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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K
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CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) October 6, 1995
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CROWN BOOKS CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 0-11457 52-1227415
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(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification No.)
3300 75th Avenue, Landover, Maryland 20785
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (301) 731-1200
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(Former name or former address, if changed since last report).
The total number of sequentially numbered pages is 8.
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Item 1. Changes in Control of Registrant
The discussion under Item 5 of this Current Report on Form 8-K is
incorporated herein by reference.
Item 5. Other Events
Overview of Settlement with Ronald Haft
On October 6, 1995, the Executive Committee and the Special Litigation
Committee of the Board of Directors of Dart Group Corporation ("Dart"), the
majority shareholder of Crown Books Corporation, approved a settlement of
certain litigation between Dart and Ronald S. Haft and other related
transactions between Dart and Ronald S. Haft (collectively, the "Settlement").
Immediately thereafter, Dart and Ronald Haft entered into a Settlement
Agreement (the "Settlement Agreement") and various related agreements. The
Settlement transactions have the effect, by their terms, of transferring
majority control of Dart's voting stock to voting trustees (the "Voting
Trustees") under a Voting Trust Agreement (the "Voting Trust Agreement"), by
and among Ronald Haft, Dart and Larry G. Schafran and Sidney B. Silverman, as
initial Voting Trustees. On October 8, 1995, the Board of Directors of Dart
ratified and approved the Settlement.
Terms of Settlement with Ronald Haft
The terms of the Settlement transactions are set forth in the
documents included as exhibits to the Current Report on Form 8-K filed by
Dart on October 10, 1995 (the "Dart Form 8-K"). A complete understanding
of the Settlement transactions requires a review of the documents included as
exhibits to the Dart Form 8-K. The summary outline of basic terms of the
Settlement transactions set forth below does not necessarily reflect all of
the material provisions of those documents.
THE SUMMARY OUTLINE OF BASIC TERMS OF THE SETTLEMENT TRANSACTIONS SET
FORTH BELOW ALSO ASSUMES THE VALIDITY AND LEGAL EFFECTIVENESS OF THOSE
TRANSACTIONS. AS NOTED BELOW, THERE IS PENDING AND POSSIBLE FUTURE LITIGATION
THAT COULD ADVERSELY AFFECT THE VALIDITY AND LEGAL EFFECTIVENESS OF THE
SETTLEMENT TRANSACTIONS. NO ASSURANCE CAN BE GIVEN AS TO THE OUTCOME OF SUCH
LITIGATION.
Subject to the foregoing qualifications, the basic terms of the
Settlement transactions include the following:
- Ronald Haft transferred to Dart 172,730 shares of Dart Class B
Common Stock in exchange for the issuance of 288,312 shares of
Dart Class A Common Stock. These 288,312 shares of Dart Class
A Common Stock have been placed by Ronald Haft into the Voting
Trust under the Voting Trust Agreement. Prior to the
Settlement, Herbert Haft exercised voting rights with respect
to
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the 172,730 shares of Dart Class B Common Stock transferred to
Dart pursuant to the Settlement. Before July 28, 1993, he
exercised such voting rights as record owner of these shares,
and thereafter he exercised such voting rights pursuant to a
proxy granted by Ronald Haft that entitled Herbert Haft to
vote these shares "on all matters on which they are entitled
to vote." The transfer of these 172,730 shares of Dart Class
B Common Stock shares to Dart pursuant to the Settlement
causes them to become treasury shares, which are not entitled
to vote.
- Ronald Haft's option to purchase 197,048 shares of Dart Class
B Common Stock pursuant to his 1993 employment agreement with
Dart was amended to increase the exercise price from $89.65 to
$140 per share, and these 197,048 shares of Dart Class B
Common Stock were issued to Ronald Haft pursuant to his
exercise of this option in exchange for $197,048 in cash
(i.e., $1.00 par value per share) and a secured promissory
note of Ronald Haft in the principal amount of $27,389,672
(the "$27.4 Million Note"). The $27.4 Million Note is due
June 30, 2000, subject to earlier mandatory prepayment in the
event of a disposition, pursuant to the Buy/Sell/Offering
Agreement (discussed below), of the shares of stock held by
the Voting Trustees. Interest on the $27.4 Million Note
accrues at an annual rate of 8% and is due at maturity.
Immediately after issuance of these 197,048 shares of Dart
Class B Common Stock to him, Ronald Haft assigned such shares
to the Voting Trustees under the Voting Trust Agreement.
- Ronald Haft assigned to the Voting Trustees (i) an additional
25,246 shares of Dart Class B Common Stock and (ii) an
additional 86,173 shares of Dart Class A Common Stock (subject
to competing claims as to 58,029 of those shares), and agreed
to assign to the Voting Trustees an additional 33,333 shares
of Dart Class A Common Stock that are currently pledged as
security for bank debt of Ronald Haft.
- Dart transferred $37,925,710 to Ronald Haft and received from
Ronald Haft a $37,740,162 secured promissory note (the "$37.7
Million Note"), which is due June 30, 2000, subject to earlier
mandatory prepayment in the event of a disposition, pursuant
to the Buy/Sell/Offering Agreement (discussed below), of the
shares of stock held by the Voting Trustees.
- Dart transferred an additional $11,621,276 to Ronald Haft in
escrow, and such funds have been tendered to Herbert Haft as
prepayment of a promissory note that Ronald Haft gave to
Herbert Haft in 1993 as partial payment for the 172,730 shares
of Dart Class B Common Stock transferred by Ronald Haft to
Dart pursuant to
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the Settlement. In exchange, Ronald Haft has given Dart a
secured promissory note in the principal amount of $11,621,276
(the "$11.6 Million Note"), which is due June 30, 2000,
subject to earlier mandatory prepayment upon the sale of
Cabot-Morgan joint venture properties (discussed below).
- Dart's wholly-owned subsidiary, Cabot-Morgan Real Estate
Company ("Cabot-Morgan"), has agreed to the sale to third
parties of the five properties which it owns through joint
ventures with Haft-owned entities on terms to be arranged by
Ronald Haft during the next five years. Cabot-Morgan has
assigned its interests in the proceeds of these sales (except
for the first $2.0 million) to Ronald Haft, but Ronald Haft is
required to apply the first assigned sale proceeds toward
payment of the $11.6 Million Note.
- Ronald Haft and Dart have agreed to various transactions
(including, among others, lease amendments and transfers of
interests) relating to certain warehouse and office facility
properties that Dart and/or Trak Auto Corporation lease from
Haft-owned entities (collectively, the "Warehouse
Transactions"). These properties include the so- called
Pennsy I, Pennsy II and Pennsy III warehouse facilities in
Landover, Maryland, Dart's headquarters office building on
75th Avenue in Landover, Maryland and warehouse facilities in
Bridgeview, Illinois and Ontario, California. The Warehouse
Transactions, which are subject to a variety of contingencies
that include bankruptcy court and mortgagee approval, are
intended to produce a benefit for Dart calculated to be at
least $30 million. That calculation of benefit is based on a
discounted present value analysis of reduced future lease
obligations of Dart and Trak Auto Corporation as a result of
the Warehouse Transactions. To the extent, if any, that the
Warehouse Transactions fail to produce that level of benefit
for Dart, the assignment to Ronald Haft of Cabot- Morgan's
interests in sale proceeds will be reduced.
- As part of the Settlement, Ronald Haft resigned all of his
positions as a director or officer of Dart and its
subsidiaries, effective 30 days after the date of Settlement
unless the Settlement is enjoined by a court. He also
consented to termination of his employment agreement with Dart
without any further rights he might otherwise have under that
agreement.
- As part of the Settlement, Ronald Haft has also consented to
termination of all of his outstanding stock options from Dart
and its affiliated companies. Ronald Haft has relinquished
options to purchase the following: (i) five shares of Dart/SFW
Corp., a
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subsidiary of Dart that owns a 50% interest in Shoppers Food
Warehouse Corp., at an exercise price of $192,687.50 per
share; (ii) 10,000 shares (6,666 currently exercisable) of
Dart Class A Common Stock at exercise prices of between $81.50
and $89.65 per share; (iii) 10,000 shares (6,666 currently
exercisable) of Crown Books Corporation Common Stock at $23.00
per share; and (iv) 10,000 shares (6,666 currently
exercisable) of Trak Auto Corporation Common Stock at $12.50
per share.
The Voting Trust Agreement provides that the Voting Trustees will be
entitled to exercise the power to vote the shares they hold as Voting Trustees
in such manner as they deem to be "in the best interests of Dart and all of its
shareholders as a single class." After implementation of the Settlement, a
total of 327,270 shares of Dart Class B Common Stock, the only class of Dart
stock entitled to vote in the election of directors, are issued and
outstanding. Of these shares, a total of 222,294 shares (or 67.9% of the total
number of shares of Dart Class B Common Stock issued and outstanding) -- which
represent voting control of Dart - - are held by the Voting Trustees.
Larry G. Schafran and Sidney B. Silverman are serving as the initial
two Voting Trustees. It is contemplated that within 90 days, Mr. Schafran and
Mr. Silverman will agree upon the appointment of a permanent replacement Voting
Trustee. In the event of their failure to so appoint a replacement Voting
Trustee. It is contemplated that the parties will seek to have a permanent
trustee appointed by the Delaware Court of Chancery.
A Buy/Sell/Offering Agreement between Dart and Ronald Haft governs the
ultimate disposition of the shares held by the Voting Trustees. That agreement
gives Ronald Haft the right to "put" to Dart the stock held by the Voting
Trustees at any time between January 1, 1997 and December 31, 1999, subject to
certain conditions. With respect to the 222,294 shares of Class B Common Stock
held by the Voting Trustees, Ronald Haft may (instead of including them in the
"put") exchange them for 244,523 shares of Class A Common Stock (i.e., a 1.1 to
1 exchange ratio) and offer those 244,523 shares of Class A Common Stock to the
public. Dart has an option to "call" the shares held by the Voting Trustees,
if they have not previously been disposed of as described above, at any time
during the first seven months of the year 2000.
The price paid by Dart in any "put" or "call" of the shares held by
the Voting Trustees will be, for shares of Class A Common Stock, an amount per
share equal to $83.875 plus 8% annual interest from October 6, 1995 until the
date of purchase. For shares of Class B Common Stock held by the Voting
Trustees, the price per share paid by Dart in any "put" or "call" will be
$154.13, plus 8% annual interest for any period after December 1996 during
which Ronald Haft is denied the right to exercise the "put" or public offering
option because of actual or threatened litigation.
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The $37.7 Million Note and the $27.4 Million Note that Ronald Haft has
given to Dart in connection with the Settlement both have a stated maturity
date of June 30, 2000, but will be due and payable upon the closing of a "put"
or "call" under the Buy/Sell/Offering Agreement. The price of the shares
purchased by Dart upon the closing of a "put" or "call" would be offset against
the principal and interest due on these two promissory notes.
As previously announced, Dart will present the Settlement with Ronald
Haft to the Delaware Chancery Court for its approval in connection with the
dismissal of the derivative lawsuit, Kahn and The Tudor Trust v. Herbert Haft,
et al., Civ. A. No. 13154 (Del. Ch. filed Sept. 29, 1993). Also as previously
disclosed, the Delaware Chancery Court also has jurisdiction over a pending
claim brought by Herbert Haft in July 1995 to rescind his 1993 sale of the
172,730 shares of Class B Common Stock to Ronald Haft that Ronald Haft is
transferring to Dart pursuant to the Settlement. In addition, press reports
since Dart's initial announcement of the Settlement on October 6 indicate that
the Settlement could be subject to challenge in further litigation by Herbert
Haft as well as by Gloria, Robert and Linda Haft. No assurance can be given as
to the outcome of these litigation matters.
The documents implementing the Settlement contain certain provisions intended
to protect Dart's interests if a challenge to the Settlement is accepted by the
Delaware Chancery Court. In general terms, these provisions include the
following:
- If the Delaware Chancery Court does not approve the settlement
in the Kahn action, Dart will have the right to cause the
Settlement transactions to be reversed, except that (i) Ronald
Haft will have up to two years to repay the $37.7 Million Note
and the $11.6 Million Note, (ii) the Warehouse Transactions
will proceed and (iii) the sale of the Cabot-Morgan joint
venture properties will proceed, but without any assignment to
Ronald Haft of Cabot- Morgan's portion of the sale proceeds.
- If Herbert Haft succeeds through his rescission claim in
reacquiring ownership of the 172,730 shares of Class B Common
Stock transferred by Ronald Haft to Dart as part of the
Settlement, repayment of $24.2 million of the principal amount
of the $37.7 Million Note will be due within two years and the
288,312 shares of Dart Class A Common Stock issued to Ronald
Haft under the Settlement will be returned to Dart.
- If a court rules that Ronald Haft cannot transfer the 172,730
shares of Class B Common Stock to Dart because of the impact
on Herbert Haft's preexisting proxy from Ronald Haft to vote
those shares, then $8.0 million of the Cabot- Morgan sale
proceeds will be held in escrow
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until the transfer occurs and may, under certain
circumstances, be returned to Dart.
- If a court determines that the 197,048 shares of Class B
Common Stock are not validly issued or that the Voting
Trustees are not entitled to vote the shares they hold, then
Dart will have the same rights (discussed above) as in the
event that the Court does not approve the settlement of the
Kahn lawsuit. Alternatively, Dart could elect that the
197,048 shares of Class B Common Stock be returned to Dart,
that the $27.4 million promissory note be cancelled and that
Ronald Haft pay $8.0 million to Dart within two years.
Dismissal of Litigation
Current Litigation. The Settlement resolves various pending
litigation between Dart and Ronald Haft, as follows:
- Kahn and the Tudor Trust v. Herbert Haft, et al., Civ. A. No.
13154 (Del. Ch. filed Sept. 29, 1993). The claims against
Ronald Haft and Combined Properties, Inc. will be dismissed on
the merits and with prejudice as against the shareholder
plaintiffs and Dart, subject to approval by the Delaware Court
of Chancery.
- Ronald S. Haft v. Dart Group Corporation, Civ. A. No. 13736
(Del. Ch. filed Sept. 12, 1994). Ronald Haft, Dart and the
shareholder plaintiffs have stipulated to the dismissal
without prejudice of this lawsuit.
- Dart Group Corporation and Pennsy Warehouse Leasing
Corporation v. Herbert H. Haft, et al., Civ. A. No.
CAL95-02302 (Prince Georges Cty., Md. Cir. Ct. filed Feb. 10,
1995). Dart will cause Ronald Haft to be dismissed with
prejudice from this action.
- Robert M. Haft v. Dart Group Corporation, Civ. A. No. 95-82
(D. Del. filed Feb. 10, 1995). Dart will dismiss with
prejudice its counterclaim against Ronald Haft in this action.
- Ronald S. Haft v. Herbert H. Haft, Civ. A. No. 14425 (Del. Ch.
filed July 18, 1995). Ronald Haft will dismiss with prejudice
his claims against Dart in this action.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
CROWN BOOKS CORPORATION
By: ROBERT A. MARMON
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Robert A. Marmon
Chief Financial Officer
Date: October 10, 1995
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