "Kahn Derivative
Plaintiffs"), shareholders of Dart, filed a lawsuit naming as defendants
Herbert H. Haft, Ronald S. Haft, Douglas M. Bregman, Bonita A. Wilson, Combined
Properties, Inc. ("CPI"), Combined Properties Limited Partnership and Capital
Resources Limited Partnership. The suit was brought derivatively and names as
nominal defendants Dart, Trak Auto, Crown Books other affiliated companies.
The complaint, as amended on January 12, 1995, alleged waste, breach of
fiduciary duty, violation of securities laws and entrenchment in connection
with various lease agreements between the CPI defendants and Dart and its
subsidiaries, the termination of Robert M. Haft, the compensation paid to
Ronald S. Haft and Herbert H. Haft, the employment agreement entered into by
Ronald S. Haft and Dart on August 1, 1993 (the "RSH Employment Agreement"), the
sale of 172,730
46
<PAGE> 46
TRAK AUTO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Fiscal Years Ended January 31, 1998, February 1, 1997
And February 3, 1996
shares of Class B Common Stock by Herbert H. Haft to Ronald S. Haft, and the
compensation paid to the Executive Committee. Plaintiffs sought 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.
In September 1994, the Special Litigation Committee moved for dismissal of
certain claims in the derivative lawsuit and for realignment of the parties to
permit Dart to prosecute other claims in the derivative lawsuit. Thereafter,
the Special Litigation Committee amended its motion and advised the court that
it had instituted certain lawsuits concerning related party real estate
transactions and was considered asserting additional claims, certain of which
were subsequently asserted in litigation filed against Herbert H. Haft. The
Court did not act upon the amended motion.
As a result of the Settlements, the derivative litigation has been dismissed
with prejudice and Dart paid approximately $3.5 million in attorney's fees to
derivative plaintiffs' counsel (approximately $0.5 million of such fees remain
payable by Dart in December 1998).
Herbert H. Haft Proxy Litigation
Herbert H. Haft sold 172,730 shares of Dart Class B Common Stock to Ronald S.
Haft on July 28, 1993 (the "Stock Sale Agreement") and Ronald S. Haft
purportedly granted Herbert H. Haft an irrevocable proxy (the "Proxy") to vote
these shares of stock. On June 30, 1995, Ronald S. Haft purportedly revoked
the Proxy.
On July 18, 1995, Ronald S. Haft filed a lawsuit against Herbert H. Haft and,
nominally, Dart for Herbert H. Haft's alleged breach of contract and breach of
fiduciary duties to Ronald S. Haft and to Dart in connection with the Proxy.
In this action, Ronald S. Haft sought a declaration that the Proxy was
revocable or would be revocable under certain conditions, as well as costs and
attorneys' fees. Ronald S. Haft also requested that the court require Dart to
refuse to recognize the validity of the Proxy. On August 9, 1995, Herbert H.
Haft filed an Answer and Counterclaim denying liability and requesting
rescission of the Stock Sale Agreement because of Ronald S. Haft's alleged
breach of contract and other grounds. On September 25, 1995, Dart filed its
answer in this action. Both Ronald S. Haft and Herbert H. Haft moved for
summary judgment in this lawsuit. On November 14, 1995, the court denied
Ronald S. Haft's motion for summary judgment; Herbert H. Haft's motion for
summary judgment was not acted upon.
In October 1995, Dart and Ronald S. Haft entered into a settlement of certain
litigation and other related transactions (collectively the "RSH Settlement").
As part of the RSH Settlement, Dart purchased from Ronald S. Haft the 172,730
shares of Class B Common Stock that were subject to the Proxy and placed the
shares in treasury.
47
<PAGE> 47
TRAK AUTO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Fiscal Years Ended January 31, 1998, February 1, 1997
And February 3, 1996
As a result of the Settlements, this litigation has been dismissed with
prejudice.
Challenge to RSH Settlement by Herbert H. Haft
On November 6, 1995, Herbert H. Haft filed a lawsuit naming as defendants Dart,
and certain of its directors. Herbert H. Haft sought a judgment (i) declaring
the RSH Settlement unlawful, hence null and void; (ii) declaring either that
172,730 shares of Class B Common Stock belong to him 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 purportedly irrevocable proxy on the
172,730 shares continues to be valid; (iii) declaring that Herbert H. Haft
retains voting control of Dart or, at a minimum, 34.55% of Dart's voting power;
(iv) declaring that the Trust Shares may not be lawfully voted; and (v) other
matters.
On December 5, 1996, Herbert H. Haft filed a motion for partial summary
judgment. Dart opposed this motion for partial summary judgment and, on March
14, 1997, the court denied Herbert H. Haft's motion in its entirety.
As a result of the Settlements, all claims in this litigation against or on
behalf of Dart have been dismissed with prejudice.
Standstill Order
In connection with the legal challenges to the RSH Settlement raised by RGL and
Herbert H. Haft and others, on December 6, 1995, the court entered a Standstill
Order. Without further order of the court, Dart could not (i) change its
Certificate of Incorporation or Bylaws; (ii) change the current composition of
Dart's Board of Directors or any of its subsidiaries; (iii) change the Haft
family officers of Dart or any of its subsidiaries; or (iv) issue any
additional securities of Dart or any of its subsidiaries (except employee stock
options issued in the ordinary course of business). In addition, the
Standstill Order restricted certain significant corporate actions by Dart
without first giving Herbert H. Haft and the other parties to the Section 225
Action not less than seven days written notice.
As a result of the Settlements and the Delaware Court of Chancery approval in
November 1997. Dart is no longer subject to the Standstill Order.
Other
In January 1998 Trak Auto was named as a defendant in two class action lawsuits
(Richard Amezcua, Augustin Dominquez, and other members of the general public
similarly situated v. Trak Auto Corporation, Superior Court of California.
Action No. BC183900) and (D'Artanyon Tett, Linda Wendt and individuals on
behalf of themselves and all others similarly situated v. Trak Auto
Corporation., Superior Court of the State of California. Action No. BC 186931)
involving former California employees of the Company alleging improper wage and
hour
48
<PAGE> 48
TRAK AUTO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Fiscal Years Ended January 31, 1998, February 1, 1997
And February 3, 1996
practices. The suit claims that former salaried employees should have been
paid overtime. Management and outside legal counsel are in the process of
evaluating these claims. The Company is unable to express an opinion as to the
merit, if any, or potential liability, if any, of these lawsuits as of the
filing date of this report.
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 adverse effect, if established, upon the consolidated financial
condition and results of operations of the Company.
The Company recorded legal expenses of approximately $961,000, $1,685,000 and
$780,000 during the years ended January 31, 1998, February 1, 1997 and February
3, 1996, respectively.
NOTE 8 - SETTLEMENT OF LITIGATION
Settlement with Ronald S. Haft
On October 6, 1995, Dart and Ronald S. Haft entered into the RSH Settlement.
The RSH Settlement transactions were subject to legal challenges. See Note 7.
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 (the "Voting Trustees") under a Voting Trust Agreement, by and
among Ronald S. Haft, Dart and Larry G. Schafran and Sidney B. Silverman, as
initial Voting Trustees. On December 28, 1995, the initial Voting Trustees
resigned and appointed Richard B. Stone as successor Voting Trustee.
As part of the RSH Settlement, Ronald S. Haft consented to the termination of
all of his outstanding stock options to purchase up to 10,000 shares to Trak
Auto's common stock.
Settlement with Robert, Gloria and Linda Haft
On September 26, 1997, Dart and the Company closed the transactions
contemplated in an agreement, dated August 16, 1997 to settle certain
litigation and enter other related transactions (the "RGL Settlement") with
Robert M. Haft, Gloria G. Haft, Linda G. Haft and certain related parties
(collectively, "RGL").
The transactions completed by the closing of the RGL Settlement between Dart
and RGL include: the purchase by Dart from RGL (or related parties) of shares
of Dart Class B Common Stock and shares of Dart Class A Common Stock; the
termination of options held or claimed by RGL to purchase shares of Dart Class
A Common Stock; the termination of putative options to purchase shares of
Dart/SFW Corp., and the termination of a small number of options to purchase
shares of common stock of Trak Auto and Crown Books. Dart paid RGL a total of
approximately $41.0 million in connection with these transactions of which Trak
Auto contributed approximately $205,000 for the Trak Auto stock options.
49
<PAGE> 49
TRAK AUTO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Fiscal Years Ended January 31, 1998, February 1, 1997
And February 3, 1996
In addition, Dart acquired all of Robert M. Haft and Linda G. Haft's interests
in partnerships owning Dart's headquarters building in Landover, Maryland and a
distribution center leased by the Trak Auto, in Bridgeview, Illinois for $4.4
million. Trak Auto funded $1.3 million towards the Bridgeview portion of the
payment. The $1.3 million was an advance from Trak Auto to Dart.
The closing of the RGL Settlement, resulted in the termination of the pending
claim by RGL to control of Dart and the settlement of all litigation between
them and Dart and its subsidiaries. Trak Auto dismissed all of its claims
against each of RGL.
Settlement with Herbert H. Haft and Ronald S. Haft
On October 16, 1997, Dart announced the Settlements with Herbert H. Haft and
Ronald S. Haft. The Settlements were subsequently approved by the Delaware
Court of Chancery on November 24, 1997.
The HHH Settlement Agreement closed on February 5, 1998 and included the
following transactions: the purchase by Dart from Herbert H. Haft of all his
shares of, and options to purchase, Dart Class A Common Stock; that Herbert H.
Haft resigned from all of his positions with Dart and its subsidiary
corporations; that Herbert H. Haft relinquished his claim to voting control of
Dart and that Herbert H. Haft terminated his employment contract with Dart. In
addition, all outstanding litigation and disputes between Dart and Herbert H.
Haft are resolved. As consideration for the Settlements, Dart paid Herbert H.
Haft approximately $28 million upon closing. Dart also made a $10 million loan
to a partnership owned by Herbert H. Haft and Ronald S. Haft, which loan is
personally guaranteed by Ronald S. Haft and is secured by the partnership's
interest in three shopping centers located in suburban Washington, D.C. and by
a one-half indirect interest in an office building in Lanham, Maryland leased
by Shoppers. Dart paid substantially all of these amounts with loans from Trak
Auto ($15 million) and Shoppers ($25 million). In addition, the derivative
litigation (see Note 7) was dismissed with prejudice and Dart paid attorney's
fees of approximately $3.5 million to the derivative plaintiffs' counsel. Trak
Auto's portion of the HHH Settlement Agreement was approximately $1.4 million.
The transactions in the First Supplemental Agreement include: completion of
bankruptcy plans of reorganization for partnerships owning Dart's headquarters
in Landover, Maryland and a distribution center leased to Trak Auto in
Bridgeview, Illinois; payment by Dart of $7 million to reduce outstanding
mortgage loans on these properties, which thereafter are wholly-owned by Dart
and/or its affiliates and Ronald S. Haft paid $2.2 million to Dart from
escrowed funds previously earmarked for Ronald S. Haft.
On November 19, 1997, the transactions contemplated in the First Supplemental
Agreement were closed. Trak Auto advanced to a wholly-owned subsidiary of Dart
$2.0 million for the Bridgeview, Illinois portion of the $7.0 million mortgage
payments. The $2.0 million advance together with the $1.3 million advance
50
<PAGE> 50
TRAK AUTO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Fiscal Years Ended January 31, 1998, February 1, 1997
And February 3, 1996
(discussed above) are in the form of a promissory note. Dart expects to repay
Trak Auto in May 1998.
The Second Supplemental Agreement, closed in February 1998 and Dart required
that the shares now held in Voting Trust for the benefit of Ronald S. Haft to
be transferred to Dart. On February 17, 1998, the Dart Class A and Class B
Common Stock from the Voting Trust was placed in Dart's treasury and Dart's
outstanding Class A Common Stock and Class B Common Stock became Common Stock.
NOTE 9 - 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 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 31, 1998. The imputed
interest rate on capital leases is 14.6% in the aggregate.
<TABLE>
<CAPTION>
(dollars in thousands)
Fiscal Capital Leases Operating
Year (see Related Party Leases) Leases
------ -------------------------- ---------
<S> <C> <C>
1999 $ 3,917 $ 17,999
2000 3,943 15,814
2001 4,074 13,659
2002 4,185 11,774
2003 4,398 10,487
2004-2017 54,747 29,680
---------- ---------
Total 75,264 $ 99,413
=========
Less-Imputed interest 48,136
----------
Present value of net
minimum lease payments 27,128
Less-Current maturities 282
----------
Long-term capital lease
obligations $ 26,846
==========
</TABLE>
The above table includes $12,628,000 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 $1,548,000 receivable in
the future under noncancelable leases.
51
<PAGE> 51
TRAK AUTO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Fiscal Years Ended January 31, 1998, February 1, 1997
And February 3, 1996
Rent expense and license fees for operating leases and license agreements are
as follows:
<TABLE>
<CAPTION>
(dollars in thousands)
Fiscal Years
----------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Minimum rentals $ 23,002 $ 21,963 $ 19,695
Contingent rentals 443 349 363
-------- -------- --------
Total $ 23,445 $ 22,312 $ 20,058
======== ======== ========
</TABLE>
Related Party Leases and License Agreements
Members of the Haft family beneficially owned all the issued and outstanding
voting stock of Dart. Under the RSH Settlement (see Note 8), a majority of
Dart's voting stock was held in a voting trust for Ronald S. Haft as beneficial
owner. On February 17, 1998, the shares in the Voting Trust were placed in
treasury and Haft family members no longer own shares of Dart.
Of the Company's 181 stores and three distribution centers (discussed below) as
of January 31, 1998, 22 stores and the three distribution centers were held
under leases from entities in which Haft family members own substantially all
the beneficial interest. Two stores are subleased from Crown Books. One store
is subleased from Shoppers Food Warehouse Corp., a wholly-owned subsidiary of
Dart. These 25 store lease and sublease agreements provide for various
termination dates which, assuming renewal options are exercised, range from
1998 to 2024, and require the payment of future minimum license fees and
rentals aggregating $42,293,000 at January 31, 1998. 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 $5,999,000, $6,449,000, and $6,295,000 for fiscal 1998, 1997 and
1996, respectively.
The Company leased a 176,000 square foot distribution centers located in
Bridgeview, Illinois from a private partnership in which Haft family members
own all of the partnership interests. As a result of the various settlements
with members of the Haft family, the Company's lease is now with a subsidiary
of Dart. The lease, which is for 30 years and six months (which commenced in
1984), provides for rental payments increasing approximately 15% every five
years over the term of the lease. The current annual rental is $754,000. The
lease also requires the payment of maintenance, utilities, insurance and taxes
on the warehouse. This lease agreement has been classified as a capital lease
and is included under the Capital Leases caption of the lease commitment table
above.
The Company subleases from Dart 210,000 square feet of a distribution center
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 $1,647,000.
The
52
<PAGE> 52
TRAK AUTO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Fiscal Years Ended January 31, 1998, February 1, 1997
And February 3, 1996
sublease agreement also requires the payment for maintenance, utilities,
insurance and taxes allocable to the space subleased. Dart originally leased
the entire 271,000 square foot distribution center and office facility from a
private partnership in which Haft family members owned all of the partnership
interests. The Company's sublease is on the same terms as Dart's lease and is
classified as a capital lease and is included under the Capital Leases caption
of the lease commitment table above.
Dart had a lease agreement with a Haft family-owned entity for vacant land near
the Company's distribution center in Landover, Maryland. As a result of the
various settlements with members of the Haft family, Dart now owns the land and
the Company no longer pays rent. The lease was for the same period as the
headquarters building and distribution center lease described above and the
Company's current annual rental was $26,000.
The Company has an agreement with Dart to use space in a warehouse facility,
adjacent to the above distribution center and office facility. Dart originally
leased the property from a partnership in which Haft family members owned all
of the partnership interests until the RSH Settlement. The warehouse is now
owned by a Dart subsidiary. The rental is variable dependent on square footage
used. In fiscal 1998 the rental was $ 177,000. The arrangement also requires
the Company to pay a pro-rata share of utilities, real estate taxes and
maintenance.
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 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 $1,516,000 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 Leases
caption in the lease commitment table above.
As part of the RSH Settlement, Ronald S. Haft agreed to transfer the real
estate and partnership interests controlled by him in the Ontario, California
distribution center to Dart (or its subsidiaries) and to reduce the rent. The
transfer and rent reduction were subject to contingencies, including bankruptcy
court approval, mortgagee approval and challenges brought by Herbert H. Haft
concerning the extent of Ronald S. Haft's ownership interest in the property.
As a result of the Settlements with Herbert H. Haft and Ronald S. Haft the
contingencies that still remain are agreements with the mortgage and bankruptcy
reorganization plans.
Employment Arrangements
The Company has entered into employment agreements with several key employees.
The employment agreements are for a one-year or two-year terms and are
automatically extended one year or two years at the end of the fiscal year
unless the individual is terminated with cause. The agreements provide for
53
<PAGE> 53
TRAK AUTO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Fiscal Years Ended January 31, 1998, February 1, 1997
And February 3, 1996
annual compensation increases following review and performance appraisal by the
Compensation Committee of the Board of Directors. Total commitments under the
agreements are approximately $1.5 million.
Year 2000 Compliance (Unaudited)
Trak Auto is currently in the process of conducting a review of the impact of
Year 2000 on its information systems, as well as reviewing its impact on
relationships with key customers and vendors. Based on the results to date of
this review, much of the Company's store hardware, and software used to run the
hardware and provide information will have to be replaced in order to be Year
2000 compliant. Additionally, the Company's warehouse distribution and
merchandising system is not Year 2000 compliant and could potentially begin to
affect operations as early as the coming fiscal year. The Company is
considering a plan to ensure minimal disruption to the Company, however, there
can be no guarantee that a plan will be adopted in its current form or that
there will be sufficient time to implement the plan by the Year 2000. The
aggregate costs associated with the plan are currently estimated at $5.7 million
for the store related hardware and software plus unidentified internal and
contracted labor costs to modify and enhance store, warehouse distribution and
merchandising systems.
NOTE 10 - CREDIT AGREEMENT
In December 1996, the Company entered into a revolving credit facility (the
"Facility") with a finance company to borrow up to $25.0 million. The Company
intends to use proceeds from drawdowns under the Facility for working capital
and other corporate purposes. The Facility has an original term of three
years. Borrowings under the Facility bear interest at rates ranging from prime
rate minus 0.50% to prime rate plus 0.25%, for prime rate loans, and LIBOR plus
1.5% to LIBOR plus 2.25%, for LIBOR loans. Interest rates are based upon the
Company's ratio of debt to tangible net worth. Borrowings are limited to
eligible inventory levels, as defined, and are secured by the Company's
inventory, accounts receivable, and proceeds from the sale of such assets. The
Facility contains certain restrictive covenants including limitations on
additional indebtedness, advances to affiliates and payments (limited to $25.0
million) or guarantees (limited to $20.0 million of the $25.0 million) to
settle disputes with Haft family members and includes an interest rate that
fluctuates with the Company's ratio of funded debt to equity.
Interest on prime rate loans is payable monthly. Interest and principal on
LIBOR loans is payable between one and six months from the borrowing date.
LIBOR loans are subject to a prepayment penalty and may be continued for a
subsequent one to six month period. LIBOR loans may be converted to prime rate
loans and visa versa. The Facility includes a facility fee of .25% per annum
on the unused principal balance, as defined. No single advance may be
outstanding for more than 36 months. The Company may terminate the Facility
upon 60-days prior written notice to the lender and the lender may terminate it
as of December 18, 1999 or on any anniversary date thereafter upon 60-days
prior written notice to the Company.
54
<PAGE> 54
TRAK AUTO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Fiscal Years Ended January 31, 1998, February 1, 1997
And February 3, 1996
In addition, the Company has a $750,000 commercial letter of credit facility
for use in importing merchandise.
At January 31, 1998, there had been no borrowing under the Facility and no
borrowings under the letters of credit facility.
NOTE 11 - PITTSBURGH MARKET
On January 27, 1996, the Company acquired the inventory and fixed assets of 14
auto part stores in Pittsburgh, Pennsylvania for approximately $6,200,000. The
purchase price included approximately $1,582,000 for favorable lease rights
which is being amortized over the primary term of the leases and any option
periods beginning before February 1999.
After two years of disappointing performance, the Company closed these stores
and one additional store it had opened in the interim on January 31, 1998.
Accordingly, the Company recorded a provision for closed stores of
approximately $14.9 million for the unamortized leasehold improvements and
lease rights and remaining lease obligations (see Note 3).
NOTE 12 - EMPLOYEES' BENEFIT PLANS
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 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. The Company's contributions were approximately $99,000
and $379,000 in fiscal 1997 and 1996, respectively. There was no contribution
in fiscal 1998.
In June 1995, the Company established a 401(k) Retirement Plan for all
employees projected to work 1,000 hours after 90 days continuous employment.
The Company is obligated to contribute an amount equal to 25% of the employees
deferral up to 6%. The Company's contribution was approximately $330,000,
$346,000 and $250,000 for fiscal 1998, 1997 and 1996, respectively.
In March 1996, the Company established a nonqualified deferred compensation
plan for certain officers and key employees of the Company. The Company
contributes an amount equal to 25% of the employees deferral in the
nonqualified deferred compensation plan and the 401(k) plan together up to 6%.
The contribution was $9,000 and $15,000 in fiscal 1998 and 1997.
NOTE 13 - STOCK OPTION PLANS
The Company has two stock option plans and accounts for the plans under APB
Opinion No. 25, under which no compensation cost has been recognized. Had
compensation cost for the plans been determined consistent with SFAS No. 123,
the Company's net income and earnings per share would have been reduced to the
following pro forma amounts:
55
<PAGE> 55
TRAK AUTO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Fiscal Years Ended January 31, 1998, February 1, 1997
And February 3, 1996
<TABLE>
<CAPTION>
(dollars in thousands, except per share data)
Fiscal Year
1998 1997 1996
------------ ------------ ------------
<S> <C> <C>
Net Income (Loss):
As Reported $ (17,673) $ 1,084 $ 7,290
Pro Forma (18,542) 737 7,208
Net Income (Loss) per share (diluted):
As Reported $ (2.99) $ .18 $ 1.23
Pro Forma (3.14) .12 1.22
</TABLE>
The effects of applying SFAS No. 123 in the pro forma disclosure are not
indicative of future amounts. SFAS No. 123 does not apply to awards prior to
1995.
The weighted average fair value of options granted was $5.66, $7.49 and $7.21
for options granted during fiscal 1998, 1997 and 1996, respectively. The fair
value of each option grant is estimated on the date of the grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in fiscal 1998, 1997 and 1996, respectively: risk
free rates of approximately 5.4%, 6.0% and 6.0% during fiscal 1998, 1997 and
1996, respectively, no expected dividends; expected lives of 5.0 years; and
expected volatility of 40.0%.
Trak Auto Corporation 1993 Stock Option Plan
The Company may grant options for up to 1,250,000 shares under the Trak Auto
Corporation 1993 Stock Option Plan (the "1993 Option Plan"). The 1993 Option
Plan is for officers, directors and key employees and will terminate June 30,
2003. The option exercise price equals the market price on the date of grant.
Options vest fully after three years and expire after five years.
56
<PAGE> 56
TRAK AUTO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Fiscal Years Ended January 31, 1998, February 1, 1997
And February 3, 1996
Information concerning the 1993 Option Plan:
<TABLE>
<CAPTION>
Number Option Price Weighted Average
Outstanding at of Options per Share Exercise Price
---------- ------------- ----------------
<S> <C> <C> <C>
January 28, 1995 105,849 $12.50-14.00 $ 12.59
Granted 207,925 14.00-16.125 15.29
Exercised (16,132) 12.50-14.00 12.57
Forfeited (29,354) 12.50-16.125 13.24
------- ------------- -------
Outstanding at
February 3, 1996 268,288 12.50-16.125 14.61
Granted 193,800 16.75 16.75
Exercised (10,223) 12.50-16.125 13.13
Forfeited (15,585) 12.50-16.75 14.78
------- ------------- -------
Outstanding at
February 1, 1997 436,280 12.50-16.75 15.59
Granted 212,250 11.25-13.00 12.98
Exercised (400) 12.50 12.50
Forfeited (74,674) 12.50-16.75 12.50
------- ------------- -------
Outstanding at
January 31, 1998 573,456 $11.25-16.75 $ 14.64
======= ============= =======
</TABLE>
Options to purchase 228,543 shares were exercisable at January 31, 1998 and
642,711 options remained available for grant. At January 31, 1998, the
weighted average contractual life of the options outstanding was 3.2 years.
Trak Auto Corporation Stock Option Plan
The Trak Auto Corporation Stock Option Plan (the "Option Plan") provided for
option grants to officers, directors and key employees of Trak Auto and its
parent and subsidiaries. Under the Option Plan no new options could be granted
after January 31, 1993.
57
<PAGE> 57
TRAK AUTO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Fiscal Years Ended January 31, 1998, February 1, 1997
And February 3, 1996
Information concerning the Option Plan:
<TABLE>
<CAPTION>
Number Option Price Weighted Average
of Options per Share Exercise Price
---------- ------------- ----------------
<S> <C> <C> <C>
Outstanding
January 28, 1995 156,271 $ 6.00-13.75 $ 10.89
Exercised (68,468) 6.00-13.75 10.45
Forfeited (3,470) 12.50 12.50
Expired (400) 10.25 10.25
------- ------------- --------
Outstanding
February 3, 1996 83,933 6.00-13.75 11.18
Exercised (11,188) 6.00-12.50 9.47
Forfeited (2,234) 12.50 12.50
------- ------------- --------
Outstanding
February 1, 1997 70,511 6.60-13.75 11.41
Exercised - - -
Forfeited (26,561) 6.60-13.75 8.32
Expired (43,950) 12.50 12.50
------- ------------- ---------
Outstanding
January 31, 1998 - $ - $ -
======= ============= ========
</TABLE>
All outstanding options under the Option Plan expired or were forfeited during
fiscal 1998.
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, be secured by all of the
stock acquired by exercise of the options, 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.
NOTE 14 - SUBSEQUENT EVENT
Planned Merger of Dart
On April 9, 1998, Dart entered into an Agreement and Plan of Merger (the
"Merger Agreement") with Richfood Holdings, Inc. ("Richfood Holdings") and a
subsidiary of Richfood Holdings ("Acquisition Subsidiary") pursuant to which
Dart has agreed to become a wholly owned subsidiary of Richfood Holdings.
Pursuant to the terms of the Merger Agreement, Richfood Holdings will (1) make
a cash tender offer (the "Offer") for all the issued and outstanding shares of
common stock of Dart at a price of $160.00 per share and (2) take all steps
necessary to cause Acquisition Subsidiary to merge with and into Dart (the
"Merger") in a transaction in which Dart will become a wholly owned subsidiary
of Richfood Holdings. As a result of the Merger, Richfood Holdings will
indirectly own 67.1% of the outstanding Common Stock.
58
<PAGE> 58
TRAK AUTO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Fiscal Years Ended January 31, 1998, February 1, 1997
And February 3, 1996
The Merger is subject to the tender in the offer of a majority of the shares
of common stock of Dart on a fully diluted basis and to other customary
conditions, including the receipt of regulatory approvals and the absence of
material adverse effects on the business or financial conditions of Dart and
its subsidiaries, taken as a whole with certain limited exceptions. There can
be no assurance that either the Offer or the Merger will be consummated.
NOTE 15 - INTERIM FINANCIAL DATA - (UNAUDITED)
Selected interim financial data for the years ended January 31, 1998 and
February 1, 1997 are as follows:
<TABLE>
<CAPTION>
(dollars in thousands, except for per share amounts)
QUARTER ENDED: JANUARY 31, NOVEMBER 1, AUGUST 2, MAY 3,
1998 1997 1997 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Sales $ 61,640 $ 85,672 $ 90,523 $ 81,605
Gross Profit (1) 13,076 19,738 20,654 19,340
Net Income (Loss)(2) (9,572) (6,460) (943) (698)
Net Income (Loss) Per
Share (Diluted) (3) $ (1.62) $ (1.09) $ (.16) $ (.12)
</TABLE>
<TABLE>
<CAPTION>
(dollars in thousands, except for per share amounts)
QUARTER ENDED: FEBRUARY 1, NOVEMBER 2, AUGUST 3, MAY 4,
1997 1996 1996 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Sales $ 80,587 $ 87,953 $ 90,428 $ 87,016
Gross Profit (1) 18,927 20,691 21,867 22,027
Net Income (Loss)(2) (925) 155 674 1,180
Net Income (Loss) Per
Share (Diluted) (3) $ (.16) $ .03 $ .11 $ .20
</TABLE>
(1) After deduction for cost of sales, store occupancy and warehousing.
(2) After deduction of store closing reserve during the 4th Quarter of
fiscal 1998 and fiscal 1997 and provision for loss on sale of
California operations during the 3rd Quarter of fiscal 1998.
(3) The sum of these amounts may not equal the annual amount because of
changes in the average number of shares outstanding during the year.
59
<PAGE> 59
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosures
Inapplicable.
60
<PAGE> 60
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
61
<PAGE> 61
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K
(a)(1) Financial Statements
See Item 8.
(a)(2) Schedules (Consolidated) -
All schedules are omitted because the required information is
inapplicable or it is presented in the consolidated financial
statements or related notes.
(a)(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 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)
10.2 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)
10.3 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)
10.4 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)
10.5 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).
62
<PAGE> 62
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K
10.6 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).
10.7 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).
10.8 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).
10.9 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).
10.10 Lease Agreement dated February 3, 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).
10.11 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).
10.12 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)
10.13 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).
10.14 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).
10.15 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).
10.16 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
63
<PAGE> 63
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K (Continued)
Corporation re: Aspen Manor (incorporated by reference to
Exhibit 10(fffff) to Trak Auto's 1991 Form 10-K) (615).
10.17 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).
10.18 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).
10.19 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).
10.20 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).
10.21 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).
10.22 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).
10.23 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)
10.24 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).
10.25 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).
64
<PAGE> 64
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K (Continued)
10.26 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)
10.27 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)
10.28 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)
10.29 Trak Auto Corporation 1993 Stock Option Plan (incorporated by
reference to Trak Auto's registration statement Form S-8, Reg.
No. 33-53389).
10.30 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)
10.31 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)
10.32 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)
10.33 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).
10.34 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)
10.35 Amendment of lease dated June 30, 1994 between Combined
Properties Limited Partnership and Super Trak Corporation re:
Bradlick (incorporated by reference to Exhibit 10.42 to Trak
Auto's 1995 Form 10-K)(629).
10.36 Employment Agreement between Trak Auto and R. Keith Green
dated January 25, 1995 (incorporated by reference to Exhibit
10.43 to Trak Auto's 1995 Form 10-K).
65
<PAGE> 65
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K (Continued)
10.37 Tax Allocation Agreement dated December 27, 1994 between Dart
Group Corporation and Trak Auto Corporation (incorporated by
reference to Exhibit 10.44 to Trak Auto's 1995 Form 10-K).
10.38 Employment Agreement between Trak Auto and Robert Brann dated
as of January 24, 1995 (incorporated by reference to Exhibit
10.46 to Trak Auto's 1995 Form 10-K).
10.39 Employment Agreement between Trak Auto and David MacGlashan
dated as of January 24, 1995 (incorporated by reference to
Exhibit 10.48 to Trak Auto's 1995 Form 10-K).
10.40 Standstill Order entered on December 6, 1995 by the Delaware
Chancery Court in Gloria G. Haft, et al. v. Larry G.
Schafran, et al. (Del. Ch. Civ. A. No. 14620) and Herbert H.
Haft v. Dart Group Corporation, et al. (Del. Ch. Civ. A. No.
14685) (incorporated by reference to Exhibit 99.1 to the
Quarterly Report of Trak Auto Corporation on Form 10-Q for the
period ended October 28, 1995).
10.41 Financing Agreement, dated December 18, 1996, between Trak
Auto Corporation and The CIT Group/Business Credit, Inc.
(Incorporated by reference to Exhibit 10.43 to Trak Auto's
1997 Form 10-K).
10.42 Employment Agreement between Trak Auto and Robert H. Thomas
dated as of June 2, 1997.
10.43 Demand Promissory Note between Bridgeview Warehouse, L.L.C., a
Dart subsidiary and Trak Auto dated November 19, 1997.
10.44 Amended and Restated Loan Agreement dated April 28, 1998 and
Pledge Agreement dated January 27, 1998 between Trak Auto and
Dart.
11 Statement on Computation of Per Share Net Income.
21 Subsidiaries of Trak Auto Corporation
23 Consent of Independent Public Accountants
27 Financial Statement Schedules
66
<PAGE> 66
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K (Continued)
(b) Reports on Form 8-K
Trak Auto filed two Current Reports on Form 8-K during the
fourth quarter of the fiscal year ended January 31, 1998
1. Trak Auto filed a Current Report on Form 8-k on
November 5, 1997 reporting under Item 5 (Other
Events) a change in the composition of Trak Auto's
Board of Directors and that Richard B. Stone had
assumed the position of Acting Chief Executive
Officer.
2. Trak Auto filed a Current Report on Form 8-K on
December 23, 1997 reporting under Item 2 (Acquisition
or Disposition of Assets) the closing of the sale of
Trak Auto's California operations and Item 7
(Financial Statements and Exhibits) proforma
financial statements to reflect the sale.
67
<PAGE> 67
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.
<TABLE>
<S> <C>
TRAK AUTO CORPORATION
Date: May 1, 1998 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: May 1, 1998 R. Keith Green
----------------------- --------------------------------
R. Keith Green
Director and President
Date: May 1, 1998 Richard B. Stone
----------------------- --------------------------------
Richard B. Stone
Chairman of the Board of Directors
and Chief Executive Officer
Date: May 1, 1998 Harry M. Linowes
----------------------- --------------------------------
Harry M. Linowes
Director
Date: May 1, 1998 Howard M. Metzenbaum
----------------------- --------------------------------
Howard M. Metzenbaum
Director
Date: May 1, 1998 David B. MacGlashan
----------------------- --------------------------------
David B. MacGlashan
Senior Vice President and
Chief Financial Officer
</TABLE>
68
<PAGE> 68
TRAK AUTO CORPORATION
Exhibit Index
Exhibit
10.42 Employment Agreement between Trak Auto and Robert
H. Thomas dated as of June 2, 1997.
10.43 Demand Promissory Note between Bridgeview Warehouse,
L.L.C., a Dart subsidiary and Trak Auto dated November
19, 1997.
10.44 Amended and Restated Loan Agreement dated April, 28, 1998 and
Pledge Agreement dated January 27, 1998 between Trak Auto and
Dart.
11 Statement on Computation of Per Share Net Income
21 Subsidiaries of Trak Auto Corporation
23 Consent of Independent Public Accountants
27 Financial Statement Schedules
69
<PAGE> 1
Exhibit 10.42
June 2, 1997
EMPLOYMENT AGREEMENT
This Agreement dated as of June 2, 1997 by and between Robert Thomas
("Employee"), and TRAK AUTO CORPORATION, a Delaware corporation ("Employer").
W I T N E S S E T H:
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 Senior Vice President, Store 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 by the Board of Directors of the Employer ("the
Board of Directors"), and shall report to the Executive Committee of the Board,
the Board of Directors, or other Senior Executive as directed by the Board.
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 Employer's 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
<PAGE> 2
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
The term of Employee's employment under this Agreement (the
"Employment Period") shall commence on June 2, 1997 and end on June 2, 1998.
If the Employer decides not to renew this Agreement, notice will be delivered
in writing at least 30 days prior to the end of the term of this Agreement. If
such notice is not delivered then the Agreement will continue for an additional
one (1) year after which it will automatically expire, unless it is renewed.
3. COMPENSATION
(a) Base Salary. Employee's annual base salary shall be One
Hundred Fifty Thousand Dollars ($150,000.00), subject to an annual increase as
recommended to the Board of Directors by the Compensation Committee of the
Board of Directors following review and performance appraisal of Employee, and
following approval by the Board of Directors. Employee's base salary shall be
paid in accordance with Employer's normal payroll procedure.
(b) Bonus. Employee is eligible to participate in the executive
bonus program. Any payments made will be based on the components of Employee's
target bonus program. This bonus payment is subject to approval by the Board
of Directors. Receipt of this bonus is subject to Employee's active employment
at Trak Auto Corporation at the time of bonus payments. This bonus is not
payable if Employee has been, or is being terminated pursuant to Section 7.
(c) Withholding Tax. All compensation shall be subject to the
customary withholding tax and other employment taxes as required with respect
to compensation paid by a corporation to an employee.
4. STOCK OPTIONS
(a) Stock Options. Employee shall be eligible for the annual
award of stock options pursuant to the stock option plans under which the
Employee is currently a participant, as determined by the Board(s) of Directors
of the company(s), pursuant to the individual company(s) stock option plan(s).
(b) Exercise upon Certain Terminations of Employment. In the
event of the termination of Employee's employment hereunder for any reason
other than pursuant to Section 7 (d), Employee shall have the right to
exercise, on or before the effective date of the termination of this Agreement,
any option which has vested in Employee hereunder coincident with or prior to
the effective date of the termination of Employee's employment hereunder,
subject to the other terms and conditions of such option plan(s). In addition,
in the event of the termination of Employee's employment due to
2
<PAGE> 3
his or her death, the personal representative of the Employee shall have the
right to exercise any such option within the later of (i) thirty (30) days
notice of such right by Employer to Employee's personal representative or (ii)
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, Accidental Death and
Dismemberment (AD&D) and such other benefits that are in effect at the time of
this Agreement for the Employee and his or her immediate family all in
accordance with Employer's "Executive Health Plan" as now in effect.
(b) Further Benefits. Employee shall, during the term of this
Agreement (and thereafter to the extent provided herein), be eligible to
participate in all applicable profit sharing and 401 (k) plans and insurance
benefits in effect for all salaried employees of the Employer, together with
any future improvements in such plans or benefits, subject to the eligibility
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 policy. 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 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
3
<PAGE> 4
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 covenants
contained in Sections 6 (a) are necessary for the protection of the legitimate
business interests of Employer and are reasonable limitations of activities,
that the rights of Employer are of a specialized and unique character, and that
immediate and irreparable damage will result to Employer if Employee fails to
or refuses to perform or comply with such covenants. Therefore,
notwithstanding any election by Employer to claim damages from Employee as a
result of any such failure or refusal, Employer may, in addition to any other
remedies and damages available, seek an injunction in a court of competent
jurisdiction to restrain any such failure or refusal (and no bond or other
security shall be required in connection therewith). In that connection,
Employee represents and warrants that his or her expertise and capabilities are
such that performance or compliance with the covenants (and the enforcement
thereof by injunction or otherwise) will not prevent him or her from earning a
livelihood. If a court refuses to enforce the covenants set forth in Section 6
(a) because they are found to be unreasonable, Employee and Employer agree to
abide by any lesser restrictions (for instance, as to duration and geographic
area) that are found to be reasonable.
7. TERMINATION
(a) Definition of Compensation: For purposes of termination,
compensation at the time of termination shall be deemed to include accrued sick
and vacation and salary through the effective date of termination, plus any and
all benefits normally granted by Employer to Employees upon termination.
(b) Death. The Employment Period shall forthwith terminate upon
the death of Employee, whereupon Employer shall not have any further
obligations or liability hereunder except to pay the Employee's estate the
unpaid portion, if any, of Employee's compensation accrued for the period up to
the date of Employee's death.
(c) Total Disability. In the event of the Total Disability (as
that term is hereafter defined) of Employee for a period of 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
4
<PAGE> 5
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 and, therefore, [Employee shall be eligible for such Long Term
Disability coverage.]
(d) With Cause. Employer shall have the right to immediately
terminate the employment of Employee at any time for just cause. For purposes
of the foregoing, "just cause" shall include, but not be limited to: (i)
Employee's commission of any act which constitutes an offense involving moral
turpitude under federal, state or local law; (ii) Employee's material breach
of any of the terms of this Agreement; (iii) Employee's refusal to follow
lawful and reasonable directive(s) of the Board of Directors made in compliance
with Section 1(a) hereof; (iv) documented performance problems; or (v)
violation of any part of the Trak Auto Corporation Statement of Business
Ethics, a copy of which is incorporated with this Agreement. 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. Employer shall
have the right to terminate the employment of Employee without cause upon at
least thirty (30) days written notice to Employee. If Employer shall terminate
the employment of Employee pursuant to this Section 7 (e), the Employment
Period shall end at the expiration of the notice period and Employer shall not
have any further obligations or liability hereunder except (i) to pay Employee
the unpaid portion, if any, of Employee's compensation accrued for the period
up to the date of termination of Employee's employment, together with an
additional amount of one (1) year of base salary as severance in accordance
with Employer's normal payroll schedule to commence immediately following the
effective date of the termination of the 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 computed at the Employee's base
salary in effect on the date of termination. If new employment (defined as
employment for another company, or self-employment) for the Employee commences
at any time during the severance period and the base salary is the same or more
than that paid by the Employer, then Employer shall cease payments under this
section. If the base salary paid by the new employment is less than the base
salary paid by the Employer then the Employer will continue to pay the
difference between the new base salary and that paid by the Employer for the
balance of the one (1) year severance period. Employee must notify Employer
immediately in writing upon starting new employment. If Employee does not
notify Employer immediately upon starting new employment, then Employee agrees
that should Employer need to hire legal counsel to retrieve monies that should
not have been paid, that Employee will be responsible for the Employer's
reasonable legal costs. Employer shall offer health insurance continuation
under COBRA commencing upon the termination of employment, the cost of which
will be paid by the Company until , the earlier of, (i) thirty (30) days after
the date the Employee starts new employment or (ii) the severance period ends.
Employee may continue COBRA at their own expense for the balance of the COBRA
period. The COBRA cost paid by the Employer will be added to the Employee's
income
5
<PAGE> 6
and taxed. Lastly, Employee shall be entitled to utilize the services of a
professional out placement service, the reasonable cost and duration of which
shall be determined and 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 or her employment
upon at least thirty (30) days written notice to Employer. If Employee shall
terminate his or her 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. (If Employee gives thirty (30) days written notice
due solely to Employer's decision not to renew this Agreement as set forth in
Section 2, or Employee's dissatisfaction with the terms of a new Agreement,
then the Employee will be eligible for the severance terms outlined in Section
7(e).) Such written notice by the Employee must be given no later than the
30th day after the termination or expiration of the Agreement outlined in
Section 2. If Employee does not give written notice to the Employer within
said thirty (30) day period then Employee understands and acknowledges that he
or she will not be eligible to receive the severance and other benefits
outlined in Section 7(e) and agrees that if he or she continues to be employed,
his or her employment will be at-will and for no definite or determinable
period and may be terminated at any time, with or without notice, at the option
of the Employee or the Company.
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 waiver of any other provision of this Agreement.
(d) Entire Agreement. This Agreement contains the entire
agreement between then 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.
6
<PAGE> 7
(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:
Robert Thomas
4772 Iceland Gull Court
Waldorf, Maryland 20603
If to Employer:
President
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
7
<PAGE> 8
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 any legal
proceeding filed by Employee, unless the Employee's pursuit of legal
proceedings is deemed frivolous or in bad faith as determined by the court in
any such action.
(k) Assignment; Binding Effect. This Agreement shall be binding
upon, and shall inure to the benefit of, and be enforceable by , the parties
hereto and their respective successors and assigns, provided, that (i) this
Agreement is a personal service agreement and no right hereunder may be
assigned by Employee, except that it shall inure to the benefit of and be
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
/s/ R. KEITH GREEN 6/02/97
- -------------------------- ---------------------
R. Keith Green Date
President
EMPLOYEE
/s/ ROBERT THOMAS 6/02/97
- -------------------------- ---------------------
Robert Thomas Date
8
<PAGE> 1
Exhibit 10.43
DEMAND PROMISSORY NOTE
US $3,276,000
November 19, 1997
FOR VALUE RECEIVED, BRIDGEVIEW WAREHOUSE, L.L.C., a Delaware
limited liability company (the "Borrower"), hereby promises to pay, within
thirty days of DEMAND therefor in accordance with the terms hereof, to the
order of Trak Auto Corporation, a Delaware Corporation (the "Lender"), at its
Principal Office or such other office as Lender shall notify Borrower the
principal sum of THREE MILLION TWO HUNDRED SEVENTY-SIX THOUSAND U.S. DOLLARS
($3,276,000) (the "Maximum Account") or the then outstanding and unpaid
principal amount hereof, and to pay interest on the unpaid principal amount
hereof from time to time outstanding until paid in full at the interest rate,
at the times and in the manner provided for below.
Section 1. Definitions. All capitalized terms used herein
and not defined herein shall have the meanings assigned to them in the
Debtors's Fourth Revised Plan of Reorganization (the "Plan") in In re: Trak
Chicago Limited Partnership I, Case No. 95-1-3099-DK (Chapter 11) (U.S. Bankr.
Ct., D. Md., S.D.). As used herein, the following terms shall have the
following meanings:
Advances means the aggregate of (a) the payment made by Lender
to Travelers, on behalf of Borrower, in the amount of $2,000,000.00 which
constitutes the Special Prepayment to Travelers pursuant to Section 6.01 (e) of
the Plan and (b) the payment made by Lender to Dart Group Corporation, on
behalf of Borrower, in the amount of $1,276,000.00 to reimburse Dart Group
Corporation for its payment of that amount to Robert Haft and Linda Haft,
pursuant to Section 8.02.1 of the Plan, as part of the consideration for the
conveyance of the Debtor's Property to Borrower pursuant to the terms of the
Plan.
Applicable Federal Rate means for any day, a fluctuating
interest rate per annum equal to the weighted average on the rates of overnight
federal funds transactions with members of the Federal Reserve System arranged
by federal funds brokers, as published for such day (or, if such day is not a
Business Day, for the next preceding Business Day) by the Federal Reserve Bank
of New York and reported in the Wall Street Journal, or if such rate is not so
published for any day that is a Business Day, the rate so published on the next
preceding day that is a Business Day.
Business Day means a day other than a Saturday, Sunday or
other day on which commercial banks in Maryland are authorized or required by
law to close.
<PAGE> 2
Loan means the aggregate amount of the Advances outstanding at
any one time, made by Lender on behalf of Borrower pursuant to and evidenced by
this Note, which shall not, at any time, exceed the Maximum Amount.
Principal Office means the principal office of Lender located
at 3300 75th Avenue, Landover, Maryland 20785.
Section 2. The Loan. This Note evidences the Loan that
Lender made to Borrower. Borrower acknowledges and agrees that no provision of
this Note or any other agreement securing or relating to this Note shall be
deemed to impose on Lender any obligation to make any future loans to Borrower
or to affect Lender's unrestricted right to demand payment in full of this Note
at any time. Borrower may prepay, subject to Section 5 hereof, all or any part
of the Loan, but shall not thereafter be entitled to reborrow same. The Loan
shall bear interest at the Applicable Federal Rate.
Section 3. Payments. Lender's demand for payment pursuant to
this Note shall be evidenced by Lender's delivery to Borrower of an executed
Demand Certificate substantially in the form of Exhibit A attached hereto.
Borrower shall be obligated to pay all outstanding principal, interest and
other amounts due under this Note within thirty days of Borrower's receipt of
the executed Demand Certificate; provided, that at any time when the amendment
of the existing Warehouse Lease pursuant to Section 6.03 (a) of the Plan is in
effect, Borrower's obligation to repay this Note will be subject to Lender's
agreement (as set forth in the Demand Certificate) thereafter to pay to
Borrower each month an amount equal to the amount by which Lender's basic rent
obligation for such month under the Warehouse Lease as so amended is less than
the basic rent obligation Lender would have under the Warehouse Lease if it had
not been amended pursuant to Section 6.03 (a) of the Plan. All payments
hereunder for principal, interest and other amounts shall be made in U.S.
dollars and in immediately available funds, to Lender's Principal Office no
later than 12:00 noon Maryland time on the date when due. Borrower's
obligation to pay all amounts due hereunder in U.S. dollars shall not be
discharged or satisfied by any tender or recovery pursuant to a judgment, which
is expressed in or converted into any currency other than U.S. dollars, except
to the extent that such tender or recovery shall result in the actual receipt
by Lender at its Principal Office of the full amount of U.S. dollars payable in
respect of such amounts. Borrower agrees that its obligation to make payments
in U.S. dollars shall be enforceable as a separate cause of action if the
amount received by Lender shall fall short of the full amount of U.S. dollars
expressed to be payable hereunder, and shall not be affected by judgment being
obtained for other sums due
2
<PAGE> 3
hereunder. The provisions of this Section 3 shall survive repayment of the
Loan and cancellation of this Note.
Section 4. Interest. Borrower agrees to pay interest in
respect of the unpaid principal balance of the Loan outstanding from time to
time, from the date of borrowing until the earlier of maturity (whether by
acceleration or otherwise) or payment in full, at a rate per annum (calculated
on the basis of a 360-day year) equal to the Applicable Federal Rate. Interest
shall be payable on the last Business Day of each calendar month, and on each
date of repayment or prepayment of all or part of the Loan.
Section 5. Credits. The amount by which the amendment of the
Warehouse Lease pursuant to Section 6.03 (a) of the Plan causes Lender's
obligation to pay basic rent under the Warehouse Lease to be less each month
after the Effective Date than it would have been if the Warehouse Lease had
remained in effect as prior to the Effective Date, shall be credited each month
against Borrower's obligation to repay the principal amount of this Note and to
pay interest on the outstanding principal balance of this Note.
Section 6. Payment of the Note Prior to Demand. Borrower may
prepay the outstanding principal of this Note, in whole or in part, at any time
without penalty or premium. Borrower shall give Lender at least two Business
Days' irrevocable written or telephonic notice of any such payment, specifying
the date and amount of such payment. The payment amount specified in such
notice shall be due and payable on the date specified, together with the
accrued interest to such date on the amount so paid, and all other amounts then
due.
Section 7. Reliance. Lender may rely on, and act without
liability upon the basis of, any telephonic or written notice believed by
Lender in good faith to be given to, or received from Borrower, whether or not
Lender subsequently receives from Borrower confirmation thereof. In each such
case, Borrower hereby waives the right dispute Lender's record of the terms of
such telephonic notice, except to the extent of Lender's gross negligence or
willful misconduct in connection therewith.
Section 8. Miscellaneous.
(a) This Note shall be binding on Borrower and its successors,
heirs, executors and assigns and shall inure to the benefit of Lender and its
successor and assigns. Borrower may not assign or delegate any of its
obligations or agreements hereunder. No amendment, modification or waiver of
any provision of this Note
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shall be effective unless it is in writing and signed by Lender and Borrower.
(b) Unless otherwise indicated, all notices and other
communications in connection with this Note shall be in writing and shall be
effective, if mailed, five days after deposit in the mails, airmail postage
prepaid, if sent by telefax, when sent with a confirmation received, or if by
courier or messenger, when delivered against a receipt, in each case, to
Borrower's address set forth below, or to Lender at its Principal Office.
Either party may change its address for notices by written notice to the other.
(c) BORROWER HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT
PERMITTED BY APPLICABLE LAW, ANY RIGHT TO A JURY TRIAL IN ANY ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO THIS NOTE. In any action or
proceeding arising out of or relating to this Note, Borrower hereby irrevocably
submits to the non-exclusive jurisdiction of the courts of the State of
Maryland, and agrees that effective service of process may be made on Borrower
by mailing same to Borrower's address set fourth below. Lender may serve
process in any other manner permitted by applicable law. Borrower hereby
irrevocably waives any objection to the laying of venue in the aforesaid
courts, and any claim of an inconvenient forum. To the extent that Borrower or
its property may have or hereafter acquire immunity, on the grounds of
sovereignty or otherwise, from any judicial process in connection with this
Note, Borrower hereby irrevocably waives, to the fullest extent permitted by
applicable law, any such immunity and agrees not to claim same. Borrower agrees
that a final judgment in any such action or proceeding shall be conclusive, and
may be enforced in any other jurisdiction or in any other permitted manner.
(d) BORROWER WAIVES ANY AND ALL REQUIREMENTS OF DEMAND,
PRESENTMENT, PROTEST, NOTICE OF DISHONOR OR FURTHER NOTICE OF ANY KIND IN
CONNECTION WITH THIS NOTE. Borrower will indemnify and hold Lender harmless
for, and pay in U.S. dollars, all losses, claims, taxes, costs, fees and
expenses, including attorney's fees, incurred by Lender in connection with the
enforcement of this Note by Lender. This provision shall survive repayment of
the Loan and cancellation of this Note.
(e) All payments hereunder shall be made without setoff or
counterclaim, and free and clear of, and without deduction for or on account
of, any present or future income, stamp or other taxes, levies, imposts,
duties, charges, fees, deductions or withholdings, and all interest, penalties
and other liabilities with respect thereto (collectively, "Taxes"), now or
hereafter imposed, levied,
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collected, withhold or assessed by any jurisdiction, or any department, agency,
state, political subdivision or taxing authority thereof or therein. If any
Taxes are so levied or imposed, Borrower agrees to pay the full amount thereof,
and such additional amounts as may be necessary so that each net payment
received by Lender will not be less than the amount provided for herein. This
provision shall survive repayment of the Loan and cancellation of this Note.
(f) Section headings are for convenience of reference and
shall not be construed as part of this Note.
(g) This Note shall be construed in accordance with and be
governed by the laws of the State of Maryland, without regard to conflict of
laws principles.
Address: BRIDGEVIEW WAREHOUSE, L.L.C.
3300 75th Avenue By: Dart Group Corporation
Landover, Maryland 20785 its sole member
By:/s/ RICHARD B. STONE
Name: Richard B. Stone
Title: Acting Chief Executive Officer
5
<PAGE> 1
Exhibit 10.44
AMENDED AND RESTATED LOAN AGREEMENT
THIS LOAN AGREEMENT (this "Agreement"), dated as of January
27, 1998, is made by and between DART GROUP CORPORATION, a Delaware corporation
(the "Borrower"), and TRAK AUTO CORPORATION, a Delaware corporation (the
"Lender") and amended and restated as of April 28, 1998.
WITNESSETH:
WHEREAS, the Lender has made available to the Borrower a
revolving credit facility in the principal amount of FIFTEEN MILLION DOLLARS
($15,000,000) (the "Revolving Credit Facility"); and
WHEREAS, the Lender has made such Revolving Credit Facility
available to the Borrower upon and subject to the provisions of this Agreement
in order to facilitate the settlement of disputes between the Borrower and its
subsidiaries and members of the Haft family; and
WHEREAS, the Borrower and the Lender desire to amend and
restate the Agreement as set forth herein.
NOW, THEREFORE, the parties hereto agree to amend and restate
the Agreement as follows:
SECTION 1 Definitional Provisions.
1.1 Definitions. As used in this Agreement, the
following terms have the following meanings:
"Business Day" means any day other than Saturday, Sunday or
any other day on which commercial banks in the State of
Maryland are required or authorized to close.
"Collateral Coverage Amount" means an amount of collateral
with a "loan value" equal to or in excess of the dollar amount
of the aggregate outstanding Advances. For purposes of
calculating the "loan value" of collateral, (i) "margin stock"
(as defined in Section 4.7) shall be ascribed a value equal to
fifty percent (50%) of the fair market value of such stock at
the time of determination, (ii) all other securities shall be
ascribed a value equal to eighty percent
<PAGE> 2
(80%) of the fair market value of such stock at the time of
determination and (iii) all other collateral shall be ascribed
a value equal to eighty percent (80%) of the book value of
such collateral at the time of determination.
"Costs and Expenses" means and includes collectively all
expenses, charges, recordation or other taxes, costs and fees
(including reasonable attorneys' fees and expenses) of any
nature whatsoever advanced, paid or incurred by or on behalf
of the Lender in connection with (i) the enforcement or
preservation of any rights or remedies of the Lender under
this Agreement, the Notes or any other Financing Document,
(whether through negotiations, workout discussions, legal
proceedings or otherwise) and (ii) the development,
preparation and execution of this Agreement, the Notes or any
other Financing Document, any amendment, restatement,
supplement or modification to, or any waiver or consent with
respect to, any of the foregoing and the consummation and
administration of the transactions contemplated hereby and
thereby.
"Debt" means (i) indebtedness for borrowed money, (ii)
obligations evidenced by bonds, debentures, notes or other
similar instruments, (iii) obligations to pay the deferred
purchase price of property or services, (iv) obligations as
lessee under leases that are or should be, in accordance with
GAAP, recorded as capital leases, and (v) obligations under
direct or indirect guaranties in respect of, and obligations
(contingent or otherwise) to purchase or otherwise acquire, or
otherwise to assure a creditor against loss in respect of,
indebtedness or obligations of others of the kinds referred to
in clauses (i) through (iv) above.
"Default Rate" means a per anum rate of interest equal to the
interest rate payable on the Notes pursuant to Section 2.4
plus three percent (3%).
"Financing Documents" means and includes collectively this
Agreement, the Notes (as defined in Section 2.3), the Pledge
Agreement (as defined in Section 3.1(b)), any borrowing
certificate delivered pursuant to Section 3.2(f) and any other
instrument, document or agreement both now and hereafter
executed, delivered or furnished by the Borrower or any other
Person evidencing, guaranteeing, securing or otherwise in
connection with this Agreement, the Revolving Credit Facility
or all or any part of the Obligations.
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<PAGE> 3
"GAAP" means generally accepted accounting principles in the
United States of America in effect from time to time.
"Obligations" means and includes collectively all present and
future indebtedness, liabilities and obligations of any kind
and nature whatsoever of the Borrower to the Lender both now
existing and hereafter arising under, as a result of, on
account of, or in connection with, (i) this Agreement and any
and all amendments thereto, restatements thereof, supplements
thereto and modifications thereof made at any time and from
time to time hereafter, (ii) the Notes, any and all
extensions, renewals or replacements thereof, amendments
thereto and restatements or modifications thereof made at any
time or from time to time hereafter, or (iii) the other
Financing Documents, including, without limitation, future
advances, principal, interest, indemnities, fees, late
charges, and any and all Costs and Expenses, whether direct,
contingent, joint, several, matured or unmatured.
"Person" means and includes any natural person, individual,
company, corporation, partnership, limited liability company,
joint venture, unincorporated association, government or
political subdivision or agency thereof, or any other entity
of whatever nature.
"Termination Date" means the earlier of July 31, 1999 or the
date on which this Revolving Credit Facility is terminated
pursuant to Section 8.1.
1.2 Other Definitional Provisions. All terms
defined in this Agreement shall have such defined meanings when used in any of
the other Financing Documents unless otherwise provided therein. Accounting
terms used in this Agreement shall have the respective meanings given to them
under GAAP. The words "hereof", "herein" and "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement. As used herein, the
singular number includes the plural, the plural includes the singular and the
use of the masculine, feminine or neuter gender includes all genders, as the
context may require. Unless otherwise defined herein, all terms used herein
which are defined by the Maryland Uniform Commercial Code shall have the same
meanings as assigned to them thereby unless and to the extent varied by this
Agreement.
SECTION 2 The Revolving Credit Facility.
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<PAGE> 4
2.1 Advances. Subject to and in accordance with
the provisions of this Agreement and relying upon the representations and
warranties herein set forth, the Lender agrees from time to time upon request
of the Borrower to make advances (each an "Advance" and collectively the
"Advances") to the Borrower from the date hereof until the Termination Date, in
an aggregate principal amount not to exceed at any time outstanding the lesser
of (i) FIFTEEN MILLION DOLLARS ($15,000,000) and (ii) the amount that the
Lender has authorized to be loaned to the Borrower pursuant to this Agreement
(the "Revolving Credit Amount"); provided, however, that once the Lender has
notified the Borrower of the amount of Advances that the Lender has authorized
to be loaned to the Borrower pursuant to this Agreement, the Lender may not
reduce such authorized amount. No Advances shall be made hereunder if after
giving effect thereto the sum of the aggregate principal amount of all
outstanding Advances would exceed the Revolving Credit Amount. In no event
shall the Lender be obligated to make an Advance hereunder if an Event of
Default (as defined in Section 7) has occurred and is continuing. Unless
sooner terminated pursuant to the provisions of this Agreement, this Revolving
Credit Facility and the obligation of the Lender to make Advances hereunder
shall automatically terminate on the Termination Date without further action
by, or notice of any kind from, the Lender. Within the limitations set forth
herein and subject to the provisions of this Agreement, the Borrower may
borrow, repay and reborrow under this Revolving Credit Facility. The fact that
there may be no Advances outstanding at any particular time shall not affect
the continuing validity of this Agreement.
2.2 Making the Advances. The Borrower shall
request each Advance by written notice to the Lender, given not later than
11:00 A.M. (Eastern time) on the Business Day prior to the date of the proposed
Advance (other than the initial Advance), specifying the date of borrowing and
the amount of the Advance. Each Advance shall be in an amount not less than
$500,000 or an integral multiple of $100,000 in excess thereof, except that an
Advance may be in an amount equal to the entire unused Revolving Credit Amount.
Not later than 11:00 A.M. (Eastern time) on the date of the borrowing of an
Advance and upon fulfillment of the conditions set forth in Section 3.2, the
Lender will make such Advance available to the Borrower in same day funds. The
proceeds of each Advance will be deposited by the Lender in a bank account
designated by the Borrower.
2.3 Notes. Each Advance shall be evidenced by,
and repaid in accordance with the terms of, an individual promissory Note (each
a "Note" and collectively, the "Notes") made payable to the Lender, from the
Borrower in the principal amount of such
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<PAGE> 5
Advance, each of which Notes shall be substantially in the form attached hereto
as Exhibit A.
2.4 Interest on and Principal of Advances. Until
maturity (whether at stated maturity, by acceleration or otherwise), the unpaid
principal amount of each Advance shall bear interest from the date of such
Advance until paid in full 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 and one half percent (1.5%). Interest shall
be payable monthly in arrears on the first day of each month. The unpaid
principal balance of each Advance, if not previously repaid, shall be due and
payable on the Termination Date.
2.5 Voluntary Prepayments of Advances; Commitment
Reduction.
(a) The Borrower may, without premium or
penalty, upon at least one Business Day's notice to the Lender stating the
proposed date and principal amount of the prepayment, and if such notice is
given, the Borrower shall, prepay the outstanding principal amounts of the
Advances in whole or in part, together with accrued interest to the date of
such prepayment on the principal amount prepaid.
(b) The Borrower shall have the right,
upon at least one Business Day's notice to the Lender, to terminate in whole or
reduce in part the unused portion of the Commitment; provided that each partial
reduction shall be in the amount of $500,000 or an integral multiple of
$100,000 in excess thereof.
2.6 Mandatory Prepayments; Additional Collateral.
(a) On February 3, 1999, the Borrower
shall prepay Advances in an aggregate amount equal to the lesser of (i)
$7,500,000 or (ii) the aggregate amount of all Advances then outstanding.
(b) The Borrower hereby agrees that it
shall maintain at all times with the Lender collateral subject to the Pledge
Agreement (as defined in Section 3.1(b)) equal to or in excess of the
Collateral Coverage Amount. If at any time the value of such collateral shall
be less than the Collateral Coverage Amount, the Borrower shall immediately (i)
prepay a portion of the principal amount of the Advances, together with accrued
interest to the date of such payment on the principal amount prepaid, so that
the value of the collateral then held by
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<PAGE> 6
the Lender equals or exceeds by ten percent (10%) the Collateral Coverage
Amount in effect after such prepayment or (ii) deliver to the Lender additional
collateral so that the value of the collateral then held by the Lender equals
or exceeds by ten percent (10%) the Collateral Coverage Amount.
2.7 Payments and Computation.
(a) The Borrower shall make each payment
under this Agreement, any Note or any other Financing Document not later than
11:00 a.m. (Eastern time) on the day when due in U.S. dollars to the Lender at
its address referred to in Section 9.2 (or such other office or account as the
Lender may designate by notice to the Borrower) in same day funds.
(b) Whenever any payment to be made by
the Borrower under the provisions of this Agreement, any Note or any other
Financing Document is due on a day which is not a Business Day (as defined
below), the due date thereof shall be extended to the next succeeding Business
Day and, in the case of any payment which bears interest, such extension of
time shall be included in computing interest on such payment.
(c) All payments of principal, interest,
fees or other amounts to be made by the Borrower under the provisions of this
Agreement or the Notes shall be paid to the Lender at the Lender's office
specified herein in lawful money of the United States of America in immediately
available same day funds without setoff, deduction, counterclaim or defense of
any kind.
(d) All computations of interest shall
be made by the Lender on the basis of a year of 365 days for the actual number
of days (including the first day but excluding the last day) occurring in the
period for which such interest is payable. Each determination by the Lender of
the amount of interest payable shall be conclusive and binding for all
purposes, absent manifest error.
(e) In no event shall the interest rate
and other charges hereunder exceed the highest rate permitted under applicable
law.
2.8 Late Charges. If the Borrower fails to make
any payment of principal, interest, prepayments, fees or any other amount
becoming due pursuant to the provisions of this Agreement (including amounts
payable under Section 9.4), the Notes or any other Financing Document on the
date due and payable (whether at stated maturity, by acceleration or
otherwise), the Borrower shall pay to the Lender, upon demand, interest on the
amount so
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<PAGE> 7
due at the Default Rate from the date such amount is due until the date on
which such amount is paid in full.
SECTION 3 Conditions Precedent.
3.1 Initial Advance. The obligation of the
Lender to make the initial Advance hereunder is subject to the conditions
precedent that the Lender shall have received on or before the date of such
Advance, the following documents, in form and substance satisfactory to the
Lender:
(a) Borrower's Corporate Documents. The
Lender shall have received (i) a copy, certified as of a recent date by the
Delaware Secretary of State of the Certificate of Incorporation of the
Borrower, (ii) a long form Certificate of Good Standing for the Borrower issued
by the Delaware Secretary of State, and (iii) a certificate of the Secretary of
the Borrower certifying to the Lender as true and correct (A) the Certificate
of Incorporation and by-laws of the Borrower, (B) the resolutions of the
Borrower's board of directors authorizing the execution, delivery and
performance of this Agreement, the Notes and the other Financing Documents to
which the Borrower is a party and (C) the names, titles and signatures of the
officers of the Borrower who are authorized to sign this Agreement, the Notes
and such other Financing Documents for and on behalf of the Borrower and to
make the borrowings hereunder;
(b) Financing Documents. Duly executed
copies of each of this Agreement, any Notes, the Pledge Agreement in the form
attached hereto as Exhibit B (the "Pledge Agreement") and any other Financing
Documents required by the Lender to be executed and delivered prior to the
making of the initial Advance; and
(c) Additional Documents. Any
additional documents, agreements, certifications, record searches, insurance
policies or opinions that the Lender may deem necessary or desirable.
3.2 All Advances. The obligation of the Lender
to make each Advance (including the initial Advance) shall be subject to the
further conditions precedent that (a) on or prior to the date of the Advance,
the Lender shall have authorized an aggregate amount up to which the Lender is
committed to make Advances to the Borrower pursuant to this Agreement which is
equal to or in excess of the amount of Advances outstanding (giving effect to
the requested Advance) and (b) on the date of such Advance each of the
following statements shall be true (and
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<PAGE> 8
each of the giving of the applicable notice requesting such Advance and the
acceptance by the Borrower of the proceeds of such Advance shall constitute a
representation and warranty by the Borrower that on the date of such Advance
such statements are true):
(a) Representations and Warranties.
Each representation or warranty made in or in connection with this Agreement,
the Notes and the other Financing Documents is true, correct and complete in
all material respects on and as of the date of such Advance as if made on such
date both before and after giving effect to such Advance and the application of
the proceeds thereof (other than representations and warranties which expressly
speak only as of a different date, and other than for changes permitted or
contemplated by this Agreement);
(b) Revolving Credit Amount Exceeded.
The total of the aggregate amount of all outstanding Advances (giving effect to
the requested Advance) does not exceed the Revolving Credit Amount;
(c) Event of Default or Default. No
Default or Event of Default has occurred and is continuing both before and
after giving effect to such Advance and the application of the proceeds
thereof;
(d) Note. The Borrower has executed and
delivered to the Lender a Note dated the day of such Advance in the form
attached hereto as Exhibit A evidencing the Borrower's obligation to pay the
Advance;
(e) Pledge Agreement. The Borrower has
delivered to the Lender collateral subject to the Pledge Agreement with a value
equal to or in excess of the Collateral Coverage Amount required after giving
effect to the requested Advance;
(f) Borrowing Certificate. The Borrower
has executed and delivered to the Lender a borrowing certificate in
substantially the form attached hereto as Exhibit C;
(g) Authorization. The taking of the
requested Advance by the Borrower has been duly authorized and approved by the
Board of Directors of the Borrower;
(h) Margin Stock. In the event the
collateral provided for any Advance is, or the proceeds of any borrowing are to
be used to acquire or carry or to extend credit to others for the purpose of
acquiring or carrying, "margin stock" (as defined
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<PAGE> 9
in Section 4.7) the Borrower has executed and delivered to the Lender Federal
Reserve Form G-1; and
(i) Additional Documents. Any
additional documents, agreements, certifications, record searches, insurance
policies or opinions which the Lender may deem necessary or desirable.
SECTION 4 Representations and Warranties. The Borrower
represents and warrants to the Lender that the following statements are true,
correct and complete as of the date hereof and as of each date an Advance is or
is to be made hereunder:
4.1 Authority, Etc. Each of the Borrower and
each of its subsidiaries is a corporation duly organized, validly existing and
in good standing under the laws of the jurisdiction of its incorporation. Each
of the Borrower and each of its subsidiaries is qualified to do business in all
jurisdictions where the failure to be qualified would have a material adverse
effect on the business, financial condition, operations or properties of the
Borrower individually or the Borrower and its subsidiaries taken as a whole.
The Borrower has the full power and authority to execute, deliver and perform
this Agreement, the Notes and any other Financing Documents to which the
Borrower is a party. The execution, delivery and performance of this
Agreement, the Notes and all other Financing Documents to which the Borrower is
a party have been duly authorized and approved by all necessary corporate
action by the Borrower and constitute the legal, valid and binding obligations
of the Borrower enforceable in accordance with their respective terms.
4.2 Conflicts; Consents. Neither the execution,
delivery and performance, nor compliance by the Borrower with the provisions of
this Agreement, the Notes and the other Financing Documents to which the
Borrower is a party will conflict with or result in a breach or violation of
the Borrower's certificate of incorporation or by-laws, or any judgment, order,
regulation, ruling or law to which the Borrower is subject or any contract or
agreement to which the Borrower is a party or to which any of the Borrower's
assets and properties is subject, or constitute a default thereunder. No
authorization or approval or other action by, and no notice to or filing with,
any governmental authority or regulatory body is required for the due
execution, delivery and performance by the Borrower of this Agreement, the
Notes or any other Financing Document except for such as may be required under
federal and state securities laws as a condition to the sale or other transfer
by the Lender of securities pledged under the Pledge Agreement.
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<PAGE> 10
4.3 Litigation. Except as disclosed in the
reports which the Borrower and its subsidiaries have filed with the Securities
and Exchange Commission, there is no litigation, action or proceeding pending
or, to the knowledge of the Borrower, threatened against or affecting the
Borrower or any of its subsidiaries which (i) might materially adversely affect
the business, financial condition, operations or properties of the Borrower
individually or the Borrower and its subsidiaries taken as a whole or the
ability of the Borrower to perform and comply with this Agreement, the Notes or
any other Financing Document to which the Borrower is a party or (ii) which
purports to affect the legality, validity or enforceability of this Agreement,
the Notes or any other Financing Document.
4.4 Financial Condition. The Borrower has
heretofore furnished to the Lender certain financial statements and other
financial information. Such financial statements and all other financial
statements and information furnished or to be furnished to the Lender hereunder
have been and will be prepared in accordance with GAAP consistently applied and
fairly present or will fairly present the financial condition of the Borrower
and its subsidiaries on a consolidated basis at such date and the results of
the operations of the Borrower and its subsidiaries on a consolidated basis for
the period then ended, and since January 31, 1995, there has been no material
adverse change in such financial condition or results of operation.
4.5 Taxes. The Borrower and each of its
subsidiaries have filed all federal, state and local income, excise, property
and other tax returns which are required to be filed and have paid all taxes as
shown on such returns or assessments received by the Borrower and its
subsidiaries (including, without limitation, all F.I.C.A. payments and
withholding taxes, if appropriate), except for such taxes, if any, as are being
contested in good faith and as to which adequate reserves have been provided.
No tax liens have been filed and no claims are being asserted with respect to
such taxes or assessments.
4.6 Title to Properties. The Borrower and each
of its subsidiaries have good and marketable title to all of their respective
assets and properties that are material to the operation of their respective
businesses.
4.7 Margin Requirements. Unless otherwise noted
in a borrowing certificate delivered pursuant to Section 3.2(f), no proceeds of
any Advance will be used to acquire or carry or to extend credit to others for
the purpose of acquiring or carrying any equity security of a class that is
registered pursuant to Section 12 of the Securities Exchange Act of 1934, as
amended
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<PAGE> 11
("margin stock"). The Borrower is not engaged in the business of extending
credit for the purpose of purchasing or carrying margin stock (within the
meaning of Regulation G issued by the Board of Governors of the Federal Reserve
System).
4.8 Material Agreements. Neither the Borrower
nor any of its subsidiaries is in default or breach in the performance,
observance or fulfillment or any of the terms, conditions or provisions of any
instrument, agreement or document to which the Borrower or any such subsidiary
is a party (including, without limitation, any instrument or agreement
evidencing or made in connection with any indebtedness or liabilities) which
default or breach might have a material adverse effect on the business,
financial condition, operations or properties of the Borrower individually or
the Borrower and its subsidiaries taken as a whole.
4.9 Licenses, etc. The Borrower and each of its
subsidiaries have obtained and now holds all licenses, permits, franchises,
patents, trademarks, copyrights and trade names that are necessary to the
conduct of their respective businesses as now conducted.
4.10 Accuracy of Information. No written
information, exhibit, report, statement or document furnished by the Borrower
or any other Person to the Lender in connection with the Advances, this
Agreement, the Notes or the other Financing Documents or the negotiation
thereof contains any material misstatement of fact or omits to state a material
fact or any fact necessary to make the statements contained herein or therein
not misleading.
SECTION 5 Affirmative Covenants. The Borrower
covenants and agrees with the Lender that so long as any of the Obligations are
outstanding or the Lender has any commitment to make Advances hereunder, the
Borrower shall:
5.1 Financial Statements. Maintain, and cause its
subsidiaries to maintain, at all times true and complete books and records in
conformity with GAAP consistently applied and deliver, or cause to be
delivered, to the Lender (a) as soon as available but in no event more than 45
days after the end of each fiscal quarter in each fiscal year of the Borrower
(other than the last fiscal quarter of any fiscal year), the Borrower's Form
10-Q statements, and (b) as soon as available, but in no event more than 90
days after the end of each fiscal year of the Borrower, the Borrower's Form
10-K statements.
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5.2 Reporting Requirements. Deliver, or cause to
be delivered, to the Lender:
(a) as soon as possible and in any event
within five (5) days after the occurrence of each Default or Event of Default,
a statement of the chief financial officer of the Borrower setting forth
details of such Default or Event of Default and the action that the Borrower or
any of its subsidiaries has taken and proposes to take with respect thereto;
(b) promptly after the sending or filing
thereof, copies of all reports that the Borrower or any of its subsidiaries
sends to any of its security holders, and copies of all reports and
registration statements which the Borrower or any of its subsidiaries files
with the Securities and Exchange Commission or any national securities
exchange;
(c) promptly after the filing or
receiving thereof, copies of all reports and notices that the Borrower or any
of its subsidiaries files under the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), with the Internal Revenue Service or the Pension
Benefit Guaranty Corporation ("PBGC") or the U.S. Department of Labor ("DOL")
or that the Borrower or any of its subsidiaries receives from PBGC or DOL and;
(d) promptly upon request of the Lender
such other information, reports or documents in the possession of the Borrower,
any of its subsidiaries or the Borrower's or such subsidiaries' agents,
respecting the business, financial condition, operations or properties of the
Borrower or any of its subsidiaries as the Lender may at any time and from time
to time reasonably request.
5.3 Conduct of Business and Maintenance of
Existence. Continue to engage in business of the same general type as being
conducted by the Borrower and its subsidiaries as of the date hereof, and do
and cause to be done all things necessary to maintain and keep in full force
and effect the corporate existence in good standing of the Borrower and each of
its subsidiaries in each jurisdiction in which the Borrower and each such
subsidiary continues to conduct business.
5.4 Compliance with Laws. Comply with, and cause
its subsidiaries to comply with, all laws, rules, regulations, orders and
decrees to which the Borrower,its subsidiaries or their respective properties
may be subject, the violation of which may have a material adverse effect on
the business, financial
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<PAGE> 13
condition, operations or properties of the Borrower individually or the
Borrower and its subsidiaries taken as a whole.
5.5 Payment of Liabilities and Taxes. Pay, and
cause its subsidiaries to pay, when due, all indebtedness and liabilities
(including, without limitation, the Obligations), and pay and discharge, and
cause its subsidiaries to pay and discharge, promptly all taxes, assessments
and governmental charges and levies (including, without limitation. F.I.C.A.
payments and withholding taxes) imposed upon the Borrower or any of its
subsidiaries or upon the income, profits or property of the Borrower or any of
its subsidiaries, except to the extent the amount or validity of any tax or
other governmental charge is contested in good faith or the amount of any other
indebtedness or liability is contested in good faith by appropriate proceedings
and, so long as reserves in conformity with GAAP have been set aside therefor.
5.6 Contractual Obligations. Comply with, and
cause its subsidiaries to comply with, any agreement or undertaking to which
the Borrower or any such subsidiary is a party and maintain in full force and
effect all contracts and leases to which the Borrower or any such subsidiary is
or becomes a party unless the failure to do so would not have a material
adverse effect on the business, financial condition, operations or properties
of the Borrower individually or the Borrower and its subsidiaries taken as a
whole.
5.7 Maintenance of Properties. Do all things,
and cause its subsidiaries to do all things, necessary to maintain, preserve,
protect and keep their respective properties in good repair, working order and
condition, and make all necessary and proper repairs, renewals and replacements
so that the business of the Borrower and its subsidiaries may be properly
conducted at all times, unless the failure to do so would not have a material
adverse effect on the business, financial condition, operations or properties
of the Borrower individually or the Borrower and its subsidiaries taken as a
whole.
5.8 Insurance. Maintain, and cause its
subsidiaries to maintain, with financially sound, well rated and reputable
insurance companies insurance in such amounts and covering such risks as is
consistent with sound business practice, and in any event as is ordinarily and
customarily carried by companies similarly situated and in the same or similar
businesses as the Borrower and such subsidiaries (as the case may be). The
Borrower will pay, and will cause its subsidiaries to pay, when due, all
premiums on such insurance and will furnish to the Lender, upon request,
evidence of payment of such premiums and
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<PAGE> 14
other information as to the insurance carried by the Borrower and its
subsidiaries. Such insurance shall include, without limitation, comprehensive
fire and extended coverage insurance on the physical assets and properties of
the Borrower and its subsidiaries against such risks, with such loss deductible
amounts and in such amounts not less than those which may be satisfactory to
the Lender but in all events conforming to prudent business practices.
5.9 Inspection. Permit, and cause its
subsidiaries to permit, the Lender, upon reasonable notice to the Borrower or
any such subsidiary, by the Lender's representatives and agents, to inspect any
of the properties, books and financial records of the Borrower and any such
subsidiary, to examine and make copies of the books of accounts and other
financial records of the Borrower and any such subsidiary, and to discuss the
affairs, finances and accounts of the Borrower and any such subsidiary with,
and to be advised as to the same by, the Borrower and any such subsidiary at
such reasonable times and intervals as the Lender may designate.
5.10 Net Worth. As of the end of any fiscal
quarter or year of the Borrower, maintain a Consolidated Net Worth (defined
below) equal to or in excess of the sum, as of such date, of the outstanding
principal balance under the Revolving Credit Facility plus interest thereon.
"Consolidated Net Worth" means, as of the end of any fiscal quarter or year of
the Borrower, (i) the total consolidated assets of the Borrower that would be
shown as assets on a consolidated balance sheet of the Borrower as of such time
prepared in accordance with generally accepted accounting principles, after
eliminating all amounts properly attributable to minority interests, if any, in
the stock and surplus of its subsidiaries, minus (ii) the total consolidated
liabilities of the Borrower that would be shown as liabilities on a
consolidated balance sheet of the Borrower as of such time prepared in
accordance with generally accepted accounting principles.
SECTION 6 Negative Covenants. The Borrower covenants
and agrees with the Lender that so long as any of the Obligations are
outstanding or the Lender has any commitment to make Advances hereunder, the
Borrower shall not, directly or indirectly:
6.1 Mergers Etc. Merge or consolidate with or
into, or convey, transfer, lease or otherwise dispose of (whether in one
transaction or in a series of transactions) all or any substantial part of its
assets (whether now owned or hereafter acquired) to, or acquire all or
substantially all of the assets of, any Person unless, in the case of a merger
or consolidation, the Borrower shall be the continuing person, or the person or
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<PAGE> 15
persons (if other than the Borrower) formed by such consolidation or into which
the Borrower is merged or to which such sale, conveyance, transfer, lease or
other disposition or assignment shall have been made shall be a corporation or
corporations organized and existing under the laws of the United States or any
State thereof or the District of Columbia and shall expressly assume the
Obligations and all terms and conditions of this Agreement including the net
worth requirement in Section 5.10.
6.2 Liquidation. Take any action to liquidate,
dissolve or wind up the Borrower, any of its subsidiaries or their respective
businesses.
6.3 Dividends, Etc. Declare or make any dividend
payment or other distribution of assets, properties, cash, rights, obligations
or securities on account of any shares of any class of capital stock of the
Borrower, or purchase, redeem or otherwise acquire for value (or permit any of
its subsidiaries to do so) any shares of any class of capital stock of the
Borrower or any warrants, rights or options to acquire any such shares, now or
hereafter outstanding, except that the Borrower may (i) declare and make any
dividend payment or other distribution payable in common stock of the Borrower,
(ii) purchase, redeem or otherwise acquire shares of its common stock or
warrants, rights or options to acquire any such shares with the proceeds
received from the substantially concurrent issue of new shares of its common
stock, (iii) declare or pay cash dividends to its stockholders in an amount not
to exceed $0.15 per share per year, (iv) purchase, redeem or otherwise acquire
shares of its capital stock or warrants, rights or options to acquire any such
shares for cash as a part of any transactions relating to the settlement of
disputes between the Borrower and its subsidiaries and members of the Haft
family, provided, that, immediately after giving effect to any such proposed
action, no Default or Event of Default would exist and (v) declare the rights
dividend contemplated by that certain Rights Agreement dated as of February 17,
1998 between the Borrower and The Bank of New York.
SECTION 7 Default. The occurrence of any one or more
of the following events shall constitute a default under this Agreement, and
the term "Event of Default" means, whenever it is used in this Agreement, any
one or more of the following events (and the term "Default" as used herein
means one or more of the following events, regardless of notice, the lapse of
time, or both):
7.1 Payment of Obligations. The failure of the
Borrower to pay the principal of any Note as and when due, whether at the due
date thereof or at a date fixed for prepayment thereof or by acceleration
thereof or otherwise, if such failure
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<PAGE> 16
is not cured within one (1) Business Day or the failure of the Borrower to pay
any other Obligation as and when due and payable in accordance with the
provisions of this Agreement, the Notes, and/or any of the other Financing
Documents, whether at the due date thereof or at a date fixed for prepayment
thereof or by acceleration thereof or otherwise, if such failure is not cured
within three (3) Business Days after written notice by the Lender to the
Borrower of such failure;
7.2 Performance of Negative Covenants. The
failure of the Borrower or any of its subsidiaries to perform, observe or
comply with any of the provisions of Section 6;
7.3 Performance of Other Provisions of this
Agreement and the Financing Documents. The failure of the Borrower or any of
its subsidiaries to perform, observe or comply with any of the provisions of
this Agreement (other than those covered by Sections 7.1 and 7.2), the Notes or
any other Financing Document, and such failure is not cured to the satisfaction
of the Lender within a period of thirty (30) days after the date of written
notice thereof by the Lender to the Borrower;
7.4 Representations and Warranties. If any
representation and warranty contained herein or any statement or representation
made in any certificate or any other information at any time given by or on
behalf of the Borrower or any of its subsidiaries or furnished in connection
with this Agreement, the Notes or any other Financing Document proves to be
false, incorrect or misleading in any material respect on the date as of which
made;
7.5 Default under Other Financing Documents. The
occurrence of a default (as defined and described therein) under the provisions
of any Note or any other Financing Document which is not cured within
applicable grace or cure periods (if any);
7.6 Liquidation, Termination, Dissolution, etc..
If the Borrower, Shoppers Food Warehouse Corp. or Trak Auto Corporation shall
liquidate, dissolve or terminate its existence;
7.7 Default under Other Indebtedness. If the
Borrower or any of its subsidiaries (other than Crown Books Corporation) shall
fail to pay any principal of or premium or interest on any Debt of the Borrower
or such subsidiary (as the case may be) which is outstanding in a principal
amount of at least $250,000 in the aggregate (but excluding Debt evidenced by
the Notes) when the same becomes due and payable (whether by scheduled
maturity, required prepayment, acceleration, demand or otherwise), and such
failure continues after the applicable grace or cure period (if
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<PAGE> 17
any) specified in the agreement or instrument relating to such Debt; or any
other event occurs or condition exists under any agreement or instrument
relating to any such Debt and continues after the applicable grace or cure
period (if any) specified in such agreement or instrument, if the effect of
such event or condition is to accelerate, or to permit the acceleration of, the
maturity of such Debt; or any such Debt shall be declared to be due and
payable, or required to be prepaid (other than by a regularly scheduled
required prepayment), redeemed, purchased or defeased, or an offer to prepay,
redeem, purchase or defease such Debt shall be required to be made, in each
case prior to the stated maturity thereof;
7.8 Bankruptcy. The Borrower or any of its
subsidiaries (other than Crown Books Corporation) shall generally not pay its
debts as such debts become due, or shall admit in writing its inability to pay
its debts generally, or shall make a general assignment for the benefit of
creditors; or any proceeding shall be instituted by or against the Borrower or
any of its subsidiaries (other than Crown Books Corporation) seeking to
adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up,
reorganization, arrangement, adjustment, protection, relief, or composition of
it or its debts under any law relating to bankruptcy, insolvency or
reorganization or relief of debtors, or seeking the entry of an order for
relief or the appointment of a receiver, trustee, custodian or other similar
official for it or for any substantial part of its property and, in the case of
any such proceeding instituted against it (but not instituted by it), either
such proceeding shall remain undismissed or unstayed for a period of sixty (60)
days, or any of the actions sought in such proceeding (including, without
limitation, the entry of an order for relief against, or the appointment of a
receiver, trustee, custodian or other similar official for, it or for any
substantial part of its property) shall occur; or the Borrower or any of its
subsidiaries (other than Crown Books Corporation) shall take any corporate
action to authorize any of the actions set forth above;
7.9 Judgments, Etc.. Any judgment or order for
the payment of money in excess of $250,000 is rendered against the Borrower or
any of its subsidiaries (other than Crown Books Corporation) and either (i)
enforcement proceedings shall have been commenced by any creditor upon such
judgment or order or (ii) there shall be any period of ten (10) consecutive
days during which a stay of enforcement of such judgment or order, by reason of
a pending appeal or otherwise, shall not be in effect; or
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<PAGE> 18
7.10 Pledge Agreement. Any provision of the
Pledge Agreement for any reason ceases to be valid and binding on the Borrower
or the Borrower so states in writing or the Borrower fails to maintain with the
Lender collateral subject to the Pledge Agreement with a value equal to or in
excess of the Collateral Coverage Amount or the Borrower fails to comply with
the requirements of Section 2.6(b).
SECTION 8 Rights and Remedies.
8.1 Rights and Remedies. If any Event of Default
occurs and is continuing, the Lender may, by notice to the Borrower (i) declare
the Revolving Credit Facility hereunder to be terminated, whereupon the same
shall forthwith terminate, and (ii) declare the unpaid principal amount of the
Notes, together with all accrued and unpaid interest thereon, and all other
Obligations then outstanding to be immediately due and payable, whereupon the
same shall become and be forthwith due and payable by the Borrower to the
Lender, without presentment, demand, protest or further notice of any kind, all
of which are hereby expressly waived by the Borrower; provided, that, in the
case of any Event of Default referred to in Section 7.8, the Revolving Credit
Facility hereunder and any obligation or commitment of the Lender hereunder to
make Advances to the Borrower shall immediately and automatically terminate and
the unpaid principal amount of the Notes, together with all accrued and unpaid
interest thereon, and all other Obligations then outstanding, shall be
automatically and immediately due and payable by the Borrower to the Lender
without any notice, presentment, demand, protest or other action of any kind,
all of which are hereby expressly waived by the Borrower.
8.2 Default Rate. Notwithstanding the entry of
any decree, order, judgment or other judicial action, upon the occurrence of an
Event of Default hereunder, the unpaid principal amount of the Notes and all
other monetary Obligations outstanding or becoming outstanding while such Event
of Default exists shall bear interest from the date of such Event of Default
until such Event of Default has been cured to the satisfaction of the Lender,
at the Default Rate.
8.3 Remedies, Etc. Cumulative. Each right, power
and remedy of the Lender as provided for in this Agreement, the Notes or any
other Financing Document or now or hereafter existing under applicable laws or
otherwise shall be cumulative and concurrent and shall be in addition to every
other right, power or remedy provided for in this Agreement, the Notes or any
other Financing Document or now or hereafter existing under applicable
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<PAGE> 19
laws or otherwise. The single or partial exercise or beginning of the exercise
by the Lender of any one or more of such rights, powers or remedies shall not
preclude the simultaneous or later exercise by the Lender of any or all such
other rights, powers or remedies.
8.4 No Waiver, Etc.. No failure or delay by the
Lender to insist upon the strict performance of any term, condition, covenant
or agreement of this Agreement, the Notes or any other Financing Document, or
to exercise any right, power or remedy consequent upon a breach thereof, shall
constitute a waiver of any such term, condition, covenant or agreement or of
any such breach, or preclude the Lender from exercising any such right, power
or remedy at any later time or times. By accepting payment after the due date
of any amount payable under this Agreement, the Notes or any other Financing
Document, the Lender shall not be deemed to waive the right either to require
prompt payment when due of all other amounts payable under this Agreement, the
Notes or any other Financing Document, or to declare an Event of Default for
failure to effect such prompt payment of any such other amount. The payment by
the Borrower or any other Person and the acceptance by the Lender of any amount
due and payable under the provisions of this Agreement, the Notes or any other
Financing Document at any time during which any Default or Event of Default
exists shall not in any way or manner be construed as a waiver of such Default
or Event of Default by the Lender or preclude the Lender from exercising any
right of power or remedy consequent upon such Default or Event of Default.
SECTION 9 Miscellaneous.
9.1 Course of Dealing; Amendment; Waivers. No
course of dealing between the Lender and the Borrower shall be effective to
amend, modify or change any provision of this Agreement, the Notes or any other
Financing Document. No amendment or waiver of any provision of this Agreement,
the Notes or any other Financing Document, nor consent to any departure by the
Borrower therefrom, shall in any event be effective unless the same is in
writing and signed by the Lender, and then any such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given. Any such consent or waiver shall be for such period and subject to such
conditions as are specified in any such instrument and no such consent or
waiver shall extend to any subsequent or other Default or Event of Default, or
impair any right consequent thereto.
9.2 Notices. All notices and other communications
provided for hereunder shall be in writing (including telecopier,
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<PAGE> 20
telegraphic, telex or cable communication) and mailed, telecopied, telegraphed,
telexed, cabled or delivered to it, if to the Borrower or the Lender, at their
respective addresses and telecopier numbers specified below, or, as to either
party, at such other address as such party designates in a written notice to
the other party. All such notices and other communications shall, when mailed,
telecopied, telegraphed, telexed or cabled, be effective when deposited in the
mails, telecopied, delivered to the telegraph company, confirmed by telex
answerback or delivered to the cable company, respectively, except in cases
where it is expressly herein provided that such notice, request or demand is
not effective until received by the party to whom it is addressed.
Borrower: Dart Group Corporation
3300 75th Avenue
Landover, Maryland 20785
Attention: Chief Financial Officer
Facsimile: (301) 772-3910
Lender: Trak Auto Corporation
3300 75th Avenue
Landover, Maryland 20785
Attention: President
Facsimile: (301) 731-1311
9.3 Right to Perform. If the Borrower shall fail to make
any payment or to otherwise perform, observe or comply with the provisions of
this Agreement, the Notes or any other Financing Documents within any
applicable notice or cure period, then and in each such case, the Lender may
(but shall be under no obligation whatsoever to) without notice to or demand
upon the Borrower remedy any such failure by advancing funds or taking such
action as it deems appropriate for the account and at the expense of the
Borrower. The advance of any such funds or the taking of any such action by
the Lender shall not be deemed or construed to cure a Default or Event of
Default or waive performance by the Borrower of any provisions of this
Agreement, the Notes or any other Financing Document. The Borrower shall pay
to the Lender on demand, together with interest thereon from the date advanced
or incurred until paid in full at a per annum rate of interest equal at all
times to the Default Rate, any such funds so advanced by the Lender and any
Costs and Expenses advanced or incurred by or on behalf or the Lender in taking
any such action, all of which shall be a part of the Obligations hereunder.
9.4 Costs and Expenses. The Borrower hereby agrees (i)
to pay, indemnify, and hold the Lender harmless for all Costs
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<PAGE> 21
and Expenses paid, incurred or advanced by or on behalf of the Lender, (ii) to
pay, indemnify, and hold the Lender harmless from, any and all recording and
filing fees and any and all liabilities with respect to, or resulting from any
delay in paying, stamp, excise and other taxes, if any, which may be payable or
determined to be payable in connection with the execution and delivery of, or
consummation or administration of any of the transactions contemplated by, or
any amendment, supplement or modification of, or any waiver or consent under or
in respect of, this Agreement, the Notes and other Financing Document, and
(iii) to pay, indemnify, and hold the Lender and its officers, directors and
agents (each, an "indemnified person") harmless from and against any and all
liabilities, obligations, losses, damages, judgments, penalties, costs,
expenses or disbursements of any kind or nature whatsoever arising out of
claims, actions, suits or proceedings brought by third parties with respect to
the execution, delivery, enforcement, performance and administration of this
Agreement or the use of the proceeds of the Advances (all the foregoing,
collectively, the "indemnified liabilities"); provided, that the Borrower shall
have no obligation hereunder to any indemnified person with respect to
indemnified liabilities arising from (A) the gross negligence or willful
misconduct of such indemnified person or (B) legal proceedings commenced
against such indemnified person by any creditor thereof arising out of and
based upon rights afforded any such creditor solely in its capacity as such.
The agreements in this subsection shall survive repayment of the Obligations.
The Borrower agrees to pay to the Lender on demand all amounts payable pursuant
to this Section 9.4, all of which shall be a part of the Obligations hereunder.
9.5 Binding Effect. This Agreement, the Notes and all
other Financing Documents shall be binding upon and inure to the benefit of the
Borrower and the Lender and their successors and assigns, except that the
Borrower shall not have the right to assign their rights hereunder or any
interest herein without the prior written consent of the Lender.
9.6 Severability. Whenever possible, each provision of
this Agreement, the Notes and the other Financing Documents shall be
interpreted in such manner as to be effective and valid under applicable law,
but, if any provision of this Agreement, the Notes or any other Financing
Document shall be held under applicable law to be invalid, illegal or
unenforceable in any respect, such provision shall be ineffective only to the
extent of such prohibition or invalidity, and the validity, legality and
enforceability of the remaining provisions of this Agreement, the
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<PAGE> 22
Notes and the other Financing Documents shall not in any way be affected or
impaired.
9.7 Survival. All representations, warranties and
covenants contained in this Agreement shall survive the execution and delivery
of this Agreement, the Notes and all other Financing Documents.
9.8 Further Assurances. The Borrower agrees that it will
cooperate with the Lender and shall execute and deliver, or cause to be
executed and delivered, all such instruments and documents, and will take all
such other actions, including, without limitation, the execution and filing of
financing statements, as the Lender may reasonably request from time to time in
order to carry out the provisions and purposes of this Agreement.
9.9 Headings. The section headings herein, and the
headings in the Exhibits attached hereto, are solely for convenience of
reference, and shall not affect in any way the interpretation of any of the
provisions hereof. Unless otherwise specified, references in this Agreement to
Sections or Exhibits are references to Sections of, or Exhibits to, this
Agreement.
9.10 Entire Agreement. This Agreement (including the
Exhibits hereto), the Notes and the other Financing Documents set forth the
entire understanding of the parties hereto and supersede all prior agreements
between them with respect to the subject matter hereof and all prior
negotiations between the parties are merged in this Agreement, the Notes and
the other Financing Documents, and there are no promises, agreements,
conditions, undertakings, warranties or representations, oral or written,
express or implied, between them other than as herein set forth.
9.11 Governing Law. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF MARYLAND, BOTH IN INTERPRETATION AND
PERFORMANCE, WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES.
9.12 Consent to Jurisdiction; Counterclaims; Forum Non
Conveniens; Service of Process.
(a) Exclusive Jurisdiction. EXCEPT AS PROVIDED
IN SECTION 9.12(B), THE LENDER AND THE BORROWER HEREBY IRREVOCABLY AND
UNCONDITIONALLY AGREE THAT ALL DISPUTES BETWEEN THEM ARISING OUT OF OR RELATED
TO THE RELATIONSHIP ESTABLISHED BETWEEN THEM IN CONNECTION WITH THIS AGREEMENT,
THE NOTES OR ANY
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<PAGE> 23
OTHER FINANCING DOCUMENT, WHETHER ARISING IN CONTRACT, TORT, EQUITY, OR
OTHERWISE, SHALL BE RESOLVED ONLY BY STATE OR FEDERAL COURTS LOCATED IN
MARYLAND, AND THE APPELLATE COURTS FROM ANY THEREOF.
(b) Other Jurisdictions. THE LENDER SHALL HAVE
THE RIGHT TO PROCEED AGAINST THE BORROWER OR ITS REAL OR PERSONAL PROPERTY IN A
COURT IN ANY LOCATION TO ENABLE THE LENDER TO OBTAIN PERSONAL JURISDICTION OVER
THE BORROWER, TO REALIZE ON ANY COLLATERAL OR ANY OTHER SECURITY FOR THE
OBLIGATIONS OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER ENTERED IN FAVOR OF
THE LENDER. THE BORROWER SHALL NOT ASSERT ANY PERMISSIVE COUNTERCLAIMS IN ANY
PROCEEDING BROUGHT BY THE LENDER ARISING OUT OF OR RELATING TO THIS AGREEMENT,
THE NOTES OR ANY OTHER FINANCING DOCUMENT.
(c) Venue; Forum Non Conveniens. EACH OF THE
BORROWER AND THE LENDER HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY
OBJECTION THAT IT MAY HAVE (INCLUDING, WITHOUT LIMITATION, ANY OBJECTION TO THE
LAYING OF VENUE OR BASED ON FORUM NON CONVENIENS) TO THE LOCATION OF THE COURT
IN WHICH ANY PROCEEDING IS COMMENCED IN ACCORDANCE WITH THIS SECTION 9.12.
(d) Service of Process. THE BORROWER HEREBY
IRREVOCABLY AND UNCONDITIONALLY WAIVES PERSONAL SERVICE OF ANY PROCESS UPON IT
AND AGREES THAT SERVICE OF PROCESS IN ANY SUCH ACTION OR PROCEEDING SUBJECT TO
THIS SECTION 9.12 MAY BE EFFECTED BY MAILING A COPY THEREOF BY REGISTERED OR
CERTIFIED MAIL (OR ANY SUBSTANTIALLY SIMILAR FORM OF MAIL), POSTAGE PREPAID, TO
THE BORROWER AT ITS ADDRESS AS PROVIDED IN SECTION 9.2. THE BORROWER FURTHER
AGREES THAT NOTHING HEREIN SHALL AFFECT THE RIGHT TO EFFECT SERVICE OF PROCESS
IN ANY OTHER MANNER PERMITTED BY LAW.
9.13 WAIVER OF JURY TRIAL. EACH OF THE BORROWER AND THE
LENDER HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT TO TRIAL BY JURY
IN ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT, OR OTHERWISE, BETWEEN THE
LENDER AND THE BORROWER ARISING OUT OF OR RELATED TO THE TRANSACTIONS
CONTEMPLATED BY THIS AGREEMENT, THE NOTES, ANY OTHER FINANCING DOCUMENT OR ANY
OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION
HEREWITH OR THEREWITH. EITHER THE BORROWER OR THE LENDER MAY FILE AN ORIGINAL
COUNTERPART OR A COPY OF THIS AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF
THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY
JURY.
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<PAGE> 24
9.14 Advice of Counsel. The Borrower represents and
warrants to the Lender that it has discussed this Agreement and, specifically,
the provisions of Sections 9.11 through 9.13 hereof, with the Borrower's
lawyers.
9.15 Execution in Counterparts. This Agreement may be
executed in any number of duplicate originals or counterparts, each of such
duplicate originals or counterparts shall be deemed to be an original and all
taken together shall constitute but one and the same instrument.
[Remainder of page intentionally left blank]
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<PAGE> 25
IN WITNESS WHEREOF, each of the parties hereto has executed and
delivered this Agreement as of the day and year first written above.
WITNESS/ATTEST: DART GROUP CORPORATION
/s/ ELLIOT ARDITTI By: /s/ RICHARD B. STONE
- ---------------------- --------------------------
Name: Richard B. Stone
Title: Chief Executive Officer
WITNESS/ATTEST: TRAK AUTO CORPORATION
/s/ MARK A. FLINT By: /s/ R. KEITH GREEN
- ------------------------ -----------------------
Name: R. Keith Green
Title: President
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<PAGE> 26
EXHIBIT A
PROMISSORY NOTE
$15,000,000 Dated: January 29, 1998
FOR VALUE RECEIVED, the undersigned, Dart Group Corporation, a
Delaware corporation (the "Borrower"), HEREBY PROMISES TO PAY to the order of
Trak Auto Corporation, a Delaware corporation (the "Lender"), the principal
amount of FIFTEEN MILLION DOLLARS ($15,000,000) [amount of the Advance]
outstanding on the Termination Date.
The Borrower promises to pay interest on the principal amount of each
Advance from the date of such Advance until such principal amount is paid in
full, at such interest rates, and payable at such times, as are specified in
the Loan Agreement referred to below.
Both principal and interest are payable in lawful money of the United
States of America to the Lender at 3300 75th Avenue, Landover, Maryland 20785
(or such other office or account as the Lender may designate by notice to the
Borrower) in same day funds.
The Borrower hereby waives presentment, demand, protest and any notice
of any kind and agrees to pay all amounts of principal of and interest on this
Note without setoff, deduction, counterclaim or defense of any kind.
This Promissory Note is the Note referred to in, and is entitled to
the benefits of, the Loan Agreement dated as of January 27, 1998 (the "Loan
Agreement"; capitalized terms used herein but not defined herein shall have the
meanings set forth in the Loan Agreement), between the Borrower and the Lender,
and the Pledge Agreement and the other Financing Documents referred to therein
and entered into pursuant thereto. The Loan Agreement, among other things, (i)
provides, subject to the conditions set forth therein, for the making of
advances (the "Advances") by the Lender to the Borrower from time to time in an
aggregate amount not to exceed at any time outstanding FIFTEEN MILLION DOLLARS
($15,000,000.00), the indebtedness of the Borrower resulting from any such
Advance being evidenced by a promissory note, (ii) contains provisions for
acceleration of the maturity hereof upon the happening of certain stated events
and also for prepayments on account of principal hereof prior to the maturity
hereof upon the terms and conditions therein specified
<PAGE> 27
and (iii) provides for the Advances to be secured by collateral in accordance
with the provisions of the Loan Agreement and the other Financing Documents.
DART GROUP CORPORATION
By /s/RICHARD B. STONE
----------------------------
Name: Richard B. Stone
Title: Interim C.E.O.
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PLEDGE AGREEMENT
THIS PLEDGE AGREEMENT (this "Pledge Agreement"), dated as of
January 27, 1998, is made by DART GROUP CORPORATION, a Delaware corporation
(the "Pledgor"), in favor of TRAK AUTO CORPORATION, a Delaware corporation (the
"Lender"). Capitalized terms used herein and not otherwise defined herein
shall have the respective meanings ascribed to such terms in the "Loan
Agreement" (as defined below).
WITNESSETH:
WHEREAS, the Pledgor has entered into the Loan Agreement dated
as of January 27, 1998, with the Lender (as amended, restated, supplemented or
otherwise modified from time to time, the "Loan Agreement"), pursuant to which
the Lender has agreed, subject to certain conditions precedent, to make loans
and other financial accommodations to the Pledgor from time to time;
WHEREAS, the Pledgor owns shares of the issued and outstanding
common stock of the Lender (sometimes referred to herein as the "Subject
Corporation"); and
WHEREAS, the Lender has required, as a condition to its
entering into the Loan Agreement and extending the Advances thereunder, that
the Pledgor execute and deliver this Pledge Agreement;
NOW, THEREFORE, for and in consideration of the foregoing and
of any financial accommodations or extensions of credit (including, without
limitation, any loan or advance by renewal, refinancing or extension of the
agreements described hereinabove or otherwise) heretofore, now or hereafter
made to or for the benefit of the Pledgor pursuant to the Loan Agreement or any
other agreement, instrument or document executed pursuant to or in connection
therewith, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Pledgor and the Lender hereby
agree as follows:
1. Pledge. The Pledgor hereby pledges to the Lender, and grants
to the Lender, a security interest in, the following (collectively, the
"Pledged Collateral"):
(a) The shares of the common stock of the Subject
Corporation, now or at any time or times hereafter owned by
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the Pledgor, and the certificates representing the shares of
such capital stock identified from time to time on Exhibit A
attached hereto and made a part hereof, being hereinafter
collectively referred to as the "Pledged Stock"), stock powers
with respect to the Pledged Stock in the form of Exhibit B
attached hereto and made a part hereof (the "Powers") duly
executed in blank, and all dividends, cash, instruments and
other property from time to time received, receivable or
otherwise distributed in respect of, or in exchange for, any
or all of the Pledged Stock;
(b) All options, warrants, dividends, cash,
instruments and other rights and options from time to time
received, receivable or otherwise distributed in respect of or
in exchange for any or all of the Pledged Stock;
(c) The property and interests in property
described in Section 3 below; and
(d) All proceeds of the foregoing.
2. Security for Liabilities. The Pledged
Collateral secures the prompt payment, performance and observance of (i) the
Obligations under the Loan Agreement, the Notes and the other Financing
Documents and (ii) the Pledgor's obligations and liabilities under this Pledge
Agreement and each agreement, document or instrument executed pursuant to or in
connection with this Pledge Agreement (all such obligations and liabilities of
the Pledgor described in clauses (i) and (ii) whether now or hereafter existing
being hereinafter referred to as the "Liabilities").
3. Pledged Collateral Adjustments. If, during
the term of this Pledge Agreement:
(a) Any stock dividend, reclassification,
readjustment or other change is declared or made in the
capital structure of the Subject Corporation, or any option or
warrant included within the Pledged Collateral is exercised,
orboth, or
(b) Any subscription, warrants or any other
rights or options shall be issued in connection with the
Pledged Collateral,
then all new, substituted and additional shares, warrants, rights, options or
other securities, issued by reason of any of the foregoing shall be immediately
delivered to and held by a Collateral Agent (as identified in Section 31), as
agent for the
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<PAGE> 30
Lender, under the terms of this Pledge Agreement and shall constitute Pledged
Collateral hereunder.
4. Subsequent Changes Affecting Pledged
Collateral. The Pledgor represents and warrants that the Pledgor has made its
own arrangements for keeping informed of changes or potential changes affecting
the Pledged Collateral (including, but not limited to, the capital structure of
the Subject Corporation, rights to convert, rights to subscribe, payment of
dividends, reorganization or other exchanges, tender offers and voting rights),
and the Pledgor agrees that the Lender shall not have any obligation to inform
the Pledgor of any such changes or potential changes or to take any action or
omit to take any action with respect thereto. The Lender may, after the
occurrence of an Event of Default, without notice and at its option, transfer
or register the Pledged Collateral or any part thereof into its or its
nominee's name with or without any indication that such Pledged Collateral is
subject to the security interest hereunder. In addition, the Lender may at any
time exchange certificates or instruments representing or evidencing Pledged
Shares for certificates or instruments of smaller or larger denominations.
5. Delivery of Pledged Collateral. On or prior
to the date of any Advance the Pledgor shall deliver to (a) the Lender, a new
Exhibit A to this Agreement identifying the Pledged Stock to be held by a
Collateral Agent on behalf of Lender as security for the Liabilities after
giving effect to such Advance, and (b) a Collateral Agent identified pursuant
to Section 31, as agent for the Lender, all certificates or instruments
representing or evidencing additions to the Pledged Collateral, accompanied by
Powers in the form of Exhibit B duly executed in blank, and any and all Pledged
Collateral hereafter obtained or received by the Pledgor shall be delivered to
such Collateral Agent, as agent for the Lender, pursuant hereto, accompanied by
Powers in the form of Exhibit B duly executed in blank; provided that the
Pledgor shall not be required to deliver any Pledged Stock to such Collateral
Agent prior to February 12, 1998. All certificates or instruments shall be in
suitable form for transfer by delivery, or shall be accompanied by duly
executed instruments of transfer or assignment in blank, all in form and
substance satisfactory to the Lender.
6. Representations and Warranties. The Pledgor
represents and warrants as follows:
(a) The Pledgor has the complete and
unconditional authority to pledge and grant a
security interest in the Pledged Stock. Exhibit C
attached hereto sets
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<PAGE> 31
forth the capitalization of the Subject Corporation
and all of the Pledgor's interest in the Subject
Corporation. The Pledgor is the sole legal and
beneficial owner of the interests in the Subject
Corporation identified on Exhibit C as being owned by
the Pledgor, free and clear of any lien, security
interest, pledge, hypothecation, claim, charge, tax
assessment, encumbrance or other restriction of any
kind or character (a "Lien") except for the security
interest created by this Pledge Agreement;
(b) The Pledgor has full corporate power and
authority to enter into this Pledge Agreement;
(c) There are no restrictions upon the voting
rights associated with, or upon the transfer of, or
upon the grant of Lien on, any of the Pledged
Collateral;
(d) The Pledgor has the right to vote, pledge,
assign and grant a security interest in or otherwise
transfer such Pledged Collateral free of any Liens,
without the necessity of obtaining any consents or
authorizations from any third parties;
(e) No authorization, approval, or other action
by, and no notice to or filing with, any governmental
authority or regulatory body is required either (i)
for the pledge of the Pledged Collateral pursuant to
this Pledge Agreement or for the execution, delivery
or performance of this Pledge Agreement by the
Pledgor or (ii) for the exercise by the Lender of the
voting or other rights provided for in this Pledge
Agreement or the remedies in respect of the Pledged
Collateral pursuant to this Pledge Agreement (except
as may be required in connection with such
disposition by laws affecting the offering and sale
of securities generally);
(f) The pledge of the Pledged Collateral pursuant
to this Pledge Agreement creates a valid and
perfected first priority security interest in the
Pledged Collateral, in favor of the Lender, securing
the payment and performance of the Liabilities; and
(g) When executed the Powers will be duly
executed and give the Lender the authority they
purport to confer.
7. Voting Rights. During the term of this
Pledge Agreement, and except as provided in this Section 7, the Pledgor
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<PAGE> 32
shall have the right to vote the Pledged Stock on all corporate questions in a
manner not inconsistent with the terms of this Pledge Agreement, the Loan
Agreement and any other Financing Document executed pursuant thereto or in
connection therewith. After the occurrence of an Event of Default, the Lender
may, at the Lender's option and following written notice from the Lender to the
Pledgor, exercise all voting powers pertaining to the Pledged Collateral,
including the right to take action by shareholder consent.
8. Dividends and Other Distributions. (a) So
long as no Default or Event of Default shall have occurred:
(i) The Pledgor shall be entitled to receive and
retain any and all dividends and interest paid in respect of
the Pledged Collateral; provided, however, that any and all
(A) dividends and interest paid or
payable other than in cash with respect to, and
instruments and other property received, receivable
or otherwise distributed with respect to, or in
exchange for, any of the Pledged Collateral;
(B) dividends and other distributions
paid or payable in cash with respect to any of the
Pledged Collateral on account of a partial or total
liquidation or dissolution or in connection with a
reduction of capital, capital surplus or paid-in
surplus; and
(C) cash paid, payable or otherwise
distributed with respect to principal of, or in
redemption of, or in exchange for, any of the Pledged
Collateral;
shall be Pledged Collateral, and shall be forthwith delivered
to the Lender, as Pledged Collateral and shall, if received by
the Pledgor, be received in trust for the Lender, be
segregated from the other property or funds of the Pledgor,
and shall be paid over or delivered immediately to the Lender
as Pledged Collateral in the same form as so received (with
any necessary endorsements); and
(ii) The Lender shall execute and deliver (or
cause to be executed and delivered) to the Pledgor all such
proxies and other instruments as the Pledgor may reasonably
request for the purpose of enabling the Pledgor to receive the
dividends or interest payments which it is authorized to
receive and retain pursuant to clause (i) above.
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<PAGE> 33
(b) After the occurrence of a Default or an Event of
Default:
(i) All rights of the Pledgor to receive the
dividends, interest payments and other distributions which it
would otherwise be authorized to receive and retain pursuant
to Section 8(a)(i) hereof shall cease, and all such rights
shall thereupon become vested in the Lender, which shall
thereupon have the sole right to receive and hold as Pledged
Collateral such dividends, interest payments and other
distributions;
(ii) All dividends, interest payments and other
distributions which are received by the Pledgor contrary to
the provisions of Section 8(b)(i) shall be received in trust
for the Lender, shall be segregated from other funds of the
Pledgor and shall be paid over or delivered immediately to the
Lender as Pledged Collateral in the same form as so received
(with any necessary endorsements);
(iii) The Pledged Collateral may be sold or
otherwise disposed of by the Lender as provided in Section 10;
(iv) The Pledgor shall, upon the request of the
Lender, at the Pledgor's expense, do or cause to be done all
such other acts and things as may be necessary to make any
assignment or sale of the Pledged Collateral or any part
thereof valid and binding and in compliance with applicable
law.
The Pledgor will reimburse the Lender for all expenses incurred by the Lender,
including, without limitation, reasonable attorneys' and accountants' fees and
expenses in connection with the foregoing.
9. Transfers and Other Liens. The Pledgor
agrees that the Pledgor will not (i) sell, assign, transfer, pledge or
otherwise dispose of, encumber, or grant any option with respect to, all or any
portion of the Pledged Collateral without the prior written consent of the
Lender, (ii) create or permit to exist any Lien upon or with respect to any of
the Pledged Collateral, except for the Lien under this Pledge Agreement or
(iii) consent or approve the authorization of any additional shares of capital
stock of the Subject Corporation. The Pledgor shall defend the title to the
Pledged Collateral against claims by any other Person.
10. Remedies. (a) The Lender shall have, in
addition to any other rights given under this Pledge Agreement or by law,
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<PAGE> 34
all of the rights and remedies with respect to the Pledged Collateral of a
secured party under the Uniform Commercial Code as in effect in the State of
Maryland. In addition, after the occurrence of an Event of Default, the Lender
shall have such powers of sale and other powers as may be conferred by
applicable law. With respect to the Pledged Collateral or any part thereof
which shall then be in or shall thereafter come into the possession or custody
of the Lender or which the Lender shall otherwise have the ability to transfer
under applicable law, the Lender may, in the Lender's sole discretion, without
notice except as specified below, after the occurrence of an Event of Default,
sell or cause the same to be sold at any exchange, broker's board or at public
or private sale, in one or more sales or lots, at such price as the Lender may
deem best, for cash or on credit or for future delivery, without assumption of
any credit risk, and the purchaser of any or all of the Pledged Collateral so
sold shall thereafter own the same, absolutely free from any claim, encumbrance
or right of any kind whatsoever. The Lender may, in its own name, or in the
name of a designee or nominee, buy the Pledged Collateral at any public sale
and, if permitted by applicable law, buy the Pledged Collateral at any private
sale. The Pledgor hereby agrees to pay to the Lender all reasonable expenses
(including, without limitation, court costs and reasonable attorneys' and
paralegals' fees and expenses) of, or incident to, the enforcement of any of
the provisions hereof. The Lender agrees to distribute any proceeds of the
sale of the Pledged Collateral in accordance with Section 10(i) and the Pledgor
shall remain liable for any deficiency following the sale of the Pledged
Collateral.
(b) Unless any of the Pledged Collateral
threatens to decline speedily in value or is or becomes of a type sold on a
recognized market, the Lender will give the Pledgor reasonable notice of the
time and place of any public sale thereof, or of the time after which any
private sale or other intended disposition is to be made. Any sale of the
Pledged Collateral conducted in conformity with reasonable commercial practices
of banks, commercial finance companies, insurance companies or other financial
institutions disposing of property similar to the Pledged Collateral shall be
deemed to be commercially reasonable. Notwithstanding any provision to the
contrary contained herein, the Pledgor agrees that any requirements of
reasonable notice shall be met if such notice is received by the Pledgor as
provided in Section 17 below at least five (5) Business Days before the time of
the sale or disposition; provided, however, that the Lender may give any
shorter notice that is commercially reasonable under the circumstances. Any
other requirement of notice, demand or advertisement for sale is waived, to the
extent permitted by law.
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<PAGE> 35
(c) In view of the fact that federal and state
securities laws may impose certain restrictions on the method by which a sale
of the Pledged Collateral may be effected after an Event of Default, the
Pledgor agrees that after the occurrence of an Event of Default, the Lender
may, from time to time, attempt to sell all or any part of the Pledged
Collateral (i) by means of an underwritten public offering as provided in
Section 10(d) or (ii) by private placement as provided in Section 10(e).
(d) The Lender may, at the Pledgor's expense,
attempt to sell the Pledged Collateral in an underwritten public offering. In
such event the Pledgor shall, upon the request of the Lender, execute and
deliver all such instruments and documents, and do or cause to be done all such
other acts and things, as may be necessary or, in the opinion of the Lender,
the Pledgor or the Lender's or the Pledgor's counsel, advisable to assist the
Lender in registering the applicable Pledged Collateral under the provisions of
the Securities Act of 1933, as amended (the "Securities Act"), to qualify the
Pledged Collateral under state securities or "Blue Sky" laws and to obtain all
necessary governmental approvals for the sale of the Pledged Collateral, and to
assist the Lender in making all amendments and supplements thereto and to the
related prospectus which, in the opinion of the Lender, the Pledgor or the
Lender's or the Pledgor's counsel, are necessary or advisable, all in
conformity with the requirements of the Securities Act and the rules and
regulations thereunder. The Pledgor shall, upon the request of the Lender, at
the Pledgor's expense, cause the Subject Corporation to make available to the
holders of its securities, as soon as practicable, earning statements that
satisfy the provisions of Section 11(a) of the Securities Act.
The Pledgor shall, upon the request of the Lender, at
the Pledgor's expense, do or cause to be done all such other acts and things as
may be necessary to permit the Lender to make such sale of the Pledged
Collateral or any part thereof valid and binding and in compliance with
applicable law and the requirements of any underwriter, including the execution
and delivery of any underwriting agreement.
The Pledgor will reimburse the Lender for all
expenses incurred by the Lender including, without limitation, reasonable
attorneys' and accountants' fees and expenses in connection with the foregoing.
Upon or at any time after the occurrence of an Event
of Default, if the Lender determines that, prior to any public offering of any
securities constituting part of the Pledged Collateral, such securities should
be registered under the
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<PAGE> 36
Securities Act and/or registered or qualified under any other federal or state
law and such registration and/or qualification is not practicable, then the
Pledgor agrees that it will be commercially reasonable if a private sale, upon
at least five (5) Business Days' notice to the Pledgor, is arranged so as to
avoid a public offering, even though the sales price established and/or
obtained at such private sale may be substantially less then prices which could
have been obtained for such security on any market or exchange or in any other
public sale.
(e) The Lender may, at the Pledgor's expense,
attempt to sell the Pledged Collateral in a private placement restricting the
bidders and prospective purchasers to those who are qualified and will
represent and agree that they are purchasing for investment only and not for
distribution. In so doing, the Lender may solicit offers to buy the Pledged
Collateral, or any part of it, from a limited number of investors deemed by the
Lender, in its reasonable judgment, to be financially responsible parties who
might be interested in purchasing the Pledged Collateral. If the Lender
solicits such offers from not less than three (3) such investors, then the
acceptance by the Lender of the highest offer obtained therefrom shall be
deemed to be a commercially reasonable method of disposing of such Pledged
Collateral; provided, however, that this Section does not impose a requirement
that the Lender solicit offers from three or more investors in order for the
sale to be commercially reasonable.
(f) The Pledgor agrees that (i) in the event the
Lender shall, upon any Event of Default, sell the Pledged Collateral or any
portion thereof at a private sale or sales, the Lender shall have the right to
rely upon the advice and opinion of investment bankers engaged by the Lender as
to the best price reasonably obtainable upon such a private sale and (ii) in
the absence of fraud, such reliance shall be conclusive evidence that the
Lender handled such matter in a commercially reasonable manner under applicable
law.
(g) Each right, power and remedy of the Lender or
any collateral agent, bailee or escrow agent acting on behalf of the Lender (a
"Collateral Agent") provided for in the Loan Agreement, this Pledge Agreement
or any other Financing Document, or now or hereafter existing at law or in
equity, by statute or otherwise, shall be cumulative and concurrent and shall
be in addition to every other right, power or remedy provided for in the Loan
Agreement, this Pledge Agreement or in any other Financing Document, or now or
hereafter existing at law or in equity, by statute or otherwise. The exercise
or the beginning of the exercise by the Lender or any Collateral Agent of any
one or more of such rights, powers or remedies shall not preclude the
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<PAGE> 37
simultaneous or later exercise by any of them of any or all such other rights,
powers or remedies. The Lender or any Collateral Agent may exercise any such
right, power or remedy against the Pledgor without exercising such rights,
powers or remedies against any other obligor.
(h) The Pledgor hereby agrees that after the
occurrence of an Event of Default, the Lender or any Collateral Agent may
proceed to foreclose the security interest in, or exercise any rights of any of
them against, any or all collateral which any of them may hold as a security
for repayment of the Liabilities in such order, and at such times, as the
Lender or any Collateral Agent may elect in its sole discretion. No such
action shall be deemed to release, relinquish, alter or impair any rights of
the Lender hereunder. The Pledgor hereby waives all rights which the Pledgor
may have under the doctrines of marshalling of assets or marshalling of Liens.
(i) Upon the occurrence of any Event of Default
and the sale of any or all of the Pledged Collateral, the proceeds from such
sale shall be applied by the Lender as follows:
First: to payment of the costs and expenses of such
sale, including the expenses of the Lender and the fees and expenses of counsel
employed in connection therewith;
Second: to the payment of the remainder of the
Liabilities in such order as the Lender shall determine;
Third: to the payment of any other amounts required
by applicable law;
Fourth: the balance, if any, of such proceeds shall
be paid to the Pledgor, the Pledgor's successor and assigns, or as a court of
competent jurisdiction may direct.
11. Security Interest Absolute. All rights of
the Lender and the Liens hereunder, and all obligations of the Pledgor
hereunder, shall be absolute and unconditional irrespective of:
(i) Any lack of validity or enforceability of the
Loan Agreement, the Notes, this Pledge Agreement, any
Financing Document or any other agreement or instrument
relating thereto;
(ii) Any change in the time, manner or place of
payment of, or in any other term of, all or any part of the
Liabilities, or any other amendment or waiver of or any
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<PAGE> 38
consent to any departure from the Loan Agreement, the Notes,
this Pledge Agreement or any other Financing Document;
(iii) Any exchange, release or non-perfection of
any other collateral, or any release or amendment or waiver of
or consent to departure from any guaranty, for all or any part
of the Liabilities; or
(iv) any other circumstance which might otherwise
constitute a defense available to, or a discharge of, the
Pledgor in respect of the Liabilities or of the Loan
Agreement, the Notes, this Pledge Agreement or any other
Financing Document.
12. Lender Appointed Attorney-in-Fact. The
Pledgor hereby appoints the Lender as its attorney-in-fact, with full
authority, in the name of the Pledgor or otherwise, after the occurrence of an
Event of Default, from time to time in the Lender's sole discretion, to take
any action and to execute any instrument which the Lender may deem necessary or
advisable to accomplish the purposes of this Pledge Agreement, including,
without limitation, to receive, endorse and collect all instruments made
payable to the Pledgor representing any dividend, interest payment or other
distribution in respect of the Pledged Collateral or any part thereof and to
give full discharge for the same and to arrange for the transfer of all or any
part of the Pledged Collateral on the books of the Subject Corporation to the
name of the Lender or the Lender's nominee. After the occurrence of an Event
of Default, the Lender may in the Lender's sole discretion and without notice
to Pledgor, transfer or register the Pledged Collateral or any part thereof
into its or its nominee's name with or without any indication that such Pledged
Collateral is subject to the security interest hereunder. In addition, the
Lender may at any time exchange certificates or instruments representing or
evidencing any Pledged Collateral for certificates or instruments of smaller or
larger denominations.
13. Waivers by the Pledgor. The Pledgor waives
presentment and demand for payment of any of the Liabilities, protest and
notice of dishonor or Event of Default with respect to any of the Liabilities
and all other notices to which the Pledgor might otherwise be entitled except
as otherwise expressly provided herein or in the Loan Agreement.
14. Indemnity and Expenses. (a) The Pledgor
hereby agrees to indemnify the Lender and any Collateral Agent from and against
any and all claims, losses and liabilities (including reasonable attorneys'
fees) arising out of or resulting from this
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<PAGE> 39
Pledge Agreement (including, without limitation, enforcement of this Pledge
Agreement), except claims, losses or liabilities resulting from the Lender's or
the Collateral Agent's gross negligence or willful misconduct.
(b) The Pledgor shall upon demand pay to the
Lender and any Collateral Agent the amount of any and all reasonable expenses,
including the reasonable fees and expenses of counsel to any of them and of any
experts and agents, which any of them may incur in connection with (i) the
administration of this Pledge Agreement, (ii) the custody, preservation, use or
operation of, or the sale of, collection from or other realization upon, any of
the Pledged Collateral, (iii) the exercise or enforcement of any of the rights
of the Lender hereunder or (iv) the failure by the Pledgor to perform or
observe any of the provisions hereof.
15. Reinstatement; Liens. This Pledge Agreement
and the Liabilities and Liens hereunder shall continue to be effective or be
reinstated, as the case may be, if at any time payment and performance of the
Liabilities, or any part thereof, is, pursuant to applicable law, rescinded or
reduced in amount, or must otherwise be restored or returned by any obligee of
the Liabilities, whether as a "voidable preference," "fraudulent conveyance,"
or otherwise, all as though such payment or performance had not been made. In
the event that any payment, or any part thereof, is rescinded, reduced,
restored or returned, the Liabilities shall be reinstated and deemed reduced
only by such amount paid and not so rescinded, reduced, restored or returned.
The Pledgor shall not contest or support any other Person in contesting, in any
actions or proceedings, the priority or validity of any Lien or other claim in
any collateral or other interest granted under any Financing Document by the
Pledgor or any other obligor to the Lender or any Collateral Agent.
16. Term. This Pledge Agreement shall remain in
full force and effect until the Liabilities have been fully and indefeasibly
paid in cash and the Loan Agreement has terminated pursuant to its terms. Upon
the termination of this Pledge Agreement as provided above (other than as a
result of the sale of the Pledged Collateral), the Lender will release the
security interest created hereunder and, if it then has possession of the
Pledged Stock, will deliver the Pledged Stock and the Powers to the Pledgor.
17. Notices. All notices and other
communications provided for hereunder shall be in writing (including
telecopier, telegraphic, telex or cable communication) and mailed, telecopied,
telegraphed, telexed, cabled or delivered to it, if
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to the Pledgor or the Lender, at their respective addresses and telecopier
numbers specified in the Loan Agreement, or, as to either party, at such other
address as any party designates in a written notice to the other party. All
such notices and other communications shall, when mailed, telecopied,
telegraphed, telexed or cabled, be effective when deposited in the mails,
telecopied, delivered to the telegraph company, confirmed by telex answerback
or delivered to the cable company, respectively.
18. Binding Effect. This Pledge Agreement shall
be binding upon and inure to the benefit of the Pledgor, the Lender and their
respective successors and assigns, except that the Pledgor shall not have the
right to assign any of its rights or duties hereunder or any interest herein
without the prior written consent of the Lender. The Pledgor's successors and
assigns shall include, without limitation, a receiver, trustee or
debtor-in-possession of or for the Pledgor.
19. Severability. Whenever possible, each
provision of this Pledge Agreement shall be interpreted in such manner as to be
effective and valid under applicable law, but, if any provision of this Pledge
Agreement or any other Financing Document shall be held under applicable law to
be invalid, illegal or unenforceable in any respect, such provision shall be
ineffective only to the extent of such prohibition or invalidity, and the
validity, legality and enforceability of the remaining provisions of this
Pledge Agreement shall not in any way be affected or impaired.
20. Survival. All representations, warranties
and covenants contained in this Pledge Agreement shall survive the execution
and delivery of this Agreement, the Loan Agreement, the Notes and all other
Financing Documents.
21. Further Assurances. The Pledgor agrees that
it will cooperate with the Lender and shall execute and deliver, or cause to be
executed and delivered, all such other stock powers, proxies, instruments and
documents, and will take all such other actions, including, without limitation,
the execution and filing of financing statements, as the Lender may reasonably
request from time to time in order to carry out the provisions and purposes of
this Pledge Agreement.
22. The Lender's Duty of Care. The Lender shall
not be liable for any acts, omissions, errors of judgment or mistakes of fact
or law including, without limitation, acts, omissions, errors or mistakes with
respect to the Pledged Collateral, except for those arising out of or in
connection with the Lender's (i) gross negligence or willful misconduct, or
(ii) failure to use
- 13 -
<PAGE> 41
reasonable care with respect to the safe custody of the Pledged Collateral in
the Lender's possession. Without limiting the generality of the foregoing, the
Lender shall be under no obligation to take any steps necessary to preserve
rights in the Pledged Collateral against any other Persons but may do so at its
option. All expenses incurred in connection therewith shall be for the sole
account of the Pledgor, and shall constitute part of the Liabilities secured
hereby.
23. Definitions. The singular shall include the
plural and vice versa and any gender shall include any other gender as the
context may require.
24. Course of Dealing; Amendment; Waivers. No
course of dealing between the Lender and the Pledgor shall be effective to
amend, modify or change any provision of this Pledge Agreement. No amendment
or waiver of any provision of this Pledge Agreement, nor consent to any
departure by the Pledgor therefrom, shall in any event be effective unless the
same is in writing and signed by the Lender, and then any such waiver or
consent shall be effective only in the specific instance and for the specific
purpose for which given. Any such waiver shall be for such period and subject
to such conditions as are specified in any such instrument and no such waiver
shall extend to any subsequent or other Default or Event of Default, or impair
any right consequent thereto.
25. Section Headings. The section headings
herein, and the headings in the Exhibits attached hereto, are solely for
convenience of reference, and shall not affect in any way the interpretation of
any of the provisions hereof. Unless otherwise specified, references in this
Pledge Agreement to Sections or Exhibits are references to Sections of, or
Exhibits to, this Pledge Agreement.
26. Entire Agreement. This Pledge Agreement
(including the Exhibits hereto) and the other Financing Documents set forth the
entire understanding of the parties hereto and supersede all prior agreements
between them with respect to the subject matter hereof and all prior
negotiations between the parties are merged in this Pledge Agreement and the
other Financing Documents, and there are no promises, agreements, conditions,
undertakings, warranties or representations, oral or written, express or
implied, between them other than as herein set forth.
27. Governing Law. THIS PLEDGE AGREEMENT SHALL
BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF MARYLAND WITHOUT
REGARD TO CONFLICTS OF LAWS PRINCIPLES. ANY DISPUTE
- 14 -
<PAGE> 42
BETWEEN THE LENDER AND THE PLEDGOR ARISING OUT OF OR RELATED TO THE
RELATIONSHIP ESTABLISHED BETWEEN THEM IN CONNECTION WITH THIS PLEDGE AGREEMENT,
AND WHETHER ARISING IN CONTRACT, TORT, EQUITY, OR OTHERWISE, SHALL BE RESOLVED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF MARYLAND WITHOUT REGARD TO
CONFLICTS OF LAWS PRINCIPLES.
28. Consent to Jurisdiction; Counterclaims; Forum
Non Conveniens; Service of Process. (a) Exclusive Jurisdiction. EXCEPT AS
PROVIDED IN SECTION 28(B), THE LENDER AND THE PLEDGOR HEREBY IRREVOCABLY AND
UNCONDITIONALLY AGREE THAT ALL DISPUTES BETWEEN THEM ARISING OUT OF OR RELATED
TO THE RELATIONSHIP ESTABLISHED BETWEEN THEM IN CONNECTION WITH THIS PLEDGE
AGREEMENT, WHETHER ARISING IN CONTRACT, TORT, EQUITY, OR OTHERWISE, SHALL BE
RESOLVED ONLY BY STATE OR FEDERAL COURTS LOCATED IN MARYLAND, AND THE APPELLATE
COURTS FROM ANY THEREOF.
(b) Other Jurisdictions. THE LENDER SHALL HAVE
THE RIGHT TO PROCEED AGAINST THE PLEDGOR OR ITS REAL OR PERSONAL PROPERTY IN A
COURT IN ANY LOCATION TO ENABLE THE LENDER TO OBTAIN PERSONAL JURISDICTION OVER
THE PLEDGOR, TO REALIZE ON THE PLEDGED COLLATERAL OR ANY OTHER SECURITY FOR THE
LIABILITIES OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER ENTERED IN FAVOR OF
THE LENDER. THE PLEDGOR SHALL NOT ASSERT ANY PERMISSIVE COUNTERCLAIMS IN ANY
PROCEEDING BROUGHT BY THE LENDER ARISING OUT OF OR RELATING TO THIS PLEDGE
AGREEMENT.
(c) Venue; Forum Non Conveniens. EACH OF THE
PLEDGOR AND THE LENDER HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY
OBJECTION THAT IT MAY HAVE (INCLUDING, WITHOUT LIMITATION, ANY OBJECTION TO THE
LAYING OF VENUE OR BASED ON FORUM NON CONVENIENS) TO THE LOCATION OF THE COURT
IN WHICH ANY PROCEEDING IS COMMENCED IN ACCORDANCE WITH THIS SECTION 28.
(d) Service of Process. THE PLEDGOR HEREBY
IRREVOCABLY AND UNCONDITIONALLY WAIVES PERSONAL SERVICE OF ANY PROCESS UPON IT
AND AGREES THAT SERVICE OF PROCESS IN ANY SUCH ACTION OR PROCEEDING SUBJECT TO
THIS SECTION 28 MAY BE EFFECTED BY MAILING A COPY THEREOF BY REGISTERED OR
CERTIFIED MAIL (OR ANY SUBSTANTIALLY SIMILAR FORM OF MAIL), POSTAGE PREPAID, TO
THE PLEDGOR AT ITS ADDRESS AS PROVIDED IN SECTION 17. THE PLEDGOR FURTHER
AGREES THAT NOTHING HEREIN SHALL AFFECT THE RIGHT TO EFFECT SERVICE OF PROCESS
IN ANY OTHER MANNER PERMITTED BY LAW.
29. WAIVER OF JURY TRIAL. EACH OF THE PLEDGOR
AND THE LENDER HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT TO TRIAL
BY JURY IN ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT, OR OTHERWISE,
BETWEEN THE LENDER AND THE PLEDGOR ARISING
- 15 -
<PAGE> 43
OUT OF OR RELATED TO THE TRANSACTIONS CONTEMPLATED BY THIS PLEDGE AGREEMENT OR
ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION
HEREWITH. EITHER THE PLEDGOR OR THE LENDER MAY FILE AN ORIGINAL COUNTERPART OR
A COPY OF THIS PLEDGE AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE
CONSENT OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
30. Advice of Counsel. The Pledgor represents
and warrants to the Lender that the Pledgor has discussed this Pledge Agreement
and, specifically, the provisions of Sections 27 through 29 hereof, with the
Pledgor's lawyers.
31. Appointment of Collateral Agent/Escrow
Agreement. No later than February 12, 1998, the Lender shall appoint a
Collateral Agent, who shall be reasonably satisfactory to the Pledgor, as agent
for the Lender for the purpose of (a) retaining physical possession of the
certificates representing the Pledged Stock, which may be held (subject to
Section 4 hereof) in the name of the Pledgor, duly endorsed in blank or in
favor of the Lender or any nominee or nominees of the Lender or an agent
appointed by the Lender, (b) holding and applying other Pledged Collateral in
accordance with the terms of this Agreement, and (c) at the written direction
of the Lender, exercising rights of the Lender under this Agreement in the
manner identified by the Lender in such written direction. The agreement by
which a Collateral Agent agrees to serve in such capacity, and any amendments
thereof, shall be in form and substance mutually satisfactory to both the
Pledgor and the Lender, and neither the Pledgor nor the Lender shall enter into
any other agreement with the Collateral Agent with respect to the subject
matter hereof without the prior written consent of the other.
32. Execution in Counterparts. This Pledge
Agreement may be executed in any number of counterparts, each of which shall be
an original, but all of which shall together constitute one and the same
agreement.
[Remainder of page intentionally left blank]
- 16 -
<PAGE> 44
IN WITNESS WHEREOF, each of the Pledgor and the Lender has
executed this Pledge Agreement as of the date set forth above.
DART GROUP CORPORATION
By: RICHARD B. STONE
----------------------------
Name: Richard B. Stone
Title: Interim CEO
TRAK AUTO CORPORATION
By: R. KEITH GREEN
---------------------------
Name: R. Keith Green
Title: President
- S-1 -
<PAGE> 1
Exhibit 11
STATEMENT ON COMPUTATION OF EARNINGS PER SHARE
(dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Years Ended
----------------------------------
January 31, February 1, February 3,
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Weighted average common shares
outstanding during the year 5,909 5,900 5,867
Effect of dilutive stock options,
net of shares assumed
repurchased at average market
price - 42 61
-------- -------- --------
Weighted average common share and
common share equivalents 5,909 5,942 5,928
======== ======== ========
Net Income (loss) $(17,673) $ 1,084 $ 7,290
======== ======== ========
Earnings per share:
Basic earnings (loss) per share $ (2.99) $ .18 $ 1.24
Diluted earnings (loss) per share (2.99) .18 1.23
</TABLE>
70
<PAGE> 1
Exhibit 21
SUBSIDIARIES OF TRAK AUTO CORPORATION
State of Incorporation
<TABLE>
<S> <C> <C>
Trak Corporation (A) (100%) Delaware
Trak DHC Corporation (100%) Delaware
Super Trak Corporation (100%) Delaware
Riverdale Trak Acquisition Inc. (100%) Delaware
Trak\Crown Acquisition, Inc. (100%) Delaware
</TABLE>
(A) Does business in certain states under the name "Trak Auto Corporation I".
71
<PAGE> 1
Exhibit 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our report included in this Form 10-K, into Trak Auto Corporation's previously
filed registration statements on Form S-8 (File Number 33-34665 and File Number
33-53389).
ARTHUR ANDERSEN LLP
Washington D.C.
April 28, 1998.
72
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> FEB-02-1997
<PERIOD-END> JAN-31-1998
<CASH> 17,887
<SECURITIES> 666
<RECEIVABLES> 8,653
<ALLOWANCES> 0
<INVENTORY> 67,027
<CURRENT-ASSETS> 114,156
<PP&E> 86,769
<DEPRECIATION> 50,513
<TOTAL-ASSETS> 173,506
<CURRENT-LIABILITIES> 70,167
<BONDS> 26,846
0
0
<COMMON> 64
<OTHER-SE> 65,678
<TOTAL-LIABILITY-AND-EQUITY> 173,506
<SALES> 319,440
<TOTAL-REVENUES> 321,621
<CGS> 246,636
<TOTAL-COSTS> 246,636
<OTHER-EXPENSES> 99,461
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,753
<INCOME-PRETAX> (28,229)
<INCOME-TAX> (10,556)
<INCOME-CONTINUING> (17,673)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (17,673)
<EPS-PRIMARY> (2.99)
<EPS-DILUTED> (2.99)
</TABLE>
