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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14C INFORMATION
INFORMATION STATEMENT PURSUANT TO SECTION 14(C)
OF THE SECURITIES EXCHANGE ACT OF 1934
Check the appropriate box:
<TABLE>
<S> <C>
/ / Preliminary Information Statement / / Confidential, for Use of the Commission
Only (as permitted by Rule 14c-5(d)(2))
/X/ Definitive Information Statement
</TABLE>
Crown Books Corporation
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
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<PAGE> 2
[CROWN BOOKS LOGO]
3300 75th Avenue
Landover, Maryland 20785
------------------------
NOTICE OF THE TAKING OF CORPORATE ACTION
WITHOUT A MEETING BY WRITTEN CONSENT
Notice is hereby given that Dart Group Corporation, a Delaware Corporation,
as holder of approximately 51.4% of the outstanding capital stock of Crown Books
Corporation, a Delaware corporation (the "Corporation"), shall, on or about June
30, 1995, elect five Directors to the Corporation's Board of Directors by the
taking of corporate action in lieu of an annual meeting of stockholders.
The accompanying information statement is furnished pursuant to Section
14(c) of the Securities Exchange Act of 1934.
By Order of the Board of Directors,
/s/ ELLIOT R. ARDITTI
-----------------------------------
Elliot R. Arditti
Secretary
May 30, 1995
WE ARE NOT ASKING YOU FOR A PROXY
AND YOU ARE REQUESTED NOT TO SEND US A PROXY.
1
<PAGE> 3
CROWN BOOKS CORPORATION
3300 75th Avenue
Landover, Maryland 20785
---------------------------------------
INFORMATION STATEMENT
---------------------------------------
This Information Statement is furnished in connection with the taking of
corporate action without a meeting by less than unanimous written consent of
stockholders. Dart Group Corporation, a Delaware corporation ("Dart"), as holder
of 2,767,314 shares of the Corporation's common stock, par value $.01 per share
(the "Common Stock"), of Crown Books Corporation, a Delaware corporation (the
"Corporation"), is entitled to vote such shares or approximately 51.4% of the
outstanding capital stock of the Corporation. On or about June 30, 1995, Dart
intends to re-elect all five Directors to the Corporation's Board of Directors
by less than unanimous written consent in lieu of taking such action at an
annual meeting of stockholders. Please be advised, therefore, that this is only
an Information Statement. WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE
REQUESTED NOT TO SEND US A PROXY.
This Information Statement is first being sent or given to stockholders on
May 30, 1995. Record holders of the Common Stock at the close of business on May
9, 1995 are entitled to receive a copy of this Information Statement. Each
stockholder is entitled to one vote for each share of Common Stock held. On May
9, 1995, there were 5,388,973 shares of Common Stock outstanding.
1
<PAGE> 4
ELECTION OF DIRECTORS
Pursuant to this corporate action without a meeting, five directors are to
be elected to the Board of Directors to serve until the next annual meeting of
stockholders and until their successors are elected and qualified. In the event
that a nominee for any reason should become unavailable for election (which is
not anticipated), Dart intends to elect a substitute nominee as may be proposed
by the Board of Directors, unless the Board of Directors reduces the number of
Directors.
The following information is furnished with respect to the nominees:
HERBERT H. HAFT, age 74, has been Chairman of the Board since June 1993 and
a Director of the Corporation since 1982. He was also co-chairman or chairman of
the Board of the Corporation from its organization in 1981 until 1991. Mr. Haft
is the founder of Dart and has been its chairman and chief executive officer
since 1960. He is also the chairman of the board of directors and chief
executive officer of Trak Auto Corporation ("Trak Auto"), a subsidiary of Dart,
since its organization in 1983. Mr. Haft has been a director of Shoppers Food
Warehouse Corp. ("Shoppers Food"), in which Dart owns a 50 percent interest,
since 1989.
RONALD S. HAFT, age 36, was elected a Director of each of the Corporation,
Dart and Trak Auto on July 28, 1993 and has been Interim President and Chief
Executive Officer of the Corporation since June 1994. He also has served as
president and chief operating officer of Dart since August 1, 1993. Mr. Haft is
also a director of Shoppers Food and has been president of Combined Properties,
Inc., a real estate management company, since 1984.
DOUGLAS M. BREGMAN, age 45, is a partner in the law firm of Bregman,
Berbert & Schwartz, specializing in commercial real estate law. Mr. Bregman is
also an Adjunct Professor of Law at the Georgetown University Law Center. Mr.
Bregman has been a director of the Corporation, Dart and Trak Auto since June
1993.
LARRY G. SCHAFRAN, age 56, is managing general partner of L.G. Schafran
Associates, a New York based investment advisory firm, and is director of
Publicker Industries, Inc., Capsure Holdings, Corp. and OXIGENE, Inc. Mr.
Schafran previously held positions of vice president and director of Webb &
Knapp, Inc. and its successor General Property Corp. Mr. Schafran was elected a
director of the Corporation, Dart and Trak Auto on December 20, 1993.
BONITA A. WILSON, age 53, has been a retail consultant since October 1993
for Dalton Brody. Prior to that she was a retailing executive with the May
Company. Ms. Wilson is a director of Wedgewood Capital Management Inc. Ms.
Wilson has been a director of the Corporation, Dart and Trak Auto since June
1993.
Herbert H. Haft is the father of Ronald S. Haft. There is no family
relationship between any of the other directors or officers of the Corporation.
Information regarding legal proceedings pending against certain directors
and executive officers of the Corporation is incorporated herein by reference to
Item 3 of the Corporation's Annual Report on Form 10-K for the year ended
January 28, 1995, which may be obtained without charge upon written request to
Ronald T. Rice, Assistant Vice President, Crown Books Corporation, 3300 75th
Avenue, Landover, Maryland 20785.
2
<PAGE> 5
THE BOARD OF DIRECTORS, ITS COMMITTEES AND COMPENSATION
The Board of Directors of the Corporation held six meetings and took action
by written consent on three occasions during the year ended January 28, 1995.
The Board of Directors has an Audit Committee and a Compensation Committee. The
Corporation does not have a standing committee on nomination. In 1994, the Board
of Directors established an Executive Committee and a Special Litigation
Committee. All Directors attended at least seventy-five percent of the meetings
of the Board of Directors and the committees on which such Directors served
during fiscal 1995.
The Audit Committee currently consists of Larry G. Schafran, Bonita A.
Wilson and Douglas M. Bregman. The Audit Committee, which held four meetings
during fiscal 1995, reviews potential conflicts of interest, reviews the results
of the annual audit with the Corporation's independent auditors and the adequacy
of the Corporation's internal accounting controls and practices, and recommends
to the Board of Directors the independent auditors to be retained by the
Corporation.
The Compensation Committee was formed in December 1994 and currently
consists of Douglas M. Bregman, Larry G. Schafran and Bonita A. Wilson. The
Compensation Committee held one meeting in fiscal 1995. The Corporation's Chief
Executive Officer is to consult with the Compensation Committee prior to
exercising such officer's authority to fix the compensation of the Corporation's
officers. The Compensation Committee also advises the Board of Directors as to
the compensation of the Chief Executive Officer.
On September 7, 1994, the Board of Directors of Dart established an
Executive Committee comprised of Dart's outside directors to conduct the affairs
of Dart with respect to matters that are the subject of dispute between the
Chairman of the Board and Chief Executive Officer of Dart, Herbert H. Haft, and
the President and Chief Operating Officer of Dart, Ronald S. Haft. On October
11, 1994, the Board of Directors of the Corporation established an Executive
Committee comprised of the same outside directors, with authority parallel to
that of Dart's Executive Committee. The Executive Committee currently consists
of Douglas M. Bregman, Larry G. Schafran and Bonita A. Wilson, with Mr. Schafran
as the Chairman of the Executive Committee. The disputes between Herbert H. Haft
and Ronald S. Haft concerning issues involving Dart and the Corporation have
been extensive. Accordingly, the respective Executive Committees have assumed
day-to-day involvement in these disputed issues and other matters affecting Dart
and the Corporation, in particular matters relating to litigation to which Dart
or the Corporation is a party. The continuing roles of the Executive Committees
of Dart and the Corporation are dependent upon future developments.
The Special Litigation Committee currently consists of Larry G. Schafran.
The Special Litigation Committee assesses, on behalf of the Corporation, whether
to pursue, settle or abandon certain derivative litigation.
A Standstill Agreement entered into in September 1994 in connection with a
lawsuit filed by Ronald S. Haft against Dart (the "Standstill Agreement")
provides, among other things, that Dart may not, until further order is entered
by the Delaware Court of Chancery, (i) change the current composition of the
board of directors of Dart or any of its subsidiaries, or (ii) change the
current Haft family officers of Dart or any of its subsidiaries.
Compensation. Each director is compensated by the Corporation at the rate
of $15,000 per year and each outside director is compensated an additional
$1,000 per meeting. Those directors who are
3
<PAGE> 6
members of the Corporation's audit committee and profit sharing committee
receive an annual fee of $5,000 for each committee.
Members of the Executive Committee are compensated at a salary rate of $275
per hour plus reimbursement of expenses. Members of the Special Litigation
Committee of the Board of Directors, which was established on January 4, 1994,
have been compensated at a salary rate of $250 per hour plus reimbursement of
expenses. Through January 28, 1995, the compensation paid by Dart and its
subsidiaries, including the Corporation, to members of the respective Executive
Committees for their services on those committees totaled $666,000 ($166,000
paid by the Corporation), and the compensation paid by Dart and its
subsidiaries, including the Corporation, to members of the Special Litigation
Committee for their service on that committee totaled $269,000 ($121,000 paid by
the Corporation), in each case exclusive of expense reimbursement.
Crown Books Stock Option Plan. The Crown 1993 Plan specifies that 2,500
Non-Qualified Stock Options shall be granted to each director who is not an
employee each calendar year, such options to be effective as of July 31 each
year, and to expire five years from the date of grant.
Deferred Compensation Plan. The Corporation adopted the 1988 Crown Books
Corporation Deferred Compensation Plan for Directors, effective January 1, 1988
(the "Compensation Plan"). The Compensation Plan permits the Corporation's
directors to defer the payment of all or a specified part of future compensation
payable for services as director, including fees for serving on or attending
meetings of committees of the Board of Directors. Each director may elect, on or
before January 31 of any year, to defer payment of compensation, payable on or
after the February 1st following such election, for services to be performed
during the twelve-month period commencing on such February 1 and ending on
January 31 of the following calendar year (the "Plan Year"). After such an
election, all subsequent compensation will be deferred until the director
notifies the Corporation, prior to the commencement of any Plan Year, that
compensation for future Plan Years is to be paid on a current basis.
Deferred compensation will not be paid to the director as earned, but will
be held in the Corporation's general funds and credited to a bookkeeping account
maintained by the Corporation in the name of the director. Each participating
director will be treated as a creditor of the Corporation with respect to such
funds. Deferred compensation will be paid to directors in a lump sum on the
February 15th of the Plan Year after retirement, unless the director elects, at
the time he exercises the deferral option, to be paid in up to ten annual
installments.
4
<PAGE> 7
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information concerning all
stockholders known by the Corporation to be beneficial owners of five percent or
more of the Common Stock as of May 9, 1995.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
BENEFICIAL PERCENT OF
NAME AND ADDRESS OWNERSHIP(1) CLASS
- ------------------------------------------------------------------ ------------ ----------
<S> <C> <C>
Dart Group Corporation(2)......................................... 2,767,314 51.4
3300 75th Avenue
Landover, MD 20785
FMR Corp.(3)...................................................... 424,200 7.9
82 Devonshire Street
Boston, MA 02109
Foyston, Gordon & Payne, Inc.(4).................................. 353,650 6.6
151 Yonge Street
Suite 1208
Toronto, Ontario M5C1C3
</TABLE>
- ---------------
(1) Under the rules of the Securities and Exchange Commission (the "SEC"), a
person is deemed to be a beneficial owner of a security if such owner has or
shares the power to vote or direct the voting of such security or the power
to dispose or direct the disposition of such security. Accordingly, more
than one person may be deemed to be a beneficial owner of the same
securities. Unless otherwise indicated by footnote, the persons named in the
table have sole voting and investment power with respect to the shares of
Common Stock beneficially owned.
(2) Both Herbert H. Haft and Ronald S. Haft may be deemed to be beneficial
owners of all shares of Common Stock owned by Dart. Herbert H. Haft holds
sole voting power with respect to 57.0% of the Class B Common Stock of Dart,
the only class of voting stock of Dart, pursuant to an irrevocable proxy
from Ronald S. Haft, the record owner of such Dart Class B Common Stock. As
such, Herbert H. Haft has voting power and Ronald S. Haft has investment
power with respect to the shares of Common Stock owned by Dart. The
remaining shares of Dart Class B Common Stock are owned by Ronald S. Haft,
Gloria G. Haft, Linda G. Haft, and Robert M. Haft. See "Potential Changes in
Control" for a description of certain events relating to the Dart Class B
Common Stock.
(3) Based on the holdings reported on the most recent Schedule 13-G filed by FMR
Corp. ("FMR") on February 14, 1995. These shares include 376,600 shares
(representing 7.0% of the shares outstanding) owned by Fidelity Capital &
Income Fund for which Fidelity Management and Research Company (a
wholly-owned subsidiary of FMR) acts as investment advisor. The respective
funds' Boards of Trustees have sole voting power with respect to these
shares. Fidelity Management Trust Company (a wholly-owned subsidiary of FMR)
is the beneficial owner of 47,600 shares (representing .9% of the shares
outstanding) and has sole voting and investment power with respect to these
shares.
(4) Based on holdings reported on the most recent Schedule 13-D filed by
Foyston, Gordon & Payne, Inc. ("FG&P") on March 24, 1995. FG&P has sole
voting and investment power over the 353,650 shares.
5
<PAGE> 8
POTENTIAL CHANGES IN CONTROL
On July 28, 1993, Herbert H. Haft sold 172,730 shares of Dart Class B
Common Stock to Ronald S. Haft for the purchase price of $80.00 per share, and
Ronald S. Haft granted to Herbert H. Haft an irrevocable proxy to vote those
shares until his death or incapacity. Such shares represent 57.0% of the
outstanding Dart Class B Common Stock, which is the only class of voting stock
of Dart; Dart, in turn, owns 51.4% of the Common Stock.
On September 6, 1994, Ronald S. Haft tendered to Dart a letter requesting:
(1) to exercise, effective immediately, options (the "Options") to
purchase, at an exercise price of $89.65 per share, 197,048 shares of
Dart's Class B Common Stock (the "Option Shares") and
(2) to exercise his right under an employment agreement, dated August 1,
1993 (the "Agreement"), between Dart and Ronald S. Haft, effective
immediately, to obtain a loan from Dart in the amount of
$17,665,353.20, for part of the exercise price of the Options.
Together with that letter, Ronald S. Haft tendered to Dart a check payable
to Dart in the amount of $197,048 as payment of the par value of the Option
Shares; and an executed unsecured promissory note of Ronald S. Haft payable to
the order of Dart in the amount of $17,665,353.20, the balance of the exercise
price for the Option Shares under the Options.
Dart has rejected the validity of Ronald S. Haft's exercise of the Options
and the promissory note tendered in connection therewith. Issuance of the Option
Shares has not been recorded in the stock records of Dart, Dart has returned his
$197,048 check, and Dart has not issued any stock certificate to Ronald S. Haft
for the Option Shares. Dart delivered to Ronald S. Haft a check in the amount of
the $985,000 price (plus interest) previously paid by him for the Options, but
he returned the check to Dart. These funds are now in an interest bearing escrow
account.
On September 12, 1994, Ronald S. Haft filed a lawsuit against Dart (Ronald
S. Haft v. Dart Group Corporation, Del. Ch., C.A. No. 13736) (the "Options
Lawsuit") in the Delaware Court of Chancery for New Castle County seeking a
court order that Dart issue the Option Shares and grant him a loan of
$17,665,353.20 to be used as part of the payment for such shares. Dart has
denied the validity of the Options and the Agreement and is contesting the
Options Lawsuit. Trial in the Options Lawsuit is currently scheduled for October
10, 1995.
There are 302,952 issued and outstanding shares of Dart Class B Common
Stock, of which Ronald S. Haft owns 25,246 shares (or 8.3%), and of which Ronald
S. Haft owns another 172,730 shares (or 57.0%) with voting power held by Herbert
H. Haft. If all the shares of Dart Class B Common Stock covered by the Options
were issued, there would be 500,000 issued and outstanding shares of Dart Class
B Common Stock, of which Ronald S. Haft would then own 395,024 shares (or
79.0%), with voting power over 222,294 shares (or 44.5%), and Herbert H. Haft
would have voting power over 172,730 shares or (34.5%).
6
<PAGE> 9
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth information as of May 9, 1995 regarding the
ownership of the Common Stock, Dart's Class A Common Stock, $1.00 par value per
share ("Class A"), and Dart's Class B Common Stock, $1.00 par value per share
("Class B"), by the following persons: (a) each of the Corporation's current
directors, (b) the Corporation's Chief Executive Officer and each other current
executive officer of the Corporation, (c) two former executive officers of the
Corporation who would have been among the Corporation's four most highly paid
executive officers had they not resigned in fiscal 1995, and (d) all of the
Corporation's current directors and executive officers as a group.
<TABLE>
<CAPTION>
APPROXIMATE
TITLE OF NO. OF PERCENTAGE
NAME CLASS SHARES OF CLASS
- ---------------------------------------------- ------------ ------- -----------
<S> <C> <C> <C>
Herbert H. Haft............................... Class A 262,496(1) 16.43(2)
Class B 172,730(3) 57.02(4)
Crown Books 33,832(5) .98
Ronald S. Haft................................ Class A 123,709(6)(7) 8.46(2)
Class B 197,976(3)(8) 65.35(4)
Crown Books 3,333(9) .06
E. Steve Stevens.............................. None
Robert A. Marmon.............................. None
Bonita A. Wilson.............................. Class A 1,125(10) .08(2)
Crown Books 5,000(11) .09
Douglas M. Bregman............................ Class A 1,125(10) .08(2)
Crown Books 5,000(11) .09
Larry G. Schafran............................. Class A 375(12) .03(2)
Crown Books 2,500(13) .05
Glenn Hemmerle................................ None
Jose Gonzalez................................. Crown Books 3,683(14) .07
All directors and executive officers as a
group (9 persons)........................... Class A 388,830(15) 24.24(2)
Class B 197,976 65.35(4)
Crown Books 53,348(16) .98
</TABLE>
- ---------------
(1) Includes exercisable options for 139,749 Class A shares. These stock
options include options for 99,750 shares under Dart's 1987 Non-Qualified
Stock Option Plan, the validity of which is subject to challenge by Dart.
(2) Calculated based upon a class including shares subject to exercisable stock
options under stock option plans, which are subject to challenge by Dart.
(3) Herbert H. Haft retains sole voting power over 172,730 Class B shares
(owned by Ronald S. Haft) pursuant to a proxy from Ronald S. Haft. See
"Potential Changes in Control".
(4) Calculated based upon a class excluding 197,048 shares to which Ronald S.
Haft claims a right to purchase pursuant to stock options challenged by
Dart. See "Potential Changes in Control".
(5) Includes exercisable options for 33,332 shares. Does not include 2,767,314
shares owned by Dart, as to which Herbert H. Haft and Ronald S. Haft may
also be deemed to have beneficial ownership.
(6) Includes 58,028 shares where the ownership of such shares is the subject of
dispute with Robert M. Haft and Linda G. Haft.
(7) Includes exercisable options for 3,333 Class A shares.
7
<PAGE> 10
(8) Excludes 197,048 shares to which Ronald S. Haft claims a right to purchase
pursuant to stock options challenged by Dart. See "Potential Changes in
Control".
(9) Includes exercisable options for 3,333 shares. Does not include 2,767,314
shares owned by Dart, as to which Ronald S. Haft may also be deemed to have
beneficial ownership
(10) Includes exercisable options for 1,125 Class A shares.
(11) Includes exercisable options for 5,000 shares.
(12) Includes exercisable options for 375 Class A shares.
(13) Includes exercisable options for 2,500 shares.
(14) Includes exercisable options for 533 shares.
(15) Includes exercisable options for 145,707 Class A shares.
(16) Includes exercisable options for 49,698 shares. Does not include 2,767,314
shares owned by Dart, as to which Herbert H. Haft and Ronald S. Haft may
also be deemed to have beneficial ownership.
8
<PAGE> 11
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
A portion of the Corporation's general and administrative functions are
obtained directly from Dart. The Corporation has been charged an amount which,
in management's opinion, is equal to costs incurred by Dart to provide these
functions. These functions included, but were not limited to, executive
management, advertising administration, accounting, data processing, loss
prevention, personnel administration, legal services and store set up and
construction services. In the year ended January 28, 1995, the Corporation was
charged $758,000 by Dart for such services. It is not practicable for the
Corporation to estimate the cost it would have incurred for these services if it
had operated as an unaffiliated entity. In addition, Dart charges the
Corporation monthly for expenses which relate directly to the Corporation's
operations. Substantially all such charges are supported by invoices from
unrelated parties designating the Corporation as recipient of the related goods
and services. These direct charges were $9,000 in the year ended January 28,
1995.
Of the Corporation's 196 stores as of January 28, 1995, nine are leased
from entities in which members of the Haft family own substantially all the
beneficial interests. The Corporation leases three stores in shopping centers in
which Dart owns the majority interest and the remaining beneficial interests are
owned by partnerships in which members of the Haft family own all the
partnership interest. These 12 lease agreements provide for various termination
dates which, assuming renewal options are exercised, range from 1996 to 2029,
and require the payment of future minimum rentals aggregating $47,782,000 at
January 28, 1995. These agreements also require payment of a percentage of sales
in excess of a stated minimum. In addition, four closed stores have lease
agreements with Haft-owned entities with various termination dates from 1996 to
2001 and require future minimum rentals aggregating $891,000 at January 28,
1995. Annual fees and rentals included in the consolidated statements of income
for leases and subleases involving the Haft family was $2,296,000 in the year
ended January 28, 1995.
The Corporation subleases from Dart 28,000 square feet of a warehouse and
office facility located in Landover, Maryland. The sublease is for 30 years and
six months and provides for rental payments increasing approximately 15% every
five years over the term of the sublease. The sublease commenced October 1985.
The current annual rental is $269,500. The sublease also requires payment of
maintenance, utilities, insurance and real estate taxes allocable to the space
subleased. Dart leased the entire 271,000 square foot warehouse and office
facility from a private partnership in which Haft family members own all of the
partnership interests. The Corporation's sublease is on the same terms as Dart's
lease from the Haft family partnership.
On February 10, 1995, after a legal review by Dart's Executive Committee,
Dart filed a complaint for rescission of certain warehouse leases with
Haft-owned entities and for the return of rent paid since 1991 on such leases.
The Executive Committees of Dart, the Corporation and Trak Auto have also
undertaken a legal review of other leasing arrangements and real estate
transactions between Dart, the Corporation and Trak Auto, on the one hand, and
Haft-owned entities, on the other hand. This review is ongoing and the Executive
Committees have not yet determined whether other actions will be taken as a
result of this legal review.
9
<PAGE> 12
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Board of Directors formulated policies regarding executive compensation
during fiscal 1995. The Compensation Committee, which was created in December
1994, did not take any action affecting compensation paid in fiscal 1995. This
section sets forth certain relationships among the members of the Board of
Directors.
Certain members of the Board are directors, officers or employees of the
Corporation, Dart and its subsidiaries, as follows: Herbert H. Haft is Chairman
of the Board and Chief Executive Officer of Dart, Chairman of the Board of the
Corporation and Chairman of the Board and Chief Executive Officer of Trak Auto.
Ronald S. Haft is President and Chief Operating Officer and a director of Dart,
Interim President and Chief Executive Officer and a director of the Corporation,
and a director of Trak Auto.
REPORT ON EXECUTIVE COMPENSATION
This report describes the Corporation's compensation policies applicable to
its executive officers during the fiscal year ended January 28, 1995. During
fiscal 1995, executive compensation policies were formulated by the entire Board
of Directors. The Compensation Committee, which was created in December 1994,
did not take any action affecting compensation paid to executive officers in
fiscal 1995.
The key elements of the Corporation's executive compensation program
consist of base salaries that are determined based upon concerns of competitive
pay and performance, (b) cash bonus awards that are driven solely by performance
and (c) ownership of stock options to align the interests of management with
those of stockholders. Each of these elements are described in more detail
below.
Executive compensation during fiscal 1995 consisted principally of salary.
Except for the Corporation's Interim Chief Executive Officer and Chief Financial
officer, both of whom were compensated by the Corporation's parent company in
fiscal 1995, annual salary is determined by the person to whom such officer
reports (in consultation with the Chief Executive Officer and the Chairman of
the Board), based on the officer's previous year's salary and his superior's
subjective assessment of the responsibilities of the position held, the
competitive market for retail executives with comparable levels of
responsibility, the executive's performance on the job and other factors that
the superior deems relevant or appropriate.
In December 1994, the Board of Directors formed a Compensation Committee,
with which the Corporation's Chief Executive Officer is to consult prior to
exercising such officer's authority to fix the compensation of the Corporation's
officers. The Compensation Committee also advises the Board of Directors as to
the compensation of the Chief Executive Officer.
In the past, the Board has awarded cash bonuses to executive officers who
achieved or exceeded annual performance goals. In 1995, however, due to the
Corporation's failure to achieve certain objectives and a significant turnover
of executive officers of the Corporation, the Board did not award a cash bonus
to any executive officer.
The Board believes that annual awards of stock options are an effective
means of aligning an executive's compensation with the interests of
shareholders, since the values of such options are tied directly to increases in
the market value of the Corporation's common stock. The exercise price for such
options is the market value of the Corporation's common stock on the date of
grant. Options
10
<PAGE> 13
become exercisable over time and expire five years after the date of grant.
There is no set number of options that can be awarded in any year or any formula
for allocating options among the officers. The amount of options awarded to each
executive officer is based on the Board's subjective evaluation of the relative
contributions of the executives to the Corporation.
During the fiscal year ended January 28, 1995, stock option grants were
approved by the Board of Directors subject to approval by the Delaware Chancery
Court as a result of the Standstill Agreement. As of the end of fiscal 1995, the
court had not approved the grant of options and consequently, no options were
deemed to have been granted in fiscal 1995. On April 18, 1995, a hearing was
held at which the court issued an order stating that the Standstill Agreement
did not enjoin the issuance of stock options approved by the Board of Directors.
Because the hearing took place after the end of the fiscal year, there were no
stock options granted during fiscal 1995. However, the Corporation expects to
grant stock options to certain executive officers based upon performance during
fiscal 1995.
FISCAL 1995 COMPENSATION FOR THE CHIEF EXECUTIVE OFFICER
Ronald S. Haft, who became the Interim Chief Executive Officer in June
1994, did not receive any salary, bonus or stock options from the Corporation in
fiscal 1995. Mr. Haft receives a salary from Dart, which owns 51.4% of the
Common Stock.
Glenn E. Hemmerle, who was the Chief Executive Officer until June 1994,
received a salary pursuant to his employment agreement with the Corporation. Mr.
Hemmerle did not receive any bonus or stock options in fiscal 1995.
LIMIT ON DEDUCTIBILITY OF CERTAIN COMPENSATION
It is the responsibility of the Board to address the issues raised by a
recent change in the federal income tax laws that made certain non-performance
based compensation to executive officers of public companies in excess of $1
million non-deductible to such companies beginning in 1994. In this regard, the
Board must determine whether any actions with respect to this new limit should
be taken by the Corporation. At this time, it is not anticipated that any
executive officer of the Corporation will receive any such compensation in
fiscal 1996. Therefore, the Board has not taken any action to comply with the
new limit. The Board will continue to monitor this situation and will take
appropriate action if it is warranted in the future.
STATUS OF REPORT
The foregoing report on Executive Compensation shall not be deemed to be
"soliciting material" or be "filed" with the SEC or subject to Regulation 14A
promulgated by the SEC or Section 18 of the Securities Exchange Act of 1934.
Board of Directors
Herbert H. Haft
Ronald S. Haft
Douglas M. Bregman
Larry G. Schafran
Bonita A. Wilson
11
<PAGE> 14
STOCK PRICE PERFORMANCE GRAPH
The following graph compares cumulative total returns (assuming
reinvestment of dividends) on the Common Stock, the S&P Composite-500 Stock
Index and a peer company index (the S&P Retail Store Specialty Index) for the
five-year period ending January 28, 1995. This stock price performance graph
assumes that the value of the investment in the Common Stock and each index was
$100 on January 31, 1990. Through January 28, 1995, no dividends were paid on
the Common Stock. The stock price performance shown on the graph below is not
necessarily indicative of future price performance.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
FOR THE YEAR ENDED JANUARY 28, 1995
<TABLE>
<CAPTION>
MEASUREMENT PERIOD CROWN BOOKS STANDARD & RETAIL STORE
(FISCAL YEAR COVERED) CORPORATION POOR'S INDEX SPECIALTY
<S> <C> <C> <C>
1990 100.00 100.00 100.00
1991 93.00 108.00 115.00
1992 108.00 133.00 155.00
1993 108.00 147.00 204.00
1994 108.00 166.00 203.00
1995 68.00 176.00 197.00
</TABLE>
12
<PAGE> 15
COMPENSATION OF EXECUTIVE OFFICERS
SUMMARY COMPENSATION TABLE
The following table sets forth in summary form all compensation for all
services rendered in all capacities to the Corporation and its subsidiaries for
the three years ended January 28, 1995 to (i) the Chief Executive Officer of the
Corporation, (ii) the other two executive officers of the Corporation and (iii)
two former executive officers of the Corporation who would have been among the
Corporation's four most high compensated current executive officers had they not
resigned (collectively, the "Named Executive Officers").
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
----------------------------------- -------------------------
OTHER SECURITIES
ANNUAL UNDERLYING ALL OTHER
NAME AND COMPENSATION OPTIONS COMPENSATION
PRINCIPAL POSITION YEAR SALARY($) BONUS($) ($)(1) (#) ($)(2)
- ------------------------ ----- --------- -------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Ronald S. Haft.......... 1995 -- -- 15,000(3) -- --
Interim CEO and 1994 n/a n/a -- 10,000 n/a
President(15)
E. Steve Stevens........ 1995 123,600 -- -- -- 18,600(5)
Chief Operating
Officer(4)
Robert A. Marmon........ 1995 -- -- -- -- --
Chief Financial
Officer(6)
Glenn E. Hemmerle....... 1995 197,500 -- 85,400(8) -- --
Former CEO and 1994 320,000 70,800 88,400(9) 6,500 15,000(10)
President(7) 1993 73,800 18,000 22,600(11) 60,000 70,000(12)
Jose Gonzalez........... 1995 188,200 -- 133,600(14) -- 5,000
Former Executive Vice 1994 216,400 -- -- 1,600 5,000
President(13) 1993 203,500 4,200 -- 1,500 10,800
</TABLE>
- ---------------
(1) Excludes perquisites and other personal benefits, unless the aggregate
amount of such compensation is at least $10,000 or 10% of the total annual
salary and bonus reported for the Named Executive Officer.
(2) Includes allocations to the accounts of the Named Executive Officers
pursuant to the profit-sharing plans of the Corporation.
(3) Includes fees received as a director of the Corporation.
(4) Mr. Stevens joined the Corporation in June 1994 and was appointed Senior
Executive Vice President and Chief Operating Officer in October 1994.
(5) Includes relocation allowance.
(6) Mr. Marmon became interim Chief Financial Officer pursuant to a consulting
agreement between Dart and RPF, Inc. in October 1994. The Corporation does
not compensate Mr. Marmon or RPF, Inc. for his services.
(7) Mr. Hemmerle resigned in June 1994.
(8) Includes fees received as a director of the Corporation ($15,000), one-half
match of deferred compensation and amounts necessary to reimburse Mr.
Hemmerle for income taxes on the
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<PAGE> 16
match and deferral ($62,800), auto allowance ($4,800) and health, life and
disability insurance ($2,800).
(9) Includes fees received as a director of the Corporation ($5,000), one-half
match of deferred compensation and amounts necessary to reimburse Mr.
Hemmerle for income taxes on the match and deferral ($70,000), auto
allowance ($8,400) and health, life and disability insurance ($5,000).
(10) Includes $15,000 for Mr. Hemmerle's retirement.
(11) Includes one-half match of deferred compensation and amounts necessary to
reimburse Mr. Hemmerle for income taxes on the match and deferral
($16,300), auto allowance ($1,300) and health, life and disability
insurance ($5,000).
(12) Includes relocation allowance.
(13) Mr. Gonzalez's employment was terminated in December 1994. The Corporation
has a severance agreement with Mr. Gonzalez that requires the Corporation
to pay him $257,800 over the next two years.
(14) Includes severance payments ($14,900), accrued sick and vacation balances
($108,900), auto allowance ($4,800) and health, life and disability
insurance ($5,000).
(15) Ronald S. Haft was appointed Interim Chief Executive Officer and President
of the Corporation in June 1994. Mr. Haft receives no compensation from the
Corporation for holding these positions but is compensated by Dart for
serving in various executive positions with Dart and its subsidiaries. Mr.
Haft does receive fees for serving as a director of the Corporation.
OPTION GRANTS IN LAST FISCAL YEAR
No options were granted to the Named Executive Officers to purchase shares
of Common Stock during the year ended January 28, 1995.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
For each of the Named Executive Officers, the following table provides
information regarding the exercise of options during fiscal 1995 and the number
and value of unexercised options as of January 28, 1995.
<TABLE>
<CAPTION>
VALUE
OF
NUMBER OF UNEXERCISED
SECURITIES IN-THE-MONEY
UNDERLYING OPTIONS
UNEXERCISED AT
OPTIONS AT FY-END
SHARES FY-END ($)
ACQUIRED VALUE ----------- ---
ON REALIZED EXERCISABLE/ EXERCISABLE/
NAME EXERCISE ($) UNEXERCISABLE UNEXERCISABLE
- ---------------------------------- --- --- ----------- ---
<S> <C> <C> <C> <C>
Ronald S. Haft.................... -- -- 3,333/6,667 --
E. Steve Stevens.................. -- -- -- --
Robert A. Marmon.................. -- -- -- --
Glenn E. Hemmerle................. -- -- -- --
Jose Gonzalez..................... -- -- 533/1,067 --
</TABLE>
14
<PAGE> 17
EMPLOYMENT AGREEMENTS
On January 24, 1995, the Corporation entered into an employment agreement
with E. Steve Stevens, Senior Executive Vice President and Chief Operating
Officer. Mr. Stevens' agreement is for a term of two years (the Corporation's
fiscal years 1996 and 1997). The agreement is renewable for successive two-year
terms, unless Mr. Stevens is terminated with cause. The agreement provides for
an annual base salary of $217,500, subject to increases following review and
performance appraisal by the Board of Directors.
INDEPENDENT AUDITORS
Arthur Andersen LLP has served as the independent auditors of the
Corporation for the fiscal year ended January 28, 1995 and has been appointed by
the Board of Directors to serve as the Corporation's independent auditors for
the fiscal year ending February 3, 1996.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange Act")
requires the Corporation's officers and directors, and persons who beneficially
own more than ten percent of a registered class of the Corporation's equity
securities, to file reports of ownership of the Corporation's securities and
changes in such ownership with the SEC. Officers, directors and ten percent
shareholders are required by SEC regulations to furnish the Corporation with
copies of all Section 16(a) forms they file.
Based solely upon its review of such forms received by it, the Corporation
believes that during the fiscal year ended January 28, 1995, all filing
requirements applicable to its officers, directors and ten percent shareholders
were complied with.
For the year ended January 29, 1994, Jose Gonzalez, Jeanne Herrick, Elliot
R. Arditti and Ronald T. Rice did not file one Form 5 on a timely basis,
reporting the granting of stock options on July 31, 1993 pursuant to the
Corporation's stock option plan. Mr. Arditti and Mr. Rice reported such options
on Forms 5 filed on March 15, 1995.
By Order of the Board of Directors
/s/ ELLIOT R. ARDITTI
---------------------------------
Elliott R. Arditti
Secretary
May 30, 1995
A COPY OF THE CORPORATION'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED
JANUARY 28, 1995, WHICH HAS BEEN FILED WITH THE SEC PURSUANT TO THE EXCHANGE
ACT, MAY BE OBTAINED WITHOUT CHARGE UPON WRITTEN REQUEST TO RONALD T. RICE,
ASSISTANT VICE PRESIDENT, CROWN BOOKS CORPORATION, 3300 75TH AVENUE, LANDOVER,
MARYLAND 20785.
15
