Great Train Store Co – ‘8-K’ for 1/13/99 – EX-20

As of:  Wednesday, 1/13/99   ·   For:  1/13/99   ·   Accession #:  1011240-99-3   ·   File #:  1-13158

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Current Report   —   Form 8-K
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 8-K         Form 8-K Dated January 13, 1999                        5      9K 
 2: EX-20       Exhibit 20.1 - Letter to Stockholders                  2±    12K 
 3: EX-99       Exhibit 99.2 - Press Release                           2     10K 

EX-20   —   Exhibit 20.1 – Letter to Stockholders

                                                                  EXHIBIT 20.1

January 13, 1999

To the Stockholders of                                                          
The Great Train Store Company                                                   

Dear Friends:                                                                   

Today,  we publicly  announced the  Company's  sales results for the last fiscal
year. For your convenience, we have attached a copy of the press release. As you
will note,  1998 sales were  disappointing.  Earnings for 1998 have not yet been
calculated, but it is reasonable to expect that the Company's earnings will also
be  disappointing.  There are a variety of reasons  for these  results,  some of
which were within  management's  control and some which were not, but the simple
fact is the Company did not achieve its objectives.                             

The market price of the Company's  common stock has also  declined  dramatically
over the last  year.  Of  course,  the  decline  results  in large part from the
Company's  deteriorated  operating  performance.  The general  disfavor in which
micro-cap  stocks are  presently  held has magnified the impact of the Company's
operating performance on stockholder value. Your Board of Directors believes the
presently  prevailing  market price does not fully  reflect the  Company's  fair
value.  Indeed,  the  prevailing  market  price is less than the  Company's  net
tangible book value per share.                                                  

Accordingly,  the  Company's  Board of Directors  has  instructed  management to
evaluate several  alternatives to improve  stockholder value. These alternatives
include  both  strategic  and   operational   initiatives.   To  assist  in  the
identification and evaluation of strategic alternatives, the Company has engaged
Financo,  Inc., a highly regarded  investment-banking  firm headquartered in New
York, which  specializes in providing  financial  advisory services to retailers
and  other  merchandise  companies.  As  a  result,  management  is  engaged  in
preliminary discussions with a number of parties which have expressed a possible
interest in acquiring or merging with the Company.  Although  these  discussions
continue, the Company does not presently have any agreements to engage in any of
these transactions.                                                             

Concurrently,  the Board of Directors has  instructed  management to continue to
implement  certain  previously  approved  operational  initiatives  designed  to
address identified operating deficiencies. In addition, management is evaluating
several operational  alternatives that may present an opportunity to enhance the
Company's operating performance.  These alternatives include: (a) evaluating the
individual  performance  of each  store and  possibly  closing  those  which are
chronically  underperforming,  (b)  renegotiating  selected  store  leases,  (c)
curtailing new store openings and (d) enhancing the Company's  existing Internet
presence by opening a cyberstore to directly merchandise the Company's products.

In particular,  the Company presently is committed only to open one new store in
1999 and does not anticipate making additional new store commitments until it is
satisfied that its operational issues are well-resolved.                        

The Company's operating results and the related decline in the prevailing market
price of the Company's common stock also have resulted in the Company's  failure
to satisfy certain criteria for the continued  trading of the Company's stock on
the Nasdaq  National  Market and  certain  financial  covenants  with its senior
lender.  The Company is presently  engaged in discussions  with the Nasdaq Stock
Market  concerning  the  Company's  listing  status.  Although not  conclusively
determined,  the Company anticipates that it will transfer trading of its common
stock  to  the  Nasdaq  Small-Cap  Market  in  the  near  future,   probably  in
mid-February.                                                                   

The Company is also engaged in discussions with its senior lender concerning the
Company's  compliance with its loan covenants.  Based on such discussions,  such
lender has indicated that it will agree to amend its documents and eliminate the
financial covenants threatened by expected operating results.  This amendment is
also  expected  to modify  certain  other  provisions  of the credit  agreement,
including the maximum availability under the loan and the interest rate.        

In addition,  the Company does not expect to meet the operating income threshold
required  for it to  exercise  its  option  to sell  $2  million  of  additional
securities to Tandem Capital.  Such funding had been primarily  intended to help
fund the opening of new stores.  In light of the  Company's  curtailment  of new
store openings, the need for additional funding for this purpose is less urgent.

The past year has been a very  difficult  one for  management  and the  Company.
However,  we continue to feel  strongly  that our stores are special  places and
that The Great  Train  Store  concept is on the  leading  edge of  entertainment
merchandising.  The  Great  Train  Stores  are  visited  by  happy  and  excited
customers.  Now, we need to be sure that we always provide those  customers with
exceptional  merchandise  and service.  If we do so, the Company will once again
prosper.  We will  then look  back at this  time as a  valuable  "wake up call,"
signaling the start of a time of opportunity.                                   

Thank you for your continuing support.                                          

     Very truly yours,

                                  ----------------------------------------------
 James H. Levi
President   

                                  ----------------------------------------------
    Cheryl A. Taylor
                             Vice President - Finance & Administration

                                  ----------------------------------------------
     Michael D. Glazer
                Vice President - Real Estate

                                  ----------------------------------------------
      James L. Llewellyn
          Vice President - Sales

Dates Referenced Herein

This ‘8-K’ Filing		Date		Other Filings
Filed on / For Period End:		1/13/99		None on these Dates
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