<PAGE> 1
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)
Payment of Filing Fee (Check the appropriate box):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), or 14c-5(g).
/ / Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11;*
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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* Set forth the amount on which the filing fee is calculated and state
how it was determined.
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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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 ("Crown Books"), shall, on or about June 28,
1996, elect four Directors to Crown Books' 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, 1996
WE ARE NOT ASKING YOU FOR A PROXY
AND YOU ARE REQUESTED NOT TO SEND US A PROXY.
<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 ("Crown
Books"), is entitled to vote such shares or approximately 51.4% of the
outstanding capital stock of Crown Books. On or about June 28, 1996, Dart
intends to re-elect all four Directors to Crown Books' 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, 1996. Record holders of the Common Stock at the close of business on May
10, 1996 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
10, 1996, there were 5,388,973 shares of Common Stock outstanding.
1
<PAGE> 4
ELECTION OF DIRECTORS
Pursuant to this corporate action without a meeting four 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 75, has been Chairman of the Board since June 1993 and
a Director of Crown Books since 1982. He was also co-chairman or chairman of the
Board of Crown Books 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") and Total Beverage Corporation,
subsidiaries of Dart, and is a director of Shoppers Food Warehouse Corp., in
which Dart owns a 50 percent interest.
DOUGLAS M. BREGMAN, age 46, is a partner in the law firm of Bregman,
Berbert & Schwartz, specializing in commercial real estate law. Mr. Bregman is
also an Adjunct Professor of Law at the Georgetown University Law Center. Mr.
Bregman has been a director of Crown Books, Dart and Trak Auto since June 1993.
LARRY G. SCHAFRAN, age 57, is managing general partner of L.G. Schafran
Associates, a New York based investment advisory firm, and is the chairman of
the board of directors of Delta Omega Technologies, Inc. and is a director of
Publicker Industries, Inc., Capsure Holdings, Corp. 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 Crown Books, Dart and Trak Auto on December 20, 1993.
BONITA A. WILSON, age 54, has been a retail consultant for Dalton Brody
since October 1993. Prior to that she was a retailing executive with the May
Company. Ms. Wilson is a director of Wedgewood Capital Management Inc. Ms.
Wilson has been a director of Crown Books, Dart and Trak Auto since June 1993.
There is no family relationship between any of the directors or officers of
Crown Books.
Information regarding legal proceedings pending against certain directors
of Crown Books is incorporated herein by reference to Item 3 of Crown Books'
Annual Report on Form 10-K for the year ended February 3, 1996 ("fiscal 1996"),
which Annual Report may be obtained without charge upon written request to
Donald J. Pilch, Chief Financial Officer, 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 Crown Books held five meetings and took action by
written consent on two occasions during the year ended February 3, 1996. The
Board of Directors has an Audit Committee and a Compensation Committee. Crown
Books does not have a standing committee on nomination. In 1994, the Board of
Directors established an Executive Committee and a Special Litigation Committee.
All Directors attended at least seventy-five percent of the meetings of the
Board of Directors and the committees on which such Directors served during
fiscal 1996.
The Audit Committee currently consists of Larry G. Schafran, Bonita A.
Wilson and Douglas M. Bregman. The Audit Committee, which held three meetings
during fiscal 1996, reviews potential conflicts of interest, reviews the results
of the annual audit with Crown Books' independent auditors and the adequacy of
Crown Books' internal accounting controls and practices, and recommends to the
Board of Directors the independent auditors to be retained by Crown Books.
The Compensation Committee was formed in December 1994 and currently
consists of Douglas M. Bregman, Larry G. Schafran and Bonita A. Wilson. The
Compensation Committee held two meetings in fiscal 1996. Crown Books' Chief
Executive Officer is to consult with the Compensation Committee prior to
exercising such officer's authority to fix the compensation of Crown Books'
officers. The Compensation Committee also advises the Board of Directors as to
the compensation of the Chief Executive Officer.
On September 7, 1994, the Board of Directors of Dart established an
Executive Committee comprised of Dart's outside directors to conduct the affairs
of Dart with respect to matters that were the subject of dispute between the
Chairman of the Board and Chief Executive Officer of Dart, Herbert H. Haft, and
the then President and Chief Operating Officer of Dart, Ronald S. Haft. Because
Herbert H. Haft is and Ronald S. Haft was an executive officer and/or director
of Crown Books, on October 11, 1994, the Board of Directors of Crown Books
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 Crown
Books have been extensive. Accordingly, the respective Executive Committees
assumed day-to-day involvement in these disputed issues and other matters
affecting Dart and Crown Books, in particular matters relating to litigation to
which Dart or Crown Books is a party. While the Executive Committee remains
involved in the day-to-day affairs of Dart, its continuing role is dependent
upon future events.
The Special Litigation Committee currently consists of Larry G. Schafran.
The Special Litigation Committee assesses, on behalf of Crown Books, whether to
pursue, settle or abandon certain derivative litigation.
A Standstill Order entered into in December 1995 in connection with a
settlement of certain litigation and other transactions between Ronald S. Haft
and Dart 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 Crown Books at the rate of
$15,000 per year and each outside director is compensated an additional $1,000
per meeting (allocated among Crown Books, Dart and Trak Auto). Those directors
who are members of Crown Books' audit committee and profit sharing committee
receive an annual fee of $5,000 for each committee (allocated among Crown Books,
Dart and Trak Auto).
Members of the Executive Committee are compensated at a rate of $275 per
hour plus reimbursement of expenses. Members of the Special Litigation Committee
of the Board of Directors have been compensated at
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<PAGE> 6
a rate of $250 per hour plus reimbursement of expenses. During fiscal 1996, the
compensation paid by Dart and its subsidiaries, including Crown Books, to
members of the respective Executive Committees for their services on those
committees totaled $1,263,000 ($421,000 paid by Crown Books). Dart and its
subsidiaries, including Crown Books, did not make any payments to members of the
Special Litigation Committee for their service on that committee in fiscal 1996.
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. Crown Books adopted the 1988 Crown Books
Corporation Deferred Compensation Plan for Directors, effective January 1, 1988
(the "Compensation Plan"). The Compensation Plan permits Crown Books' 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 Crown
Books, 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 Crown Books' general funds and credited to a bookkeeping account
maintained by Crown Books in the name of the director. Each participating
director will be treated as a creditor of Crown Books 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 Crown Books to be beneficial owners of five percent or
more of the Common Stock as of May 10, 1996.
<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
Heartland Advisors, Inc.(3).......................................... 541,100 10.0
790 N. Milwaukee Street
Milwaukee, WI 53202
FMR Corp.(4)......................................................... 361,600 6.7
82 Devonshire Street
Boston, MA 02109
Foyston, Gordon & Payne, Inc.(5)..................................... 350,350 6.5
151 Yonge Street
Suite 1208
Toronto, Ontario M5C1C3
The TCW Group, Inc.(6)............................................... 281,800 5.2
865 South Figueroa Street
Los Angeles, CA 90017
</TABLE>
- ---------------
(1) Under the rules of the Securities and Exchange Commission (the "SEC"), a
person is deemed to be a beneficial owner of a security if such owner has
or shares the power to vote or direct the voting of such security or the
power to dispose or direct the disposition of such security. Accordingly,
more than one person may be deemed to be a beneficial owner of the same
securities. Unless otherwise indicated by footnote, the persons named in
the table have sole voting and investment power with respect to the shares
of Common Stock beneficially owned.
(2) Under the Voting Trust Agreement dated October 6, 1995 (the "Voting Trust
Agreement"), among Ronald S. Haft, Dart and the Voting Trustees named
therein, Richard B. Stone, as Voting Trustee, has sole voting power over
374,485 Dart Class A shares and 222,294 Dart Class B shares and Ronald S.
Haft has sole investment power over such shares, subject to (i) the rights
of Dart to exercise a call option to purchase the shares, as provided in
the Buy/Sell/Offering Agreement entered into by Ronald S. Haft and Dart,
and (ii) the rights of Dart and Cabot-Morgan Real Estate Company ("CMREC"),
a Dart subsidiary, under a Stock and Trust Certificate Pledge Agreement
made by Ronald S. Haft in favor of the initial Voting Trustees, as
collateral agents and bailees for Dart and CMREC. The Voting Trustee may
vote the shares in such manner as he deems to be "in the best interests of
Dart and all of its shareholders as a single class." The Voting Trust
Agreement will terminate on August 1, 2000, unless terminated earlier or
later pursuant to the terms of the Voting Trust Agreement. The Voting Trust
Agreement is subject to legal challenge. See Item 3 of Crown Books' Annual
Report on Form 10-K for the year ended February 3, 1996.
(3) Based on holdings reported by Heartland Advisors, Inc. ("Heartland") on
Schedule 13G filed April 8, 1996. Heartland is a registered investment
advisor under the Investment Advisors Act of 1940. In its
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<PAGE> 8
Schedule 13G, Heartland has reported that it has sole voting power over
481,100 shares and sole investment power over 541,100 shares.
(4) Based on the holdings reported on the most recent Schedule 13G filed by FMR
Corp. ("FMR") on February 14, 1996. These shares include 361,600 shares
(representing 6.7% 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.
(5) Based on holdings reported on the most recent Schedule 13D filed by Foyston,
Gordon & Payne, Inc. ("FG&P") on May 2, 1996. FG&P has sole voting and
investment power over the 350,350 shares.
(6) Based on holdings reported on the most recent Schedule 13G filed by The TCW
Group, Inc. ("TCW") on February 12, 1996. TCW has sole voting and
investment power over the 281,800 shares.
POTENTIAL CHANGES IN CONTROL
On October 6, 1995, Dart and Ronald S. Haft entered into a settlement of
certain litigation and other related transactions (collectively, the "RSH
Settlement").
The RSH Settlement transactions are subject to pending litigation and,
through such litigation Robert M. Haft, Gloria G. Haft and Linda G. Haft and,
separately, Herbert H. Haft seek control of Dart. If sustained, the RSH
Settlement transactions were intended to have the effect, by their terms, of
transferring majority control of Dart's voting stock to one or more voting
trustees under the Voting Trust Agreement. On December 28, 1995, the initial
Voting Trustees resigned and appointed Richard B. Stone as successor Voting
Trustee.
If the RSH Settlement is sustained by the Delaware Court of Chancery, a
Buy/Sell/Offering Agreement between Dart and Ronald S. Haft will govern the
ultimate disposition of the shares held by the Voting Trustee. That agreement
gives Ronald S. Haft the right to "put" to Dart the stock held by the Voting
Trustee at any time between January 1, 1997 and December 31, 1999, subject to
certain conditions. With respect to the 222,294 shares of Dart Class B Common
Stock held by the Voting Trustee, Ronald S. Haft may (instead of including them
in the "put") exchange them for 244,523 shares of Dart Class A Common Stock
(i.e., a 1.1 to 1 exchange ratio) and offer those 244,523 shares of Dart Class A
Common Stock to the public. Dart has an option to "call" the shares held by the
Voting Trustee, if they have not previously been disposed of as described above,
at any time during the first seven months of the year 2000.
All of the 222,294 Dart Class B shares in the Voting Trust, as well as the
related voting trust certificates issued to Ronald S. Haft under the Voting
Trust Agreement, have been pledged to Dart and CMREC as security for certain
loans made to Ronald S. Haft and other obligations of Ronald S. Haft arising
under the RSH Settlement.
6
<PAGE> 9
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth information as of May 10, 1996 regarding the
ownership of the Common Stock, Dart's Class A Common Stock, $1.00 par value per
share ("Class A"), and Dart's Class B Common Stock, $1.00 par value per share
("Class B"), by the following persons: (a) each of Crown Books' current
directors, (b) Crown Books' Chief Executive Officer and two other current
executive officers of Crown Books, (c) two former executive officers of Crown
Books, and (d) all of Crown Books' 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 259,161(1) 13.76(2)
Class B --(3) --
Crown Books 33,832(4) *
Ronald S. Haft................................... Class A 408,688(5)(6) 23.39(2)
Class B 222,294(5)(7) 67.92
Crown Books --(8) --
E. Steve Stevens................................. Class A 333(9) *(2)
Crown Books 2,500(10) *
Marc J. Joseph................................... None
Donald J. Pilch.................................. Crown Books 1,000 *
Bonita A. Wilson................................. Class A 2,250(11) *(2)
Crown Books 7,500(12) *
Douglas M. Bregman............................... Class A 2,250(11) *(2)
Crown Books 7,500(12) *
Larry G. Schafran................................ Class A 1,125(13) *(2)
Crown Books 5,000(14) *
Robert A. Marmon................................. None
All directors and executive officers as a group
(7 persons).................................... Class A 265,119(15) 4.79(2)
Crown Books 57,332(16) 1.05
</TABLE>
- ---------------
* Less than one percent.
(1) Includes exercisable options for 136,414 Class A shares. These stock
options include options for 10,000 shares under Dart's 1983 Non-Qualified
Stock Option Plan and 99,750 shares under Dart's 1987 Non-Qualified Stock
Option Plan, the validity of which are subject to challenge by Dart.
(2) Calculated based upon a class including shares subject to exercisable stock
options under stock option plans, which are subject to challenge by Dart.
(3) Herbert H. Haft has filed a lawsuit seeking a judgement declaring that
172,730 shares of Class B Common Stock belong to him, that they were
wrongfully sold by Ronald S. Haft to Dart and that Herbert H. Haft is
entitled to restitution of such shares or, alternatively, that his
purported irrevocable proxy on the 172,730 shares continues to be valid.
(4) Includes exercisable options for 33,332 shares.
(5) Under the Voting Trust Agreement, Richard B. Stone, as Voting Trustee, has
sole voting power over 374,485 Class A shares and 222,294 Class B shares
and Ronald S. Haft has sole investment power over such shares, subject to
(i) the rights of Dart to exercise a call option to purchase the shares, as
provided
7
<PAGE> 10
in the Buy/Sell/Offering Agreement entered into by Ronald S. Haft and Dart,
and (ii) the rights of Dart and CMREC under a Stock and Trust Certificate
Pledge Agreement made by Ronald S. Haft in favor of the initial Voting
Trustees, as collateral agents and bailees for Dart and CMREC. The Voting
Trustee may vote the shares in such manner as he deems to be "in the best
interests of Dart and all of its shareholders as a single class." The
Voting Trust Agreement will terminate on August 1, 2000, unless terminated
earlier or later pursuant to the terms of the Voting Trust Agreement. The
Voting Trust Agreement is subject to legal challenge. See Item 3 of Crown
Books' Annual Report on Form 10-K for the year ended February 3, 1996.
(6) 58,029 Class A shares are subject to competing claims of Robert M. Haft and
Linda G. Haft.
(7) In a letter dated February 6, 1996, Donald R. Bourassa, Executive Vice
President of Combined Properties, Inc., wrote Dart, purportedly on behalf
of Haft-Equities General Limited Partnership ("Haft-Equities"), claiming
that 25,246 Class B shares held by each by each of Robert M. Haft, Linda G.
Haft and the Voting Trustee may belong to Haft-Equities. Mr. Bourassa also
claimed that Ronald S. Haft is the sole general partner of Haft-Equities.
Ronald S. Haft claims beneficial ownership of such 25,246 Class B shares
held by the Voting Trustee but he does not claim beneficial ownership of
25,246 Class B shares owned by each of Robert M. Haft and Linda G. Haft.
(8) Does not include 2,767,314 shares owned by Dart, as to which Ronald S. Haft
may also be deemed to have beneficial ownership.
(9) Includes exercisable options for 333 Class A shares.
(10) Includes exercisable options for 2,500 shares.
(11) Includes exercisable options for 2,250 Class A shares.
(12) Includes exercisable options for 7,500 shares.
(13) Includes exercisable options for 1,125 Class A shares.
(14) Includes exercisable options for 5,000 shares.
(15) Includes exercisable options for 142,372 Class A shares.
(16) Includes exercisable options for 55,832 shares.
8
<PAGE> 11
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Some of Crown Books' general and administrative functions are obtained
directly from Dart. Crown Books has been charged an amount which, in
management's opinion, is equal to costs incurred by Dart to provide these
functions. In the year ended February 3, 1996, Crown Books was charged
$1,669,000 by Dart for such services. It is not practicable for Crown Books to
estimate the cost it would have incurred for these services if it had operated
as an unaffiliated entity. In addition, Dart charges Crown Books monthly for
expenses which relate directly to Crown Books' operations. Substantially all
such charges are supported by invoices from unrelated parties designating Crown
Books as recipient of the related goods and services or were for matters related
to Dart and all of its affiliated companies (including Crown Books) and were
allocated on a judgmental basis. These charges were $5,110,000 in the year ended
February 3, 1996.
Of Crown Books' 172 stores as of February 3, 1996, nine were leased from
entities in which members of the Haft family own substantially all the
beneficial interests. During fiscal 1996, Crown Books leased three stores in
shopping centers in which Dart owned the majority of the partnership interest
and members of the Haft family owned the remaining beneficial interests. These
12 lease agreements with Dart and/or the Haft family 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
$44,478,000 at February 3, 1996. 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
$1,175,000 at February 3, 1996. Annual fees and rentals included in the
consolidated statements of income for leases and subleases involving the Haft
family was $2,406,000 in the year ended February 3, 1996.
Crown Books subleases from Dart 28,000 square feet of a warehouse and
office facility located in Landover, Maryland. The sublease, which commenced in
1985, 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 current
annual rental is $288,000. The sublease also requires payment of maintenance,
utilities, insurance and real estate taxes allocable to the space subleased.
Dart leases the entire 271,000 square foot warehouse and office facility from a
private partnership in which Haft family members own all of the partnership
interests. Crown Books' sublease is on the same terms as Dart's lease from the
Haft family partnership.
Dart has a lease agreement with a Haft family-owned entity for vacant land
near the warehouse and office facility in Landover, Maryland. The lease is for
the same period as the warehouse and office facility lease described above.
Dart, Trak Auto and Crown Books each pay a pro-rata share of the rent in the
proportion to their use of the warehouse and office facility. Crown Books'
current annual rental is $5,000 with increases of three percent per year.
As part of the RSH Settlement, Ronald S. Haft agreed to transfer the real
estate and the partnership interests controlled by him in the warehouse and
office facility to Dart (or its subsidiaries) and to reduce the rent. These
transfers and rent reductions are subject to contingencies, including bankruptcy
court approval, mortgagee approval, challenges brought by Herbert H. Haft
concerning the extent of Ronald S. Haft's ownership interest in the property,
and claims asserted by Robert M. Haft and Linda G. Haft regarding the extent to
which Ronald S. Haft controls the aforementioned partnerships.
The Executive Committees of Dart, Crown Books and Trak Auto have undertaken
a legal review of certain leasing arrangements and real estate related
transactions between Dart, Crown Books or Trak Auto, on the one hand, and
Haft-owned entities, on the other hand. The Executive Committees have not yet
determined what actions may be taken as a result of this legal review.
9
<PAGE> 12
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
This report describes Crown Books' compensation policies applicable to its
executive officers during the fiscal year ended February 3, 1996. During fiscal
1996, executive compensation policies were formulated by the Compensation
Committee and an extensive evaluation of executive compensation practices was
completed. An Executive Compensation Program was developed in fiscal 1996 and
will be implemented in fiscal 1997. This new program shifts the former "base
pay" emphasis to one that is more closely tied to company performance.
The key elements of Crown Books' 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 1996 consisted principally of salary.
Annual salary is determined by the person to whom such officer reports (in
consultation with the Chief Executive Officer and the Compensation Committee),
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. The Compensation Committee also advises the Board of Directors as
to the compensation of the Chief Executive Officer.
In fiscal 1996, the Board of Directors awarded approximately $100,000 in
cash bonuses to key officers, including the Chief Executive Officer, who
achieved or exceeded annual performance goals.
The Compensation Committee believes that annual awards of stock options are
an effective means of aligning an executive's compensation with the interests of
shareholders, since the values of such options are tied directly to increases in
the market value of Crown Books' common stock. The exercise price for such
options is the market value of Crown Books' common stock on the date of grant.
Options 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 Compensation Committee's subjective
evaluation of the relative contributions of the executives to Crown Books.
During the fiscal year ended January 28, 1995, stock option grants were
approved by the Board of Directors subject to approval by the Delaware Chancery
Court as a result of a Standstill Agreement. As of the end of fiscal 1995, the
court had not approved the grant of options and consequently, no options were
deemed to have been granted in fiscal 1995. On April 18, 1995, a hearing was
held at which the court issued an order stating that the Standstill Agreement
did not enjoin the issuance of stock options approved by the Board of Directors.
Because the hearing took place after the end of fiscal 1995, there were no stock
options granted during fiscal 1995. Accordingly, in fiscal 1996, Crown Books
granted stock options to certain executive officers based upon performance
during fiscal 1995. In addition, Crown Books granted stock options to certain
executive officers during fiscal 1996 based upon performance during fiscal 1996.
FISCAL 1996 COMPENSATION FOR THE CHIEF EXECUTIVE OFFICER
Ronald S. Haft, who was the Interim Chief Executive Officer until November
1995, did not receive any salary, bonus or stock options from Crown Books in
fiscal 1996. Mr. Haft received a salary from Dart, which owns 51.4% of the
Common Stock.
10
<PAGE> 13
E. Steve Stevens was appointed Chief Executive Officer in December 1995 and
his current annual base salary is $250,000 with a bonus of 15% of his base
salary. In addition, the Board awarded Mr. Stevens options to purchase 22,500
shares of Crown Books' common stock and options to purchase 1,000 shares of Dart
Class A common stock during fiscal 1996. As a result of fiscal 1995 option
awards subject to Delaware Chancery Court approval (discussed above), 7,500 of
the options for Crown Books' common stock were awarded based on fiscal 1995
performance. The remaining 15,000 Crown Books' options and the Dart options were
awarded based on fiscal 1996 performance.
LIMIT ON DEDUCTIBILITY OF CERTAIN COMPENSATION
It is the responsibility of the Board to address the issues raised by a
change in the federal income tax laws that has made certain non-performance
based compensation to executive officers of public companies in excess of $1
million non-deductible to such companies. In this regard, the Board must
determine whether any actions with respect to this new limit should be taken by
Crown Books. At this time, it is not anticipated that any executive officer of
Crown Books will receive any such compensation in fiscal 1997. Therefore, the
Board has not taken any action to comply with the $1 million limitation. The
Board will continue to monitor this situation and will take appropriate action
if it is warranted in the future.
STATUS OF REPORT
The foregoing report on Executive Compensation shall not be deemed to be
"soliciting material" or be "filed" with the SEC or subject to Regulation 14C
promulgated by the SEC or Section 18 of the Securities Exchange Act of 1934.
Compensation Committee
Douglas M. Bregman
Larry G. Schafran
Bonita A. Wilson
11
<PAGE> 14
STOCK PRICE PERFORMANCE GRAPH
The following graph compares cumulative total returns (assuming
reinvestment of dividends) on the Common Stock, the S&P Composite-500 Stock
Index and a peer company index (the S&P Retail Store Specialty Index) for the
five-year period ending February 3, 1996. This stock price performance graph
assumes that the value of the investment in the Common Stock and each index was
$100 on January 31, 1991. Through February 3, 1996, no dividends were paid on
the Common Stock. The stock price performance shown on the graph below is not
necessarily indicative of future price performance.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
FOR THE YEAR ENDED FEBRUARY 3, 1996
<TABLE>
<CAPTION>
MEASUREMENT PERIOD CROWN BOOKS STANDARD & RETAIL STORE
(FISCAL YEAR COVERED) CORPORATION POOR'S INDEX COMPOSITE
<S> <C> <C> <C>
1991 100.00 100.00 100.00
1992 116.00 123.00 114.00
1993 116.00 136.00 149.00
1994 116.00 153.00 149.00
1995 73.00 163.00 144.00
1996 57.00 173.00 141.00
</TABLE>
12
<PAGE> 15
COMPENSATION OF EXECUTIVE OFFICERS
SUMMARY COMPENSATION TABLE
The following table sets forth in summary form all compensation for all
services rendered in all capacities to Crown Books and its subsidiaries for the
three years ended February 3, 1996 to (i) the Chief Executive Officer of Crown
Books, (ii) the other two executive officers of Crown Books and (iii) two former
executive officers of Crown Books who would have been among Crown Books' five
most high compensated current executive officers had they not resigned
(collectively, the "Named Executive Officers").
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
----------------------------------- -------------------------
OTHER SECURITIES
ANNUAL UNDERLYING ALL OTHER
NAME AND COMPENSATION OPTIONS COMPENSATION
PRINCIPAL POSITION YEAR SALARY($) BONUS($) ($)(1) (#) ($)
- --------------------------------- ----- --------- -------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
E. Steve Stevens................. 1996 233,600 37,500 -- 22,500 --
Chief Executive Officer 1995 123,600 18,500 -- -- 18,600(3)
and President(2)
Marc J. Joseph................... 1996 30,100 -- -- -- 3,200(5)
Senior Vice President and
General Merchandising Manager(4)
Donald J. Pilch.................. 1996 31,100 -- -- 3,000 5,000(7)
Vice President and Chief
Financial Officer(6)
Ronald S. Haft................... 1996 -- -- 11,250(9) -- --
Former Interim CEO and 1995 -- -- 15,000(9) -- --
and President(8) 1994 -- -- 7,500(9) 10,000 --
Robert A. Marmon................. 1996 -- -- -- -- --
Former Chief Financial 1995 -- -- -- -- --
Officer(10)
</TABLE>
- ---------------
(1) Excludes perquisites and other personal benefits, unless the aggregate
amount of such compensation is at least $50,000 or 10% of the total annual
salary and bonus reported for the Named Executive Officer.
(2) Mr. Stevens joined Crown Books in June 1994 and was appointed President and
Chief Executive Officer in December 1995.
(3) Includes relocation allowance.
(4) Mr. Joseph joined Crown Books in November 1995 as Senior Vice President and
General Merchandising Manager. Mr. Joseph's current annual base salary is
$150,000.
(5) Moving allowance.
(6) Mr. Pilch joined Crown Books in November 1995 as Vice President and Chief
Financial Officer. Mr. Pilch's current annual salary is $155,000.
(7) Employment sign-on bonus.
(8) Ronald S. Haft was appointed Interim Chief Executive Officer and President
of Crown Books in June 1994. Mr. Haft received no compensation from Crown
Books for holding these positions but was compensated by Dart for serving
in various executive positions with Dart and its subsidiaries. As a result
13
<PAGE> 16
of the RSH Settlement, Mr. Haft resigned his position with Dart and all
subsidiaries except as a director of Dart.
(9) Fees received as a director of Crown Books.
(10) Mr. Marmon became interim Chief Financial Officer pursuant to a consulting
agreement between Dart and RPF, Inc. in October 1994. Crown Books did not
compensate Mr. Marmon or RPF, Inc. for his services. Mr. Marmon resigned
effective February 29, 1996.
OPTION GRANTS IN LAST FISCAL YEAR
This table provides information with respect to grants of options for
shares of common stock of Crown Books to the Named Executive Officers during
fiscal 1996 and the exercise price, expiration date and estimates of the
potential realizable values of such options.
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE
INDIVIDUAL GRANTS AT ASSUMED
-------------------------------------------------------------- ANNUAL RATES OF
% OF TOTAL STOCK PRICE
OPTIONS EXERCISE APPRECIATION FOR
OPTIONS GRANTED TO OR BASE MARKET PRICE OPTIONTERM (2)
GRANTED EMPLOYEES IN PRICE DATE OF EXPIRATION ----------------
NAME (#) (1) FISCAL YEAR ($/SH) GRANT ($) DATE 5% ($) 10% ($)
- --------------------------- -------- ------------ -------- ------------ ---------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
E. Steve Stevens........... 15,000 14.4 11.00 11.00 7/31/00 45,600 100,700
7,500(3) 13.7 17.00 17.00 7/31/99 35,200 77,800
Marc J. Joseph............. None
Donald J. Pilch............ 3,000 2.9 11.00 11.00 7/31/00 9,100 20,100
Ronald S. Haft............. None
Robert A. Marmon........... None
</TABLE>
- ---------------
(1) Options become exercisable over time. One-third become exercisable one year
from the date of grant, an additional one-third become exercisable two years
from the date of grant and the last third become exercisable three years
from the date of grant. Options expire five years from the date of grant.
Options are granted at market price on the date of grant. All options
granted to executive officers are incentive stock options ("ISO's") under
the Internal Revenue Code. ISO's entitle the option holder to special tax
treatment provided that the option holder satisfies certain holding periods
with respect to shares acquired on the exercise of options. In general, if
the holding periods are satisfied, the option holder will incur no taxable
income by reason of exercise of the option, and Crown Books will not receive
an income tax deduction by reason of the exercise. The option holder will
recognize gain or loss upon a subsequent sale of the common stock, based on
the difference between the amount for which the stock is sold, and the
option price paid.
(2) Potential realizable value is based on an assumption that the price of the
Common Stock appreciates at the annual rate shown (compounded annually) from
the date of grant until the end of the five year option term. These numbers
are calculated based on the rules and regulations promulgated by the
Securities and Exchange Commission and do not reflect the Company's estimate
of future stock price growth.
(3) Represents options for Crown Books Common Stock granted in fiscal 1995 but
not approved by court action until fiscal 1996.
14
<PAGE> 17
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 1996 and the number
and value of unexercised options as of February 3, 1996.
<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>
E. Steve Stevens................. -- -- 2,500/20,000 --
Marc J. Joseph................... -- -- -- --
Donald J. Pilch.................. -- -- -- / 3,000 --
Ronald S. Haft................... -- -- -- --
Robert A. Marmon................. -- -- -- --
</TABLE>
EMPLOYMENT AGREEMENTS
On January 24, 1995, Crown Books entered into an employment agreement with
E. Steve Stevens, President and Chief Executive Officer. Mr. Stevens' agreement
is for a term of two years (Crown Books' 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 initial annual base salary
of $217,500, subject to increases following review and performance appraisal by
the Board of Directors.
During fiscal 1996, Crown Books entered into employment contracts with Mr.
Pilch and Mr. Joseph. These agreements are for a one-year term, beginning
November 6, 1995 and ending November 6, 1996 and are automatically extended an
additional one year unless the individual is terminated pursuant to the
agreement. The agreements provide for initial annual base salaries of $150,000
and $155,000 to Mr. Joseph and Mr. Pilch, respectively. The annual compensation
is subject to annual increases as recommended by the Compensation Committee
following review and performance appraisal by the Compensation Committee and
approved by the Board.
15
<PAGE> 18
INDEPENDENT AUDITORS
Arthur Andersen LLP has served as the independent auditors of Crown Books
for the fiscal year ended February 3, 1996 and has been appointed by the Board
of Directors to serve as Crown Books' independent auditors for the fiscal year
ending February 1, 1997.
By Order of the Board of Directors
/s/ ELLIOTT R. ARDITTI
Elliott R. Arditti
Secretary
May 30, 1996
A COPY OF CROWN BOOKS' ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED
FEBRUARY 3, 1996, WHICH HAS BEEN FILED WITH THE SEC PURSUANT TO THE EXCHANGE
ACT, MAY BE OBTAINED WITHOUT CHARGE UPON WRITTEN REQUEST TO DONALD J. PILCH,
CHIEF FINANCIAL OFFICER, CROWN BOOKS CORPORATION, 3300 75TH AVENUE, LANDOVER,
MARYLAND 20785.
16
