<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
(Rule 14a-101)
PROXY STATEMENT PURSUANT TO SECTION 14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934
[X] Filed by the Registrant
[ ] Filed by a Party other than the Registrant
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
Crown Books Corporation
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] 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:
Set forth the amount on which the filing fee is calculated and state
how it was determined.
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] 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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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE> 2
[CROWN BOOKS LOGO]
3300 75th Avenue
Landover, Maryland 20785
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 27, 1997
The 1997 Annual Meeting of Crown Books Corporation, a Delaware corporation
("Crown Books"), will be held on June 27, 1997 at 1:00 p.m. at the Marriot
Courtyard, 8330 Corporate Drive, Landover, Maryland for the purpose of electing
four directors as set forth in the accompanying Proxy Statement, and to transact
such other business as may properly come before the meeting or any adjournments
thereof.
Only stockholders of record as of the close of business on May 9, 1997 will
be entitled to notice of and to vote at the meeting.
If you plan to attend the meeting and will need special assistance or
accommodations due to a disability, please indicate such information on the
enclosed proxy card.
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE VOTE BY MEANS OF
THE ENCLOSED PROXY WHICH YOU ARE REQUESTED TO SIGN, DATE AND RETURN AS SOON AS
POSSIBLE IN THE ENCLOSED POSTAGE PREPAID ENVELOPE. IF YOU ARE PRESENT AT THE
MEETING, YOU MAY, IF YOU WISH, WITHDRAW YOUR PROXY AND VOTE YOUR SHARES
PERSONALLY.
By Order of the Board of Directors
/s/ ELLIOT R. ARDITTI
Elliot R. Arditti
Secretary
May 30, 1997
<PAGE> 3
CROWN BOOKS CORPORATION
3300 75th Avenue
Landover, Maryland 20785
-------------------------
PROXY STATEMENT
-------------------------
ANNUAL MEETING OF STOCKHOLDERS
JUNE 27, 1997
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Crown Books Corporation, a Delaware
corporation ("Crown Books"), for use at the 1997 Annual Meeting of Stockholders
(the "Meeting") to be held on June 27, 1997 at 1:00 p.m. at the Marriott
Courtyard, 8330 Corporate Drive, Landover, Maryland, and at any adjournments
thereof. This Proxy Statement, and the accompanying notice of the meeting and
proxy card, are first being sent or given to stockholders on or about May 30,
1997.
Record holders of Crown Books' common stock, par value $.01 per share (the
"Common Stock"), at the close of business on May 9, 1997 are entitled to notice
of, and to vote at, the Meeting. Each stockholder of record on such date will be
entitled to one vote for each share of Common Stock held. On May 9, 1997, there
were 5,288,973 shares of Common Stock outstanding.
Shares of Common Stock cannot be voted at the Meeting unless the owner is
present or represented by proxy. Shares represented by valid proxies received by
Crown Books in time for the Meeting will be voted as specified in such proxies.
Any stockholder giving a proxy has the right to revoke it at any time before it
is exercised by attending the Meeting and voting in person or by filing with the
Secretary of Crown Books an instrument of revocation or duly executed proxy
bearing a later date.
With respect to the election of Directors, stockholders of Crown Books
voting by proxy may vote in favor of the nominees, may withhold their vote for
the nominees, or may withhold their vote as to specific nominees. If no specific
instructions are given, shares of Common Stock represented by a properly
executed proxy will be voted for the election of all four directors listed under
the caption "Election of Directors."
At the Meeting, inspectors of election will determine the presence of a
quorum and tabulate the results of the voting by stockholders. More than
one-third of the outstanding shares of Common Stock must be present in person or
by proxy to constitute a quorum necessary for the transaction of business.
Abstentions and non-votes will be counted for purposes of determining the
presence of a quorum at the Meeting. The election of the four nominees for
Director requires the affirmative vote of a majority of the shares of Common
Stock present in person or by proxy and actually voting at the Meeting. Any
action other than a vote for a nominee (including abstentions and broker
non-votes) will have the practical effect of voting against the nominee.
1
<PAGE> 4
ELECTION OF DIRECTORS
(Item 1 on the Proxy Card)
Four directors are to be elected at the Meeting. Unless otherwise
specifically directed, the persons named in the accompanying proxy will vote
such proxy for the election of the nominees listed below as directors of Crown
Books to serve until the next annual meeting of stockholders and until their
successors are elected and qualified. In the event that a nominee for any reason
should become unavailable for election (which is not anticipated), it is
intended that the shares of Common Stock represented by the proxies will be
voted for a nominee who would be designated by the Board of Directors, unless
the Board of Directors reduces the number of Directors.
Dart Group Corporation ("Dart") owns 2,767,314 shares of Common Stock
(approximately 52% of the outstanding Common Stock) and intends to vote for each
of the nominees listed below. A Standstill Order entered into by the Delaware
Court of Chancery on December 6, 1995 provides, among other things, that Dart
may not, until further order of the court, change the current composition of the
board of directors of Dart or any of its subsidiaries.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" EACH OF THE FOLLOWING
NOMINEES:
HERBERT H. HAFT, the founder of Dart, has been Chief Executive Officer and
Chairman of the Board of Dart since 1960. He has been Co-Chairman or Chairman of
the Board of Directors of Crown Books since its organization in 1981. Mr. Haft
has been Chairman of the Board of Directors and Chief Executive Officer of Trak
Auto Corporation ("Trak Auto"), an affiliate of Dart, since its organization in
1983. Mr. Haft has been a director of Shoppers Food Warehouse Corp. ("Shoppers
Food"), a wholly-owned subsidiary of Dart, since April 1989 and was elected
Co-Chairman of Shoppers Food on February 6, 1997.
DOUGLAS M. BREGMAN 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
was elected to serve as a director of each of Dart, Trak Auto and Crown Books in
June 1993 and was elected to serve as a director of Shoppers Food on February 6,
1997.
LARRY G. SCHAFRAN is managing general partner of L.G. Schafran and
Associates, a New York-based real estate investment and development firm, and is
the Chairman of Delta-Omega Technologies, Inc. and a director of Publicker
Industries, Inc., Capsure Holdings, Corp. and Glasstech, Inc. Mr. Schafran has
previously held the positions of vice president and director of Webb & Knapp,
Inc. and its successor General Property Corp. Mr. Schafran is also a trustee of
National Income Real Estate Trust. Mr. Schafran was elected a director of Dart,
Trak Auto and Crown Books on December 20, 1993, he serves as Chairman of the
Executive Committee of the Board of Directors of each such company and was
elected Co-Chairman of the board of directors of Shoppers Food on February 6,
1997.
BONITA A. WILSON has been a retailing executive with Dalton Brody since
October 1993. Ms. Wilson was a Sales Manager with Saks Jandel from January 1994
until June 1994 and prior to that she was a retailing executive with the May
Company. Ms. Wilson was elected to serve as a director of each of Dart, Trak
Auto and Crown Books in June 1993 and was elected to serve as a director of
Shoppers Food on February 6, 1997.
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 1, 1997, 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 six meetings and took action by
written consent on three occasions during the year ended February 1, 1997. 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 1997.
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 1997, 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 one meeting in fiscal 1997 and took action by
written consent on one occasion. 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 disputes between the
Chairman of the Board and Chief Executive Officer of Dart, Herbert H. Haft, and
the then President and Chief Operating Officer of Dart, Ronald S. Haft. 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
3
<PAGE> 6
a rate of $250 per hour plus reimbursement of expenses. During fiscal 1997, 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 $1,299,000 ($423,000 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 1997.
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 9, 1997.
<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 52.3
3300 75th Avenue
Landover, MD 20785
Heartland Advisors, Inc.(3)...................................... 683,200 12.9
790 N. Milwaukee Street
Milwaukee, WI 53202
The TCW Group, Inc.(4)........................................... 301,200 5.7
865 South Figueroa Street
Los Angeles, CA 90017
Foyston, Gordon & Payne, Inc.(5)................................. 299,800 5.7
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) 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 1, 1997.
(3) Based on holdings reported by Heartland Advisors, Inc. ("Heartland") on
Schedule 13G filed February 12, 1997. Heartland is a registered investment
advisor under the Investment Advisors Act of 1940. In its Schedule 13G,
Heartland has reported that it has sole voting power over 604,200 shares and
sole investment power over 683,200 shares.
(4) Based on holdings reported on the most recent Schedule 13G filed by The TCW
Group, Inc. ("TCW") on February 12, 1997. TCW has sole voting and investment
power over the 301,200 shares.
(5) Based on holdings reported on the most recent Schedule 13D filed by Foyston,
Gordon & Payne, Inc. ("FG&P") on February 11, 1997. FG&P has sole voting and
investment power over the 299,800 shares.
5
<PAGE> 8
POTENTIAL CHANGES IN CONTROL
On October 6, 1995, Dart and Ronald S. Haft entered into a settlement of
certain litigation and other related transactions (collectively, the "RSH
Settlement").
The RSH Settlement transactions are subject to pending litigation and,
through such litigation Robert M. Haft, Gloria G. Haft and Linda G. Haft and,
separately, Herbert H. Haft seek control of Dart. If sustained, the RSH
Settlement transactions were intended to have the effect, by their terms, of
transferring majority control of Dart's voting stock to one or more voting
trustees under the Voting Trust Agreement. On December 28, 1995, the initial
Voting Trustees resigned and appointed Richard B. Stone as successor Voting
Trustee.
If the RSH Settlement is sustained by the Delaware Court of Chancery, a
Buy/Sell/Offering Agreement between Dart and Ronald S. Haft will govern the
ultimate disposition of the shares held by the Voting Trustee. That agreement
gives Ronald S. Haft the right to "put" to Dart the stock held by the Voting
Trustee at any time between January 1, 1997 and December 31, 1999, subject to
certain conditions. With respect to the 222,294 shares of Dart Class B Common
Stock held by the Voting Trustee, Ronald S. Haft may (instead of including them
in the "put") exchange them for 244,523 shares of Dart Class A Common Stock
(i.e., a 1.1 to 1 exchange ratio) and offer those 244,523 shares of Dart Class A
Common Stock to the public. Dart has an option to "call" the shares held by the
Voting Trustee, if they have not previously been disposed of as described above,
at any time during the first seven months of the year 2000.
All of the 222,294 Dart Class B shares in the Voting Trust, as well as the
related voting trust certificates issued to Ronald S. Haft under the Voting
Trust Agreement, have been pledged to Dart and CMREC as security for certain
loans made to Ronald S. Haft and other obligations of Ronald S. Haft arising
under the RSH Settlement.
POSSIBLE SETTLEMENTS
On April 21, 1997, Dart reached a conditional settlement agreement in
principle with Herbert H. Haft. If the settlement contemplated by the
conditional agreement in principle is implemented, Herbert H. Haft would retire
from his positions as Chairman of Dart, Shoppers Food, Trak Auto and Crown
Books. Herbert H. Haft also would relinquish his claim to voting control of
Dart.
Under the settlement contemplated by the conditional agreement in
principle, Herbert H. Haft would sell to Dart, Trak Auto and Crown Books all of
his shares of stock and stock options in these companies. The settlement also
would terminate Herbert H. Haft's employment agreement with Dart and resolve all
outstanding litigation and disputes between Dart and Herbert H. Haft. Herbert H.
Haft would also assign certain real estate interests to Dart.
Herbert H. Haft would receive approximately $30 million from Dart if the
settlement is implemented. Herbert H. Haft would also receive an additional
$11.6 million from escrowed funds previously paid by Dart to Ronald S. Haft as
part of the RSH Settlement (plus $700,000 interest on those funds). The
conditional agreement in principle also contemplates that Dart would make a $10
million loan to a partnership owned by Herbert H. Haft and Ronald S. Haft, which
loan would be secured by such partnership's interests in three shopping centers
located in suburban Washington, D.C. and would be personally guaranteed by
Ronald S. Haft.
Implementation of the conditional agreement in principle is subject to the
negotiation of a definitive settlement agreement satisfactory to Dart and Dart's
receipt of satisfactory advice from its investment bankers.
6
<PAGE> 9
The conditional agreement in principle, as amended, states that it will
terminate if a definitive settlement agreement is not entered into by June 12,
1997.
The conditional agreement in principle is also conditioned on Dart's
entering into a supplemental settlement with Ronald S. Haft and a comprehensive
settlement with RGL. Negotiations with respect to these related settlements are
currently underway. Current settlement discussions contemplate that Dart, Trak
Auto and Crown Books would collectively pay approximately $50 million in
exchange for all of RGL's equity interests in these companies and certain real
estate interests. There can be no assurance that such settlements will be
reached or as to the terms or timing of any settlement, if one occurs.
Closing of the transactions contemplated by the conditional agreement in
principle also is subject to (i) final and non-appealable action by the Delaware
Court of Chancery or the Delaware Supreme Court approving all of the terms of
the settlement, terminating certain putative derivative actions pending with
respect to Dart and Crown Books in the Delaware Court of Chancery, and approving
the RSH Settlement and the supplemental settlement between Dart and Ronald S.
Haft, and (ii) final and non-appealable action by the U.S. Bankruptcy Court
approving the effectiveness of Chapter 11 plans of reorganization for certain
real estate entities owned by Haft family members.
There can be no assurance that a definitive settlement agreement between
Dart and Herbert H. Haft will be entered into and that the transactions
contemplated by the conditional agreement in principle will be implemented.
Any settlement with RGL (including any financing of such settlement) would
require further order of the Delaware Court of Chancery under the Standstill
Order and could be opposed by Herbert H. Haft if Dart does not settle with him.
A closing of any settlement with RGL would be subject to available
financing and the proposed settlement with Herbert H. Haft would be subject to
the receipt of advice by Dart from its financial advisor that adequate financing
would be available at closing. Dart and its subsidiaries do not presently have
cash available to pay the approximately $90 million (including the loan of $10
million) contemplated by the possible settlements but are considering various
options to finance them.
7
<PAGE> 10
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth information as of May 9, 1997 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 four other current
executive officers of Crown Books, and (c) 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 252,497(1) 13.35(2)
Class B --(3) --
Crown Books 30,500(4) *
E. Steve Stevens................................... Class A 999(5) *(2)
Crown Books 10,000(6) *
Keith W. Hammer.................................... Crown Books 666(7) *
Anne Hancock....................................... None
Donald J. Pilch.................................... Crown Books 3,000(8) *
John R. Sutton..................................... Crown Books 1,007(9) *
Bonita A. Wilson................................... Class A 3,750(10) *(2)
Crown Books 10,000(6) *
Douglas M. Bregman................................. Class A 3,750(10) *(2)
Crown Books 10,000(6) *
Larry G. Schafran.................................. Class A 2,250(11) *(2)
Crown Books 7,500(12) *
All directors and executive officers as a group (9
persons)......................................... Class A 263,246(13) 13.84(2)
Crown Books 72,673(14) 1.36
</TABLE>
- ---------------
* Less than one percent.
(1) Includes exercisable options for 129,750 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 30,000 shares.
(5) Includes exercisable options for 999 Class A shares.
(6) Includes exercisable options for 10,000 shares.
(7) Includes exercisable options for 666 shares.
(8) Includes exercisable options for 1,000 shares.
(9) Includes exercisable options for 1,007 shares.
(10) Includes exercisable options for 3,750 Class A shares.
(11) Includes exercisable options for 2,250 Class A shares.
(12) Includes exercisable options for 7,500 shares.
(13) Includes exercisable options for 140,499 Class A shares.
(14) Includes exercisable options for 70,173 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 1, 1997, Crown Books was charged
$1,846,000 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 service 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 $5,683,000 in the year ended
February 1, 1997.
Of Crown Books' 168 stores as of February 1, 1997, seven were leased from
entities in which members of the Haft family own substantially all the
beneficial interests. These seven lease agreements with the Haft family provide
for various termination dates which, assuming renewal options are exercised,
range from 1997 to 2029, and require the payment of future minimum rentals
aggregating $39,121,000 at February 1, 1997. These agreements also require
payment of a percentage of sales in excess of a stated minimum. In addition,
three closed stores have lease agreements with Haft-owned entities with various
termination dates from 1997 to 2002 and require future minimum rentals
aggregating $789,000 at February 1, 1997. Annual fees and rentals included in
the consolidated statements of income for leases involving the Haft family was
$1,985,000 in the year ended February 1, 1997.
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. On December 17, 1996, Dart, Crown Books
and Trak Auto filed a lawsuit against Herbert H. Haft (Chairman of each such
company) claiming breach of fiduciary duty, fraud and waste in connection with
certain of these lease transactions with certain partnerships owned beneficially
by member of the Haft family.
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 1, 1997. During fiscal
1997, executive compensation policies were formulated by the Compensation
Committee. An Executive Compensation Program was developed in fiscal 1996 and
was 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 (a) 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. These elements are described in more detail below.
Executive compensation during fiscal 1997 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 1997, the Board of Directors did not award any cash bonuses to
the Chief Executive Officer or other executive officers.
The Compensation Committee believes that annual awards of stock options are
an effective means of aligning an executive's compensation with the interests of
shareholders, since the 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.
Crown Books granted stock options to certain executive officers during
fiscal 1997 based upon performance during fiscal 1996. In addition, certain
executive officers were granted stock options in fiscal 1997 in lieu of
compensation increases in fiscal 1998.
FISCAL 1997 COMPENSATION FOR THE CHIEF EXECUTIVE OFFICER
E. Steve Stevens was appointed Chief Executive Officer in December 1995
and, under his employment agreement, his current annual base salary is $291,500.
During fiscal 1997, Mr. Stevens salary was increased to be within the
competitive range in the marketplace in order to retain his continued service.
Mr. Stevens also receives an auto allowance and is eligible for a
performance-based bonus subject to approval of the Board of Directors. During
fiscal 1997, the Board awarded Mr. Stevens options to purchase 20,000 shares of
Crown Books' common stock and Dart's board of directors awarded him options to
purchase 1,000 shares of Dart Class A common stock. The options were awarded to
tie compensation to future performance and the number of options was determined
by market comparison to similar positions utilizing the Black-Scholes option
pricing model to value the grant. In addition, the Board awarded Mr. Stevens
options to purchase 20,000 shares of Crown Books common stock in lieu of a
compensation increase in fiscal 1998.
10
<PAGE> 13
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 1998. Therefore, the
Board has not taken any action to comply with the $1 million limitation. The
Board will continue to monitor this situation and will take appropriate action
if it is warranted in the future.
STATUS OF REPORT
The foregoing report on Executive Compensation shall not be deemed to be
"soliciting material" or be "filed" with the SEC or subject to Regulation 14A
promulgated by the SEC or Section 18 of the Securities Exchange Act of 1934.
Compensation Committee
Douglas M. Bregman
Larry G. Schafran
Bonita A. Wilson
11
<PAGE> 14
STOCK PRICE PERFORMANCE GRAPH
The following graph compares cumulative total returns (assuming
reinvestment of dividends) on the Common Stock, the S&P Composite-500 Stock
Index and a peer company index (the S&P Retail Store Specialty Index) for the
five-year period ending February 1, 1997. This stock price performance graph
assumes that the value of the investment in the Common Stock and each index was
$100 on January 31, 1992. Through February 1, 1997, no dividends were paid on
the Common Stock. The stock price performance shown on the graph below is not
necessarily indicative of future price performance.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
FOR THE YEAR ENDED FEBRUARY 1, 1997
[GRAPH]
<TABLE>
<CAPTION>
MEASUREMENT PERIOD CROWN BOOKS STANDARD & POOR'S RETAIL STORE
(FISCAL YEAR COVERED) CORPORATION INDEX COMPOSITE
<S> <C> <C> <C>
1992 100.00 100.00 100.00
1993 100.65 110.58 131.48
1994 100.65 124.94 131.06
1995 63.23 132.61 127.05
1996 49.03 183.82 118.37
1997 50.97 232.35 135.06
</TABLE>
12
<PAGE> 15
COMPENSATION OF EXECUTIVE OFFICERS
SUMMARY COMPENSATION TABLE
The following table sets forth in summary form all compensation for all
services rendered in all capacities to Crown Books and its subsidiaries for the
three years ended February 1, 1997 to (i) the Chief Executive Officer of Crown
Books, (ii) the other four executive officers of Crown Books and (iii) one
former executive officer of Crown Books who would have been among Crown Books'
five most highly compensated current executive officers had he not resigned
(collectively, the "Named Executive Officers").
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
----------------------------------- -------------------------
OTHER SECURITIES
ANNUAL UNDERLYING ALL OTHER
NAME AND FISCAL COMPENSATION OPTIONS COMPENSATION
PRINCIPAL POSITION YEAR SALARY($) BONUS($) ($)(1) (#) ($)(2)
- --------------------------------- ------ --------- -------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
E. Steve Stevens................. 1997 288,900 -- -- 41,000 4,000
Chief Executive Officer 1996 233,600 37,500 -- 22,500 2,000
and President(3) 1995 123,600 18,500 -- -- 18,600(4)
Keith W. Hammer.................. 1997 140,900 -- 16,700(6) 9,000 2,000
Senior Vice President and 1996 132,900 18,700 15,300(6) 2,000 15,000(7)
Chief Information Officer(5) 1995 9,600 -- -- -- --
Anne Hancock..................... 1997 26,300 -- -- -- --
Vice President, Real Estate(8)
Donald J. Pilch.................. 1997 162,800 -- -- 9,000 3,500
Vice President and 1996 31,100 -- -- 3,000 5,000(10)
Chief Financial Officer(9)
John R. Sutton................... 1997 102,900 -- -- 9,000 3,000
Vice President, 1996 84,100 -- -- 975 3,000
Merchandising(11) 1995 75,900 -- -- -- 3,000
Marc J. Joseph................... 1997 155,200 -- -- --
Former General Merchandising 1996 30,100 -- -- -- 3,200(13)
Manager(12)
</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) Includes approximate allocation to the accounts of the Named Executive
Officers pursuant to the 401(k) and/or the profit sharing plans of Crown
Books, unless otherwise footnoted.
(3) Mr. Stevens joined Crown Books in June 1994 and was appointed President and
Chief Executive Officer in December 1995.
(4) Includes relocation allowance.
(5) Mr. Hammer joined Crown Books in December 1994 and was appointed Senior
Vice President and Chief Information Officer in April 1997.
(6) Includes reimbursement for the lost proceeds from the exercise of stock
options with prior employer.
(7) Includes relocation allowance.
(8) Ms. Hancock joined Crown Books in November 1996 as Vice President of Real
Estate. Ms. Hancock's current annual salary is $130,000 plus an auto
allowance of $7,800.
(9) Mr. Pilch joined Crown Books in November 1995 as Vice President and Chief
Financial Officer.
13
<PAGE> 16
(10) Employment sign-on bonus.
(11) Mr. Sutton was appointed Vice President of Merchandising in September 1996.
(12) Mr. Joseph joined Crown Books in November 1995 as Senior Vice President and
General Merchandising and left Crown Books in September 1996.
(13) Moving allowance.
OPTION GRANTS IN LAST FISCAL YEAR
This table provides information with respect to grants of options for
shares of common stock of Crown Books to the Named Executive Officers during
fiscal 1997 and the exercise price, expiration date and estimates of the
potential realizable values of such options.
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE
INDIVIDUAL GRANTS AT ASSUMED
------------------------------------------------------------- ANNUAL RATES OF
% OF TOTAL STOCK PRICE
OPTIONS EXERCISE APPRECIATION FOR
OPTIONS GRANTED TO OR BASE MARKET PRICE OPTION TERM(2)
GRANTED EMPLOYEES IN PRICE DATE OF EXPIRATION ----------------
NAME (#)(1) FISCAL YEAR ($/SH) GRANT($) DATE 5%($) 10%($)
- --------------------------- ------- ------------ -------- ------------ ---------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
E. Steve Stevens........... 20,000 15.8 12.375 12.375 7-31-01 68,400 151,100
20,000 34.8 10.50 10.50 7-31-01 58,000 128,200
Keith W. Hammer............ 4,500 3.6 12.375 12.375 7-31-01 15,400 34,000
4,500 7.8 10.50 10.50 7-31-01 13,100 28,800
Anne Hancock............... None
Donald J. Pilch............ 4,500 3.6 12.375 12.375 7-31-01 15,400 34,000
4,500 7.8 10.50 10.50 7-31-01 13,100 28,800
John R. Sutton............. 4,500 3.6 12.375 12.375 7-31-01 15,400 34,000
4,500 7.8 10.50 10.50 7-31-01 13,100 28,800
Marc J. Joseph............. 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 Crown Books' estimate
of future stock price growth.
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 1997 and the number
and value of unexercised options as of February 1, 1997.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
FY-END FY-END ($)
------------- -------------
SHARES ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE REALIZED ($) UNEXERCISABLE UNEXERCISABLE
- ---------------------------------------- --------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
E. Steve Stevens........................ -- -- 10,000/52,500 --
Keith W. Hammer......................... -- -- 666/10,334 --
Anne Hancock............................ -- -- -- --
Donald J. Pilch......................... -- -- 1,000/11,000 --
John R. Sutton.......................... -- -- 1,007/ 9,325 --
Marc J. Joseph.......................... -- -- -- --
</TABLE>
EMPLOYMENT AGREEMENTS
On February 1, 1997, 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 1998 and 1999). The
agreement is renewable for one additional one year term, unless Mr. Stevens is
terminated with cause. The agreement provides for an initial annual base salary
of $291,500, subject to increases following review and performance appraisal by
the Compensation Committee of the Board of Directors, an auto allowance of $850
per month and a performance-based bonus subject to approval of the Board of
Directors..
During fiscal 1996, Crown Books entered into an employment agreement with
Donald J. Pilch. The agreement is for a one-year term, beginning November 6,
1995 and ending November 6, 1996 and is automatically extended an additional one
year, each year, unless Mr. Pilch is terminated pursuant to the agreement. The
agreement provides for an initial annual base salary of $155,000, an auto
allowance of $650 per month and a bonus based on performance and approval of the
Board of Directors. 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.
On February 1, 1996, Crown Books entered into an employment agreement with
Keith W. Hammer. The agreement is for a one year term beginning February 1, 1996
and ending February 1, 1997, and is automatically extended an additional year,
each year, unless Mr. Hammer is terminated pursuant to the agreement. The
agreement provides for an initial annual base salary of $124,500, an auto
allowance of $650 per month and a bonus based on performance and approval of the
Board of Directors. The annual base salary is subject to annual increases as
recommended to the Board of Directors by the Compensation Committee.
On October 21, 1996, Crown Books entered into an employment agreement with
Anne Hancock. The agreement is for a one year term, beginning October 28, 1996
and ending October 28, 1997, and is automatically extended an additional year,
each year, unless Ms. Hancock is terminated pursuant to the agreement. The
agreement provides for an initial annual base salary of $130,000, an auto
allowance of $650
15
<PAGE> 18
per month and a bonus based on performance and approval of the Board of
Directors. The annual base salary is subject to annual increases as recommended
to the Board of Directors by the Compensation Committee.
INDEPENDENT AUDITORS
Arthur Andersen LLP has served as the independent auditors of Crown Books
for the fiscal year ended February 1, 1997 and has been appointed by the Board
of Directors to serve as Crown Books' independent auditors for the fiscal year
ending January 31, 1998. Representatives of Arthur Andersen LLP are expected to
be present at the Meeting with opportunity to make a statement if they so desire
and to be available to respond to appropriate questions.
STOCKHOLDER PROPOSALS FOR 1998 ANNUAL MEETING
Stockholders who wish to submit a proposal for consideration at the 1998
Annual Meeting of Stockholders should submit the proposal in writing to Crown
Books at 3300 75th Avenue, Landover, Maryland 20785, attention: Elliot R.
Arditti, Esq. Proposals must be received by Crown Books no later than February
1, 1998 for inclusion in next year's proxy materials.
OTHER MATTERS
Proxies for the Meeting will be solicited by mail and may be solicited by
telephone and other means of communication. Solicitation may be made by
directors, officers and other regular employees of Crown Books. The entire cost
of soliciting proxies will be borne by Crown Books. Crown Books does not expect
to pay any compensation for solicitation of proxies, but will reimburse brokers,
nominees and fiduciaries for reasonable expenses incurred by them in sending
proxy material to the beneficial owners of Common Stock held by such persons.
The Board of Directors does not intend to present, and has not been
informed that any other person intends to present, any matters for action at the
Meeting other than those specifically referred to herein. If, however, any other
matters should properly come before the Meeting, it is the intention of the
persons named in the enclosed proxy to vote the shares represented thereby in
accordance with their best judgement on such matters.
By order of the Board of Directors
/s/ ELLIOT R. ARDITTI
Elliot R. Arditti
Secretary
May 30, 1997
A COPY OF CROWN BOOKS' ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED
FEBRUARY 1, 1997, 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
<PAGE> 19
/ /
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1. Election of Directors FOR all nominees WITHHOLD AUTHORITY to vote *EXCEPTIONS / /
listed below / / for all nominees listed below / /
</TABLE>
NOMINEES: Herbert H. Haft, Douglas M. Bregman, Larry G. Schafran and Bonita A.
Wilson.
(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, MARK
THE "EXCEPTIONS" BOX AND STRIKE A LINE THROUGH THAT NOMINEE'S
NAME.)
2. IN THEIR DISCRETION, on any other matters that may properly come before the
meeting or any adjournments thereof.
<TABLE>
<S> <C>
Change of Address and
or Comments Mark Here / /
Please date this proxy and sign your
name exactly as your name appears herein.
If the stock is held jointly, all owners
must sign. When signing as attorney,
executor, administrator, trustee,
guardian or in another representative
capacity, please give your full title.
Dated: , 1997
------------------------------
------------------------------------------
Signature of Stockholder
------------------------------------------
Signature of Stockholder (if held jointly)
VOTES MUST BE INDICATED
( X ) IN BLACK OR BLUE INK / /
</TABLE>
PLEASE COMPLETE, SIGN, DATE AND PROMPTLY RETURN IN THE ENCLOSED ENVELOPE, IF
MAILED IN THE UNITED STATES
CROWN BOOKS CORPORATION
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON JUNE 27, 1997
The undersigned, a stockholder of Crown Books Corporation, a Delaware
corporation (the "Corporation"), hereby appoints Larry G. Schafran and E. Steve
Stevens, attorneys and proxies of the undersigned, with full power of
substitution, to vote and act for the undersigned at the Annual Meeting of
Stockholders of the Corporation to be held at the Marriott Courtyard, 8330
Corporate Drive, Landover, Maryland on Friday, June 27, 1997 and at any
adjournments thereof, as designated for the items set forth below and in the
Notice of Annual Meeting of Stockholders and the Proxy Statement dated May 30,
1997.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AS DIRECTED HEREIN BY
THE UNDERSIGNED. HOWEVER, IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED
FOR THE ELECTION OF ALL DIRECTORS LISTED UNDER ITEM 1.
(Continued and to be signed on reverse side)
CROWN BOOKS CORPORATION
P.O. BOX 11353
NEW YORK, NY 10203-0353
21
