<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 27, 1996
REGISTRATION NO. 333-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
TOYS "R" US, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 5945 13-5159250
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
TOYS "R" US, INC.
461 FROM ROAD
PARAMUS, NEW JERSEY 07652
(201) 262-7800
(Address, including ZIP code, and telephone number, including
area code, of registrant's principal executive offices)
LOUIS LIPSCHITZ
TOYS "R" US, INC.
461 FROM ROAD
PARAMUS, NEW JERSEY 07652
(201) 262-7800
(Name, address, including ZIP code, and telephone number,
including area code, of agent for service)
COPIES TO:
<TABLE>
<S> <C>
DENNIS J. BLOCK, ESQ. EDWARD HERLIHY, ESQ.
WEIL, GOTSHAL & MANGES LLP WACHTELL, LIPTON, ROSEN & KATZ
767 FIFTH AVENUE 51 WEST 52ND STREET
NEW YORK, NEW YORK 10153 NEW YORK, NEW YORK 10019
(212) 310-8000 (212) 403-1000
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
Upon consummation of the transactions described herein.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. ( )
CALCULATION OF REGISTRATION FEE
[CAPTION]
<TABLE>
<S> <C> <C> <C> <C>
TITLE OF EACH CLASS PROPOSED MAXIMUM PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
OF SECURITIES TO AMOUNT TO BE OFFERING PRICE AGGREGATE OFFER- REGISTRATION
BE REGISTERED REGISTERED (1) PER UNIT (2) ING PRICE (2) FEE (3)
<S> <C> <C> <C> <C>
Common Stock, par value $0.10
per share................. 13,841,368 shares N.A. $509,093,102 $154,271
</TABLE>
(1) Being registered hereby are shares of Common Stock, par value $.10 per share
("Toys "R" Us Common Stock"), of Toys "R" Us, Inc. ("Toys "R" Us") which may
be issued in exchange for shares of Common Stock, without par value ("Baby
Superstore Common Stock"), of Baby Superstore, Inc. ("Baby Superstore") in
connection with the merger of Baby Superstore with and into Toys "R" Us
described herein (the "Merger"), and upon the exercise of all Baby
Superstore warrants and stock options, whether or not currently exercisable
(other than stock options which will be settled for cash upon the
consummation of the Merger).
(2) Estimated solely for the purpose of determining the registration fee in
accordance with Rule 457(f). Pursuant to Rule 457(f)(1), the Proposed
Maximum Aggregate Offering Price has been determined based upon the market
value of the Baby Superstore Common Stock to be received by Toys "R" Us in
the Merger. The market value of the Baby Superstore Common Stock to be
received by Toys "R" Us in the Merger has been calculated based upon the
average of the high and low sales prices of the Baby Superstore Common Stock
as reported on the Nasdaq National Market on December 24, 1996.
(3) Pursuant to Rule 457(b), includes the fee of $88,777 previously paid in
connection with the filing by Baby Superstore with the Securities and
Exchange Commission of preliminary proxy materials relating to the Merger on
November 5, 1996.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
<PAGE>
BABY SUPERSTORE, INC.
1201 WOODS CHAPEL ROAD
DUNCAN, SOUTH CAROLINA 29334
January 2, 1996
TO THE SHAREHOLDERS OF
BABY SUPERSTORE, INC.
You are cordially invited to attend a Special Meeting of Shareholders (the
"Special Meeting") of Baby Superstore, Inc. (the "Company") to be held at 10:00
a.m. on Friday, January 31, 1997, at the Carolina Ballroom of the Marriott
Hotel, One Parkway East in Greenville, South Carolina.
As described in the accompanying Proxy Statement/Prospectus, at the Special
Meeting, you will be asked to consider and vote upon a proposal to approve and
adopt an Agreement and Plan of Merger, dated as of October 1, 1996, and as
amended and restated as of December 26, 1996, among Toys "R" Us, Inc. ("Toys "R"
Us"), BSST Acquisition Corp. ("Sub"), a newly-formed direct wholly owned
subsidiary of Toys "R" Us the Company and Jack P. Tate (the "Merger Agreement")
and the transactions contemplated by the Merger Agreement, including the merger
of Sub with and into the Company (the "Merger"), with the Company being the
surviving corporation and becoming a wholly owned subsidiary of Toys "R" Us.
Pursuant to the Merger Agreement, each outstanding share of the Company's common
stock, except shares held by Jack P. Tate, shares owned by the Company, shares
owned by Toys "R" Us or any direct or indirect wholly owned subsidiary of Toys
"R" Us and shares with respect to which dissenter's rights are properly
exercised, will be converted in the Merger into the right to receive 0.8121 of a
share of the common stock of Toys "R" Us, and each share held by Jack P. Tate
will be converted in the Merger into the right to receive 0.5150 of a share of
Toys "R" Us common stock, all as described in the accompanying Proxy
Statement/Prospectus. Cash will be paid in lieu of fractional shares of Toys "R"
Us common stock. You are urged to read the accompanying Proxy
Statement/Prospectus, which provides you with a description of certain of the
terms of the proposed Merger, and the copy of the Merger Agreement which is
included as Annex A to the Proxy Statement/Prospectus.
Your Board of Directors has carefully reviewed and considered the terms and
conditions of the Merger Agreement and the transactions contemplated thereby,
has determined that the Merger Agreement and the transactions contemplated
thereby, including the Merger, are fair to and in the best interests of the
Company and its shareholders, and has approved and adopted the Merger Agreement
and the transactions contemplated thereby, including the Merger. THE BOARD OF
DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" APPROVAL AND ADOPTION OF THE MERGER
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED BY THE MERGER AGREEMENT, INCLUDING
THE MERGER. As a result of the Merger, directors and executive officers of the
Company may receive economic benefits, which are described in the accompanying
Proxy Statement/Prospectus under "The Merger -- Interests of Certain Persons in
the Merger; Potential Conflicts of Interest."
Your Board of Directors has received an opinion of CS First Boston
Corporation, the Company's financial advisor, that, as of October 1, 1996, the
exchange ratio of 0.8121 of a share of Toys "R" Us common stock for each share
of the Company's common stock to be offered in the Merger to shareholders other
than Jack P. Tate is fair to such shareholders from a financial point of view. A
copy of this opinion is included as Annex B to the accompanying Proxy
Statement/Prospectus.
Consummation of the Merger is subject to certain conditions, including
approval and adoption of the Merger Agreement and the transactions contemplated
thereby by the affirmative vote of the holders of the outstanding shares of the
Company's common stock representing a majority of the votes entitled to be cast
thereon.
<PAGE>
In addition, you will be asked at the Special Meeting to consider and vote
upon a proposal to ratify and approve an amendment to the 1994 Baby Superstore,
Inc. Stock Incentive Plan and a certain grant to an executive officer thereunder
(the "1994 Plan Proposal"). The 1994 Plan Proposal will be approved if the votes
cast at the Special Meeting favoring the proposal exceed the number of votes
cast opposing the proposal.
Only holders of common stock of record at the close of business on December
17, 1996 are entitled to notice of and to vote at the Special Meeting or any
adjournments or postponements thereof.
Under South Carolina law, shareholders who give written notice of their
intent to demand payment of "fair value" (as defined in the enclosed Proxy
Statement/Prospectus) of their shares of common stock of the Company in
connection with the Merger Agreement and the consummation of the transactions
contemplated thereby prior to the shareholder vote on the Merger Agreement and
who do not vote in favor of the Merger Agreement are entitled to dissenters'
rights under Chapter 13 of the South Carolina Business Corporation Act of 1988,
as amended, and are entitled to demand such payment. Dissenters' rights are not
available with respect to the vote upon the 1994 Plan Proposal. See the
discussion under the caption "The Merger -- Dissenters' Rights" in the
accompanying Proxy Statement/Prospectus.
It is very important that your shares be represented at the Special
Meeting. Whether or not you plan to attend the Special Meeting, you are
requested to complete, date, sign, and return the proxy card in the enclosed
postage paid envelope. FAILURE TO RETURN A PROPERLY EXECUTED PROXY CARD OR TO
VOTE AT THE SPECIAL MEETING WILL HAVE THE SAME EFFECT AS A VOTE AGAINST THE
MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE
MERGER. The giving of a proxy will not affect your right to vote in the event
that you attend the Special Meeting. Executed proxies with no instructions
indicated thereon will be voted "FOR" approval and adoption of the Merger
Agreement and the transactions contemplated thereby, including the Merger and
"FOR" ratification and approval of the 1994 Plan Proposal.
Please do not send in your stock certificates at this time. In the event
that the Merger is approved by the requisite vote of shareholders, you will be
sent a letter of transmittal for that purpose promptly after the Merger is
consummated.
Sincerely,
(Signature of Jack P. Tate appears here)
JACK P. TATE
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
<PAGE>
BABY SUPERSTORE, INC.
1201 WOODS CHAPEL ROAD
DUNCAN, SOUTH CAROLINA 29334
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD JANUARY 31, 1997
TO OUR SHAREHOLDERS:
Notice is hereby given of, and you are cordially invited to attend, a
Special Meeting of Shareholders (the "Special Meeting") of Baby Superstore, Inc.
(the "Company") to be held on Friday, January 31, 1997, at 10:00 a.m. at the
Carolina Ballroom of the Marriott Hotel, One Parkway East in Greenville, South
Carolina for the following purposes:
(1) To consider and vote upon a proposal to approve and adopt an Agreement
and Plan of Merger, dated as of October 1, 1996, and as amended and restated as
of December 26, 1996, among Toys "R" Us, Inc., a Delaware corporation ("Toys "R"
Us"), BSST Acquisition Corp., a South Carolina corporation and newly-formed
direct wholly owned subsidiary of Toys "R" Us ("Sub"), the Company and Jack P.
Tate (the "Merger Agreement") (a copy of which is attached to the accompanying
Proxy Statement/Prospectus as Annex A) and the transactions contemplated by the
Merger Agreement, including the Merger (as hereinafter defined). As more fully
described in the Proxy Statement/Prospectus, the Merger Agreement provides that:
(i) Sub will be merged with and into the Company (the "Merger"), with the
Company continuing as the surviving corporation and becoming a wholly owned
subsidiary of Toys "R" Us; (ii) each outstanding share of common stock, no par
value, of the Company (the "Company Common Stock") (other than shares of Company
Common Stock held by Jack P. Tate (the "Tate Shares"), shares owned by the
Company, Toys "R" Us or any direct or indirect wholly owned subsidiary of Toys
"R" Us, which will be cancelled, and shares for which payment of "fair value"
(as defined in the accompanying Proxy Statement/Prospectus) has been validly
demanded pursuant to certain procedures under South Carolina law as described in
the accompanying Proxy Statement/Prospectus) will be converted, upon the
effectiveness of the Merger, into the right to receive 0.8121 of a share of
common stock, par value $0.10 per share, of Toys "R" Us ("Toys "R" Us Common
Stock"); and (iii) each Tate Share will be converted into the right to receive
0.5150 of a share of Toys "R" Us Common Stock;
(2) To consider and vote upon a proposal to ratify and approve an amendment
to the 1994 Baby Superstore, Inc. Stock Incentive Plan (the "1994 Plan") to
increase the number of shares of Company Common Stock authorized for issuance
thereunder and a certain grant to an executive officer thereunder (the "1994
Plan Proposal"); and
(3) To act upon such procedural matters, including without limitation,
potential adjournments of the Special Meeting, as may properly come before the
Special Meeting or any adjournments or postponements thereof.
The Board of Directors has fixed the close of business on December 17, 1996
as the record date for the determination of shareholders entitled to notice of
and to vote at the Special Meeting. Only holders of record of Company Common
Stock at the close of business on that date will be entitled to notice of and to
vote at the Special Meeting or any adjournments or postponements thereof.
The accompanying Proxy Statement/Prospectus describes the Merger Agreement,
the proposed Merger, and certain actions to be taken in connection with the
Merger. To ensure that your vote will be counted, please complete, date and sign
the enclosed proxy card and return it promptly in the enclosed postage paid
envelope, whether or not you plan to attend the Special Meeting. You may revoke
your proxy in the manner described in the accompanying Proxy
Statement/Prospectus at any time before it is voted at the Special Meeting.
Executed proxies with no instructions indicated thereon will be voted "FOR"
approval and adoption of the Merger Agreement and the transactions contemplated
thereby, including the Merger, and "FOR" the 1994 Plan Proposal.
<PAGE>
Under South Carolina law, shareholders who give written notice of their
intent to demand payment of "fair value" of their shares of Company Common Stock
in connection with the Merger Agreement and the consummation of the transactions
contemplated thereby prior to the shareholder vote on the Merger Agreement and
who do not vote in favor of the Merger Agreement are entitled to dissenters'
rights under Chapter 13 of the South Carolina Business Corporation Act of 1988,
as amended, and are entitled to demand such payment. Dissenters' rights are not
available with respect to the vote upon the 1994 Plan Proposal. See the
discussion under the caption "The Merger -- Dissenters' Rights" in the
accompanying Proxy Statement/Prospectus.
BY ORDER OF THE BOARD OF DIRECTORS,
(Signature of Jodi L. Taylor appears here)
JODI L. TAYLOR, SECRETARY
Duncan, South Carolina
January 2, 1997
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" APPROVAL AND
ADOPTION OF THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY,
INCLUDING THE MERGER, AND "FOR" THE 1994 PLAN PROPOSAL.
THE AFFIRMATIVE VOTE OF HOLDERS OF THE OUTSTANDING SHARES OF COMPANY COMMON
STOCK REPRESENTING A MAJORITY OF THE VOTES ENTITLED TO BE CAST THEREON IS
REQUIRED TO APPROVE AND ADOPT THE MERGER AGREEMENT AND THE TRANSACTIONS
CONTEMPLATED THEREBY, INCLUDING THE MERGER, AND THE AFFIRMATIVE VOTE OF HOLDERS
OF OUTSTANDING SHARES OF COMPANY COMMON STOCK REPRESENTING A MAJORITY OF THE
VOTES CAST THEREON IS REQUIRED TO APPROVE THE 1994 PLAN PROPOSAL. WE URGE YOU TO
SIGN AND RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE, WHETHER OR NOT YOU
PLAN TO ATTEND THE MEETING IN PERSON. YOU MAY REVOKE THE PROXY AT ANY TIME PRIOR
TO ITS EXERCISE IN THE MANNER DESCRIBED IN THE ACCOMPANYING PROXY
STATEMENT/PROSPECTUS. ANY SHAREHOLDER PRESENT AT THE SPECIAL MEETING, INCLUDING
ANY ADJOURNMENT OR POSTPONEMENT THEREOF, MAY REVOKE SUCH HOLDER'S PROXY AND VOTE
PERSONALLY ON THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY,
INCLUDING THE MERGER, AND ON THE 1994 PLAN PROPOSAL AT THE SPECIAL MEETING.
FAILURE TO RETURN A PROPERLY EXECUTED PROXY CARD OR TO VOTE AT THE SPECIAL
MEETING WILL HAVE THE SAME EFFECT AS A VOTE "AGAINST" THE MERGER AGREEMENT AND
THE TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE MERGER.
PLEASE DO NOT SEND YOUR COMPANY COMMON STOCK CERTIFICATES AT THIS TIME.
<PAGE>
BABY SUPERSTORE, INC.
PROXY STATEMENT
FOR THE SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON FRIDAY, JANUARY 31, 1997
TOYS "R" US, INC.
PROSPECTUS
This Proxy Statement/Prospectus is being furnished to holders of shares
(the "Shareholders") of common stock, without par value ("Company Common
Stock"), of Baby Superstore, Inc., a South Carolina corporation (the "Company"),
in connection with the solicitation of proxies by the Company's Board of
Directors (the "Board") for use at a special meeting of the holders of Company
Common Stock to be held at 10:00 a.m., local time, on Friday, January 31, 1997
at the Carolina Ballroom of the Marriott Hotel, One Parkway East in Greenville,
South Carolina, and at any adjournments thereof (the "Special Meeting"). This
Proxy Statement/Prospectus and the accompanying Proxy Card are first being
mailed to holders of record of Company Common Stock on or about January 2, 1997.
At the Special Meeting, holders of Company Common Stock will be requested
to consider and vote upon the approval and adoption of an Agreement and Plan of
Merger, dated as of October 1, 1996, and as amended and restated as of December
26, 1996 (the "Merger Agreement"), among Toys "R" Us, Inc., a Delaware
corporation ("Toys "R" Us"), BSST Acquisition Corp., a South Carolina
corporation and newly-formed direct wholly owned subsidiary of Toys "R" Us
("Sub"), the Company and Jack P. Tate, the Chairman and Chief Executive Officer
of the Company. Pursuant to the Merger Agreement, (i) Sub will be merged with
and into the Company, with the Company continuing as the surviving corporation
and becoming a wholly owned subsidiary of Toys "R" Us (the "Merger"); (ii) each
outstanding share of Company Common Stock (other than shares held by Mr. Tate,
shares held by the Company, shares held by Toys "R" Us or any direct or indirect
wholly owned subsidiary of Toys "R" Us, and shares with respect to which
dissenters' rights are properly exercised) will be converted into 0.8121 of a
share of common stock, par value $.10 per share, of Toys "R" Us ("Toys "R" Us
Common Stock"); (iii) each share of Company Common Stock held by Mr. Tate (the
"Tate Shares") will be converted into 0.5150 of a share of Toys "R" Us Common
Stock; and (iv) each outstanding share of common stock of Sub will be converted
into one share of common stock of the surviving corporation, all as more fully
described in this Proxy Statement/Prospectus. Holders of Company Common Stock
will have the right, under certain circumstances, to dissent from the Merger and
have the "fair value" (as defined herein) of their shares paid to them in cash
in accordance with the provisions of Chapter 13 of the South Carolina Business
Corporation Act of 1988, as amended (the "SCBCA"), and by following the other
procedures described in this Proxy Statement/Prospectus. In addition, at the
Special Meeting, holders of Company Common Stock will be requested to consider
and vote upon a proposal to ratify and approve an amendment to the 1994 Baby
Superstore, Inc. Stock Incentive Plan (the "1994 Plan") to increase the number
of shares of Company Common Stock authorized for issuance under the 1994 Plan
and a certain grant to an executive officer thereunder (sometimes referred to
herein as the "1994 Plan Proposal"). There are no dissenters' rights with
respect to the 1994 Plan Proposal.
This Proxy Statement/Prospectus also constitutes the prospectus of Toys "R"
Us with respect to the shares of Toys "R" Us Common Stock that will be issued to
holders of outstanding shares of Company Common Stock upon consummation of the
Merger and the shares of Toys "R" Us Common Stock issuable upon conversion or
exercise of Options and Warrants (as defined herein). See "The Merger
Agreement -- Conversion of Shares," " -- Treatment of Stock Options" and
" -- Treatment of Warrants."
THE SHARES OF TOYS "R" US COMMON STOCK ISSUABLE IN THE MERGER HAVE NOT BEEN
APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROXY
STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The date of this Proxy Statement/Prospectus is December 30, 1996.
<PAGE>
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS IN CONNECTION
WITH THE OFFERING AND SOLICITATION MADE HEREBY, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION SHOULD NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL, OR A SOLICITATION OF AN OFFER TO PURCHASE, THE SECURITIES OFFERED BY THIS
PROXY STATEMENT/PROSPECTUS, OR THE SOLICITATION OF A PROXY, IN ANY JURISDICTION
OR FROM ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
NEITHER THE DELIVERY OF THIS PROXY STATEMENT/PROSPECTUS NOR ANY DISTRIBUTION OF
THE SECURITIES OFFERED PURSUANT TO THIS PROXY STATEMENT/PROSPECTUS SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
INFORMATION CONTAINED HEREIN OR IN THE AFFAIRS OF TOYS "R" US OR THE COMPANY
SINCE THE DATE HEREOF.
The information set forth or incorporated by reference herein concerning
Toys "R" Us and its subsidiaries has been furnished by Toys "R" Us. The
information set forth or incorporated by reference herein concerning the Company
and its subsidiaries has been furnished by the Company. Toys "R" Us does not
have independent knowledge of the matters set forth herein concerning the
Company and its subsidiaries. The Company does not have independent knowledge of
the matters set forth or incorporated by reference herein concerning Toys "R" Us
and its subsidiaries.
AVAILABLE INFORMATION
Toys "R" Us and the Company are each subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and, in accordance therewith, file reports, proxy statements and other
information with the Securities and Exchange Commission (the "Commission"). Such
reports, proxy statements and other information concerning Toys "R" Us and the
Company can be inspected and copied at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549, and at the Commission's Regional Office at Seven World Trade Center,
Suite 1300, New York, New York 10048 and Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such material also
can be obtained, at prescribed rates, from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. The Commission
maintains a site on the Internet's World Wide Web at http://www.sec.gov. that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission, including
Toys "R" Us and the Company. The Toys "R" Us Common Stock is listed and traded
on the New York Stock Exchange, Inc. (the "NYSE") and such reports, proxy
statements and other information concerning Toys "R" Us may also be inspected at
the offices of the NYSE, 20 Broad Street, New York, New York 10005. The Company
Common Stock is listed and traded on the Nasdaq National Market and such
reports, proxy statements and other information concerning the Company may be
inspected at the offices of the Nasdaq National Market, 1735 K Street, N.W.,
Washington, D.C. 20006. If the Merger is consummated, the Company may cease to
be subject to the informational or any other requirements of the Exchange Act.
See "The Merger -- Certain Consequences of the Merger."
Toys "R" Us has filed with the Commission a registration statement on Form
S-4 (such registration statement, together with all amendments, is referred to
herein as the "Registration Statement") under the Securities Act of 1933, as
amended (the "Securities Act"), covering the shares of Toys "R" Us Common Stock
issuable in connection with the Merger and the shares of Toys "R" Us Common
Stock issuable upon conversion or exercise of Options and Warrants. This Proxy
Statement/Prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits thereto, certain parts of which are
omitted in accordance with the rules and regulations of the Commission. For
further information, reference is hereby made to the Registration Statement,
which is available for inspection and copying as set forth above. Statements
contained in this Proxy Statement/Prospectus or in any document incorporated by
reference in this Proxy Statement/Prospectus as to the contents of any contract
or other document referred to herein or therein are not necessarily complete,
and in each instance reference is made to the copy of such contract or other
document filed as an exhibit to the Registration Statement or such other
document, each such statement being qualified in all respects by such reference.
i
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, which have been filed by Toys "R" Us (File No.
1-11609) with the Commission under the Exchange Act, are incorporated herein by
reference:
(i) Toys "R" Us' Annual Report on Form 10-K for the fiscal year ended
February 3, 1996 (the "Toys "R" Us 10-K").
(ii) Toys "R" Us' Quarterly Report on Form 10-Q for the fiscal quarter
ended May 4, 1996.
(iii) Toys "R" Us' Quarterly Report on Form 10-Q for the fiscal
quarter ended August 3, 1996.
(iv) Toys "R" Us' Quarterly Report on Form 10-Q for the fiscal quarter
ended November 2, 1996.
(v) Toys "R" Us' Current Reports on Form 8-K dated July 15, 1996 and
October 2, 1996.
(vi) The description of the Toys "R" Us Common Stock contained in Item
1 of its Registration Statement on Forms 8-A, filed with the Commission on
June 13, 1979, including any amendment or reports filed for the purpose of
updating such description.
The following documents, which have been filed by the Company (File No.
0-24614) with the Commission under the Exchange Act, are incorporated herein by
reference:
(i) The Company's Annual Report on Form 10-K for the fiscal year ended
January 31, 1996, as amended by the Form 10-K/A filed on September 11, 1996
(the "Company 10-K").
(ii) The Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended May 1, 1996, as amended by the Form 10-Q/A filed on September
11, 1996.
(iii) The Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended July 31, 1996.
(iv) The Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended October 30, 1996.
(v) The Company's Current Report on Form 8-K dated October 2, 1996.
(vi) The description of the Company's Common Stock contained in its
Registration Statement on Form S-1 under the heading "Description of
Securities," filed with the Commission on August 1, 1994, including any
amendment or reports filed for the purpose of updating such description.
All documents filed with the Commission by Toys "R" Us or the Company
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to
the date hereof and prior to the date of the Special Meeting shall be deemed to
be incorporated by reference herein and to be a part hereof from the date any
such document is filed.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes hereof to the extent that a statement contained herein (or in any
other subsequently filed document that also is or is deemed to be incorporated
by reference herein) modifies or supersedes such statement. Any statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part hereof.
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE THAT
ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS (OTHER THAN
EXHIBITS TO SUCH DOCUMENTS THAT ARE NOT SPECIFICALLY INCORPORATED BY REFERENCE
HEREIN) ARE AVAILABLE WITHOUT CHARGE TO ANY PERSON TO WHOM THIS PROXY
STATEMENT/PROSPECTUS HAS BEEN DELIVERED, UPON WRITTEN OR ORAL REQUEST, IN THE
CASE OF DOCUMENTS RELATING TO TOYS "R" US, TO TOYS "R" US, INC., 461 FROM ROAD,
PARAMUS, NEW JERSEY 07652, ATTENTION: EXECUTIVE VICE PRESIDENT AND CHIEF
FINANCIAL OFFICER, TELEPHONE: (201) 262-7800 AND, IN THE CASE OF DOCUMENTS
RELATING TO THE COMPANY, TO BABY SUPERSTORE, INC., 1201 WOODS CHAPEL ROAD,
DUNCAN, SOUTH CAROLINA 29334, ATTENTION: CHIEF FINANCIAL OFFICER AND SECRETARY,
TELEPHONE: (803) 968-9292. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS,
ANY SUCH REQUEST SHOULD BE MADE BEFORE JANUARY 24, 1997.
Pursuant to the SCBCA, copies of the balance sheets of the Company as of
January 25, 1995 and January 31, 1996 and income statements of the Company for
the fiscal years ended January 26, 1994, January 25, 1995 and January 31, 1996,
and copies of the balance sheets of Toys "R" Us as of January 28, 1995 and
February 3, 1996 and income statements of Toys "R" Us for the fiscal years ended
January 29, 1994, January 28, 1995 and February 3, 1996, are being mailed to
Shareholders along with this Proxy Statement/Prospectus.
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DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Proxy Statement/Prospectus, including the information incorporated by
reference herein, contains certain forward-looking statements with respect to
the financial condition, results of operations and businesses of the Company and
Toys "R" Us. See "The Merger -- The Company's Reasons for the Merger,"
" -- Opinion of the Company's Financial Advisor" and " -- Toys "R" Us' Reasons
for the Merger," and "Incorporation of Certain Documents By Reference." These
forward-looking statements involve certain risks and uncertainties. Factors that
may cause actual results to differ materially from those contemplated by such
forward-looking statements include, among others, the following possibilities:
(i) that rates of expansion could be different than currently anticipated, (ii)
that pressures on margins would be greater than anticipated, (iii) that
increases in higher margin product sales would not be able to be achieved, (iv)
that inventory imbalances could occur caused by unanticipated fluctuations in
consumer demand, (v) that competition in the infant-through-toddler industry
could intensify, (vi) that financial performance and results of operations could
be affected by trends in the economy which affect consumer confidence and
consumer demand for retail goods, and (vii) that the effects of the Merger could
be different than anticipated.
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TABLE OF CONTENTS
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AVAILABLE INFORMATION...................................................................................... i
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............................................................ ii
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS............................................................ iii
SUMMARY.................................................................................................... 1
The Companies............................................................................................ 1
The Special Meeting...................................................................................... 1
The Merger............................................................................................... 3
Selected Financial Data.................................................................................. 7
Comparative Per Share Data............................................................................... 8
Comparative Market Price Information..................................................................... 9
THE SPECIAL MEETING........................................................................................ 11
General.................................................................................................. 11
Matters to be Considered at the Special Meeting.......................................................... 11
Record Date; Quorum and Voting at the Special Meeting.................................................... 11
Vote Required; Revocability of Proxies................................................................... 12
Solicitation of Proxies.................................................................................. 13
THE MERGER................................................................................................. 13
Background of the Merger................................................................................. 13
The Company's Reasons for the Merger..................................................................... 15
Recommendation of the Company's Board of Directors....................................................... 16
Opinion of the Company's Financial Advisor............................................................... 16
Toys "R" Us' Reasons for the Merger...................................................................... 20
Interests of Certain Persons in the Merger; Potential Conflicts of Interest.............................. 20
Accounting Treatment..................................................................................... 23
Certain Federal Income Tax Consequences.................................................................. 23
Regulatory Approvals..................................................................................... 24
Certain Consequences of the Merger....................................................................... 24
Effect of Merger on Convertible Notes.................................................................... 25
Management of the Company After the Merger............................................................... 25
Federal Securities Law Consequences...................................................................... 26
Stock Exchange Listing................................................................................... 26
Dissenters' Rights....................................................................................... 26
THE MERGER AGREEMENT....................................................................................... 29
The Merger............................................................................................... 30
Conversion of Shares..................................................................................... 30
Exchange Procedures...................................................................................... 30
Treatment of Stock Options............................................................................... 31
Treatment of Warrants.................................................................................... 31
Representations and Warranties........................................................................... 32
Certain Covenants........................................................................................ 32
Conditions to the Merger................................................................................. 36
Termination.............................................................................................. 37
Fees and Expenses........................................................................................ 38
Amendment; Waiver........................................................................................ 38
CERTAIN RELATED AGREEMENTS................................................................................. 39
Shareholders Agreement................................................................................... 39
Registration Rights Agreement............................................................................ 39
THE COMPANIES.............................................................................................. 40
Toys "R" Us.............................................................................................. 40
The Company.............................................................................................. 40
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COMPARISON OF SHAREHOLDER RIGHTS........................................................................... 40
Directors................................................................................................ 40
Action by Shareholders or Stockholders Without Meeting................................................... 41
Dividends................................................................................................ 41
Certain Voting Rights.................................................................................... 41
Dissenters' or Appraisal Rights.......................................................................... 42
Change in Control and Business Combinations.............................................................. 42
Liability of Directors................................................................................... 42
Related Party Transactions............................................................................... 42
Indemnification of Directors and Officers................................................................ 44
PROPOSED RATIFICATION AND APPROVAL OF AMENDMENT TO THE 1994 PLAN AND GRANT OF OPTIONS TO EXECUTIVE
OFFICER.................................................................................................. 46
Proposed Amendment....................................................................................... 46
The 1994 Plan............................................................................................ 46
Federal Income Tax Considerations........................................................................ 50
Terms of the August 28, 1996 Grants...................................................................... 50
Estimate of Benefits..................................................................................... 51
MANAGEMENT COMPENSATION.................................................................................... 52
Executive Compensation................................................................................... 52
Option Grants............................................................................................ 52
Option Exercises and Fiscal Year-End Option Values....................................................... 53
Director Compensation.................................................................................... 53
Change-in-Control Arrangements........................................................................... 53
Compensation Committee Interlocks and Insider Participations............................................. 53
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT............................................. 54
SHAREHOLDER PROPOSALS...................................................................................... 55
OTHER MATTERS.............................................................................................. 55
LEGAL MATTERS.............................................................................................. 55
EXPERTS.................................................................................................... 55
Annex A Agreement and Plan of Merger...................................................................... A-1
Annex B Opinion of CS First Boston Corporation............................................................ B-1
Annex C Chapter 13 of the South Carolina Business Corporation Act......................................... C-1
Annex D Amended and Restated 1994 Stock Incentive Plan.................................................... D-1
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SUMMARY
THE FOLLOWING IS A SUMMARY OF CERTAIN INFORMATION CONTAINED ELSEWHERE IN
THIS PROXY STATEMENT/PROSPECTUS. THIS SUMMARY IS NOT INTENDED TO BE COMPLETE AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE MORE DETAILED INFORMATION
CONTAINED ELSEWHERE, OR INCORPORATED BY REFERENCE, IN THIS PROXY
STATEMENT/PROSPECTUS AND THE ANNEXES HERETO. SHAREHOLDERS ARE URGED TO READ THIS
PROXY STATEMENT/PROSPECTUS, THE ANNEXES HERETO AND THE DOCUMENTS INCORPORATED
HEREIN BY REFERENCE CAREFULLY AND IN THEIR ENTIRETY. UNLESS OTHERWISE DEFINED
HEREIN, ALL CAPITALIZED TERMS USED IN THIS SUMMARY HAVE THE RESPECTIVE MEANINGS
ASSIGNED TO THEM ELSEWHERE IN THIS PROXY STATEMENT/PROSPECTUS.
THE COMPANIES
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TOYS "R" US......................... Toys "R" Us is engaged in the operation of 1,296 children's specialty
retail stores consisting of 680 United States and 396 international toy
stores, including franchise stores, under the name "Toys "R" Us," 212
children's clothing stores under the name "Kids "R" Us," six infant- toddler
stores under the name "Babies "R" Us" and two superstores combining all of
the " "R" Us" formats mentioned above under the name "Toys "R" Us
KidsWorld." See "The Companies -- Toys "R" Us." Toys "R" Us' executive
offices are located at 461 From Road, Paramus, New Jersey 07652, and its
telephone number is (201) 262-7800. See "The Companies -- Toys "R" Us."
THE COMPANY......................... The Company is a leading large format retailer of baby and young children's
products in the United States. The Company was incorporated in 1970 and
opened its first superstore in March 1971 in Greenville, South Carolina and
currently operates 78 stores in 23 states, primarily in the southeast and
midwest. Substantially all of the products sold by the Company are directed
toward newborns and children up to three years old. The Company's principal
offices are located at 1201 Woods Chapel Road, Duncan, South Carolina
29334, and its telephone number is (864) 968-9292. See "The
Companies -- The Company."
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THE SPECIAL MEETING
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TIME, DATE AND PLACE................ The Special Meeting will be held at 10:00 a.m., local time, on Friday,
January 31, 1997, at the Carolina Ballroom of the Marriott Hotel, One
Parkway East in Greenville, South Carolina.
MATTERS TO BE CONSIDERED AT THE
SPECIAL MEETING.................... At the Special Meeting, Shareholders will consider and vote upon (i) a
proposal to approve and adopt the Merger Agreement and the transactions
contemplated thereby, including the Merger, (ii) the 1994 Plan Proposal and
(iii) such procedural matters, including, without limitation, potential
adjournments of the Special Meeting, as may properly be brought before the
Special Meeting. See "The Special Meeting -- Matters to be Considered at
the Special Meeting."
RECORD DATE, QUORUM AND VOTING AT
THE SPECIAL MEETING................ The Board has fixed the close of business on December 17, 1996 as the
record date (the "Record Date") for the Special Meeting. At the close of
business on the Record Date, there were 19,246,608 shares of Company Common
Stock outstanding and entitled to vote at the Special Meeting, held by
approximately 425 holders of record. Each holder of Company Common Stock on
the Record Date will be entitled to one vote for each share of Company
Common Stock held of record upon each matter properly submitted at the
Special Meeting. The presence, either in person or by proxy, of a majority
of the outstanding shares of Company Common Stock entitled to be voted at
the Special Meeting is necessary to constitute a quorum thereat.
Abstentions (including broker non-votes) are included in the calculation of
the number of votes represented at the meeting for purposes of determining
whether a quorum has been achieved. See "The
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Special Meeting -- Record Date; Quorum and Voting at the Special Meeting."
VOTE REQUIRED; REVOCABILITY OF
PROXIES............................ The affirmative vote of the holders of outstanding shares of Company Common
Stock representing a majority of the votes entitled to be cast thereon is
required to approve and adopt the Merger Agreement and the transactions
contemplated thereby, including the Merger. The 1994 Plan Proposal will be
approved if the votes cast at the Special Meeting in person or by proxy in
favor of the proposal exceed the votes cast opposing the proposal.
The required vote of the Shareholders on the Merger Agreement and the
transactions contemplated thereby, including the Merger, is based upon the
total number of outstanding shares of Company Common Stock as of the Record
Date. Therefore, the failure to submit a proxy card (or to vote in person
at the Special Meeting) or the abstention from voting by a Shareholder
(including broker non-votes) will have the same effect as an "AGAINST" vote
with respect to approval and adoption of the Merger Agreement and the
transactions contemplated thereby, including the Merger. Proxies may be
revoked prior to the proxy being voted by following the procedures
described in this Proxy Statement/Prospectus. See "The Special
Meeting -- Vote Required; Revocability of Proxies."
The Company's Chairman of the Board and Chief Executive Officer, Mr. Tate,
and the Company's President and Chief Operating Officer, Linda M.
Robertson, together own over 50% of the Company Common Stock eligible to be
voted at the Special Meeting. Pursuant to a Shareholders Agreement, dated
October 1, 1996, by and among Toys "R" Us, Mr. Tate and Ms. Robertson (the
"Shareholders Agreement"), Mr. Tate has agreed to vote, and has granted
Toys "R" Us an irrevocable proxy to vote, the shares of Company Common
Stock votable by him in favor of the approval and adoption of the Merger
Agreement and the transactions contemplated thereby. As of December 17,
1996, Mr. Tate owned of record 8,797,500 shares of Company Common Stock, or
approximately 45.71% of the outstanding shares of Company Common Stock on
that date. Mr. Tate has also indicated that he intends to vote in favor of
the 1994 Plan Proposal. Ms. Robertson has also indicated to the Company
that she intends to vote the shares held by her in favor of the approval
and adoption of the Merger Agreement and in favor of the 1994 Plan
Proposal. As of December 17, 1996, Ms. Robertson owned of record 832,500
shares, or approximately 4.33%, of the outstanding shares of Company Common
Stock. To the knowledge of the Company, the other directors and executive
officers of the Company, who, as of December 17, 1996, held of record a
total of approximately 1.0% of the outstanding shares of Company Common
Stock also intend to vote in favor of approval and adoption of the Merger
Agreement and in favor of the 1994 Plan Proposal.
SHAREHOLDERS SHOULD NOT FORWARD ANY CERTIFICATES REPRESENTING COMPANY
COMMON STOCK WITH THEIR PROXY CARDS. IN THE EVENT THE MERGER IS
CONSUMMATED, CERTIFICATES SHOULD BE DELIVERED IN ACCORDANCE WITH
INSTRUCTIONS SET FORTH IN A LETTER OF TRANSMITTAL, WHICH WILL BE SENT TO
SHAREHOLDERS BY THE EXCHANGE AGENT (AS DEFINED HEREIN) PROMPTLY AFTER THE
EFFECTIVE TIME (AS DEFINED HEREIN). SEE "THE MERGER AGREEMENT -- EXCHANGE
PROCEDURES."
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THE MERGER
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EFFECTS OF THE MERGER; MERGER
CONSIDERATION...................... Upon consummation of the Merger, (i) Sub will be merged with and into the
Company, with the Company continuing as the surviving corporation and
becoming a wholly owned subsidiary of Toys "R" Us, (ii) each outstanding
share of Company Common Stock (other than the Tate Shares, shares held by
the Company, shares held by Toys "R" Us or any direct or indirect wholly
owned subsidiary of Toys "R" Us, and shares with respect to which
dissenters' rights are properly exercised) will be converted into the right
to receive 0.8121 of a share of Toys "R" Us Common Stock, (iii) each Tate
Share will be converted into the right to receive 0.5150 of a share of Toys
"R" Us Common Stock and (iv) each outstanding share of common stock of Sub
will be converted into one share of common stock of the surviving
corporation. No fractional shares of Toys "R" Us Common Stock will be
issued with respect to the Merger and in lieu of fractional shares
Shareholders will be entitled to receive cash pursuant to the procedures
described under "The Merger Agreement -- Exchange Procedures."
TREATMENT OF STOCK OPTIONS.......... Upon consummation of the Merger, each outstanding option to purchase shares
of Company Common Stock (an "Option"), other than Options held by Mr. Tate
and Ms. Robertson, will be assumed by Toys "R" Us and will constitute an
option to acquire on substantially the same terms and subject to
substantially the same conditions as were previously applicable to such
Option, the number of shares of Toys "R" Us Common Stock, rounded to the
nearest whole share, determined by multiplying the number of shares of
Company Common Stock subject to such Option by 0.8121, at an exercise price
equal to the exercise price of such Option divided by 0.8121. Upon
consummation of the Merger, each outstanding vested Option held by Mr. Tate
and Ms. Robertson will be settled by the Company for cash. See "The
Merger -- Interests of Certain Persons in the Merger; Potential Conflicts
of Interest" and "The Merger Agreement -- Treatment of Stock Options."
TREATMENT OF WARRANTS............... Upon consummation of the Merger, all outstanding warrants to purchase
Company Common Stock ("Warrants") will be assumed by Toys "R" Us and each
such Warrant will be deemed to constitute a warrant to acquire the same
number of shares of Toys "R" Us Common Stock as the holder of such Warrant
would have been entitled to receive pursuant to the Merger had such holder
exercised such Warrant in full immediately prior to the consummation of the
Merger at a price per share equal to the aggregate exercise price for the
shares of Company Common Stock subject to such Warrant divided by the
number of shares of Toys "R" Us Common Stock deemed purchasable pursuant to
such Warrant. See "The Merger -- Interests of Certain Persons in the
Merger; Potential Conflict of Interest" and "The Merger
Agreement -- Treatment of Warrants."
TREATMENT OF CONVERTIBLE
NOTES.............................. Upon consummation of the Merger, all of the outstanding 4 7/8% Convertible
Subordinated Notes due October 1, 2000 of the Company (the "Convertible
Notes") will become convertible into shares of Toys "R" Us Common Stock at
the rate of 0.8121 of a share of Toys "R" Us Common Stock for each share of
Company Common Stock into which the Convertible Notes were convertible
immediately prior to the consummation of the Merger. Consummation of the
Merger will result in a "Change of Control" under the terms of the
Convertible Notes and, as a result, following the consummation of the
Merger, pursuant to the terms of the Convertible Notes, each holder of
Convertible Notes will have the right to require the Company to repurchase
such holder's Convertible
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Notes at 100% of the principal amount thereof. See "The Merger -- Effect of
Merger on Convertible Notes."
OPINION OF THE COMPANY'S FINANCIAL
ADVISOR............................ CS First Boston Corporation ("CS First Boston"), financial advisor to the
Company in connection with the Merger, has delivered its opinion (the "CS
First Boston Opinion") to the Board that, as of October 1, 1996, the
exchange ratio of 0.8121 of a share of Toys "R" Us Common Stock for each
share of Company Common Stock to be offered to the Shareholders, other than
Mr. Tate, in the Merger is fair to such Shareholders from a financial point
of view. The full text of the CS First Boston Opinion, which sets forth
assumptions made, matters considered and limitations on the review
undertaken in connection with the CS First Boston Opinion, is attached
hereto as Annex B and is incorporated herein by reference. Shareholders are
urged to, and should, read such opinion in its entirety. See "The
Merger -- Opinion of the Company's Financial Advisor."
RECOMMENDATION OF THE COMPANY'S
BOARD OF DIRECTORS................. The Board has determined that the Merger Agreement and the transactions
contemplated thereby, including the Merger, are fair to and in the best
interests of the Company and its Shareholders and has approved and adopted
the Merger Agreement and the transactions contemplated thereby, including
the Merger. The Board has also determined that the 1994 Plan Proposal is
fair to and in the best interests of the Company and its Shareholders and
has approved the 1994 Plan Proposal. ACCORDINGLY, THE BOARD RECOMMENDS THAT
SHAREHOLDERS VOTE "FOR" APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND
THE TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE MERGER AND "FOR" THE
1994 PLAN PROPOSAL.
In reaching its determination that the Merger Agreement and the
transactions contemplated thereby, including the Merger, are fair to and in
the best interests of the Company and its Shareholders, the Board
considered a number of factors, as more fully described under "The
Merger -- Background of the Merger" and " -- The Company's Reasons for the
Merger."
SECURITY OWNERSHIP BY CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT... As of December 24, 1996, the directors and executive officers of the
Company beneficially owned, in the aggregate, 10,251,881 shares of Company
Common Stock (including certain shares which could be acquired upon the
exercise of Options and Warrants), and 9,816,381 shares of record
representing approximately 51.0% of the outstanding shares of Company
Common Stock, of which 8,797,500 shares, or approximately 45.70% of the
outstanding shares, are held of record by Mr. Tate. Pursuant to the
Shareholders Agreement, Mr. Tate has agreed to vote, and has granted Toys
"R" Us an irrevocable proxy to vote, the shares held by him in favor of the
approval and adoption of the Merger Agreement. As of December 24, 1996, Ms.
Robertson held 832,500 shares of Company Common Stock of record,
representing approximately 4.32% of the outstanding shares of Company
Common Stock, and has indicated her current intention to vote such shares
in favor of approval and adoption of the Merger Agreement. To the knowledge
of the Company, the other directors and executive officers of the Company,
who, as of December 24, 1996, held of record 186,381 shares representing
approximately 1.0% of the outstanding shares of Company Common Stock,
intend to vote their outstanding shares of Company Common Stock in favor of
approval and adoption of the Merger Agreement. See "Security Ownership of
Certain Beneficial Owners and Management."
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INTERESTS OF CERTAIN PERSONS IN THE
MERGER; POTENTIAL CONFLICTS OF
INTEREST........................... Certain members of the Company's management and of the Board may receive
economic benefits as a result of the Merger, including in connection with
employment agreements that provide for certain benefits, including the
acceleration of options, upon termination of employment under certain
circumstances following a change of control, registration rights,
indemnification rights and investment banking fees. In addition, directors
and executive officers hold Company Common Stock and/or Options and certain
directors hold Warrants. Pursuant to the Merger Agreement, vested Options
held by Mr. Tate and Ms. Robertson will be settled by the Company for cash.
For additional information concerning such benefits, Options, Warrants and
other interests of certain persons in the Merger, see "The
Merger -- Interests of Certain Persons in the Merger; Potential Conflicts
of Interest." Such interests may mean that such persons have personal
interests in the Merger which may not be identical to the interests of
other Shareholders.
CONDITIONS TO THE MERGER............ The obligations of Toys "R" Us and the Company to consummate the Merger are
subject to various conditions, including, among others, the approval of the
Merger Agreement by the Shareholders of the Company, the receipt of certain
required regulatory approvals and the receipt of opinions from tax counsel
for Toys "R" Us and the Company. The Merger Agreement also provides that
the conditions to each of the parties' obligations to consummate the Merger
may be waived by such party to the extent permitted by applicable law. See
"The Merger Agreement -- Conditions to the Merger."
TERMINATION; CERTAIN FEES........... The Merger Agreement will be subject to termination by either Toys "R" Us
or the Company if the Merger is not consummated by May 31, 1997 and prior
to such time by the mutual consent of Toys "R" Us and the Company. The
Merger Agreement will also be subject to termination by either Toys "R" Us
or the Company under certain other circumstances described herein. If the
Merger Agreement is terminated by Toys "R" Us or the Company under certain
circumstances described herein, the Company will be obligated to pay to
Toys "R" Us $12 million. In addition, if the Merger Agreement is terminated
by the Company under certain circumstances described herein, Toys "R" Us
will be obligated to pay to the Company $20 million. See "The Merger
Agreement -- Termination" and " -- Fees and Expenses."
DISSENTERS' RIGHTS.................. Holders of Company Common Stock who do not vote in favor of the approval of
the Merger Agreement and who otherwise comply with the applicable statutory
procedures summarized herein will be entitled to assert dissenters' rights
under Chapter 13 of the SCBCA. Dissenters' rights are not available with
respect to the vote upon the 1994 Plan Proposal. See "The
Merger -- Dissenters' Rights."
CERTAIN FEDERAL INCOME TAX
CONSEQUENCES....................... The Merger is intended to qualify as a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code of 1986, as amended (the
"Code"). It is a condition to Toys "R" Us' obligation to consummate the
Merger that Toys "R" Us shall have received from Weil, Gotshal and Manges
LLP, counsel to Toys "R" Us, an opinion addressed to Toys "R" Us
substantially to the effect that (i) the Merger will be treated for federal
income tax purposes as a reorganization within the meaning of Section
368(a) of the Code; (ii) each of Toys "R" Us, Sub and the Company will be a
party to the reorganization within the meaning of Section 368(b) of the
Code; and (iii) no gain or loss will be recognized by Toys "R" Us, Sub or
the Company as a result of the Merger, and such opinion shall not have been
withdrawn or modified in any material respect. Toys "R" Us will not
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proceed with the Merger if this condition is not satisfied. It is a
condition to the Company's obligation to consummate the Merger that the
Company shall have received from Wachtell, Lipton, Rosen & Katz, counsel to
the Company, an opinion addressed to the Company substantially to the
effect that (i) the Merger will be treated for federal income tax purposes
as a reorganization within the meaning of Section 368(a) of the Code; (ii)
each of Toys "R" Us, Sub and the Company will be a party to the reorgan-
ization within the meaning of Section 368(b) of the Code; and (iii) no gain
or loss will be recognized by a Shareholder of the Company as a result of
the Merger except (a) with respect to cash received by such Shareholder in
lieu of fractional shares or pursuant to the exercise of dissenters' rights
and (b) to the extent a Shareholder receives consideration different in
amount from other Shareholders, and such opinion shall not have been
withdrawn or modified in any material respect. The Company will not proceed
with the Merger if this condition is not satisfied.
ACCOUNTING TREATMENT................ The Merger will be accounted for as a "purchase" in accordance with
generally accepted accounting principles. See "The Merger -- Accounting
Treatment."
COMPARISON OF SHAREHOLDER RIGHTS.... As a result of the Merger, holders of Company Common Stock will become
shareholders of Toys "R" Us. For a description of the material differences
between the rights of holders of Company Common Stock and Toys "R" Us
Common Stock, see "Comparison of Shareholder Rights."
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SELECTED FINANCIAL DATA
TOYS "R" US
The following table presents selected historical financial data for Toys
"R" Us for the periods indicated. The financial data for each of the five fiscal
years in the period ended February 3, 1996 have been derived from the audited
consolidated financial statements of Toys "R" Us for such periods. The financial
data for the 39 weeks ended November 2, 1996 and October 28, 1995 are unaudited,
but in the opinion of Toys "R" Us reflect all adjustments (consisting primarily
of normal recurring accruals) necessary for a fair presentation of such data.
The data for the 39 weeks ended November 2, 1996 and October 28, 1995 are not
indicative of results of operations for the entire fiscal year. The data should
be read in conjunction with the consolidated financial statements, related notes
and other financial information of Toys "R" Us incorporated by reference in this
Proxy Statement/Prospectus. See "Incorporation of Certain Documents by
Reference."
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FISCAL YEAR ENDED 39 WEEKS ENDED
FEB. 3, JAN. 28, JAN. 29, JAN. 30, FEB. 1, NOV. 2, OCT. 28,
1996 (1) 1995 1994 1993 1992 1996 (2) 1995
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(IN MILLIONS, EXCEPT PER SHARE DATA)
INCOME STATEMENT DATA
Net sales.................................... $9,427 $ 8,746 $ 7,946 $ 7,169 $ 6,124 $5,265 $ 4,822
Net earnings................................. 148 532 483 438 340 45 55
Earnings per share........................... .53 1.85 1.63 1.47 1.15 .16 .20
BALANCE SHEET DATA
Total assets................................. 6,738 6,571 6,150 5,323 4,583 8,922 8,437
Long-term debt............................... 827 785 724 671 391 1,028 782
Shareholders' equity......................... 3,432 3,429 3,148 2,889 2,426 3,497 3,361
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(1) Results include restructuring and other charges of $269.1 million, net of
taxes. This is equivalent to $.98 per share.
(2) Results include a non-recurring arbitration award charge of $34.6 million,
net of taxes. This is equivalent to $.13 per share.
THE COMPANY
The following table presents selected historical financial data for the
Company for the periods indicated. The financial data for each of the five
fiscal years in the period ended January 31, 1996 have been derived from the
audited consolidated financial statements of the Company for such periods. The
financial data for the 39 weeks ended October 30, 1996 and October 25, 1995 are
unaudited, but in the opinion of the Company reflect all adjustments (consisting
only of normal recurring adjustments, except as noted in (1) below) necessary
for a fair presentation of such data. The data for the 39 weeks ended October
30, 1996 and October 25, 1995 are not indicative of results of operations for
the entire fiscal year. The data should be read in conjunction with the
consolidated financial statements, related notes and other financial information
of the Company incorporated by reference in this Proxy Statement/Prospectus. See
"Incorporation of Certain Documents by Reference."
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FISCAL YEAR ENDED 39 WEEKS ENDED
JAN. 31, JAN. 25, JAN. 26, JAN. 27, JAN. 29, OCT. 30, OCT. 25,
1996 1995 1994 1993 1992 1996 (1) 1995
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(IN MILLIONS, EXCEPT PER SHARE DATA)
INCOME STATEMENT DATA
Net sales..................................... $ 291 $ 175 $ 104 $ 63 $ 47 $ 321 $ 203
Net earnings (loss)........................... 12 7 4 1 1 (9) 9
Earnings (loss) per share..................... .60 .44 .25 .10 .05 (.49) .44
BALANCE SHEET DATA
Total assets.................................. 272 92 39 22 18 269 259
Long-term debt................................ 115 0 12 5 6 115 115
Shareholders' equity.......................... 99 58 10 6 5 90 96
</TABLE>
(1) Results include a second quarter inventory charge of $7.4 million, net of
taxes, and a third quarter non-tax deductible merger-related charge. These
charges totaled $8.8 million, net of taxes, and are equivalent to $.46 per
share.
7
<PAGE>
COMPARATIVE PER SHARE DATA
Set forth below are historical earnings per share and book value per share
data for Toys "R" Us and the Company, pro forma earnings per share and book
value per share data for Toys "R" Us, and equivalent pro forma earnings per
share and book value per share data for the Company. The data set forth below
should be read in conjunction with the consolidated financial statements,
including the notes thereto, of Toys "R" Us and the Company, which are
incorporated herein by reference. See "Incorporation of Certain Documents by
Reference." The Company and Toys "R" Us have never paid cash dividends and have
no plans to pay cash dividends in the foreseeable future.
HISTORICAL DATA
<TABLE>
<CAPTION>
TOYS "R" US THE COMPANY
39 WEEKS ENDED FISCAL YEAR ENDED 39 WEEKS ENDED FISCAL YEAR ENDED
NOVEMBER 2, 1996 (1) FEBRUARY 3, 1996 (2) OCTOBER 30, 1996 (3) JANUARY 31, 1996
<S> <C> <C> <C> <C>
Net earnings (loss)............. $ .16 $ .53 $ (.49) $ .60
Book value...................... $12.74 $12.57 $ 4.66 $5.14
</TABLE>
PRO FORMA DATA
<TABLE>
<CAPTION>
39 WEEKS ENDED FISCAL YEAR ENDED
NOVEMBER 2, 1996 (4) FEBRUARY 3, 1996 (5)
<S> <C> <C>
Net earnings.................... $ .10 $ .52
Book value...................... $13.41 $13.31
</TABLE>
EQUIVALENT PRO FORMA DATA
<TABLE>
<CAPTION>
SHARES OF COMPANY COMMON STOCK OTHER
THAN TATE SHARES (6) TATE SHARES (6)
39 WEEKS ENDED FISCAL YEAR ENDED 39 WEEKS ENDED FISCAL YEAR ENDED
NOVEMBER 2, 1996 FEBRUARY 3, 1996 NOVEMBER 2, 1996 FEBRUARY 3, 1996
<S> <C> <C> <C> <C>
Net earnings............................ $ .08 $ .42 $ .05 $ .27
Book value.............................. $10.89 $ 10.81 $ 6.91 $6.86
</TABLE>
(1) Results include a non-recurring arbitration award charge of $34.6 million,
net of taxes. This is equivalent to $.13 per share.
(2) Results include restructuring and other charges of $269.1 million, net of
taxes. This is equivalent to $.98 per share.
(3) Results include a second quarter inventory charge of $7.4 million, net of
taxes, and a third quarter non-tax deductible merger-related charge. These
charges total $8.8 million, net of taxes, and are equivalent to $.46 per
share.
(4) Results include charges described in (1) and (3) above. This is equivalent
to $.14 per share.
(5) Results include restructuring and other charges of $269.1 million, net of
taxes. This is equivalent to $.93 per share.
(6) Each share of Company Common Stock other than Tate Shares will be converted
into 0.8121 shares of Toys "R" Us Common Stock pursuant to the Merger. Each
Tate Share will be converted into 0.5150 shares of Toys "R" Us Common Stock
pursuant to the Merger. See "The Merger Agreement -- Conversion of Shares."
The Equivalent Pro Forma Data is calculated by prorating the applicable Pro
Forma Data amounts by the applicable conversion percentages mentioned above.
8
<PAGE>
COMPARATIVE MARKET PRICE INFORMATION
Toys "R" Us Common Stock is listed and traded on the NYSE under the symbol
"TOY" and Company Common Stock is listed and traded on the Nasdaq National
Market under the symbol "BSST." The following tables set forth the high and low
sales prices per share of Toys "R" Us Common Stock, as reported on the NYSE
Composite Tape, and Company Common Stock, as reported by the Nasdaq National
Market, for the periods indicated. Prior to September 27, 1994, Company Common
Stock was not publicly traded.
<TABLE>
<CAPTION>
TOYS "R" US HIGH LOW
<S> <C> <C>
FISCAL YEAR ENDED JANUARY 28, 1995
First Quarter............................................................................... $ 37 3/8 $ 32 3/8
Second Quarter.............................................................................. 36 3/4 32 1/4
Third Quarter............................................................................... 38 3/4 33
Fourth Quarter.............................................................................. 39 28 1/4
FISCAL YEAR ENDED FEBRUARY 3, 1996
First Quarter............................................................................... $ 30 7/8 $ 23 3/4
Second Quarter.............................................................................. 29 1/2 24 1/4
Third Quarter............................................................................... 28 3/4 21 5/8
Fourth Quarter.............................................................................. 24 3/8 20 1/2
FISCAL YEAR ENDED FEBRUARY 1, 1997
First Quarter............................................................................... $ 29 7/8 $ 21 7/8
Second Quarter.............................................................................. 30 7/8 25 1/4
Third Quarter............................................................................... 34 1/16 25 7/8
Fourth Quarter (to December 24, 1996)....................................................... 37 5/8 31 1/8
</TABLE>
THE COMPANY
<TABLE>
<S> <C> <C>
FISCAL YEAR ENDED JANUARY 25, 1995
Third Quarter (from September 27, 1994)..................................................... $ 29 43/64 $ 20 53/64
Fourth Quarter.............................................................................. 34 43/64 25 53/64
FISCAL YEAR ENDED JANUARY 31, 1996
First Quarter............................................................................... $ 44 $ 31 53/64
Second Quarter.............................................................................. 52 1/4 31
Third Quarter............................................................................... 53 3/4 38 3/4
Fourth Quarter.............................................................................. 58 1/2 40
FISCAL YEAR ENDED JANUARY 29, 1997
First Quarter............................................................................... $ 50 $ 28 1/4
Second Quarter.............................................................................. 43 1/2 12 1/4
Third Quarter............................................................................... 27 1/8 12 1/2
Fourth Quarter (to December 24, 1996)....................................................... 30 1/8 24 7/8
</TABLE>
On October 1, 1996, the last trading day prior to the public announcement
of the execution of the Merger Agreement, the closing sales price of the Toys
"R" Us Common Stock, as reported on the NYSE Composite Tape, was $28 7/8 per
share and the closing sales price of the Company Common Stock, as reported by
the Nasdaq National Market, was $19 7/8. On December 24, 1996, the closing sales
price of the Toys "R" Us Common Stock, as reported on the NYSE Composite Tape,
was $31 3/8 per share and the closing sales price of the Company Common Stock,
as reported by the Nasdaq National Market, was $25.
9
<PAGE>
On October 1, 1996, the last trading day prior to the public announcement
of the execution of the Merger Agreement, the equivalent per share price of
shares of Company Common Stock other than the Tate Shares would have been $23.45
and the equivalent per share price of the Tate Shares would have been $14.87. On
December 24, 1996, the equivalent per share price of shares of Company Common
Stock other than the Tate Shares would have been $25.48 and the equivalent per
share price of the Tate Shares would have been $16.16. The "equivalent per share
price" of shares of Company Common Stock other than the Tate Shares represents
the closing sales price of the Toys "R" Us Common Stock at such specified date,
as reported on the NYSE Composite Tape, multiplied by 0.8121 (the number of
shares of Toys "R" Us Common Stock to be received in the Merger for each such
share of Company Common Stock), and the "equivalent per share price" of the Tate
Shares represents the closing sales price of the Toys "R" Us Common Stock at
such specified date, as reported on the NYSE Composite Tape, multiplied by
0.5150 (the number of shares of Toys "R" Us Common Stock to be received by Mr.
Tate in the Merger for each Tate Share).
SHAREHOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS FOR THE TOYS "R"
US COMMON STOCK AND THE COMPANY COMMON STOCK PRIOR TO MAKING ANY DECISION WITH
RESPECT TO THE MERGER.
As of December 24, 1996, there were 19,249,308 shares of Company Common
Stock and 274,820,183 shares of Toys "R" Us Common Stock outstanding and 426
record holders of Company Common Stock and 31,808 record holders of Toys "R" Us
Common Stock.
10
<PAGE>
THE SPECIAL MEETING
GENERAL
This Proxy Statement/Prospectus is being furnished to the holders of
Company Common Stock as part of the solicitation of proxies by the Board for use
at the Special Meeting to be held at 10:00 a.m. on Friday, January 31, 1997 at
the Carolina Ballroom of the Marriott Hotel, One Parkway East in Greenville,
South Carolina and at any adjournments or postponements thereof. This Proxy
Statement/ Prospectus and the accompanying Proxy Card are first being mailed to
holders of record of Company Common Stock on or about January 2, 1997.
MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING
At the Special Meeting, Shareholders will consider and vote upon (i) a
proposal to approve and adopt the Merger Agreement and the transactions
contemplated thereby, including the Merger, (ii) a proposal to ratify and
approve an amendment to the 1994 Plan to increase the number of shares of
Company Common Stock authorized for issuance thereunder and a certain grant to
an executive officer thereunder, and (iii) such procedural matters, including,
without limitation, potential adjournments of the Special Meeting, as may
properly be brought before the Special Meeting.
Upon consummation of the Merger, Sub will be merged with and into the
Company, with the Company continuing as the surviving corporation and becoming a
wholly owned subsidiary of Toys "R" Us and each outstanding share of Company
Common Stock (other than the Tate Shares, shares held by the Company, shares
held by Toys "R" Us or direct or indirect wholly owned subsidiaries of Toys "R"
Us and other than shares with respect to which dissenters' rights are properly
exercised) will be converted into the right to receive 0.8121 of a share of Toys
"R" Us Common Stock, and each Tate Share will be converted into the right to
receive 0.5150 of a share of Toys "R" Us Common Stock. In addition, as a result
of the Merger, each outstanding Option (other than Options held by Mr. Tate and
Ms. Robertson) will be assumed by Toys "R" Us and shall constitute an option to
acquire the number of shares of Toys "R" Us Common Stock determined by
multiplying the number of shares of Company Common Stock subject to such Option
immediately prior to the Effective Time by 0.8121, at an exercise price equal to
the exercise price of such Option divided by 0.8121.
Based on the last reported sales price of the Toys "R" Us Common Stock by
the NYSE on December 24, 1996, the ratio of 0.8121 would result in a per share
purchase price of $25.48 to Shareholders other than Mr. Tate, and the ratio of
0.5150 would result in a per share purchase price of $16.16 for each Tate Share,
and aggregate consideration of approximately $266,308,279 million and
$142,151,105 million, respectively (not including shares subject to Options).
The Board has determined that the Merger Agreement and the transactions
contemplated thereby, including the Merger, are fair to and in the best
interests of the Company and its Shareholders and has approved and adopted the
Merger Agreement and the transactions contemplated thereby, including the
Merger. The Board has also determined that the 1994 Plan Proposal is advisable
and in the best interests of the Company and its Shareholders. ACCORDINGLY, THE
BOARD RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" APPROVAL AND ADOPTION OF THE
MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE
MERGER, AND "FOR" THE 1994 PLAN PROPOSAL. See "The Merger -- Background of the
Merger" and " -- The Company's Reasons for the Merger," and "The Merger
Agreement."
SHAREHOLDERS ARE REQUESTED PROMPTLY TO COMPLETE, DATE, SIGN AND RETURN THE
ACCOMPANYING PROXY CARD TO THE COMPANY IN THE ENCLOSED POSTAGE PAID ENVELOPE.
FAILURE TO RETURN A PROPERLY EXECUTED PROXY CARD OR TO VOTE AT THE SPECIAL
MEETING WILL HAVE THE SAME EFFECT AS A VOTE "AGAINST" THE MERGER AGREEMENT.
RECORD DATE; QUORUM AND VOTING AT THE SPECIAL MEETING
The Board has fixed the close of business on December 17, 1996 as the
Record Date for the determination of the holders of Company Common Stock
entitled to notice of and to vote at the Special Meeting. Only Shareholders of
record at the close of business on the Record Date will be entitled to notice of
and to vote at the
11
<PAGE>
Special Meeting. At the close of business on the Record Date, there were
19,246,608 shares of Company Common Stock outstanding and entitled to vote at
the Special Meeting, held by approximately 425 Shareholders of record.
Each holder of Company Common Stock on the Record Date will be entitled to
one vote for each share of Company Common Stock held of record upon each matter
properly submitted at the Special Meeting. The presence, either in person or by
proxy, of a majority of the outstanding shares of Company Common Stock entitled
to be voted at the Special Meeting is necessary to constitute a quorum thereat.
Abstentions (including broker non-votes) are included in the calculation of the
number of votes represented at the meeting for purposes of determining whether a
quorum has been achieved.
If the enclosed Proxy Card is properly executed and received by the Company
in time to be voted at the Special Meeting, the shares of Company Common Stock
represented thereby will be voted in accordance with the instructions marked
thereon. Executed proxies with no instructions indicated thereon will be voted
"FOR" approval and adoption of the Merger Agreement and the transactions
contemplated thereby, including the Merger, and "FOR" the 1994 Plan Proposal.
The Board is not aware of any matters other than those set forth in the
Notice of Special Meeting of Shareholders that may be brought before the Special
Meeting, and under the SCBCA, only business within the purposes described in the
Notice of Special Meeting transmitted with this Proxy Statement/Prospectus may
be transacted at the Special Meeting. If any other matters properly come before
the Special Meeting or any adjournment thereof, the persons named in the
accompanying proxy will vote the shares represented by all properly executed
proxies on such matters in accordance with their judgment. See " -- Vote
Required; Revocability of Proxies" and "Other Matters."
SHAREHOLDERS SHOULD NOT FORWARD ANY CERTIFICATES REPRESENTING COMPANY
COMMON STOCK WITH THEIR PROXY CARDS. IN THE EVENT THE MERGER IS CONSUMMATED,
CERTIFICATES SHOULD BE DELIVERED IN ACCORDANCE WITH INSTRUCTIONS SET FORTH IN A
LETTER OF TRANSMITTAL, WHICH WILL BE SENT TO SHAREHOLDERS BY THE EXCHANGE AGENT
PROMPTLY AFTER THE EFFECTIVE TIME.
VOTE REQUIRED; REVOCABILITY OF PROXIES
Pursuant to the SCBCA and the Company's Amended and Restated Articles of
Incorporation (the "Company Articles"), the affirmative vote of the holders of
outstanding shares of Company Common Stock representing a majority of the votes
entitled to be cast thereon is required to approve and adopt the Merger
Agreement and the transactions contemplated thereby, including the Merger.
The required vote of the Shareholders on the Merger Agreement and the
transactions contemplated thereby, including the Merger, is based upon the total
number of outstanding shares of Company Common Stock as of the Record Date.
Therefore, the failure to submit a proxy card (or to vote in person at the
Special Meeting) or the abstention from voting by a Shareholder (including
broker non-votes) will have the same effect as an "AGAINST" vote with respect to
approval and adoption of the Merger Agreement and the transactions contemplated
thereby, including the Merger.
The 1994 Plan Proposal will be approved if the votes cast in favor of the
proposal exceed the votes opposing the proposal.
Pursuant to the Shareholders Agreement, Mr. Tate, the Company's Chief
Executive Officer, has agreed to vote, and has granted to Toys "R" Us an
irrevocable proxy to vote, the shares of Company Common Stock votable by him in
favor of the approval and adoption of the Merger Agreement and the transactions
contemplated thereby. Mr. Tate has also indicated to the Company that he intends
to vote in favor of the 1994 Plan Proposal. As of December 17, 1996, Mr. Tate
owned of record 8,797,500, or approximately 45.71%, of the outstanding shares of
Company Common Stock. Ms. Robertson, the Company's President, has also indicated
to the Company that she intends to vote the shares held by her in favor of the
approval and adoption of the Merger Agreement and in favor of the 1994 Plan
Proposal. As of December 17, 1996, Ms. Robertson held of record 832,500, or
approximately 4.33%, of the outstanding shares of Company Common Stock. Since
the total shares held by Mr. Tate and Ms. Robertson as of December 17, 1996
exceed 50% of the outstanding shares, their affirmative vote is sufficient to
approve and adopt the Merger Agreement and the 1994 Plan Proposal. The other
directors and executive
12
<PAGE>
officers of the Company, who, as of December 17, 1996, held of record a total of
approximately 1.0% of the outstanding shares of Company Common Stock, have also
indicated their intention to vote in favor of approval and adoption of the
Merger Agreement and in favor of ratification and approval of the 1994 Plan
Proposal. As of the Record Date, none of Toys "R" Us, its directors or executive
officers or their affiliates beneficially own any of the outstanding shares of
Company Common Stock.
Any Shareholder who executes the proxy referred to in this Proxy
Statement/Prospectus may revoke it at any time before it is exercised. The proxy
may be revoked by either written notice to the Secretary of the Company of such
revocation, or by executing and delivering to the Secretary of the Company a
proxy bearing a later date. The voting of such proxy will be suspended if the
Shareholder executing the proxy attends the Special Meeting and elects to vote
in person (although attendance at the Special Meeting will not in and of itself
constitute a revocation of a proxy). Any written instrument revoking a proxy
should be sent to: Baby Superstore, Inc., 1201 Woods Chapel Road, Duncan, South
Carolina 29344, Attention: Secretary of the Corporation.
If a quorum is not obtained, or if fewer shares of Company Common Stock
than the number required therefor are voted in favor of approval and adoption of
the Merger Agreement and the transactions contemplated thereby, including the
Merger, it is expected that the Special Meeting will be postponed or adjourned
in order to permit additional time for soliciting and obtaining additional
proxies or votes, and, at any subsequent reconvening of the Special Meeting, all
proxies will be voted in the same manner as such proxies would have been voted
at the original convening of the Special Meeting, except for any proxies which
have theretofore effectively been revoked or withdrawn. In the absence of a
quorum, the Special Meeting may be adjourned from time to time by the holders of
a majority of the shares represented at the Special Meeting in person or by
proxy.
No vote of the stockholders of Toys "R" Us is required in connection with
the Merger Agreement.
The obligations of the Company and Toys "R" Us to consummate the Merger are
subject to, among other things, the condition that the Shareholders, by the
requisite vote thereof, approve and adopt the Merger Agreement and the
transactions contemplated thereby. See "The Merger Agreement -- Conditions to
the Merger." The approval of the 1994 Plan Proposal is not a condition to
consummation of the Merger.
SOLICITATION OF PROXIES
The Company will bear the costs of soliciting proxies in the accompanying
form from Shareholders. In addition to soliciting proxies by mail, directors,
officers and employees of the Company, without receiving additional compensation
therefor, may solicit proxies by telephone, by telegram, or in person.
Arrangements will also be made with brokerage firms and other custodians,
nominees and fiduciaries to forward solicitation materials to the beneficial
owners of shares of Company Common Stock held of record by such persons, and the
Company will reimburse such brokerage firms, custodians, nominees and
fiduciaries for reasonable out-of-pocket expenses incurred by them in connection
therewith.
THE MERGER
BACKGROUND OF THE MERGER
In June 1996, at the direction of the Company following informal
discussions among directors of the Company as to the potential benefits of a
strategic combination with Toys "R" Us, representatives of CS First Boston, a
financial advisor to the Company, contacted Michael Goldstein, the Chief
Executive Officer of Toys "R" Us, to explore the possibility of a transaction
between the Company and Toys "R" Us. At the beginning of July, representatives
of CS First Boston and of Invemed Associates ("Invemed"), also a financial
advisor to the Company, met with Mr. Goldstein and Robert C. Nakasone, the Chief
Operating Officer of Toys "R" Us, to discuss the possibility of a transaction
between the Company and Toys "R" Us. The representatives of Invemed included
Kenneth G. Langone, a director of the Company.
During the succeeding weeks, there were additional discussions between the
Company and Toys "R" Us. On August 12, 1996, the parties executed a
confidentiality agreement in connection with their continued exploration of a
possible transaction.
Following execution of the confidentiality agreement, members of management
of the Company, and representatives of the Company's financial advisors, Invemed
and CS First Boston, engaged in further discussions
13
<PAGE>
with members of management of Toys "R" Us and its financial advisor, Goldman
Sachs & Co., to discuss the Company and a possible transaction, focusing
primarily on the scope of due diligence which Toys "R" Us would propose to
undertake in connection with a possible business combination. On September 18,
1996, Toys "R" Us indicated in a letter to the Company that it was very
interested in pursuing a negotiated combination transaction with the Company and
suggesting that such a transaction might take the form of either a cash
transaction or a stock-for-stock transaction, subject to further negotiation
between the parties, and expressing its desire to proceed with its due diligence
of the non-public information of the Company. Beginning on September 20, 1996,
legal and financial advisors to Toys "R" Us and members of Toys "R" Us
management conducted an extensive financial, business and legal due diligence
review of the Company. During the same period, members of management of both
parties, and their legal and financial advisors discussed the possible structure
and terms of a transaction.
On September 29, 1996, the Board convened a special meeting to discuss the
status of negotiations with Toys "R" Us. During the meeting, the Board was
informed by management and certain of its advisors as to the status of
discussions with Toys "R" Us. The Board was further informed that the range of
value being considered by Toys "R" Us was roughly in line with the current
trading value for the Company Common Stock. There was a consensus among the
directors that a transaction which did not provide a meaningful premium to the
public Shareholders of the Company was unacceptable, but that negotiations with
Toys "R" Us should be continued to determine whether the parties could agree on
terms acceptable to the Company. During the course of the meeting, Mr. Tate
disclosed that, in the interests of facilitating a transaction that would be in
the best interests of, and sufficiently attractive to, the other Shareholders of
the Company, he might be willing to accept a lower price for his shares of
Company Common Stock than that offered to the public Shareholders. Following the
Board meeting, negotiations continued with the management and legal and
financial advisors of Toys "R" Us concerning a transaction structure and other
terms which might be acceptable to both the Company and Toys "R" Us. Following
these negotiations, Toys "R" Us management indicated that they were prepared to
proceed, subject to final approval by the Toys "R" Us Board of Directors, with a
stock merger transaction at a fixed exchange ratio of 0.68 of a share of Toys
"R" Us Common Stock for each share of Company Common Stock.
The Board met on the evening of September 30, 1996 to consider the Toys "R"
Us proposal. Based on the closing market price of the Toys "R" Us Common Stock
on September 30, 1996 of $29.125, the value of 0.68 of a share of Toys "R" Us
Common Stock was $19.81, compared to the closing price of the Company Common
Stock on such date of $20.75. After an extensive discussion of the merits of the
proposed combination between the Company and Toys "R" Us and a consideration of
the various contractual issues that remained to be fully negotiated, Mr. Tate
agreed that he would be willing to accept Toys "R" Us Common Stock on the basis
of approximately 0.5150 of a share of Toys "R" Us Common Stock for each of his
shares of Company Common Stock, providing a then current value of approximately
$15.00 per share based on the closing market price of the Toys "R" Us Common
Stock on September 30, 1996, in order to yield an exchange ratio of
approximately 0.8121 to the other Shareholders, providing a then current value
of approximately $23.65 per share based on the closing market price of the Toys
"R" Us Common Stock on September 30, 1996. The Board then authorized management
and the legal and financial representatives of the Company to seek to negotiate
the definitive terms of a merger based on the two exchange ratios and otherwise
on acceptable terms to the Company and Mr. Tate. At the September 30, 1996 Board
meeting, the Board considered, among other matters, a presentation by CS First
Boston with respect to the Company's business and CS First Boston's valuation
analysis, and discussed with management and the Company's advisors the material
terms of a draft Merger Agreement.
On October 1, 1996 the terms of the definitive Merger Agreement were
negotiated by the parties and that evening the Board met and gave its approval
to the proposed Merger. In reaching its determination, the Board considered,
among other matters, a further presentation by CS First Boston, including a
review of CS First Boston's due diligence investigation of Toys "R" Us, and the
oral opinion of CS First Boston (which was subsequently confirmed in writing)
that, as of October 1, 1996, the 0.8121 exchange ratio to be offered to the
Shareholders of the Company, other than Mr. Tate, in the Merger, was fair to
such Shareholders from a financial point of view, as well as the other
considerations set forth under " -- The Company's Reasons for the Merger." The
Board also considered the support for the transaction expressed by Mr. Tate,
including his stated willingness to support the Merger by entering into the
Shareholders Agreement and by accepting an exchange ratio of 0.5150 for the Tate
Shares. Following the Board meeting, the Merger Agreement was executed and
delivered by the parties and the Company and Toys "R" Us issued a press release
announcing the proposed Merger.
14
<PAGE>
On October 1, 1996, the Board of Directors of Toys "R" Us met to consider
the Merger Agreement and the transactions contemplated thereby and unanimously
approved the terms of the Merger Agreement presented to them and the
transactions contemplated thereby and authorized the execution and delivery
thereof. During the course of negotiations with Toys "R" Us, the Company did not
engage in any additional process of exploring strategic alternative transactions
to the Merger or contacting other parties with respect to any such transaction.
As originally executed on October 1, 1996, the Merger Agreement provided
for the merger of the Company with and into Acquiror. On December 26, 1996, Toys
"R" Us, Sub and the Company amended the Merger Agreement to provide for the
merger of Sub with and into the Company in lieu of the merger of the Company
with and into Acquiror.
THE COMPANY'S REASONS FOR THE MERGER
The Board has determined that the Merger Agreement and the transactions
contemplated thereby, including the Merger, are fair to and in the best
interests of the Company and its Shareholders and has approved and adopted the
Merger Agreement and the transactions contemplated thereby, including the
Merger. ACCORDINGLY, THE BOARD RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" APPROVAL
AND ADOPTION OF THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY,
INCLUDING THE MERGER. See " -- Background of the Merger" and " -- Opinion of the
Company's Financial Advisor."
In reaching its determination that the Merger Agreement and the
transactions contemplated thereby, including the Merger, are fair to and in the
best interests of the Company and its Shareholders, the Board considered a
number of factors, which factors taken together supported such determination,
including, without limitation, the following, which are believed to include all
material factors considered by the Board:
(i) the Board's knowledge of the business, operations, properties,
assets, financial condition and operating results of the Company, including
the expansion of the Company since it became a public company in 1994 and
the Board's belief that the Company would benefit by a combination with an
enterprise which had the resources of Toys "R" Us;
(ii) information relating to the financial condition, results of
operations, and prospects of the Company and Toys "R" Us, including the
views and presentations of CS First Boston (see " -- Opinion of the
Company's Financial Advisor") which supported the Board's view that Toys
"R" Us was an attractive merger partner for the Company;
(iii) the current and prospective environment in which the Company and
Toys "R" Us operate, including national and local economic conditions, the
competitive environment for retail businesses generally and the potential
advantages in combining the Company's business with the infant-to-toddler
retail business of Toys "R" Us, which Toys "R" Us had publicly announced it
was intending to expand;
(iv) the need, should the Company remain independent, for the Company
to continue to develop and expand its corporate infrastructure and to
expand its management and personnel, including the fact that Mr. Tate had
indicated to the Board his desire, in connection with the proposed
transaction with Toys "R" Us, to substantially reduce his role in the
management of the Company's day-to-day operations;
(v) the potential need, should the Company remain independent, to
raise additional capital to finance continued expansion and to build the
distribution, merchandising, and management information systems
infrastructure necessary to support such expansion;
(vi) the size, financial strength and operating leverage of Toys "R"
Us and the opportunity that the Merger presented to participate in a larger
enterprise with greater resources;
(vii) the presentations by CS First Boston and its opinion that the
exchange ratio of 0.8121 of a share of Toys "R" Us Common Stock per share
of Company Common Stock to be offered to the Shareholders, other than Mr.
Tate, in the Merger is fair to such Shareholders from a financial point of
view (see " -- Opinion of the Company's Financial Advisor");
15
<PAGE>
(viii) the relationship of the Merger Consideration (as defined
herein) to be paid to the Shareholders other than Mr. Tate to the
historical and current market prices for the Company Common Stock preceding
the announcement of the Merger (see "Summary -- Comparative Market Price
Information");
(ix) Mr. Tate's stated willingness to take a lower price per share for
the Tate Shares than was to be received by other Shareholders in order to
facilitate a transaction which he believes is in the best interests of all
the Shareholders;
(x) the impact of the Merger on the employees and certain executive
officers of the Company, including the non-competition provisions of the
Shareholders Agreement and the ability of the Company to retain experienced
employees and management both before and after the Merger (see "The
Merger -- Interests of Certain Persons in the Merger; Potential Conflicts
of Interest");
(xi) the terms of the Merger Agreement and the Shareholders Agreement
as reviewed by the Board with its legal advisors, including the conditions
to closing, and the agreement of Mr. Tate in the Shareholders Agreement to
vote in favor of the Merger, as well as the fact that the terms and
conditions of both agreements were the result of arm's-length negotiations
(see "The Merger Agreement" and "Certain Related Agreements -- Shareholders
Agreement");
(xii) the fact that the Merger Consideration is Toys "R" Us Common
Stock and that the Merger thus affords the Shareholders an opportunity to
maintain a continuing equity interest in the business of the Company as a
part of Toys "R" Us (see "The Merger Agreement -- The Merger"); and
(xiii) the tax consequences of the Merger to the Shareholders and to
the Company and Toys "R" Us (see "The Merger -- Certain Federal Income Tax
Consequences").
The foregoing discussion of the information and factors considered by the
Board is not meant to be exhaustive but is believed to include the material
factors considered by the Board. The Board did not quantify or attach any
particular weight to the various factors that it considered in reaching its
determination that the Merger Agreement and the transactions contemplated
thereby, including the Merger, are fair to and in the best interests of the
Shareholders. In reaching its determination, the Board took the various factors
into account collectively and the Board did not perform a factor-by-factor
analysis, nor did the Board consider whether any individual factor was, on
balance, positive or negative.
RECOMMENDATION OF THE COMPANY'S BOARD OF DIRECTORS
THE BOARD HAS DETERMINED THAT THE MERGER AGREEMENT AND THE TRANSACTIONS
CONTEMPLATED THEREBY, INCLUDING THE MERGER, ARE FAIR TO AND IN THE BEST
INTERESTS OF THE COMPANY AND THE SHAREHOLDERS, AND HAS APPROVED AND ADOPTED THE
MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE
MERGER. THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR APPROVAL
AND ADOPTION OF THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY,
INCLUDING THE MERGER.
OPINION OF THE COMPANY'S FINANCIAL ADVISOR
CS First Boston was retained by the Company to act as one of its two
exclusive financial advisors in connection with the Merger. Invemed is the other
financial advisor retained by the Company in connection with the Merger. Invemed
was not requested to, and did not render an opinion as to the fairness, from a
financial point of view, of the exchange ratios to be offered to the
Shareholders or Mr. Tate, respectively, in the Merger.
In connection with CS First Boston's engagement, the Company requested that
CS First Boston evaluate the fairness, from a financial point of view, of the
exchange ratio to be offered to the Shareholders, other than Mr. Tate, in the
Merger. On the evening of October 1, 1996, CS First Boston rendered to the Board
its oral opinion, which was confirmed by the CS First Boston Opinion, dated as
of October 1, 1996, to the effect that, as of such date and based upon and
subject to certain matters stated therein, the 0.8121 exchange ratio to be
offered to the Shareholders, other than Mr. Tate, in the Merger was fair to such
Shareholders from a financial point of view. CS First Boston was not asked to
and did not express any opinion as to whether the exchange ratio to be offered
to Mr. Tate is fair to Mr. Tate from a financial point of view.
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The full text of the CS First Boston Opinion, which sets forth the
assumptions and qualifications made, matters considered and limitations on the
review undertaken, is attached as Annex B to this Proxy Statement/Prospectus and
is incorporated herein by reference. SHAREHOLDERS ARE URGED TO READ THE CS FIRST
BOSTON OPINION IN ITS ENTIRETY AND CONSIDER IT CAREFULLY. The CS First Boston
Opinion has been provided to the Board for its information. It is directed only
to the fairness from a financial point of view of the 0.8121 exchange ratio to
be offered to the Shareholders, other than Mr. Tate, in the Merger and does not
constitute a recommendation to any Shareholder of the Company as to the manner
in which such Shareholder should vote at the Special Meeting. The CS First
Boston Opinion is based upon financial, economic, market and other conditions as
they existed and could be evaluated on the date of the opinion. The summary of
the CS First Boston Opinion set forth in this Proxy Statement/Prospectus is
qualified in its entirety by reference to the full text of such opinion.
In arriving at the CS First Boston Opinion, CS First Boston reviewed
certain publicly available business and financial information relating to the
Company and Toys "R" Us, as well as the Merger Agreement. CS First Boston also
reviewed certain other information, including financial forecasts, provided to
it by the Company and Toys "R" Us and met with the managements of the Company
and Toys "R" Us to discuss the business and prospects of the Company and Toys
"R" Us.
CS First Boston also considered certain financial and stock market data of
the Company and Toys "R" Us and compared that data with similar data for other
publicly held companies in businesses similar to those of the Company and Toys
"R" Us. In addition, CS First Boston considered the financial terms of certain
other business combinations which have recently been effected. CS First Boston
also considered such other information, financial studies, analyses and
investigations and financial, economic and market criteria that it deemed
relevant.
In connection with its review, CS First Boston did not assume any
responsibility for independent verification of any of the foregoing information
and relied upon such information being complete and accurate in all material
respects. With respect to the financial forecasts, CS First Boston assumed that
they were reasonably prepared on bases reflecting the best currently available
estimates and judgments of the managements of the Company and Toys "R" Us as to
the future financial performance of the Company and Toys "R" Us, respectively.
CS First Boston did not make an independent evaluation or appraisal of the
assets or liabilities (contingent or otherwise) of the Company or Toys "R" Us,
nor was CS First Boston furnished with any such evaluations or appraisals. CS
First Boston was not requested to, and did not, solicit third party indications
of interest in acquiring all or any part of the Company. The CS First Boston
Opinion is necessarily based on financial, economic, market and other conditions
as they existed and could be evaluated on the date of the CS First Boston
Opinion.
The summary set forth below describes the material analyses performed by CS
First Boston in connection with the preparation of the CS First Boston Opinion
rendered to the Board on the evening of October 1, 1996 and presented to the
Board on that date. It does not purport to be a complete description of the
analyses underlying the CS First Boston Opinion or the presentation made by CS
First Boston to the Board. In preparing the CS First Boston Opinion for the
Board, CS First Boston performed a variety of financial and comparative analyses
and considered a variety of factors of which the material analyses and factors
are described below. In addition, the preparation of a fairness opinion is a
complex analytic process involving various determinations as to the most
appropriate and relevant methods of financial analysis and the application of
those methods to the particular circumstances and, therefore, such an opinion is
not readily susceptible to partial analysis or summary description. Accordingly,
CS First Boston believes that its analyses must be considered as a whole and
that selecting portions of its analyses, without considering all analyses, would
create an incomplete view of the process underlying the CS First Boston Opinion.
DISCOUNTED CASH FLOW ANALYSIS. CS First Boston performed a discounted cash
flow analysis of the projected unlevered free cash flows of the Company for the
fiscal years 1997 to 2006, based upon financial forecasts for the fiscal years
1997 to 1999 provided to CS First Boston by the management of the Company, as
had been previously prepared by management and financial forecasts and
assumptions for the fiscal years 2000-2006 developed by CS First Boston in
conjunction with management (the "Management Case"). As a result of discussions
between CS First Boston and members of management and of the Board concerning
the Company's recent history of rapid growth and recent performance trends and
increasing competition in the market (including the entry of Toys "R" Us into
the market through Babies "R" Us), CS First Boston made certain adjustments to
the Management Case in conjunction with and as approved by the Company
management to incorporate management's
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then current views as to the performance outlook for the Company (the "Adjusted
Case"). The Adjusted Case incorporated adjustments modifying certain assumptions
utilized in the Management Case relating to the rate of new store openings,
comparable store sales growth, gross margin percentages for non-private label
sales and sales per square foot levels for new stores.
Under the guidance and approval of management, and as described to the
Board in its presentation, CS First Boston also prepared, as a part of its
sensitivity analysis, a number of cases modifying certain of the assumptions
utilized to prepare the Management Case so as to incorporate potential
uncertainties in the operations and financial forecasts of the Company (the
"Sensitivity Cases"). The Sensitivity Cases included a reduced store roll-out
case, a gross margin erosion case, a constant merchandise mix case, and a
decrease in comparable store sales growth case.
Based upon these various sets of financial forecasts, CS First Boston
developed enterprise value reference ranges and equity value reference ranges
per share for the Company Common Stock, utilizing terminal value multiples of
projected fiscal year 2006 earnings before interest, taxes, depreciation and
amortization ("EBITDA") of 6.5x to 7.5x and discount rates reflecting a weighted
average cost of capital ranging from 16.0% to 18.0% for the Management Case and
14.0% to 15.0% for all other cases. The enterprise value reference ranges and
equity value reference ranges per share which CS First Boston developed for each
of the financial forecasts were as follows: for the Management Case, $370 to
$490 million in enterprise value and $17.78 to $23.71 in equity value per share;
for the Adjusted Case, $290 to $360 million in enterprise value and $13.83 to
$17.29 in equity value per share; and for the Sensitivity Cases, $265 to $490
million in enterprise value and $12.60 to $23.71 in equity value per share.
COMPARABLE COMPANY ANALYSIS. CS First Boston performed a comparable company
analysis in which it compared certain publicly available historical, financial
and operating data, projections of future financial performance (reflecting a
composite of equity research analysts' estimates) and market statistics
(calculated based upon closing stock prices as of September 27, 1996) of
selected publicly-traded companies in the retailing industry considered by CS
First Boston to be reasonably comparable to the Company (the "Public
Comparables") with similar historical financial and operating data, projections
of future financial performance (also reflecting a composite of equity research
analysts' estimates) and market statistics (also calculated based upon closing
stock prices as of September 27, 1996) of the Company. Such Public Comparables
were: Toys "R" Us; Bed, Bath & Beyond, Inc.; CompUSA Inc.; The Home Depot, Inc.;
Just For Feet, Inc.; Office Depot, Inc.; The Pep Boys-Manny, Moe & Jack;
PETsMART, Inc.; and The Sports Authority, Inc. For the Public Comparables, CS
First Boston calculated common stock prices per share as a multiple of both
estimated 1996 and 1997 earnings per share ("EPS") (based on calendarized First
Call EPS estimates). CS First Boston also calculated enterprise value as a
multiple of the latest 12 months ("LTM") sales, EBITDA and EBIT (I.E., earnings
before interest and taxes). For the purposes of the analysis referred to in the
preceding sentence, CS First Boston defined enterprise value as equity market
value (share price multiplied by fully-diluted shares outstanding less
exercisable option proceeds) plus total debt, preferred stock and minority
interest, less cash and cash equivalents. The multiples so derived by CS First
Boston for the Public Comparables were as follows: (i) enterprise value to LTM
sales ranging from 0.6x to 4.6x; (ii) enterprise value to LTM EBITDA ranging
from 9.5x to 33.0x; (iii) enterprise value to EBIT ranging from 11.9x to 45.0x;
(iv) equity value per share to estimated calendar year 1996 EPS ranging from
15.7x to 60.8x; and (v) equity value per share to estimated calendar year 1997
EPS ranging from 13.8x to 43.1x. CS First Boston then applied these multiples of
LTM and projected 1996 and 1997 financial performance to the appropriate
benchmarks of the Company to derive value reference ranges for the Company. The
value reference ranges so indicated for the Company were $360 to $440 million in
enterprise value and $17.29 to $21.24 in equity value per share.
COMPARABLE ACQUISITIONS ANALYSIS. CS First Boston reviewed certain publicly
available information regarding 13 selected business combinations consummated
since September 1992 involving companies in the retailing industry considered by
CS First Boston to be reasonably comparable to the acquisition of the Company by
Toys "R" Us (the "Acquisition Comparables"). The Acquisition Comparables
included: (i) Revco DS Inc.'s proposed acquisition of Big B, Inc.; (ii) Staples
Inc.'s acquisition of Office Depot, Inc.; (iii) Sears, Roebuck and Co.'s
acquisition of Orchard Supply Hardware, Corp.; (iv) Thrift Drug's (J.C. Penney
Company, Inc.) acquisition of Fay's Incorporated; (v) Proffitt's, Inc.'s
acquisition of Parisian, Inc.; (vi) Consolidated Stores Corp.'s acquisition
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of Kay-Bee Toys & Hobby Shops Inc. (Melville Corp.); (vii) The TJX Companies,
Inc.'s acquisition of Marshall's (Melville Corp.); (viii) PETsMART, Inc.'s
acquisition of Petstuff, Inc.; (ix) Michaels Stores Inc.'s acquisition of
LeeWards Creative Crafts Inc.; (x) PETsMART, Inc.'s acquisition of Weisheimer
Cos.; (xi) Sam's Wholesale Club's (Wal-Mart Stores, Inc.) acquisition of PACE
Membership Warehouse, Inc. (Kmart Corp.); (xii) Costco Inc.'s acquisition of
Price, Inc.; and (xiii) Waldenbook Co. Inc.'s (Kmart Corp.) acquisition of
Borders, Inc.
For each of the Acquisition Comparables, CS First Boston calculated the
enterprise value reflected in the price paid in each such transaction as a
multiple of the publicly available LTM sales, EBITDA and EBIT and number of
stores of the acquired company. The multiples so determined for the Acquisition
Comparables were as follows: (i) enterprise value to LTM sales ranging from 0.2x
to 1.3x; (ii) enterprise value to LTM EBITDA ranging from 3.2x to 21.5x; (iii)
enterprise value to LTM EBIT ranging from 4.3x to 137.9x; and (iv) enterprise
value to number of stores of the acquired company ranging from $0.3 million to
$24.8 million per store. CS First Boston then applied these multiples to the
Company's financial results for the 12 months ended July 31, 1996 to derive
value reference ranges for the Company. The value reference ranges so indicated
for the Company were $350 to $425 million in enterprise value and $16.80 to
$20.50 in equity value per share.
CS FIRST BOSTON REFERENCE RANGE. On the basis of the valuation
methodologies employed in the analyses described above, CS First Boston
developed an enterprise value reference range for the Company of $325 to $425
million and an equity value reference range per share of $15.56 to $20.50. CS
First Boston also noted that, at the proposed exchange ratio of 0.8121 to be
offered to the Shareholders other than Mr. Tate and based on the closing price
of a share of Toys "R" Us Common Stock on September 30, 1996 of $29.125, the
value per fraction of a share of Toys "R" Us Common Stock to be received by the
Shareholders of the Company, other than Mr. Tate, for each of their shares of
Company Common Stock was $23.65.
In performing its analyses, CS First Boston made numerous assumptions with
respect to industry performance, general business, economic, market and
financial conditions and other matters, many of which are beyond the control of
the Company. Any estimates contained in the analyses performed by CS First
Boston are not necessarily indicative of actual values or predictive of future
results or values, which may be significantly more or less favorable than
suggested by such analyses. Additionally, estimates of the value of businesses
or securities do not purport to be appraisals or to reflect the prices at which
such businesses or securities might actually be sold. Accordingly, such analyses
and estimates are inherently subject to substantial uncertainty. In addition, as
described above, the CS First Boston Opinion and CS First Boston's presentations
to the Board were two of many factors taken into consideration by the Board in
making its determination to approve the Merger Agreement. Consequently, the CS
First Boston analyses described above should not be viewed as determinative of
the opinion of the Board or the Company's management with respect to the value
of the Company. CS First Boston has informed the Company that had the Merger
originally been structured as a merger of Sub into the Company, as provided in
the amendment as of December 26, 1996, that such fact would not have affected
the CS First Boston Opinion.
Pursuant to a letter agreement, dated September 13, 1996, between CS First
Boston and the Company, the Company will pay CS First Boston a transaction fee
of 1.5% of the aggregate consideration (equity value plus total debt) to be paid
by Toys "R" Us in connection with the Merger, of which $5,000 became payable
upon CS First Boston's engagement, $500,000 became payable to CS First Boston
upon delivery of the CS First Boston Opinion on October 1, 1996, and the balance
will be payable upon consummation of the Merger. Because the consideration in
the Merger consists of shares of Toys "R" Us Common Stock, the dollar value of
the aggregate consideration for purposes of calculating the fee cannot presently
be determined and will vary depending on the market price of Toys "R" Us Common
Stock at the Effective Time. However, for illustrative purposes only, assuming
the price per share of Toys "R" Us Common Stock at the Effective Time was
$33.125 (the closing sales price as reported on the NYSE Composite Tape on
December 6, 1996), and assuming approximately 20.1 million shares of Company
Common Stock for purposes of calculating the transaction fee and assuming that
the total debt of the Company at the Effective Time were $115 million (the
approximate amount of debt outstanding as of the date hereof), the aggregate
consideration would have been approximately $570 million and the resulting
aggregate fee would have been 1.5% of $570 million, or approximately $8.5
million. For Invemed's services as financial advisor to the Company in
connection with the Merger, Invemed will be entitled to approximately half of
the transaction fees to be received by CS First Boston. Invemed served as an
underwriter in connection with the Company's public offering of the Convertible
Notes in September 1995, and the Company's public offerings
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of Company Common Stock in September 1994 and in March 1995 and received
customary fees for such services. See "The Merger -- Interests of Certain
Persons in the Merger; Potential Conflicts of Interest" for a description of the
relationship of Mr. Langone and Thomas L. Teague, directors of the Company, to
Invemed and for a description of their interests in the Merger.
The Company also has agreed to reimburse CS First Boston and Invemed for
all out-of-pocket expenses, including the fees and expenses of legal counsel and
other advisors. The Company has further agreed to indemnify CS First Boston and
certain related persons and entities for certain losses, claims, damages or
liabilities (including actions or proceedings in respect thereof) related to or
arising out of, among other things, CS First Boston's engagement as financial
advisor.
The Company retained CS First Boston based upon CS First Boston's
experience and expertise. An internationally recognized investment banking firm,
CS First Boston is regularly engaged in the valuation of businesses and
securities in connection with mergers and acquisitions, negotiated
underwritings, competitive biddings, secondary distributions of listed and
unlisted securities, private placements and valuations for estate, corporate and
other purposes. In the past, CS First Boston has performed certain investment
banking services for the Company, including serving as an underwriter with
respect to the Company's offering of the Convertible Notes in September 1995,
its initial public offering of Company Common Stock in September 1994 and its
public offering of Company Common Stock in March 1995, and has received
customary fees for such services. In the ordinary course of its business, CS
First Boston and its affiliates and Invemed and its affiliates may actively
trade the debt, equity and convertible securities of both the Company and Toys
"R" Us for their own account and for the accounts of customers and, accordingly,
may at any time hold a long or short position in such securities. Invemed also
provides services to the Company with respect to the Baby Superstore, Inc.
Employee Stock Purchase Plan (the "Employee Stock Purchase Plan") for which
Invemed receives a nominal fee.
TOYS "R" US' REASONS FOR THE MERGER
The Board of Directors of Toys "R" Us believes that consummation of the
Merger is another important step in the long range strategic business plan of
Toys "R" Us to become a leading retailer in the infant-through-toddler
marketplace. Toys "R" Us has recently entered the infant-through-toddler market
through its Babies "R" Us stores with the viewpoint that Babies "R" Us can
become a valuable resource for new parents by providing an exciting ambiance,
together with a greater selection and everyday low prices. Furthermore, Toys "R"
Us believes there are additional benefits to its businesses through the natural
evolution of Babies "R" Us customers into Toys "R" Us and Kids "R" Us customers.
Consummation of the Merger will enable Toys "R" Us to accelerate its planned
expansion of Babies "R" Us. As a result of the Merger, Babies "R" Us will become
a leading operator of infant-through-toddler superstores, with 83 stores in 26
states based upon current estimates.
INTERESTS OF CERTAIN PERSONS IN THE MERGER; POTENTIAL CONFLICTS OF INTEREST
SHAREHOLDERS AGREEMENT. Concurrently with the execution of the original
version of the Merger Agreement on October 1, 1996, Toys "R" Us, Mr. Tate and
Ms. Robertson entered into the Shareholders Agreement. Pursuant to the
Shareholders Agreement, Mr. Tate has agreed to vote, and has granted to Toys "R"
Us an irrevocable proxy to vote, the shares of Company Common Stock votable by
him, representing approximately 46% of the outstanding Company Common Stock, in
favor of the Merger. Pursuant to the Shareholders Agreement, Mr. Tate and Ms.
Robertson have, among other things, also agreed not, until the third anniversary
of the Effective Time (as defined herein), to engage in any activity in the
juvenile retail business, directly or indirectly, whether as an employee,
officer, director, agent, consultant, proprietor, partner, principal shareholder
or otherwise, anywhere in the United States or where the Company currently has
operations. See "Certain Related Agreements -- Shareholders Agreement."
REGISTRATION RIGHTS AGREEMENT. Concurrently with the execution of the
original version of the Merger Agreement on October 1, 1996, Toys "R" Us, Mr.
Tate and Ms. Robertson entered into a Registration Rights Agreement (the
"Registration Rights Agreement"), pursuant to which Mr. Tate and Ms. Robertson
have certain rights to demand that Toys "R" Us effect the registration with the
Commission under the Securities Act of all or part of the Toys "R" Us Common
Stock issued to Mr. Tate and Ms. Robertson pursuant to the Merger and also
certain rights to participate in underwritten registered offerings by Toys "R"
Us. See "Certain Related Agreements -- Registration Rights Agreement."
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CHANGE OF CONTROL EMPLOYMENT AGREEMENT. The Company has entered into a
change of control employment agreement dated as of October 1, 1996 with Jodi L.
Taylor, its Chief Financial Officer, Secretary and Treasurer (the "Employment
Agreement"). The Employment Agreement provides that Ms. Taylor shall receive
during the period from the date of a Change of Control (as defined in the
Employment Agreement) until the second anniversary of such date (the "Employment
Period") an annual base salary equal to $145,000 and also provides that Ms.
Taylor shall be eligible for participation in all incentive, savings, welfare
benefit, fringe benefit and retirement plans of her employer at a level equal to
that of peer executives. Consummation of the Merger will constitute a Change of
Control for purposes of the Employment Agreement.
In the event Ms. Taylor's employment is terminated during the Employment
Period by the employer for Cause (as defined in the Employment Agreement), or by
Ms. Taylor without Good Reason (as defined in the Employment Agreement) during
the 12 month period following a Change of Control, Ms. Taylor shall be eligible
to receive payment for accrued obligations such as unpaid salary through the
date of termination and any compensation previously deferred by Ms. Taylor
("Accrued Obligations"). Upon termination by the employer during the Employment
Period for reason other than Cause, or by Ms. Taylor for Good Reason, or by Ms.
Taylor without Good Reason during the period beginning 12 months after a Change
of Control and ending upon the second anniversary thereof, Ms. Taylor shall be
entitled to receive a lump sum cash payment equal to Accrued Obligations plus an
amount equal to twice her base salary. The employer will make an additional
payment to Ms. Taylor in an amount such that after the payment of all income and
excise taxes, Ms. Taylor will be in the same after-tax position as if no excise
tax under Section 4999 of the Code had been imposed, except that such additional
payment to Ms. Taylor shall amount to no more than $200,000. In addition, all
stock options held by Ms. Taylor will accelerate and become immediately vested
upon the date of termination, and Ms. Taylor will be entitled to continued
employee welfare benefits for two years.
In the event that Ms. Taylor remains continuously employed pursuant to the
Employment Agreement during the Employment Period, she shall be entitled to
receive a retention bonus equal to twice her annual base salary.
WELFARE BENEFITS AGREEMENT. The Company has entered into a welfare benefits
agreement with Ms. Robertson pursuant to which the Company shall provide Ms.
Robertson with certain welfare benefits for a period of time after the date of
termination for any reason of her employment with the Company.
INDEMNIFICATION. The Merger Agreement provides that from and after the
Effective Time and for a period of six years thereafter, Toys "R" Us shall
indemnify each person who is as of the date of the Merger Agreement, or has been
at any time prior to the date of the Merger Agreement or who becomes prior to
the Effective Time, an officer or director of the Company or any of its
subsidiaries against all losses, claims, damages, costs, expenses (including
attorneys' fees and expenses), liabilities or judgments or amounts that are paid
in settlement of or in connection with any threatened or actual claim, action,
suit, proceeding or investigation based in whole or in part on or arising in
whole or in part out of the fact that such person is or was a director or
officer of the Company or any of its subsidiaries, whether pertaining to any
matter existing or occurring at or prior to the Effective Time and whether
asserted or claimed prior to, or at or after, the Effective Time including,
without limitation, all such liabilities based in whole or in part on, or
arising in whole or in part out of, or pertaining to the Merger Agreement or the
transactions contemplated thereby, in each case to the fullest extent a
corporation is permitted under the SCBCA to indemnify its own directors or
officers. See "The Merger Agreement -- Certain Covenants -- Indemnification of
Directors and Officers."
INTERESTS IN COMPANY COMMON STOCK AND OPTIONS. As of December 24, 1996, the
executive officers and directors of the Company beneficially owned an aggregate
of 10,251,881 shares of Company Common Stock (including 305,000 shares of
Company Common Stock subject to Options and Warrants exercisable within 60
days), of which 8,797,500 shares, or 45.70%, of the outstanding shares of
Company Common Stock are held of record by Mr. Tate and 202,500 shares subject
to Options exercisable within 60 days are beneficially owned by Mr. Tate. Based
upon the closing sales price of the Toys "R" Us Common Stock on December 24,
1996 of $31.375, and assuming the exercise of outstanding Options exercisable
within 60 days of December 24, 1996 (not including Options held by Mr. Tate and
Ms. Robertson), the aggregate dollar value of Toys "R" Us Common Stock to be
received in the Merger by the executive officers and directors of the Company
would be approximately $172,328,703, of which $142,151,105 would be received by
Mr. Tate.
At the Effective Time, each then outstanding vested Option held by Mr. Tate
shall be settled by the Company in exchange for an amount of cash equal to the
difference between (i) 0.5150 multiplied by the closing per
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share sales price of the Toys "R" Us Common Stock on the closing date under the
Merger Agreement and (ii) the exercise price per share of such Option. In
addition, each then outstanding vested Option held by Ms. Robertson shall be
settled by the Company in exchange for an amount of cash equal to the difference
between (i) 0.8121 multiplied by the closing per share sales price of the Toys
"R" Us Common Stock on the closing date under the Merger Agreement and (ii) the
exercise price per share of such Option. Mr. Tate currently holds vested Options
to purchase 202,500 shares of Company Common Stock and Ms. Robertson holds
vested Options to purchase 67,500 shares of Company Common Stock. Based upon the
closing sales price of the Toys "R" Us Common Stock on December 24, 1996 of
$31.375, the cash to be received by Mr. Tate and Ms. Robertson with respect to
their vested Options upon consummation of the Merger would be approximately
$3,116,820 and $1,662,276, respectively. See "The Merger Agreement -- Treatment
of Stock Options."
INTERESTS IN WARRANTS. In consideration of certain financial consulting
services provided to the Company in May and June of 1994, the Company, on
September 27, 1994, issued to Invemed a Warrant to purchase 168,750 shares of
Company Common Stock at an exercise price of $16 per share of Company Common
Stock, as adjusted for the Company's two-for-one stock split in February 1995.
Mr. Langone is a director of the Company and also the Chairman, Chief Executive
Officer and President of Invemed and principal shareholder of its parent. Mr.
Teague is a director of the Company and also a shareholder of the parent of
Invemed. The Warrant was transferred to certain individuals within Invemed and
as of December 24, 1996, Mr. Langone and Mr. Teague each owned a Warrant to
purchase 65,250 shares of Company Common Stock. Two other individuals affiliated
with Invemed hold the remaining Warrants to purchase a total of 38,250 shares of
Company Common Stock originally issued to Invemed. Pursuant to the Merger
Agreement, all such Warrants will be assumed by Toys "R" Us and shall be deemed
to constitute warrants to acquire the same number of shares of Toys "R" Us
Common Stock as the holder of such Warrant would have been entitled to receive
in the Merger had such holder exercised the Warrant at the Effective Time. See
"The Merger Agreement -- Treatment of Warrants."
INVESTMENT BANKING FEES. Based on a fee sharing arrangement which Invemed
maintains with CS First Boston, Invemed will receive approximately half of the
transaction fee paid to CS First Boston in connection with the Merger. See "The
Merger -- Opinion of the Company's Financial Advisor."
DIRECTOR SEVERANCE POLICY. The Board has adopted a Director Severance
Policy, effective as of October 1, 1996 (the "Director Severance Policy"), that
provides certain Company "directors," who are senior management employees with
responsibility for key areas within the Company specified in the Director
Severance Policy (each a "Manager") an incentive to remain employed in the
Company during the pendency of the Merger as well as certain benefits in the
event that the Manager's employment terminates during the one-year period
following the Merger (the "Manager Employment Period"). In the event that the
Manager remains continuously employed pursuant to the Director Severance Policy
during the Manager Employment Period, the Manager shall be entitled to receive a
retention bonus equal to the Manager's annual base salary. In the event a
Manager's employment is terminated during the Manager Employment Period by the
employer for Cause (as defined in the Director Severance Policy), or for any
reason after the Manager Employment Period, the Manager shall be eligible to
receive payment for accrued obligations such as unpaid salary through the date
of termination and compensation previously deferred by the Manager ("Manager
Accrued Obligations"). Upon termination by the employer during the Manager
Employment Period for reason other than Cause, or by the Manager within 90 days
of (i) a reduction of the Manager's monthly salary, (ii) a material adverse
diminishment of the Manager's duties and responsibilities, (iii) being required
to be based at a location more than 35 miles from where the Manager was based on
the date of the Merger, or (iv) a sale or transfer of the division employing the
Manager to a purchaser who does not assume the obligations set forth in the
Director Severance Policy, the Manager shall be entitled to receive a lump sum
cash payment equal to Manager Accrued Obligations plus an amount equal to the
Manager's base salary. No member of the Board or executive officer of the
Company will receive any benefits pursuant to the Director Severance Policy.
The foregoing interests of the directors and certain members of management
of the Company in the Merger may mean that such persons have personal interests
in the Merger which may not be identical to the interests of other Shareholders.
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ACCOUNTING TREATMENT
The Merger will be accounted for as a "purchase" in accordance with
generally accepted accounting principles. Therefore, the aggregate consideration
paid by Toys "R" Us in connection with the Merger will be allocated to the
Company's assets and liabilities based upon their fair values, with any excess
being treated as goodwill. The assets and liabilities and results of operations
of the Company will be consolidated into the assets and liabilities and results
of operations of Toys "R" Us subsequent to the consummation of the Merger.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion is a general summary of the material United States
federal income tax consequences of the Merger. This discussion is based upon the
Code, regulations, proposed or promulgated thereunder, judicial precedent
relating thereto, and current rulings and administrative practice of the
Internal Revenue Service (the "Service"), in each case as in effect as of the
date hereof and all of which are subject to change at any time, possibly with
retroactive effect. It is assumed that shares of Company Common Stock are held
as "capital assets" within the meaning of Section 1221 of the Code (I.E.,
property held for investment). This discussion does not address all aspects of
federal income taxation that might be relevant to particular holders of Company
Common Stock in light of their status or personal investment circumstances; nor
does it discuss the consequences to such holders who are subject to special
treatment under the federal income tax laws, such as foreign persons, dealers in
securities, regulated investment companies, life insurance companies, other
financial institutions, tax-exempt organizations, pass-through entities,
taxpayers who hold Company Common Stock as part of a "straddle," "hedge" or
"conversion transaction" or who have a "functional currency" other than the
United States dollar. In addition, this discussion does not address the tax
consequences to holders of Options under the Option Plans (as defined herein
under "The Merger Agreement -- Treatment of Stock Options") or other persons who
have received their Company Common Stock as compensation. Neither Toys "R" Us
nor the Company has requested or will receive a ruling from the Service as to
the tax consequences of the Merger.
HOLDERS OF COMPANY COMMON STOCK SHOULD CONSULT THEIR TAX ADVISORS AS TO THE
PARTICULAR TAX CONSEQUENCES TO THEM OF THE MERGER, INCLUDING THE APPLICABILITY
AND EFFECT OF FEDERAL, STATE, LOCAL, FOREIGN INCOME AND OTHER TAX LAWS.
The Merger is intended to qualify as a reorganization under Section 368(a)
of the Code. It is a condition to the obligation of Toys "R" Us to consummate
the Merger that Toys "R" Us shall have received an opinion from Weil, Gotshal &
Manges LLP to the effect that the Merger will be treated as a reorganization
within the meaning of Section 368(a) of the Code and no gain or loss will be
recognized by Toys "R" Us, Sub or the Company as a result of the Merger. It is a
condition to the obligation of the Company to consummate the Merger that the
Company shall have received an opinion from Wachtell, Lipton, Rosen & Katz to
the effect that the Merger will be treated as a reorganization within the
meaning of Section 368(a) of the Code and that no gain or loss will be
recognized by a holder of Company Common Stock as a result of the Merger except
(i) with respect to cash received by such holder in lieu of fractional shares or
pursuant to the exercise of dissenters' rights, and (ii) to the extent a holder
of Company Common Stock receives consideration different in amount from other
Shareholders. In rendering such opinions and the opinions set forth below,
counsel to each of Toys "R" Us and the Company (together, "Tax Counsel") will
rely upon certain representations made by Toys "R" Us, the Company, Sub and
certain Shareholders of the Company. Set forth below is the opinion of Tax
Counsel as to the material federal income tax consequences of the Merger.
Assuming the Merger is treated as a reorganization within the meaning of
Section 368(a) of the Code, no gain or loss will be recognized for federal
income tax purposes by Toys "R" Us, Sub or the Company as a result of the
Merger. Subject to the discussion below, a holder of Company Common Stock will
not recognize gain or loss on the exchange of shares of Company Common Stock for
Toys "R" Us Common Stock pursuant to the Merger. The aggregate tax basis of the
Toys "R" Us Common Stock received by such holder will be the same as the
aggregate tax basis of the Company Common Stock surrendered therefor (reduced by
the amount of such tax basis allocable to fractional shares for which cash is
received and adjusted as provided for below). Subject to the discussion below,
the holding period of the Toys "R" Us Common Stock will include the holding
period of the Company Common Stock surrendered therefor.
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Cash received by a holder of Company Common Stock in lieu of a fractional
share interest in Toys "R" Us Common Stock will be treated as received in
exchange for such fractional share interest, and gain or loss will be recognized
for federal income tax purposes, measured by the difference between the amount
of cash received and the portion of the basis of the Company Common Stock
allocable to such fractional share interest. Such gain or loss will be capital
gain or loss and will be long-term if such share of Company Common Stock has
been held for more than one year at the Effective Time.
Cash received by a holder of Company Common Stock pursuant to the exercise
of dissenters' rights will result in the recognition of gain or loss for federal
income tax purposes, measured by the difference between the amount of cash
received and the basis of the shares of Company Common Stock surrendered. Such
gain or loss will be capital gain or loss and will be long-term if such shares
of Company Common Stock have been held for more than one year.
While not free from doubt, a holder of Company Common Stock who receives
more than the blended per share value of the total consideration paid in the
Merger (I.E., 0.68 of a share of Toys "R" Us Common Stock) likely will be
required to recognize ordinary income equal to the excess of the value of 0.8121
of a share of Toys "R" Us Common Stock at the Effective Time over such blended
per share value times the number of shares of Company Common Stock held by such
holder. In that event, a holder's tax basis in such excess shares of Toys "R" Us
Common Stock would equal the fair market value thereof at the Effective Time and
the holding period would begin on the day after the day on which the Effective
Time occurs.
BACKUP WITHHOLDING. Under the Code, a holder of Company Common Stock may be
subject, under certain circumstances, to backup withholding at a 31% rate unless
such holder provides proof of an applicable exemption or a correct taxpayer
identification number, and otherwise complies with applicable requirements of
the backup withholding rules. Any amounts withheld under the backup withholding
rules are not an additional tax and may be refunded or credited against the
holder's federal income tax liability, provided the required information is
furnished to the Service.
REGULATORY APPROVALS
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended
(the "HSR Act"), and the rules promulgated thereunder by the Federal Trade
Commission (the "FTC"), the Merger cannot be consummated until requisite
pre-merger notifications have been filed and certain information has been
furnished to the FTC and the Antitrust Division of the Department of Justice
(the "Antitrust Division") and specified waiting period requirements have been
satisfied. Toys "R" Us and the Company filed notification and report forms under
the HSR Act with the FTC and the Antitrust Division on October 15, 1996. The
applicable waiting periods expired on November 14, 1996. At any time before or
after the Effective Time, and notwithstanding that the HSR Act waiting period
has expired, the Antitrust Division or the FTC could take such action under the
antitrust laws as it deems necessary or desirable in the public interest,
including seeking to enjoin consummation of the Merger or seeking divestiture of
substantial assets of Toys "R" Us or the Company. At any time before or after
the Effective Time, and notwithstanding that the HSR Act waiting period has
expired, any state could take such action under the antitrust laws as it deems
necessary or desirable in the public interest. Such action could include seeking
to enjoin consummation of the Merger or seeking divestiture of businesses of
Toys "R" Us or the Company. Private parties also may seek to take legal action
under the antitrust laws under certain circumstances.
Toys "R" Us and the Company believe that the Merger can be effected in
compliance with federal and state antitrust laws. However, there can be no
assurance that a challenge to consummation of the Merger on antitrust grounds
will not be made or that, if such a challenge were made, Toys "R" Us and the
Company would prevail or would not be required to accept certain conditions,
including certain divestitures, in order to consummate the Merger. Pursuant to
the Merger Agreement, Toys "R" Us is not required to agree to certain types of
such conditions or divestitures. See "The Merger Agreement -- Certain
Covenants -- Certain Efforts."
CERTAIN CONSEQUENCES OF THE MERGER
As a result of the Merger, Sub will be merged with and into the Company and
the Company will become a wholly owned subsidiary of Toys "R" Us. Following the
Merger, former holders of Company Common Stock will no longer have any interest
in the Company as an independent entity or be able to vote with respect to the
future affairs of the Company as an independent entity. Although former holders
of Company Common Stock
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will no longer enjoy the possibility of a separate interest in any future
appreciation in their equity interest in the Company, after the Merger such
former holders will enjoy the possibility of future appreciation in their equity
interest in Toys "R" Us, which will include the Company.
Registration of the Company Common Stock under the Exchange Act may be
terminated upon application of the Company to the Commission if the Company
Common Stock is neither listed on a national securities exchange nor held by
more than 300 holders of record. Following consummation of the Merger, the
Company will be a wholly owned subsidiary of Toys "R" Us and the Company Common
Stock will be delisted from the Nasdaq National Market and will no longer be
traded publicly. The Company expects that the Company Common Stock will continue
to be listed and traded on the Nasdaq National Market until the consummation of
the Merger.
Because the Convertible Notes are registered under the Exchange Act, the
Company will continue to be subject to the informational requirements of the
Exchange Act following consummation of the Merger so long as the Convertible
Notes remain outstanding. Following consummation of the Merger, each holder of
Convertible Notes will have the right to require the Company to repurchase all
or any part of such holder's Convertible Notes. See " -- Effect of Merger on
Convertible Notes." If the holders of the Convertible Notes exercise such rights
with respect to all of the outstanding Convertible Notes, the Company will no
longer be subject to the informational requirements of the Exchange Act. If the
the holders of the Convertible Notes do not exercise such rights with respect to
all of the outstanding Convertible Notes and a portion of the Convertible Notes
remains outstanding, Toys "R" Us may consider taking certain actions to enable
the Company to cease to be subject to the informational requirements of the
Exchange Act.
EFFECT OF MERGER ON CONVERTIBLE NOTES
As of December 17, 1996, there was $115 million aggregate principal amount
of the Convertible Notes outstanding. The Convertible Notes were issued under an
Indenture, dated as of October 3, 1995, between the Company and Bank of New York
Trust Company of Florida, as successor to Nationsbank Georgia, National
Association, as trustee (the "Convertible Notes Indenture"). The Convertible
Notes are currently convertible at the option of the holder thereof into shares
of Company Common Stock at a conversion price of $53.875 per share of Company
Common Stock, subject to adjustment upon the occurrence of certain events. Upon
consummation of the Merger, the Company, as the surviving corporation in the
Merger, and Toys "R" Us will enter into a supplemental indenture to the
Convertible Notes Indenture which will provide that, subject to the terms and
conditions set forth in the Convertible Notes Indenture, the Convertible Notes
will thereafter be convertible into the number of shares of Toys "R" Us Common
Stock which a holder of Convertible Notes would have received if such holder had
converted such Convertible Notes into Company Common Stock immediately prior to
the consummation of the Merger, subject to adjustment thereafter upon the
happening of the same events that would currently result in an adjustment
pursuant to the Convertible Notes Indenture. Accordingly, assuming no events
occur prior to consummation of the Merger that would result in an adjustment to
the current conversion price, upon consummation of the Merger, the Convertible
Notes will become convertible into shares of Toys "R" Us Common Stock at a
conversion price of $66.36 per share of Toys "R" Us Common Stock.
The Convertible Notes Indenture also provides that, in the event of a
"Change in Control" (as defined in the Convertible Notes Indenture), each holder
of Convertible Notes will have the right to require the Company to purchase all
or any part of such holder's Convertible Notes at a cash purchase price equal to
100% of the principal amount thereof. Consummation of the Merger will result in
a "Change in Control" within the meaning of the Convertible Notes Indenture.
Accordingly, holders of Convertible Notes will be entitled to exercise such
repurchase rights following the consummation of the Merger.
MANAGEMENT OF THE COMPANY AFTER THE MERGER
All of the officers and directors of Sub immediately prior to the Effective
Time will continue as officers and directors of the surviving corporation after
the Effective Time, until their successors have been elected or until their
resignations or removal.
Following the Effective Time, it is presently intended that the operations
of Toys "R" Us' Babies "R" Us business will be transferred to the Company and
substantially all of the employees of the Company will be
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retained. The office and warehouse facilities of the Company in Duncan, South
Carolina are currently being evaluated to determine how they will be utilized
following consummation of the Merger.
FEDERAL SECURITIES LAW CONSEQUENCES
All shares of Toys "R" Us Common Stock received by Shareholders of the
Company in the Merger will be freely transferable, except that shares of Toys
"R" Us Common Stock received by persons who are deemed to be "affiliates" (as
such term is defined under the Securities Act) of the Company prior to the
Merger may be resold by them only in transactions permitted by the resale
provisions of Rule 145 promulgated under the Securities Act (or Rule 144 under
the Securities Act, in the case of such persons who become affiliates of Toys
"R" Us) or as otherwise permitted under the Securities Act. Persons who may be
deemed to be affiliates of the Company are generally defined as individuals or
entities that control, are controlled by, or are under common control with, the
Company and include certain executive officers and directors, as well as
principal Shareholders, of the Company. The Merger Agreement requires the
Company to use its reasonable best efforts to cause to be delivered to Toys "R"
Us, prior to the Closing (as defined herein), from each affiliate of the Company
a letter agreement to the effect that such person will not offer or sell or
otherwise dispose of any of the shares of Toys "R" Us Common Stock issued to
such persons in or pursuant to the Merger in violation of the Securities Act or
the rules and regulations promulgated by the Commission thereunder.
STOCK EXCHANGE LISTING
The Toys "R" Us Common Stock is currently traded on the NYSE under the
symbol "TOY." It is a condition to the consummation of the Merger that the
shares of Toys "R" Us Common Stock to be issued in connection with the Merger
and the other shares of Toys "R" Us Common Stock to be reserved for issuance in
connection with the Merger shall have been authorized for listing on the NYSE,
subject only to official notice of issuance. The shares of Toys "R" Us Common
Stock to be issued in connection with the Merger and the shares of Toys "R" Us
Common Stock issuable upon exercise of Options and Warrants to be issued
pursuant to the Merger Agreement will be issued from Toys "R" Us' treasury and,
accordingly, have already been listed on the NYSE.
DISSENTERS' RIGHTS
If the Merger is consummated, persons who are Shareholders of the Company
at the time of the Special Meeting who follow the procedures specified in
Chapter 13 of the SCBCA ("Chapter 13") will be entitled to have the "fair value"
(as defined in Chapter 13) of their shares of Company Common Stock determined by
the South Carolina Circuit Court of Common Pleas located in Spartanburg, South
Carolina and to receive payment of the "fair value" of such shares. The
procedures set forth in Chapter 13 must be substantially complied with. Failure
to follow any of such procedures may result in a termination or waiver of
dissenters' rights under Chapter 13. Shareholders who follow the procedures of
Chapter 13 with respect to their shares retain all other rights of Shareholders
until such rights are modified by the consummation of the Merger. Shares (i) as
to which a written notice of an intent to demand payment is given to the Company
(in accordance with Section 33-13-210 of the SCBCA) prior to the vote of the
Shareholders on the approval and adoption of the Merger Agreement and the
transactions contemplated thereby, including the Merger, taken at the Special
Meeting and not withdrawn at or prior to the time of such vote, (ii) which are
not voted by the holder thereof in favor of the approval and adoption of the
Merger Agreement at the Special Meeting, and (iii) as to which a written demand
for payment of fair value, accompanied by the certificate for such shares, shall
have been timely filed (in accordance with Section 33-13-230 of the SCBCA) with
the Company are referred to as "Dissenting Shares." All payments with respect to
Dissenting Shares shall be paid by the surviving corporation in the Merger with
funds of the Company and not with funds provided by Toys "R" Us or any of its
subsidiaries.
The following description summarizes, in general terms, certain material
provisions of Chapter 13, is not intended to be a complete statement of the
provisions of Chapter 13 and is qualified in its entirety by reference to the
full text of Chapter 13, a copy of which is attached as Annex C to this Proxy
Statement/Prospectus, and to any amendments thereto after the date of this Proxy
Statement/Prospectus.
Under Chapter 13, a Shareholder electing to exercise dissenters' rights
must both:
(i) give to the Company, before the taking of the vote at the Special
Meeting on the proposal to approve and adopt the Merger Agreement and the
transactions contemplated thereby, including the Merger, a written
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notice of the Shareholder's intent to demand payment for such Shareholder's
shares of Company Common Stock if the Merger is consummated. This written
notice is in addition to and separate from any proxy or vote against the
proposal to approve and adopt the Merger Agreement and the transactions
contemplated thereby, including the Merger. Neither a vote against the
proposal to approve and adopt the Merger Agreement and the actions
contemplated thereby, including the Merger, nor a proxy directing such vote
shall satisfy the requirement that a written notice of intent to demand
payment be given to the Company before the vote on the proposal to approve
and adopt the Merger Agreement and the transactions contemplated thereby,
including the Merger. Such written notice of intent to demand payment
should be given either in person to the Secretary of the Company at the
Special Meeting before the vote on the proposal to approve and adopt the
Merger Agreement and the transactions contemplated thereby, including the
Merger, or in person or by mail (certified mail, return receipt requested,
is the recommended form of transmittal) to the Secretary of the Company,
Baby Superstore, Inc., 1201 Woods Chapel Road, Duncan, South Carolina
29334, prior to the Special Meeting. A notice of intent to demand payment
shall be deemed "given" when received or five days after its deposit in the
United States mail, as evidenced by the postmark, if mailed postage paid
and correctly addressed, or on the date shown on the return receipt, if
sent by registered or certified mail, return receipt requested, and the
receipt is signed by or on behalf of the addressee; and
(ii) not vote in favor of the proposal to approve and adopt the Merger
Agreement and the transactions contemplated thereby, including the Merger.
A failure to vote against, so long as one does not vote in favor of, the
proposal to approve and adopt the Merger Agreement and the transactions
contemplated thereby, including the Merger, will not constitute a waiver of
dissenters' rights.
A Shareholder who fails to satisfy the requirements described in clauses
(i) and (ii) above shall not be entitled to payment for his shares of Company
Common Stock under Chapter 13.
A beneficial Shareholder of Company Common Stock may assert dissenters'
rights as to shares beneficially owned by him or her only if he or she dissents
with respect to all shares of which he or she is the beneficial Shareholder or
over which he or she has power to direct the vote. With respect to shares held
in nominee name, the beneficial owner of such shares may assert dissenters'
rights (i) by giving to the Company the required notice of intent to demand
payment together with (in writing) the name and address of the record
Shareholder if known to such beneficial owner, or (ii) by causing the nominee to
give to the Company the required notice of intent to demand payment together
with the name and address of such beneficial owner. If shares registered in the
name of a record Shareholder are beneficially owned by more than one person, the
record Shareholder may assert dissenters' rights as to less than all of the
shares registered in his or her name, provided that (i) such record Shareholder
dissents with respect to all shares beneficially owned by each beneficial owner
with respect to whose shares such record Shareholder dissents, and (ii) such
record Shareholder includes in the notice of intent to demand payment the name
and address of each beneficial owner as to whose shares the record Shareholder
is dissenting.
If the shares of Company Common Stock are owned of record in a fiduciary
capacity, such as by a trustee, guardian or custodian, execution of the required
notice of intent to demand payment should be made in such capacity, and if the
shares of Company Common Stock are owned of record by more than one person, as
in a joint tenancy or tenancy in common, the notice should be executed by or for
all joint owners. An authorized agent, including one of two or more joint
owners, may execute the notice for a Shareholder of record; however, the agent
must identify the record owner or owners and expressly disclose the fact that in
executing the notice he is acting as agent for the record owner or owners.
No later than 10 days after the Effective Time, the Company is required to,
and will, send a written notice to each Shareholder who has satisfied the
conditions of Chapter 13. The notice shall (i) state where the payment demand
must be sent and where certificates for Dissenting Shares must be deposited,
(ii) supply a form for demanding payment that includes the date of the first
announcement to the news media or the Shareholders of the terms of the Merger
(October 2, 1996) and requires that the person asserting dissenters' rights
certify whether or not he or she or, if he or she is a nominee asserting
dissenters' rights on behalf of a beneficial Shareholder, the beneficial
Shareholder acquired beneficial ownership of the Dissenting Shares before that
date, (iii) set a date by which the Company must receive the payment demand,
which date shall not be fewer than 30 nor more than 60 days after the date of
delivery of such notice and set a date by which certificates for Dissenting
Shares must be deposited, which date shall not be earlier than 20 days after the
demand date, and (iv) be accompanied by a copy of Chapter 13.
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A Shareholder who receives such notice must demand payment, certify whether
he or she (or the beneficial Shareholder on whose behalf he or she is asserting
dissenters' rights) acquired beneficial ownership of the Dissenting Shares
before October 2, 1996 (the date of the first announcement to the news media or
the Shareholders of the terms of the Merger) and deposit his or her certificates
in accordance with the terms of such notice. A Shareholder who does not comply
substantially with the requirements that he or she demand payment and deposit
his or her Dissenting Share certificates where required, each by the date set in
such notice, will not be entitled to payment for his Dissenting Shares under
Chapter 13.
Except as hereinafter described, upon receipt by the Company of a payment
demand, the Company shall pay each dissenter who has substantially complied with
the foregoing requirements the amount which the Company estimates is the fair
value of the dissenter's Dissenting Shares, plus accrued interest. "Fair value,"
with respect to the Dissenting Shares, means the value of such shares
immediately before the Effective Time, excluding any appreciation or
depreciation in anticipation of the Merger unless such exclusion would be
inequitable. The Company will make such estimate using techniques accepted
generally in the financial community, which may include, but shall not be
limited to, market valuation, valuation based on prior sales, capitalized
earnings valuation and asset valuation. The payment shall be accompanied by: (i)
certain financial information with respect to the Company, (ii) a statement of
the Company's estimate of the fair value of the Dissenting Shares and an
explanation of how the fair value was calculated, (iii) an explanation of how
the interest was calculated, (iv) a statement of the dissenter's right to demand
additional payment, and (v) a copy of Chapter 13. Instead of making such
payment, the Company may offer to make such payment to, but not make payment
until acceptance of the offer as full satisfaction of his or her demand by, a
dissenter as to any Dissenting Shares of which he or she (or the beneficial
owner on whose behalf he or she is asserting dissenters' rights) was not the
beneficial owner on October 2, 1996 (the date of the first announcement to the
news media or the Shareholders of the terms of the Merger), unless the
beneficial ownership of the Dissenting Shares devolved upon him or her by
operation of law from a person who was the beneficial owner on the date of such
first announcement.
Within 30 days after the Company has made or offered payment for the
dissenter's Dissenting Shares, the dissenter may notify the Company in writing
of his or her own estimate of the fair value of his Dissenting Shares and amount
of interest due and demand payment of his estimate (less any payment previously
made by the Company or reject the Company's offer and demand payment of the fair
value of his Dissenting Shares and interest due. The dissenter may make such
notification if the dissenter believes that the amount paid or offered to be
paid is less than the fair value of his Dissenting Shares or that the interest
due is calculated incorrectly. A dissenter waives his or her right to demand
additional payment unless he or she notifies the Company of his or her demand in
writing within 30 days after the Company has made or offered to make payment for
his Dissenting Shares.
Within 60 days after receiving the demand for additional payment, if the
demand remains unsettled, the Company is required to commence a proceeding in
the South Carolina Circuit Court of Common Pleas in Spartanburg County, South
Carolina seeking a determination by the court of the fair value of the
Dissenting Shares and accrued interest. If the Company does not commence the
proceeding within such 60 day period, the Company is required to pay each
dissenter whose demand remains unsettled the amount demanded. All dissenters
whose demands remain unsettled shall be parties to such action. Each dissenter
made a party to the proceeding will be entitled to judgment for the amount if
any, by which the court finds the fair value of his shares, plus interest,
exceeds the amount paid by the Company.
In any such judicial appraisal proceeding, the court shall determine all
costs of the proceeding, including the reasonable compensation and expenses of
appraisers appointed by the court. The court is required to assess the costs
against the Company, except that the court may assess costs against all or some
of the dissenters, in amounts the court finds equitable, to the extent the court
finds the dissenters acted arbitrarily, vexatiously or not in good faith in
demanding additional payment for their Dissenting Shares. The court also may
assess the fees and expenses of counsel and experts for the respective parties,
in amounts the court finds equitable: (i) against the Company and in favor of
any or all dissenters if the court finds the Company did not comply
substantially with the operative provisions of Chapter 13, or (ii) against
either the Company or a dissenter, in favor of any other party, if the court
finds that the party against whom the fees and expenses are assessed acted
arbitrarily, vexatiously or not in good faith with respect to the rights
provided by Chapter 13. If the court finds that the services of counsel for any
dissenter were of substantial benefit to other dissenters similarly situated,
and that the fees for
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those services should not be assessed against the Company, the court may award
to these counsel reasonable fees to be paid out of the amounts awarded the
dissenters who were benefited.
Although the Company believes that the terms of the Merger Agreement and
the Merger are fair to all Shareholders, the Company cannot make any
representation as to the outcome of any determination of fair value made by the
South Carolina Circuit Court of Common Pleas. Shareholders should recognize that
such an appraisal could result in a determination of a lower, higher or
equivalent value than or to the value reflected in the terms of the Merger.
Dissenters' rights under the SCBCA are not available with respect to the
1994 Plan Proposal.
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THE MERGER AGREEMENT
The following is a brief summary of the material provisions of the Merger
Agreement, a copy of which is attached as Annex A to this Proxy
Statement/Prospectus and is incorporated herein by reference. This summary is
qualified in its entirety by reference to the full and complete text of the
Merger Agreement. All holders of Company Common Stock are encouraged to read the
Merger Agreement carefully and in its entirety.
THE MERGER
Pursuant to the Merger Agreement and subject to the terms and conditions
thereof, Sub will be merged with and into the Company, with the Company
continuing as the surviving corporation and becoming a wholly owned subsidiary
of Toys "R" Us. As a result of the Merger, the separate corporate existence of
Sub will cease.
Subject to the terms and conditions of the Merger Agreement, the closing of
the Merger (the "Closing") will take place on the second business day after
satisfaction of the conditions set forth in the Merger Agreement (or as soon as
practicable thereafter following satisfaction or waiver of the conditions set
forth in the Merger Agreement), unless another date is agreed to by Toys "R" Us
and the Company (the "Closing Date"). The Merger will become effective at the
time at which Articles of Merger are filed with the Secretary of State of the
State of South Carolina, or such time thereafter as is provided in such Articles
of Merger. The time at which the Merger becomes effective is referred to herein
as the "Effective Time."
CONVERSION OF SHARES
At the Effective Time, pursuant to the Merger Agreement, (i) each issued
and outstanding share of Company Common Stock (other than the Tate Shares,
shares owned by the Company, shares owned by Toys "R" Us or by any direct or
indirect wholly owned subsidiary of Toys "R" Us and shares with respect to which
dissenters' rights are properly exercised), will be converted into 0.8121 of a
share of Toys "R" Us Common Stock, (ii) each Tate Share will be converted into
0.5150 of a share of Toys "R" Us Common Stock, (iii) each share of Company
Common Stock held by Toys "R" Us, by the Company or by any direct or indirect
wholly owned subsidiary of Toys "R" Us will be canceled and (iv) each issued and
outstanding share of common stock of Sub will be converted into one share of
common stock of the surviving corporation. The shares of Toys "R" Us Common
Stock to be received by holders of Company Common Stock pursuant to the Merger
Agreement are referred to herein as the "Merger Consideration."
EXCHANGE PROCEDURES
As soon as reasonably practicable after the Effective Time, American Stock
Transfer and Trust Company, in its capacity as Exchange Agent (the "Exchange
Agent"), will mail to each holder of record of a certificate or certificates
that immediately prior to the Effective Time evidenced outstanding shares of
Company Common Stock (other than shares owned by the Company, shares owned by
Toys "R" Us or by any direct or indirect wholly owned subsidiary of Toys "R" Us
and shares with respect to which dissenters' rights are properly exercised)
("Company Certificates") (i) a letter of transmittal and (ii) instructions for
use in effecting the surrender of the Company Certificates in exchange for the
Merger Consideration with respect to the shares of Company Common Stock formerly
represented thereby.
Upon surrender of a Company Certificate for cancellation to the Exchange
Agent, together with the letter of transmittal, duly executed, and such other
documents as Toys "R" Us or the Exchange Agent reasonably requests, the holder
of such Company Certificate will be entitled to receive in exchange therefor (i)
certificates representing that number of shares of Toys "R" Us Common Stock that
such holder has the right to receive (less the amount of any required
withholding taxes, if any) and (ii) any cash that such holder has the right to
receive in lieu of fractional shares as described below, and the Company
Certificate so surrendered shall forthwith be canceled. Until surrendered, each
Company Certificate will, at any time after the Effective Time, represent only
the right to receive the Merger Consideration with respect to the shares of
Company Common Stock formerly represented thereby.
HOLDERS OF COMPANY COMMON STOCK SHOULD NOT SEND COMPANY CERTIFICATES WITH
THE ENCLOSED PROXY CARD. SHAREHOLDERS SHOULD SEND COMPANY CERTIFICATES TO THE
EXCHANGE AGENT ONLY AFTER THEY RECEIVE, AND IN ACCORDANCE WITH THE INSTRUCTIONS
ACCOMPANYING, THE LETTER OF TRANSMITTAL.
No fractional shares of Toys "R" Us Common Stock will be issued upon the
surrender of Company Certificates, and such fractional shares will not entitle
the owner thereof to vote or to any rights of a stockholder of Toys "R" Us. In
lieu of any such fractional shares, the Exchange Agent will, on behalf of all
holders of fractional shares of Toys "R" Us Stock, as soon as practicable after
the Effective Time, aggregate all such fractional shares
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(collectively, the "Fractional Shares") and, at the option of Toys "R" Us, such
Fractional Shares will be purchased by Toys "R" Us or otherwise sold by the
Exchange Agent as agent for the holders of such Fractional Shares, in either
case at the then prevailing price on the NYSE. The Exchange Agent will determine
the portion, if any, of the net proceeds of such sale to which each holder of
Fractional Shares is entitled by multiplying the amount of the aggregate net
proceeds of the sale of the Fractional Shares by a fraction, the numerator of
which is the amount of Fractional Shares to which such holder is entitled and
the denominator of which is the aggregate amount of Fractional Shares to which
all holders of Fractional Shares are entitled.
No dividends or other distributions declared after the Effective Time on
Toys "R" Us Common Stock will be paid with respect to any shares of Company
Stock represented by a Company Certificate until such Company Certificate is
surrendered for exchange in accordance with the procedures described above.
TREATMENT OF STOCK OPTIONS
At the Effective Time, each outstanding Option (other than Options held by
Ms. Robertson or Mr. Tate) issued pursuant to the 1988 non-qualified stock
option plan and the 1988 qualified stock option plan of the Company (the "1988
Plans"), the 1994 Plan and the 1995 Stock Option Plan for Outside Directors of
the Company (the "Outside Director Plan" and, together with the 1988 Plans and
the 1994 Plan, the "Option Plans") whether vested or unvested, will be assumed
by Toys "R" Us and will constitute an option to acquire, on substantially the
same terms and subject to substantially the same conditions as were applicable
under the assumed Option (including, without limitation, with respect to the
term, exercisability, vesting schedule, status as an "incentive stock option"
under Section 422 of the Code, acceleration and termination provisions), the
same number of shares of Toys "R" Us Common Stock rounded down to the nearest
whole share, determined by multiplying the number of shares of Company Common
Stock subject to such Option immediately prior to the Effective Time by 0.8121,
at an exercise price per share of Toys "R" Us Common Stock (increased to the
nearest whole cent) equal to the exercise price per share of such Option
immediately prior to the Effective Time divided by 0.8121; provided, however,
that, in the case of any Option to which Section 421 of the Code applies by
reason of its qualification as an "incentive stock option" under Section 422 of
the Code, the conversion formula will be adjusted if necessary to comply with
Section 424(a) of the Code.
At the Effective Time, (i) each outstanding vested Option held by Mr. Tate
will be settled by the Company in exchange for an amount of cash equal to the
difference between (a) 0.5150 multiplied by the closing per share sales price of
the Toys "R" Us Common Stock on the NYSE Composite Tape on the Closing Date and
(b) the exercise price per share of such Option, subject to any required
withholding of taxes and (ii) each outstanding vested Option held by Ms.
Robertson will be settled by the Company in exchange for an amount of cash equal
to the difference between (a) 0.8121 multiplied by the closing sales price of
the Toys "R" Us Common Stock on the NYSE Composite Tape on the Closing Date and
(b) the exercise price per share of such Option, subject to any required
withholding of taxes. As of December 24, 1996, Mr. Tate is the holder of 202,500
Options and Ms. Robertson is the holder of 67,500 Options. Based upon the
closing sales price of the Toys "R" Us Common Stock on December 24, 1996 of
$31.375, the cash to be received by Mr. Tate and Ms. Robertson with respect to
their vested Options upon consummation of the Merger would be approximately
$3,116,820 and $1,662,276, respectively and any such amounts will be reflected,
when incurred upon consummation of the Merger, as a cost to the Company.
Subject to certain exceptions, none of the Options that are unvested at the
Effective Time will become vested as a result of the execution and delivery of
the Merger Agreement or the consummation of the Merger.
Prior to the Effective Time, the Employee Stock Purchase Plan will be
amended to the extent necessary to provide that the current "Purchase Period"
under such plan will terminate and that purchases thereunder be consummated at
or prior to the Effective Time.
TREATMENT OF WARRANTS
At the Effective Time, each outstanding warrant to purchase shares of
Company Common Stock (the "Warrants") will be assumed by Toys "R" Us and will be
deemed to constitute a warrant to acquire, on the terms and conditions as were
applicable under such Warrant, the same number of shares of Toys "R" Us Common
Stock as the holder of such Warrant would have been entitled to receive pursuant
to the Merger had such holder exercised such Warrant in full immediately prior
to the Effective Time (not taking into account whether such Warrant was in fact
exercisable at such time), at a price per share equal to (i) the aggregate
exercise price for the Company Common Stock subject to such Warrant divided by
(ii) the number of shares of Toys "R" Us Common Stock deemed purchasable
pursuant to such Warrant; provided, however, that the number of shares of Toys
"R" Us Common Stock that may be purchased upon exercise of such Warrant will not
include any fractional shares and,
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upon exercise of the Warrant, a cash payment will be made for any fractional
shares based upon the closing price of shares of Toys "R" Us Common Stock on the
NYSE on the trading day immediately preceding the date of exercise.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains certain customary representations and
warranties by the Company and/or Toys "R" Us and Sub relating to, among other
things: (i) each of the Company's, Toys "R" Us' and Sub's organization and
similar corporate matters; (ii) each of the Company's, Toys "R" Us' and Sub's
capital structure; (iii) the authorization, execution, delivery, performance and
enforceability of, the Merger Agreement with respect to the Company, Toys "R" Us
and Sub; (iv) documents filed by the Company and Toys "R" Us with the Commission
and the accuracy of the information contained therein; (v) the absence of
undisclosed material litigation and other undisclosed liabilities relating to
the Company and Toys "R" Us; (vi) the absence of material changes with respect
to the business of the Company and Toys "R" Us; (vii) certain tax and employee
benefit matters with respect to the Company and its subsidiaries; (viii) the
inventories, receivables and payables of the Company and its subsidiaries; and
(ix) certain environmental matters with respect to the Company and its
subsidiaries.
The Merger Agreement also contains representations by Mr. Tate relating to
(i) the authorization, execution, delivery, performance and enforceability of
the Merger Agreement with respect to Mr. Tate; (ii) the ownership by Mr. Tate of
the Tate Shares; and (iii) an acknowledgment by Mr. Tate that he is an informed
and sophisticated investor and, together with his advisors, has undertaken such
investigation as he has deemed necessary, including the review of the Merger
Agreement and the Shareholders Agreement, to enable him to make an informed and
intelligent decision with respect to the Merger Agreement and the Shareholders
Agreement and the transactions contemplated thereby, and an acknowledgement by
Mr. Tate that pursuant to the Merger he will receive less consideration per
share of Company Common Stock than will other holders of Company Common Stock.
CERTAIN COVENANTS
The Merger Agreement contains certain customary covenants and agreements,
including, without limitation, the following:
CONDUCT OF BUSINESS OF THE COMPANY. The Company has agreed that, except as
contemplated by the Merger Agreement, during the period from October 1, 1996 to
the Effective Time, the Company will, and will cause each of its subsidiaries
to, conduct its operations in the ordinary course of business consistent with
past practice and, to the extent consistent therewith, with no less diligence
and effort than would be applied in the absence of the Merger Agreement, seek to
preserve intact its current business organizations, seek to keep available the
service of its current officers and employees and seek to preserve its
relationships with customers, suppliers and others having business dealings with
it to the end that goodwill and ongoing businesses will be unimpaired at the
Effective Time.
Without limiting the generality of the foregoing, and except as otherwise
expressly provided in the Merger Agreement, prior to the Effective Time, the
Company has agreed that it will not, and will cause its subsidiaries not to,
without the prior written consent of Toys "R" Us (which consent may not be
unreasonably withheld): (i) (a) declare, set aside or pay any dividends on, or
make any other distributions in respect of, any of its capital stock, other than
dividends and distributions by any direct or indirect wholly owned subsidiary of
the Company to its parent, (b) split, combine or reclassify any of its capital
stock or, except pursuant to the exercise of options, warrants, conversion
rights, exchange rights and other contractual rights existing on October 1,
1996, issue or authorize the issuance of any other securities in respect of, in
lieu of or in substitution for shares of its capital stock or other equity
interests or (c) purchase, redeem or otherwise acquire or amend any shares of
capital stock or other equity interests of the Company or any of its
subsidiaries or any other securities thereof or any rights, warrants or options
to acquire any such shares, interests or other securities; (ii) issue, deliver,
sell, pledge or otherwise encumber or amend any shares of its capital stock, any
other voting securities or any securities convertible into, or any rights,
warrants or options to acquire, any such shares, interests, voting securities or
convertible securities, including pursuant to the Option Plans, other than (a)
the issuance of shares of Company Common Stock upon the conversion of
Convertible Notes outstanding on October 1, 1996 in accordance with their
present terms, (b) the issuance of shares of Company Common Stock upon the
exercise of Options outstanding on October 1, 1996 in accordance with their
present terms and (c) the issuance of shares of Company Common Stock upon the
exercise of the Warrants outstanding on October 1, 1996 in accordance with their
present terms; (iii) amend its certificate or articles of incorporation or
bylaws (or other similar governing instrument); (iv) acquire or agree to acquire
(a) by merging or consolidating with, or by purchasing a substantial portion of
the assets of, or by any other manner, any business or any corporation,
partnership, joint venture, association or other
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business organization or division thereof or (b) any asset requiring or
involving an expenditure or purchase price in excess of $100,000, except (1)
mergers and consolidations between or among one or more wholly owned
subsidiaries of the Company that will not create adverse tax consequences to the
Company or its subsidiaries, and (2) purchases of inventory in the ordinary
course of business consistent with past practice; (v) sell, lease, license,
mortgage or otherwise encumber or subject to any lien or otherwise dispose of
any of its properties or assets, except in the ordinary course of business
consistent with past practice; (vi) (a) other than incurrences of indebtedness
(which term shall be deemed not to include trade payables incurred in the
ordinary course of business) in the ordinary course of business which, in the
aggregate, do not exceed $50,000, incur any indebtedness for borrowed money or
guarantee any such indebtedness of another person, issue or sell any debt
securities or warrants or other rights to acquire any debt securities of the
Company or any of its subsidiaries, guarantee any debt securities of another
person, enter into any "keep well" or other agreement to maintain any financial
statement condition of another person or enter into any arrangement having the
economic effect of any of the foregoing or (b) make any loans, advances or
capital contributions to, or investments in, any other person other than to the
Company or any direct or indirect wholly owned subsidiary of the Company; (vii)
pay, discharge, settle or satisfy any claims, liabilities or obligations
(absolute, accrued, asserted or unasserted, contingent or otherwise), other than
the payment, discharge, settlement or satisfaction, in accordance with their
terms of liabilities reflected or reserved against in the most recent
consolidated financial statements (or the notes thereto) of the Company included
in reports filed by the Company with the Commission under the Exchange Act and
publicly available prior to October 1, 1996 or incurred in the ordinary course
of business consistent with past practice since the date of such financial
statements, or waive the benefits of, or agree to modify in any manner, any
confidentiality, standstill or similar agreement to which the Company or any of
its subsidiaries is a party; (viii) (a) adopt, enter into, terminate or amend
any benefit plan or other arrangement for the benefit or welfare of any
director, officer or current or former employee of the Company or any of its
subsidiaries, (b) increase in any manner the compensation or fringe benefits of,
or pay any bonus to, any such director, officer or employee (except for normal
increases or bonuses as contractually required pursuant to agreements disclosed
in the reports filed by the Company with the Commission under the Exchange Act
and publicly available prior to October 1, 1996 or in the ordinary course of
business consistent with past practice to employees other than directors and
executive officers of the Company and that, in the aggregate, do not result in
any material increase in benefits or compensation expense to the Company and its
subsidiaries relative to the level in effect prior to such action (but in no
event may the aggregate amount of the increases granted to any such director,
officer or employee exceed 5% of the aggregate annualized compensation of such
director, officer or employee and in no event may the aggregate amount of all
such increases exceed 1% of the aggregate annualized compensation expense of the
Company and its subsidiaries reported in the most recent consolidated financial
statements of the Company included in the reports filed by the Company with the
Commission under the Exchange Act and publicly available prior to October 1,
1996) and except as contractually required pursuant to agreements included as
part of a report filed by the Company with the Commission under the Exchange Act
and publicly available prior to October 1, 1996), (c) pay any benefit not
provided for under any benefit plan, (d) except for payments or awards in cash
permitted by clause (b), grant any awards under any bonus, incentive,
performance or other compensation plan or arrangement or benefit plan (including
the grant of stock options, stock appreciation rights, stock-based or
stock-related awards, performance units or restricted stock, or the removal of
existing restrictions in any benefit plans or agreements or awards made
thereunder) or (e) take any action to fund or in any other way secure the
payment of compensation or benefits under any employee plan, agreement, contract
or arrangement or benefit plan; (ix) make or agree to make any capital
expenditure or expenditures other than for maintenance purposes; (x) modify,
amend or terminate any contract or agreement set forth in the reports filed by
the Company with the Commission under the Exchange Act or any real property
lease to which the Company or any of its subsidiaries is a party, or waive,
release or assign any material rights or claims thereunder; (xi) take or agree
to take any action that would prevent the Merger from constituting a
reorganization qualifying under the provisions of Section 368(a)(1) of the Code;
(xii) conduct its business in a manner or take, or cause to be taken, any other
action that would or might reasonably be expected to prevent or materially delay
the Company, Sub or Toys "R" Us from consummating the transactions contemplated
by the Merger Agreement in accordance with the terms thereof including, without
limitation, any action which may materially limit the ability of the Company,
Sub or Toys "R" Us to consummate the transactions contemplated by the Merger
Agreement as a result of antitrust or other regulatory concerns; or (xiii)
authorize any of, or commit or agree to take any of, the foregoing actions.
CONDUCT OF BUSINESS OF TOYS "R" US AND SUB. Toys "R" Us has agreed that,
during the period from October 1, 1996 to the Effective Time, Toys "R" Us will
not, and will cause its subsidiaries not to, without the prior written consent
of the Company (which consent may not be unreasonably withheld): (i) take or
agree to take any
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action that would prevent the Merger from constituting a reorganization
qualifying under the provisions of Section 368(a)(1) of the Code; (ii) conduct
its business in a manner or take, or cause to be taken, any other action that
would or might reasonably be expected to prevent or materially delay Toys "R"
Us, Sub or the Company from consummating the transactions contemplated by the
Merger Agreement, including, without limitation, any action which may materially
limit the ability of Toys "R" Us, Sub or the Company to consummate the
transactions contemplated by the Merger Agreement as a result of antitrust or
other regulatory concerns; or (iii) authorize any of, or commit or agree to take
any of, the foregoing actions.
Sub has agreed that, during the period from December 26, 1996 to the
Effective Time, Sub will not engage in any activities of any nature, except as
provided in or contemplated by the Merger Agreement.
NO SOLICITATION. The Company has agreed that from October 1, 1996 it will,
and that it will cause its subsidiaries and their respective officers,
directors, employees, representatives, agents or affiliates (including, without
limitation, any investment banker, attorney or accountant retained by the
Company or any of its subsidiaries) (collectively, the "Company
Representatives") to, immediately cease any discussions or negotiations with any
party that may be ongoing with respect to a Competing Transaction (as defined
herein). In addition, from October 1, 1996 until the termination of the Merger
Agreement, the Company has agreed that it will not, that it will cause its
subsidiaries not to, and that it will not authorize or permit any of the Company
Representatives to, directly or indirectly, initiate, solicit or knowingly
encourage (including by way of furnishing non-public information), or take any
other action to facilitate, any inquiries or the making of any proposal that
constitutes, or may reasonably be expected to lead to, any Competing
Transaction, or participate in any discussions or negotiations regarding any
Competing Transaction or agree to or endorse any Competing Transaction, and the
Company has agreed to notify Toys "R" Us orally (within one business day) and in
writing (as promptly as practicable) of all of the relevant details relating to
all inquiries and proposals which it or any of its subsidiaries or any Company
Representative may receive relating to any of such matters and, if such inquiry
or proposal is in writing, the Company will deliver to Toys "R" Us a copy of
such inquiry or proposal promptly; provided, however, that nothing contained in
the Merger Agreement will prohibit the Company or the Board from (i) taking and
disclosing to its Shareholders a position contemplated by Exchange Act Rule
14e-2 or (ii) making any disclosure to its Shareholders that, in the good faith
judgment of the Board, after consultation with and based upon the advice of
independent legal counsel (who may be the Company's regularly engaged
independent legal counsel), is required under applicable law; and provided
further, that nothing contained in the Merger Agreement will prohibit the
Company from furnishing information to, or entering into discussions or
negotiations with, any person or entity that after the date hereof states in an
unsolicited writing that it has a BONA FIDE serious interest to make a Superior
Proposal (as defined herein) if (i) (a) the Board, after consultation with and
based upon the advice of independent legal counsel (who may be the Company's
regularly engaged independent legal counsel), determines in good faith that such
action is necessary for the Board to comply with its fiduciary duties to
Shareholders under applicable law and (b) after consultation with and based upon
the advice of an independent financial advisor (who may be the Company's
regularly engaged independent financial advisor) determines in good faith that
such person or entity is capable of making, financing and consummating a
Superior Proposal and (ii) prior to taking such action, the Company (a) provides
at least two business days' notice to Toys "R" Us to the effect that it is
taking such action and (b) receives from such person or entity an executed
confidentiality agreement on terms no less restrictive than the existing
confidentiality agreement between the Company and Toys "R" Us. "Competing
Transaction" means any of the following (other than the transactions between the
Company, Sub and Toys "R" Us contemplated by the Merger Agreement) involving the
Company: (i) any merger, consolidation, share exchange, recapitalization,
business combination, or other similar transaction; (ii) any sale, lease,
exchange, mortgage, pledge, transfer or other disposition of all or a
substantial portion of the assets of the Company and its subsidiaries, taken as
a whole, or of more than 25% of the equity securities of the Company or any of
its subsidiaries, in any case in a single transaction or series of transactions;
(iii) any tender offer or exchange offer for 25% or more of the outstanding
shares of capital stock of the Company or the filing of a registration statement
under the Securities Act in connection therewith; or (iv) any public
announcement of a proposal, plan or intention to do any of the foregoing or any
agreement to engage in any of the foregoing.
Except as set forth in the Merger Agreement, the Company has agreed that
the Board will not (i) withdraw or modify, or propose to withdraw or modify, in
a manner adverse to Toys "R" Us, the approval or recommendation by it of the
Merger Agreement or the Merger, or (ii) approve or recommend, or cause the
Company to enter into any agreement with respect to, any Competing Transaction.
Notwithstanding the foregoing, if the Board, after consultation with and based
upon the advice of independent legal counsel (who may be the Company's regularly
engaged independent legal counsel), determines in good faith that it is
necessary to do so in order to comply with its fiduciary duties to stockholders
under applicable law, the Board is permitted by the Merger
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Agreement to modify or withdraw its approval or recommendation of the Merger
Agreement and the Merger, approve or recommend a Superior Proposal or cause the
Company to enter into an agreement with respect to a Superior Proposal, but in
each case only after providing at least two business days' written notice to
Toys "R" Us advising Toys "R" Us that the Board has received a Superior
Proposal, specifying the material terms and conditions of such Superior Proposal
and identifying the person making such Superior Proposal. In addition, if the
Company proposes to enter into an agreement with respect to any Competing
Transaction, it is required by the Merger Agreement to, concurrently with
entering into such an agreement, pay, or cause to be paid, to Toys "R" Us the
fee described in the second paragraph under " -- Fees and Expenses." A "Superior
Proposal" means any BONA FIDE proposal to acquire, directly or indirectly, for
consideration consisting of cash and/or securities, all or substantially all the
shares of Company Common Stock then outstanding or all or substantially all the
assets of the Company and otherwise on terms which the Board determines in its
good faith judgment (based on the advice of a financial advisor of nationally
recognized reputation) to be more favorable to the Company's Shareholders than
the Merger.
INDEMNIFICATION OF DIRECTORS AND OFFICERS. Toys "R" Us has agreed that it
will, from and after the Effective Time and for a period of six years
thereafter, defend and hold harmless each person who is now, or has been or who
becomes prior to the Effective Time, an officer or director of the Company or
any of its subsidiaries (the "Indemnified Parties") against all losses, claims,
damages, costs, expenses (including attorneys' fees and expenses), liabilities
or judgments or amounts that are paid in settlement of or in connection with any
threatened or actual claim, action, suit, proceeding or investigation based in
whole or in part on or arising in whole or in part out of the fact that such
person is or was a director or officer of the Company or any of its
subsidiaries, whether pertaining to any matter existing or occurring at or prior
to the Effective Time and whether asserted or claimed prior to, or at or after,
the Effective Time ("Indemnified Liabilities"), including, without limitation,
all Indemnified Liabilities based in whole or in part on, or arising in whole or
in part out of, or pertaining to the Merger Agreement or the transactions
contemplated thereby, in each case to the fullest extent a corporation is
permitted under the SCBCA to indemnify its own directors or officers, as the
case may be; provided, however, that all rights to indemnification in respect of
any claim asserted or made within such period shall continue until the
disposition of such claim.
In the event of an Indemnified Liability, (i) Toys "R" Us will pay the
reasonable fees and expenses of counsel selected by the Indemnified Parties,
which counsel must be reasonably satisfactory to Toys "R" Us, promptly after
statements therefor are received and otherwise advance to such Indemnified Party
upon request reimbursement of documented expenses reasonably incurred, in either
case to the extent not prohibited by the SCBCA and upon receipt of any
affirmation and undertaking required by the SCBCA, (ii) Toys "R" Us will
cooperate in the defense of any such matter and (iii) any determination required
to be made with respect to whether an Indemnified Party's conduct complies with
the standards set forth under the SCBCA will be made by independent counsel
mutually acceptable to Toys "R" Us and the Indemnified Party; provided, however,
that Toys "R" Us will not be liable for any settlement effected without its
written consent (which consent may not be unreasonably withheld).
CERTAIN EFFORTS. Each of the Company and Toys "R" Us has agreed to use its
reasonable best efforts to take, or cause to be taken, all actions, and to do,
or cause to be done, and to assist and cooperate with the other parties in
doing, all things necessary, proper or advisable to consummate and make
effective, in the most expeditious manner practicable, the Merger and the other
transactions contemplated by the Merger Agreement, including (i) the obtaining
of all necessary actions or nonactions, waivers, consents and approvals from all
applicable governmental and regulatory authorities and the making of all
necessary registrations and filings (including filings with governmental and
regulatory authorities, if any) and the taking of all reasonable steps as may be
necessary to obtain an approval or waiver from, or to avoid an action or
proceeding by, any governmental and regulatory authority, (ii) the obtaining of
all necessary consents, approvals or waivers, (iii) the defending of any
lawsuits or other legal proceedings, whether judicial or administrative,
challenging the Merger Agreement or the consummation of any of the transactions
contemplated by the Merger Agreement, including seeking to have any stay or
temporary restraining order entered by any court or other governmental or
regulatory authority vacated or reversed, and (iv) the execution and delivery of
any additional instruments necessary to consummate the transactions contemplated
by, and to fully carry out the purposes of, the Merger Agreement. In addition,
the Company and Toys "R" Us have agreed to use their reasonable best efforts to
obtain any clearance required under the HSR Act for the completion of the
Merger, which efforts will not require Toys "R" Us to agree to any prohibition,
limitation or other requirement of the type set forth in clause (iii) of the
first paragraph under " -- Conditions to the Merger."
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CERTAIN OTHER COVENANTS. Toys "R" Us, Sub and the Company have also agreed,
among other things: (i) to promptly make all required filings under the HSR Act;
(ii) to consult with each other prior to issuing any press release or public
statement; (iii) that Toys "R" Us and its representatives be granted reasonable
access to the properties, books and records of the Company; (iv) that Toys "R"
Us will use its best efforts to cause the shares of Toys "R" Us Common Stock to
be issued in the Merger to be listed on the NYSE; and (v) that the Company will
use its reasonable best efforts to cause to be delivered to Toys "R" Us, prior
to the Closing, a letter from each person who may be deemed to be an "affiliate"
of the Company for purposes of Rule 145 under the Securities Act in the form
attached to the Merger Agreement; (vi) that Toys "R" Us will take certain
required actions with respect to the Convertible Notes at the Effective Time;
and (vii) Toys "R" Us will indemnify the shareholders of the Company for certain
tax liabilities.
CONDITIONS TO THE MERGER
The obligations of Toys "R" Us and Sub to consummate the Merger are subject
to the satisfaction of the following conditions: (i) the representations and
warranties of the Company and Mr. Tate set forth in the Merger Agreement shall
be true and correct in all material respects on and as of the Effective Time
with the same force and effect as though the same had been made on and as of the
Effective Time (except to the extent they relate to a particular date), the
Company and Tate shall have performed in all material respects all of their
material obligations under the Merger Agreement theretofore to be performed, and
Toys "R" Us and Sub shall have received at the Effective Time a certificate to
that effect dated the Effective Time and executed by the Chief Executive Officer
or President of the Company; provided, however, that no representation or
warranty of the Company contained in the Merger Agreement shall be deemed untrue
or incorrect as a consequence of the existence of any fact, circumstance or
event unless such fact, circumstance or event, individually or taken together
with all other facts circumstances or events inconsistent with any paragraph of
the Merger Agreement has had or is expected to have a material adverse effect
with respect to the Company and its subsidiaries; (ii) the Merger Agreement
shall have been duly approved by the holders of a majority of the votes entitled
to be cast by the holders of shares of Company Common Stock at the Special
Meeting, in accordance with applicable law and the Company Articles and the
bylaws of the Company (the "Company Bylaws"); (iii) there shall not be pending
or threatened by any governmental authority or regulatory agency, any suit,
action or proceeding, (a) challenging or seeking to restrain or prohibit the
Merger or any of the other transactions contemplated by the Merger Agreement or
seeking to obtain from Toys "R" Us or the Company or any of their respective
subsidiaries in connection with the Merger any material damages, (b) seeking to
prohibit or limit the ownership or operation by Toys "R" Us or the Company or
any of their respective subsidiaries of any material portion of the business or
assets of Toys "R" Us or the Company or any of their respective subsidiaries, or
to compel Toys "R" Us, the Company or any of their respective subsidiaries to
dispose of or hold separate any material portion of the business or assets of
Toys "R" Us, the Company or any of their respective subsidiaries in each case as
a result of the Merger or any of the other transactions contemplated by the
Merger Agreement, (c) seeking to impose limitations on the ability of Toys "R"
Us to acquire or hold, or exercise full rights of ownership of, the shares of
Company Common Stock, including the right to vote the shares of Company Common
Stock on all matters properly presented to the Shareholders of the Company, (d)
seeking to prohibit Toys "R" Us or any of its subsidiaries from effectively
controlling in any material respect the business or operations of the Company or
any of its subsidiaries, or (e) which otherwise is reasonably likely to have a
material adverse effect with respect to the Company and its subsidiaries or Toys
"R" Us and its subsidiaries; (iv) there shall not be in effect a preliminary or
permanent injunction or other order of a court or governmental or regulatory
agency of competent jurisdiction directing that the transactions contemplated by
the Merger Agreement not be consummated; (v) the Registration Statement shall
have become effective and no stop order suspending the effectiveness of the
Registration Statement shall have been issued and no proceedings for such
purpose shall have been initiated and be continuing or threatened by the
Commission; (vi) the Toys "R" Us Common Stock to be issued pursuant to the
Merger and the other such shares required to be reserved for issuance in
connection with the Merger shall have been authorized for listing on the NYSE,
subject to notice of official issuance; (vii) subject to the condition described
in clause (iii) above, all governmental filings required to be made prior to the
Effective Time by the Company with, and all governmental consents required to be
obtained prior to the Effective Time from, governmental and regulatory
authorities in connection with the execution and delivery of the Merger
Agreement and the consummation of the transactions contemplated hereby shall
have been made or obtained, except where the failure to make such filing or
obtain such consent would not reasonably be expected to have a material adverse
effect with respect to Toys "R" Us (assuming the Merger had taken place) and the
waiting periods under the HSR Act shall have expired or been terminated; (viii)
all required authorizations, consents and approvals of any person (other than a
governmental authority), the failure to obtain which would have a material
adverse effect with respect to Toys "R" Us (assuming the Merger had taken
place),
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shall have been obtained; (ix) Deloitte & Touche LLP shall have delivered to the
Company, for delivery by it to Toys "R" Us, one or more letters with respect to
the financial information contained in this Proxy Statement/Prospectus as
contemplated by the Merger Agreement; (x) Toys "R" Us shall have used its
reasonable best efforts to obtain from each affiliate of the Company an executed
copy of a letter in the form attached to the Merger Agreement; and (xi) Toys "R"
Us shall have received from Weil, Gotshal & Manges LLP, counsel to Toys "R" Us,
an opinion addressed to Toys "R" Us, substantially to the effect that (a) the
Merger will be treated for federal income tax purposes as a reorganization
within the meaning of Section 368(a) of the Code; (b) each of Toys "R" Us, Sub
and the Company will be a party to the reorganization within the meaning of
Section 368(b) of the Code; and (c) no gain or loss will be recognized by Toys
"R" Us, Sub or the Company as a result of the Merger, dated the Closing Date,
and such opinion shall not have been withdrawn or modified in any material
respect.
The obligation of the Company to consummate the Merger is subject to the
satisfaction of the following conditions: (i) the representations and warranties
of Toys "R" Us and Sub set forth in the Merger Agreement shall be true and
correct in all material respects on and as of the Effective Time with the same
force and effect as though the same had been made on and as of the Effective
Time (except to the extent they relate to a particular date), Toys "R" Us and
Sub shall have performed in all material respects all of their respective
material obligations under the Merger Agreement theretofore to be performed, and
the Company shall have received at the Effective Time certificates to that
effect dated the Effective Time and executed by the Chief Executive Officer or
President of each of Toys "R" Us and Sub; provided, however, that no
representation or warranty of Toys "R" Us contained in the Merger Agreement
shall be deemed untrue or incorrect as a consequence of the existence of any
fact, circumstance or event unless such fact, circumstance or event,
individually or taken together with all other facts circumstances or events
inconsistent with any paragraph of the Merger Agreement has had or is expected
to have a material adverse effect with respect to Toys "R" Us and its
subsidiaries; (ii) the Merger Agreement shall have been duly approved by the
holders of a majority of the votes entitled to be cast by the holders of shares
of Company Common Stock at the Special Meeting, in accordance with applicable
law and the Company Articles and Company Bylaws; (iii) there shall be in effect
no preliminary or permanent injunction or other order of a court or governmental
or regulatory agency of competent jurisdiction directing that the transactions
contemplated by the Merger Agreement not be consummated; provided, however, that
prior to invoking this condition the Company shall use its best efforts to have
such injunction or order vacated; (iv) the Registration Statement shall have
become effective and no stop order suspending the effectiveness of the
Registration Statement shall have been issued and no proceedings for such
purpose shall have been initiated and be continuing or threatened by the
Commission; (v) the Toys "R" Us Common Stock to be issued pursuant to the Merger
and the other such shares required to be reserved for issuance in connection
with the Merger shall have been authorized for listing on the NYSE, subject to
notice of official issuance; (vi) the waiting periods under the HSR Act shall
have expired or been terminated; and (vii) the Company shall have received from
Wachtell, Lipton, Rosen & Katz, counsel to the Company, an opinion addressed to
the Company substantially to the effect that (a) the Merger will be treated for
federal income tax purposes as a reorganization within the meaning of Section
368(a) of the Code; (b) each of Toys "R" Us, Sub and the Company will be a party
to the reorganization within the meaning of Section 368(b) of the Code; and (c)
no gain or loss will be recognized by a Shareholder of the Company as a result
of the Merger except (1) with respect to cash received by such Shareholder in
lieu of fractional shares or pursuant to the exercise of appraisal rights and
(2) except to the extent a Shareholder receives consideration different in
amount from other Shareholders, dated the Closing Date, and such opinion shall
not have been withdrawn or modified in any material respect.
TERMINATION
TERMINATION EVENTS. The Merger Agreement may be terminated and the Merger
abandoned by action of the Board of Directors of either Toys "R" Us or the
Company if: (i) the Merger is not consummated by May 31, 1997 (provided that
such right to terminate the Merger Agreement will not be available to any party
whose failure to fulfill any obligation under the Merger Agreement is the cause
of or resulted in the failure of the Merger to occur on or before such date);
(ii) any court of competent jurisdiction in the United States or some other
governmental body or regulatory authority issues an order, decree or ruling or
takes any other action permanently restraining, enjoining or otherwise
prohibiting the Merger and such order, decree, ruling or other action becomes
final and nonappealable; or (iii) the Merger Agreement is not approved by
Shareholders of the Company at the Special Meeting.
The Merger Agreement may also be terminated and the Merger abandoned at any
time prior to the Effective Time by action of the Board of Directors of Toys "R"
Us if: (i) the Company fails to comply in any material respect with any of the
covenants or agreements contained in the Merger Agreement to be complied with or
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performed or fulfilled by the Company at or prior to such date of termination,
which failure to comply has not been cured within 15 business days following
receipt by the Company of notice of such failure to comply; (ii) any
representation or warranty of the Company contained in the Merger Agreement is
not true in all material respects when made (provided such breach has not been
cured within 15 business days following receipt by the Company of notice of the
breach) or (except to the extent they relate to a particular date) on and as of
the Effective Time as if made on and as of the Effective Time (in each case
subject to the standard set forth in the proviso of clause (i) of the first
paragraph under the heading " -- Conditions to the Merger"); or (iii) (a) the
Board withdraws, modifies or changes its recommendation of the Merger Agreement
or the Merger in a manner adverse to Toys "R" Us or Sub, or approves or
recommends to the Shareholders of the Company any Competing Transaction or (b)
the Company enters into any agreement with respect to any Competing Transaction
or (c) the Board resolves to do any of the foregoing.
The Merger Agreement may also be terminated and the Merger abandoned at any
time prior to the Effective Time by action of the Board if: (i) Toys "R" Us or
Sub fails to comply in any material respect with any of the covenants or
agreements contained in the Merger Agreement to be complied with or performed or
fulfilled by Toys "R" Us or Sub at or prior to such date of termination, which
failure to comply has not been cured within fifteen business days following
receipt by Toys "R" Us of notice of such failure to comply; (ii) any
representation or warranty of Toys "R" Us or Sub contained in the Merger
Agreement is not true in all material respects when made (provided such breach
has not been cured within 15 business days following receipt by Toys "R" Us of
notice of the breach) or (except to the extent they relate to a particular date)
on and as of the Effective Time as if made on and as of the Effective Time (in
each case subject to the standard set forth in the proviso of clause (i) of the
second paragraph under " -- Conditions to the Merger"); or (iii) the Company
enters into a definitive agreement relating to a Superior Proposal, provided it
has complied with all of the provisions described under " -- Certain
Covenants -- No Solicitation" and has made payment of the fees described in the
second paragraph under
" -- Fees and Expenses."
EFFECT OF TERMINATION. In the event of termination of the Agreement by
either the Company or Toys "R" Us, the Merger Agreement will forthwith become
void and there will be no liability or obligation on the part of Toys "R" Us,
Sub the Company or Tate or their respective affiliates, officers, directors or
stockholders except (i) with respect to fees and expenses and (ii) to the extent
that such termination results from the breach of a party hereto or any of its
representations or warranties, or any of its covenants or agreements, in each
case, as set forth in the Merger Agreement.
FEES AND EXPENSES
Except as described below, each of Toys "R" Us, Sub and the Company has
agreed to bear its own expenses in connection with the Merger, except that the
cost of printing this Proxy Statement/Prospectus will be borne equally by Toys
"R" Us and the Company.
If the Merger Agreement is terminated (i) by either the Company or Toys "R"
Us in the circumstances described in clause (iii) of the first paragraph under
" -- Termination -- Termination Events," and such termination occurs at or prior
to the time of the Special Meeting and at such time a Competing Transaction is
commenced, publicly proposed or publicly disclosed and the Company has not yet
rejected such Competing Transaction, (ii) by Toys "R" Us in the circumstances
described in clause (iii) of the second paragraph under " --
Termination -- Termination Events" or (iii) by the Company in the circumstances
described in clause (iii) of the third paragraph under
" -- Termination -- Termination Events," then the Company is required to pay to
Toys "R" Us an amount equal to $12 million.
If the Merger Agreement is terminated by the Company in the circumstances
described in clause (i) or (ii) of the third paragraph under
" -- Termination -- Termination Events," then Toys "R" Us is required to pay to
the Company an amount equal to $20 million.
AMENDMENT; WAIVER
Subject to the applicable provisions of the SCBCA, at any time prior to the
Effective Time, Toys "R" Us, Sub and the Company may modify or amend the Merger
Agreement, by written agreement executed and delivered by duly authorized
officers of Toys "R" Us, Sub and the Company; provided, however, that after
approval of the Merger Agreement by the Shareholders, no amendment may be made
which changes the consideration payable in the Merger or adversely affects the
rights of the Shareholders under the Merger Agreement without the approval of
such Shareholders.
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The conditions to each of the parties' obligations to consummate the Merger
are for the sole benefit of such party and may be waived by such party in whole
or in part to the extent permitted by applicable law.
CERTAIN RELATED AGREEMENTS
SHAREHOLDERS AGREEMENT
Concurrently with the execution and delivery of the original version of the
Merger Agreement on October 1, 1996, Toys "R" Us, Mr. Tate and Ms. Robertson
entered into the Shareholders Agreement. Set forth below is a summary of certain
provisions of the Shareholders Agreement, a copy of which has been filed as an
exhibit to the Registration Statement. This summary is qualified in its entirety
by reference to the full and complete text of the Shareholders Agreement.
Pursuant to the Shareholders Agreement, Mr. Tate has agreed that until the
earlier to occur of the Effective Time and the termination of the Merger
Agreement in accordance with its terms, at any meeting of the Shareholders,
however called, or in connection with any written consent of the Shareholders,
he will vote or cause to be voted the shares of Company Common Stock held of
record or beneficially by him (and has granted to Toys "R" Us his proxy to vote
all such shares): (i) in favor of approval of the Merger Agreement and any
actions required in furtherance thereof; (ii) against any action or agreement
that would result in a breach in any respect of any covenant, representation or
warranty or any other obligation or agreement of the Company under the Merger
Agreement (after giving effect to any materiality or similar qualifications
contained therein); and (iii) except as otherwise agreed to in writing in
advance by Toys "R" Us, against the following actions (other than the Merger and
the transactions contemplated by the Merger Agreement): (a) any extraordinary
corporate transaction, such as a merger, consolidation or other business
combination involving the Company; (b) a sale, lease or transfer of a material
amount of assets of the Company, or a reorganization, recapitalization,
dissolution or liquidation of the Company, and (c) any change in a majority of
the persons who constitute the Board, any change in the present capitalization
of the Company or any amendment of the Company Articles or Company Bylaws, any
other material change in the Company's corporate structure or business, or any
other action which in the case of each of the matters referred to in this clause
(c), is intended to, or reasonably could be expected to, impede, interfere with,
delay, postpone, or materially adversely affect the Merger and the transactions
contemplated by the Merger Agreement and the Shareholders Agreement. In
addition, Mr. Tate has agreed not to enter into any agreement or understanding
with any person or entity the effect of which would be inconsistent with or
violative of the foregoing provisions. The foregoing provisions will terminate
(i) in the event the Merger Agreement is terminated pursuant to the provisions
described under "The Merger Agreement -- Termination," upon such termination,
and (ii) in the event the Merger is consummated, upon the Effective Time.
In addition, Mr. Tate and Ms. Robertson have agreed in the Shareholders
Agreement that they will not, until the third anniversary of the Effective Time,
(i) engage in any activity in the juvenile retail business, directly or
indirectly (whether as an employee, officer, director, agent, consultant,
proprietor, partner, principal shareholder of otherwise), anywhere where the
Company currently has operations; or (ii) engage in any action, activity or
course of conduct which is detrimental to the business or business reputation of
the Company or any of its subsidiaries, including (a) recruiting any employees
of the Company (or the Surviving Corporation) or any of its subsidiaries; (b)
soliciting or encouraging any employee of the Company (or the Surviving
Corporation) or any of its subsidiaries to leave the employment of the Company
or any of its subsidiaries; and (c) disclosing or furnishing to anyone any
confidential information relating to the Company or any of its subsidiaries or
otherwise using such confidential information for its own benefit or the benefit
of any other person.
REGISTRATION RIGHTS AGREEMENT
Concurrently with the execution and delivery of the original version of the
Merger Agreement on October 1, 1996, Toys "R" Us, Mr. Tate and Ms. Robertson
entered into the Registration Rights Agreement pursuant to which, subject to
certain limitations, Mr. Tate and Ms. Robertson will collectively be entitled to
one "demand" registration right and unlimited "piggy back" registration rights
to register under the Securities Act the shares of Toys "R" Us Common Stock
received by Mr. Tate and Ms. Robertson in connection with the Merger. A copy of
the Registration Rights Agreement has been filed as an exhibit to the
Registration Statement and this summary is qualified in its entirety by
reference to the full text of the Registration Rights Agreement.
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THE COMPANIES
TOYS "R" US
Toys "R" Us is engaged in the operation of 1,296 children's specialty
retail stores consisting of 680 United States and 396 international toy stores,
including franchise locations, under the name "Toys "R" Us," 212 children's
clothing stores under the name "Kids "R" Us" and six infant-toddler stores under
the name "Babies "R" Us." In addition, Toys "R" Us has opened its first
superstore format under the name "Toys "R" Us KidsWorld" in two locations this
year, featuring all of the "R" Us concepts under one roof. Toys "R" Us operates
in 49 states, Puerto Rico, and 23 international countries. The overall
merchandising philosophy of Toys "R" Us is the development of strong consumer
recognition and acceptance of its name by the use of mass media advertising that
promotes its broad selection and everyday low prices. Toys "R" Us' principal
offices are located at 461 From Road, Paramus, New Jersey 07652, and its
telephone number is (201) 262-7800.
For a more detailed description of the business and properties of Toys "R"
Us, see the descriptions thereof set forth in the Toys "R" Us 10-K, which is
incorporated herein by reference. See "Incorporation of Certain Documents by
Reference."
THE COMPANY
The Company is a leading large format retailer of baby and young children's
products in the United States. The Company was incorporated in 1970 and opened
its first superstore in March 1971 in Greenville, South Carolina, and currently
operates 78 stores in 23 states, primarily in the southeast and midwest.
Substantially all of the products sold by the Company are directed toward
newborns and children up to three years old. The Company's business strategy is
to offer the broadest assortment of high quality baby merchandise at everyday
low prices, maintain low operating costs and provide excellent customer service.
Although the Company's superstores currently average approximately 36,000 square
feet in size, its newest superstores range from approximately 35,000 to 45,000
square feet in size. Substantially all of the Company's superstores are anchor
tenants in strip shopping centers near major regional malls and other
destination stores. The Company's principal offices are located at 1201 Woods
Chapel Road, Duncan, South Carolina 29334, and its telephone number is (864)
968-9292.
For a more detailed description of the business and properties of the
Company, see the descriptions thereof set forth in the Company 10-K, which is
incorporated herein by reference. See "Incorporation of Certain Documents by
Reference."
COMPARISON OF SHAREHOLDER RIGHTS
Toys "R" Us is incorporated in the State of Delaware and the Company is
incorporated in the State of South Carolina. Shareholders of the Company, whose
rights as shareholders currently are governed by South Carolina law, will, upon
consummation of the Merger, become stockholders of Toys "R" Us and their rights
as such will be governed by Delaware law. Certain significant differences
between the rights of stockholders under the Delaware General Corporation Law
(the "DGCL") and those of shareholders under the SCBCA are summarized below.
This summary does not purport to be a complete discussion of the differences
between the statutory rights of shareholders of a South Carolina corporation and
stockholders of a Delaware corporation. Such differences can be determined in
full by reference to the SCBCA and the DGCL.
DIRECTORS
Under Delaware law, the certificate of incorporation may provide that
directors elected by the holders of a class or series of stock shall have terms
of office longer or shorter than those of other directors and more or less than
one vote per director on any matter. The terms and voting powers of a director
or class of directors may therefore be greater or less than those of any other
director or class of directors. The Certificate of Incorporation of Toys "R" Us
does not provide for unequal terms or voting powers for any directors. South
Carolina law does not provide for unequal terms or voting powers for directors
depending on the class or series of stock electing them, although staggered
terms are permitted.
Under South Carolina law, the number of directors shall be specified in or
fixed in accordance with the articles of incorporation or bylaws of a
corporation. If, under the articles of incorporation or bylaws of a corporation,
the board of directors has power to fix or change the number of directors, the
board of directors may increase or decrease the number of directors by up to 30%
without a shareholder vote. If the articles of incorporation or bylaws of a
corporation establish a range of size of the board of directors, the number of
directors may be fixed or changed within the minimum and maximum by the
shareholders or the board of directors. After shares
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are issued, only the shareholders may change the range for the size of the board
of directors or change from a fixed to a variable-range size board of directors
or VICE VERSA. The Company Bylaws provide for the number of directors to be
determined by action of the Board within a range of three to 15 directors. Under
Delaware law, the number of directors may be altered in the manner provided in
the bylaws of a corporation unless the number of directors is fixed in the
certificate of incorporation, in which case the number of directors can be
altered only by an amendment of the certificate of incorporation, which requires
stockholder approval. The Certificate of Incorporation of Toys "R" Us does not
fix the number of directors and the bylaws of Toys "R" Us provide that the
number may be changed by the board of directors.
Under South Carolina and Delaware law, a corporation may provide for
cumulative voting by its shareholders with respect to the election of directors.
The Company prohibits cumulative voting in the Company Articles. The Certificate
of Incorporation of Toys "R" Us permits cumulative voting with respect to the
election of directors.
ACTION BY SHAREHOLDERS OR STOCKHOLDERS WITHOUT MEETING
Under Delaware law, any action that is required to be or that may be taken
at a meeting of stockholders may be taken without a meeting, without prior
notice and without a vote, by the written consent of holders of outstanding
shares having not less than the minimum number of votes that would be necessary
to take such action if a meeting of stockholders were held at which all shares
entitled to vote thereon were present and voted, unless otherwise provided in
the certificate of incorporation. The Certificate of Incorporation of Toys "R"
Us does not so provide. South Carolina law also permits action by shareholders
without a meeting but requires the written consent of all shareholders entitled
to vote on the matter.
DIVIDENDS
Under South Carolina law, the board of directors may authorize and the
corporation may make distributions of cash or property to its shareholders,
subject to any restriction in the articles of incorporation and subject further
to the restriction that no distribution may be made if, after giving it effect,
(i) the corporation would not be able to pay its debts as they become due in the
usual course of business, or (ii) the corporation's total assets would be less
than the sum of its total liabilities plus (unless the articles of incorporation
permit otherwise) the amount that would be needed, if the corporation were to be
dissolved at the time of the distribution, to satisfy the preferential rights
upon dissolution of shareholders whose preferential rights are superior to those
receiving the distribution. The board of directors may base a determination that
a distribution is not so prohibited either on financial statements prepared on
the basis of accounting practices and principles that are reasonable in the
circumstances or on a fair valuation or other method that is reasonable in the
circumstances.
Under Delaware law, a corporation may, unless otherwise restricted by its
certificate of incorporation, pay dividends out of surplus, or if no surplus
exists, out of net profits for the fiscal year in which the dividend is declared
or preceding fiscal year (provided that such payment will not reduce capital
below the amount of capital represented by all classes of stock having a
preference upon the distribution of assets). Under Delaware law, surplus is the
excess of the net assets of the corporation over the amount determined to be
capital. The amount of capital may be fixed by the board of directors, but shall
not be less than the aggregate par value of all shares having par value, plus
the stated value of any shares not having par value, which have been issued from
time to time. Under Delaware law, a corporation may purchase or redeem its own
shares only out of surplus and only if it does not impair capital. However, a
corporation may redeem preferred stock, irrespective of whether capital is
thereby impaired, if such shares will be retired upon their redemption, and the
capital of the corporation is reduced in accordance with Delaware law.
CERTAIN VOTING RIGHTS
Under South Carolina law, a plan of merger must generally be approved by
the affirmative vote of the holders of at least two-thirds of the votes entitled
to be cast on the plan regardless of the class or voting group to which the
shares belong, and two-thirds of the votes entitled to be cast on the plan
within each voting group entitled to vote as a separate voting group on the
plan. The articles of incorporation of a corporation may require a lower or
higher vote for approval, but the required vote must be at least a majority of
the votes entitled to be cast on the plan by each voting group entitled to vote
separately on the plan. The Company Articles reduce the voting requirement
described in this paragraph from two-thirds of the votes entitled to be cast on
such plan to a majority of the votes entitled to be cast on such plan. Any class
of shares of any such corporation is entitled to vote as a class if the plan of
merger contains any provision that, if contained in a proposed amendment to the
articles of incorporation, would entitle such class of shares to vote as a
class. Under Delaware law, an agreement of merger or consolidation must be
adopted by the affirmative vote of a majority of the outstanding stock entitled
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to vote thereon, but does not require the separate vote of any class of such
stock unless the merger involves a charter amendment which would adversely
affect such class.
To authorize the sale, lease, exchange or other disposition of all or
substantially all of the property of a corporation, other than in the usual and
regular course of business, or to voluntarily dissolve the corporation, South
Carolina law requires the affirmative vote of at least two-thirds of all the
votes entitled to be cast on the transaction. The articles of incorporation of a
corporation may require a lower or higher vote for approval, but the required
vote must be least a majority of all the votes entitled to be cast on the
transaction. The Company Articles reduce the voting requirement described in
this paragraph from two-thirds of the votes entitled to be cast on such matters
to a majority of the votes entitled to be cast on such matters. In contrast to
South Carolina law, Delaware law requires only an affirmative vote of the
holders of a majority of the outstanding stock entitled to vote thereon to
authorize a sale, lease or exchange of all or substantially all the property and
assets of the corporation, or to authorize the voluntary dissolution of the
corporation. Delaware law permits the voluntary dissolution of a corporation
without the approval of the board of directors pursuant to the written consent
of all the stockholders.
DISSENTERS' OR APPRAISAL RIGHTS
Under South Carolina law, a shareholder of a corporation who objects to (i)
an amendment of the articles of incorporation that materially and adversely
affects certain of the shareholder's rights, (ii) consummation of a plan of
merger to which the corporation is a party (a) if shareholder approval is
required and the shareholder is entitled to vote on the merger or (b) if the
corporation is a subsidiary that is merged with its parent without shareholder
approval or if the corporation is a parent that causes its subsidiary to be
merged into it without shareholder approval, (iii) consummation of a plan of
share exchange to which the corporation is a party as the corporation whose
shares are to be acquired, if the shareholder is entitled to vote on the plan,
(iv) consummation of a sale or exchange of all, or substantially all, of the
property of the corporation other than in the usual and regular course of
business, if the shareholder is entitled to vote on the sale or exchange
(excluding, among other matters, a sale for cash pursuant to a plan by which all
or substantially all of the net proceeds of the sale must be distributed to the
shareholders within one year after the date of sale), is entitled to payment of
the fair value as determined under South Carolina law of such shareholder's
shares by perfecting dissenters' rights pursuant to the SCBCA.
Under Delaware law, appraisal or dissenters' rights arise only in
connection with statutory mergers or consolidations, and the holders of shares
of a class listed on a national securities exchange or held of record by more
than 2,000 stockholders are not entitled to appraisal rights in the event of a
merger or consolidation, unless such stockholders are required by the terms of
the merger to accept anything other than shares of stock of the surviving
corporation, shares of stock of another corporation which are so listed or held
by such number of record holders, cash in lieu of fractional shares of such
stock, or a combination of the shares of stock, depository receipts and cash in
lieu of fractional shares of such stock. If the shares are not so listed or held
by such number of record holders, a stockholder who did not vote in favor of
such action, and who complies with certain statutory procedures, is entitled to
receive the fair value as determined under Delaware law of such stockholder's
shares from the corporation. For a discussion of the dissenters' rights of the
shareholders of the Company in connection with the Merger, see "The
Merger -- Dissenters' Rights."
CHANGE IN CONTROL AND BUSINESS COMBINATIONS
Both South Carolina and Delaware have in place legislation respecting
takeovers. The Company has opted out of the South Carolina legislation.
South Carolina's legislation respecting Control Share Acquisitions (as
defined in the SCBCA) and Business Combinations (as defined herein) was enacted
in 1988. The South Carolina Control Share Acquisition law applies to several
categories of South Carolina corporations, including any South Carolina
corporation, such as the Company, that has a class of voting shares registered
with the Commission under Section 12 of the Exchange Act, has a principal place
of business, its principal office or substantial assets in South Carolina and
has a specified shareholder presence in South Carolina. Unless a corporation has
opted out of the provisions of the South Carolina statute before the "control
share acquisition" in question through an amendment to its articles of
incorporation or bylaws, "control shares" of the corporation acquired in a
"control share acquisition" have no voting rights unless and until granted by
resolution approved by a majority of the shares of each voting group, excluding
all "interested shares." If authorized by such a corporation's articles of
incorporation or bylaws before a "control share acquisition" has occurred,
"control shares" acquired in a "control share acquisition" may under certain
circumstances be subject to redemption by the corporation at the fair value
thereof. Unless otherwise provided in such a corporation's articles of
incorporation or bylaws before a "control share acquisition" has occurred, if
"control shares" acquired in a "control share acquisition" are accorded full
voting rights which will constitute a
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majority or more of all voting power, all shareholders of the corporation have
dissenters' rights to receive fair value for their shares. For purposes of the
Control Share Acquisition law, "control shares" are shares that, except for such
law, would have voting power that, when added to all other shares of the
corporation owned by a person or in respect to which that person may exercise or
direct the exercise of voting power, would entitle that person, directly or
indirectly, alone or as part of a group, to exercise or direct the exercise of
the voting power of the corporation in the election of directors within any of
the following ranges of voting power: (i) one-fifth or more but less than
one-third of all voting power, (ii) one-third or more but less than a majority
of all voting power or (iii) a majority or more of all voting power. For
purposes of the law, a "control share acquisition" means the acquisition,
directly or indirectly, by any person of ownership of, or the power to direct
the exercise of voting power with respect to, issued and outstanding "control
shares". Among certain other circumstances, a "control share acquisition" is
deemed not to occur when it is pursuant to a merger or plan of share exchange
where the corporation is a party to the agreement of merger or plan of share
exchange. Accordingly, the statute would not, by its terms, apply to the Merger.
"Interested shares" are shares of the corporation voted by an acquiring person
or a member of a group with respect to a "control share acquisition," any
officer of the corporation or any employee of the corporation who is also a
director of the corporation.
The South Carolina Business Combination law applies to certain South
Carolina corporations, such as the Company, and certain non-South Carolina
corporations that have a significant presence in South Carolina. The law
prohibits specified "business combinations" with "interested shareholders"
unless certain conditions are satisfied. The act defines an "interested
shareholder" as any person (other than the corporation or any of its
subsidiaries) that (i) beneficially owns 10% or more of the corporation's
outstanding voting shares or (ii) at any time within the preceding two-year
period beneficially owned 10% of the voting power of the corporation's
outstanding shares and is an affiliate or associate of the corporation. Excluded
from the statute's coverage is any "business combination" with any person that
beneficially owned in excess of 10% of the corporation's voting shares prior to
April 23, 1988.
Section 203 of the DGCL prohibits certain transactions between a Delaware
corporation, the shares of which are listed on a national securities exchange,
and an "interested stockholder," unless the certificate of incorporation of the
corporation contains a provision expressly electing not to be governed by
Section 203 of the DGCL. The Certificate of Incorporation of Toys "R" Us does
not contain such an election. An "interested stockholder" includes a person that
is directly or indirectly a beneficial owner of fifteen percent or more of the
voting power of the outstanding voting stock of the corporation and such
person's affiliates and associates. The provision prohibits certain business
combinations between an interested stockholder and a corporation for a period of
three years after the date the interested stockholder became an interested
stockholder, unless (i) the business combination is approved by the
corporation's board of directors prior to the date such stockholder became an
interested stockholder, (ii) the interested stockholder acquired at least 85% of
the voting stock of the corporation in the transaction in which such stockholder
became an interested stockholder or (iii) the business combination is approved
by a majority of the board of directors and the affirmative vote of two-thirds
of the outstanding stock that is not owned by the interested stockholder.
LIABILITY OF DIRECTORS
Subject to certain exceptions, both South Carolina and Delaware permit the
articles of incorporation or certificate of incorporation, respectively, of a
corporation to contain provisions limiting or eliminating the liability of
directors to the corporation or its stockholders for monetary damages for
breaches of fiduciary duty as a director. Both Delaware and South Carolina do
not permit any such provision to eliminate or limit the liability of a director
(i) for any breach of the director's duty of loyalty to the corporation or its
stockholders, (ii) for acts or omissions not in good faith or that involve
intentional misconduct or knowing violation of law, (iii) for an improper
distribution of corporate assets to one or more stockholders, or (iv) for any
transaction from which the director derived an improper personal benefit. Unlike
Delaware law, South Carolina also does not permit any such provision to
eliminate or limit the liability of a director for acts or omissions that
involve gross negligence. Both the Company Articles and the Certificate of
Incorporation of Toys "R" Us contain provisions eliminating the liability of the
respective companies' directors to the fullest extent permitted by South
Carolina and Delaware law, respectively.
RELATED PARTY TRANSACTIONS
Under South Carolina law, a corporation may not directly or indirectly lend
money to, or guarantee the obligation of, any director unless (i) the particular
loan or guarantee is approved by a majority of the votes represented by the
outstanding voting shares of all classes, voting as a single voting group,
except the votes of shares owned by or voted under the control of the benefited
director, or (ii) the corporation's board of directors
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determines that the loan or guarantee benefits the corporation and either
approves the specific loan or guarantee or a general plan authorizing loans and
guarantees. Under Delaware law, any corporation may lend money to, or guarantee
any obligation of, any officer or other employee, including any officer or
employee who is a director, whenever, in the judgment of the directors, such
loan or guaranty may reasonably be expected to benefit the corporation.
Under South Carolina law, a transaction with a corporation in which a
director of the corporation has a direct or indirect interest is not voidable by
the corporation solely because of the director's interest in the transaction if
any one of the following is true: (i) the material facts of the transaction and
the director's interest were disclosed or known to the board of directors or a
committee of the board of directors and the board or such committee authorizes,
approves or ratifies the transaction by a majority (consisting of more than one)
of the directors on the board or the committee who have no direct or indirect
interest in the transaction; or (ii) the material facts of the transaction and
the director's interest were disclosed or known to the shareholders entitled to
vote and they authorized, approved, or ratified the transaction by the
affirmative vote of a majority of the shares entitled to vote other than shares
owned by or voted under the control of the director who has a direct or indirect
interest in the transaction and other than shares owned by or voted under the
control of certain related entities; or (iii) the transaction was fair to the
corporation. Under Delaware law, contracts or transactions between a corporation
and one or more of its directors or officers, or between a corporation and
another corporation or entity in which a director or officer has a financial
interest or is a director or officer, may be effected if (i) approved in good
faith by either (a) a majority of the disinterested directors of the board or a
committee thereof or (b) a majority of the stockholders, in each case after
disclosure or with knowledge of the material facts respecting the relationship
or interest and the contract or transaction or (ii) the contract or transaction
is fair as to the corporation as of the time it is authorized, approved or
ratified, by the board of directors, a committee thereof, or the stockholders.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under South Carolina law, a corporation may indemnify a past or present
director against liability incurred in a proceeding if (i) the director
conducted himself in good faith, (ii) the director reasonably believed (a) in
the case of conduct in his or her official capacity with the corporation, that
his or her conduct was in its best interest, and (b) in all other cases, that
his or her conduct was at least not opposed to its best interest, and (iii) in
the case of any criminal proceedings, the director had no reasonable cause to
believe his or her conduct was unlawful; provided, however, that a corporation
may not indemnify a director (a) in connection with a proceeding by or in the
right of the corporation in which the director is adjudged liable to the
corporation, or (b) in connection with any other proceeding charging improper
personal benefit to him or her in which he or she is adjudged liable on the
basis that personal benefit was improperly received by him or her. Under South
Carolina law, unless limited by the articles of incorporation, a corporation
shall indemnify a director who is wholly successful, on the merits or otherwise,
in the defense of any proceeding to which he or she is party because he or she
is or was a director against reasonable expenses incurred by him or her in
connection with the proceeding. Under South Carolina law, a corporation may pay
in advance for the reasonable litigation expenses of a director if (i) the
director furnishes the corporation a written affirmation of his good faith
belief that he or she has met the applicable standard of conduct, (ii) the
director furnishes the corporation a written undertaking to repay the advance if
it is ultimately determined that he or she did not meet the standard of conduct,
and (iii) a determination is made that the facts then known to those making the
determination would not preclude indemnification. Such determination, as well as
any determination that indemnification shall be paid, must be made in one of the
following ways: (i) by a majority vote of a quorum of the board of directors
consisting of directors not at the time parties to the proceeding, (ii) if a
quorum cannot be obtained, by majority vote of a committee designated by the
board of directors, consisting solely of two or more directors not at the time
parties to the proceeding, (iii) by special legal counsel (a) selected by the
board of directors or its committee in the manner prescribed above, or (b) if a
quorum of the board of directors cannot be obtained and a committee cannot be
designated, selected by majority vote of the full board of directors, or (iv) by
the shareholders, but shares owned by or voted under the control of directors
who are at the time parties to the proceeding may not be voted on the
determination. Under South Carolina law, an officer is entitled to the benefit
of the same indemnification provisions as apply to directors, but in addition a
corporation may indemnify and advance expenses to an officer who is not a
director to the extent, consistent with public policy, provided by the
corporation's articles of incorporation, the corporation's bylaws, general or
specific action of the board of directors, or contract. Unless the corporation's
articles of incorporation provide otherwise, South Carolina law permits a court
in certain circumstances to order the payment of indemnification to a director,
whether or not he met the applicable standard of conduct, if the director is
fairly and reasonably entitled to indemnification in view of all the relevant
circumstances.
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Under Delaware law, a corporation has the power to indemnify a director or
officer against (i) expenses, judgments, fines and amounts paid in settlement
reasonably incurred in any proceeding (other than a proceeding by or in the
right of the corporation) if the director or officer acted in good faith and in
a manner such officer or director reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his or her conduct was
unlawful and (ii) expenses reasonably incurred in any proceeding by or in the
right of the corporation if the director or officer acted in good faith and in a
manner such officer or director reasonably believed to be in or not opposed to
the best interests of the corporation, except that no indemnification of such
expenses shall be made in any such proceeding in which such person shall be
adjudged to be liable to the corporation unless and only to the extent that the
court shall determine that, in view of all the circumstances of the case, such
person is fairly and reasonably entitled to indemnity for such expenses. Under
Delaware law, any indemnification permitted by the rules described in the
foregoing sentence may be made only as authorized in the specific case upon a
determination that the individual has met the applicable standard of conduct,
which determination must be made (i) by a majority vote of directors, who are
not parties, even though less than a quorum, (ii) if there are no directors, or
if a quorum of disinterested directors so directs, by independent legal counsel,
or (iii) by the stockholders. Delaware law requires that a director or officer
be indemnified against expenses reasonably incurred in connection with any
proceeding in which he has been successful on the merits or otherwise in defense
of the proceeding, or in defense of any claim, issue or matter therein. Expenses
of any officer or director in connection with any proceeding may be paid by the
corporation in advance upon receipt of an undertaking to repay such amount if it
shall ultimately be determined that such officer or director is not entitled to
be indemnified.
Both South Carolina and Delaware law permit a corporation to purchase and
maintain insurance on behalf of any officer or director against any liability,
whether or not the corporation would have the power to indemnify such officer or
director against such liability.
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PROPOSED RATIFICATION AND APPROVAL OF AMENDMENT
TO THE 1994 PLAN AND GRANT OF OPTIONS TO EXECUTIVE OFFICER
The 1994 Plan was adopted by the Company on July 20, 1994. 450,000 shares
of Common Stock were initially approved for issuance under the 1994 Plan,
adjusted for the Company's three-for-two stock split in February 1995. For the
purposes of this summary all capitalized terms not defined herein are as defined
in the 1994 Plan.
PROPOSED AMENDMENT
On August 27, 1996, the Board approved, subject to Shareholder approval,
the amendment of the 1994 Plan to increase the number of shares of Company
Common Stock reserved for issuance thereunder from 450,000 shares to 1,000,000
shares, and, further, authorized the annual grant for 1996 of Options under the
1994 Plan to purchase up to 500,000 shares of Company Common Stock. Pursuant to
this authorization, and subject to Shareholder approval of the increase in
shares authorized under the 1994 Plan, Options to purchase a total of 394,250
shares were granted on August 28, 1996 (the "1996 Annual Grants"), including the
grant of an Option to purchase 25,000 shares to Ms. Taylor, the Chief Financial
Officer of the Company (the "CFO Grant"). On September 30, 1996, the Board
further amended the 1994 Plan to provide, as described under " -- The 1994
Plan -- Change of Control Provisions" (the "Change of Control Provisions"), for
the acceleration of vesting of Options granted under the 1994 Plan upon
termination of the Optionee's (as defined herein) employment under certain
circumstances following a Change of Control (as defined below). At the Special
Meeting, the Shareholders are being requested to ratify and approve the
amendment to increase the number of shares of Company Common Stock authorized
for issuance under the 1994 Plan from 450,000 to 1,000,000 shares and the CFO
Grant. The Board believes that it is in the Company's best interests to increase
the number of shares of Company Common Stock authorized for issuance under the
1994 Plan so that the Company may continue to provide incentives to its
employees through the opportunity to purchase Company Common Stock under the
1994 Plan. Pursuant to the Merger Agreement, at the Effective Time, each
outstanding Option, other than Options held by Mr. Tate and Ms. Robertson, will
be assumed by Toys "R" Us and will constitute an option to acquire shares of
Toys "R" Us Common Stock on substantially the same terms and subject to
substantially the same conditions as were applicable to the Option prior to the
Effective Time. See "The Merger Agreement -- Treatment of Stock Options."
The Board believes that in order to retain the continued services of its
key employees, consultants and advisors, including executive officers, and to
provide incentives for such persons to exert maximum efforts for the success of
the Company, it is necessary and advisable to grant the Options to such persons.
The Board therefore recommends that the Shareholders vote "FOR" the 1994 Plan
Proposal. The 1994 Plan Proposal will be approved if the votes cast either in
person or by proxy to approve the proposal exceed the votes cast opposing the
proposal.
THE 1994 PLAN
The following description of the 1994 Plan and the option agreements
pursuant to which the 1996 Annual Grants were made (the "Option Agreements") is
a summary only, and is qualified in its entirety by reference to the 1994 Plan,
as amended, a copy of which is attached as Annex D to this Proxy
Statement/Prospectus. Capitalized terms used in this description and not
otherwise defined in this description have the meanings ascribed to them in the
1994 Plan.
PURPOSE. The purposes of the 1994 Plan are to (i) provide an incentive and
reward to key employees of the Company, and consultants and advisors to the
Company, who are and have been in a position to contribute materially to
improving the Company's profits, (ii) aid in the growth of the Company, and
(iii) encourage ownership of shares of Company Common Stock by employees.
GRANTS. On August 28, 1996, grants of Options covering 394,250 shares of
Company Common Stock were made to the participants in the 1994 Plan (each, a
"Participant") at a purchase price of $16.00 per share, subject to Shareholder
approval of the amendment to increase the number of shares available under the
1994 Plan.
ADMINISTRATION. The 1994 Plan is administered by a Committee appointed by
the Board. The Committee in its discretion may designate any individual who
performs services as a common law employee for the Company, a Parent or
Subsidiary, and is included on the regular payroll of the Company, Parent or
Subsidiary (individually,
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an "Employee" and collectively, the "Employees") and Consultants who shall be
Participants, determine all the terms and conditions as set forth in the 1994
Plan, including whether the Participant is awarded an Option, a Stock
Appreciation Right ("SAR") or Restricted Stock (individually, an "Award" and
collectively, the "Awards"), the exercise period, expiration date and other
applicable time periods for each Award, the number of Shares subject to each
Award, with respect to each Option whether it is an Incentive Stock Option
("ISO") or Nonqualified Stock Option ("NQO") and, if applicable, the Option
Price or SAR Price and the general terms of the Award.
ELIGIBILITY. Each Participant shall be an Employee who is a key employee or
a Consultant of the Company, a Parent or a Subsidiary as selected by the
Committee in its sole discretion from time to time. Participants may hold more
than one Award, but only on the terms and subject to the restrictions set forth
in the 1994 Plan. The approximate number of persons eligible to be Participants
under the 1994 Plan is 400.
SHARES SUBJECT TO AWARD. The securities subject to the Awards shall,
subject to the Shareholder approval sought hereunder, be 1,000,000 shares of
Company Common Stock. In the event that any outstanding Award under the 1994
Plan expires or is terminated for any reason, the Awarded Shares subject to that
Award may again be the subject of an Award under the 1994 Plan.
TERM OF THE 1994 PLAN. The 1994 Plan became effective on July 20, 1994. No
Award may be made after the tenth anniversary of the effective date of the 1994
Plan.
INCENTIVE STOCK OPTIONS AND NONQUALIFIED STOCK OPTIONS. The Committee in
its sole discretion may designate whether an Award to an Employee is to be
considered an ISO or a NQO. An Award to a Consultant may be only a NQO. The
Committee may grant both an ISO and a NQO to the same Employee. Any Award to an
Employee designated by the Committee as an ISO will be subject to the general
provisions applicable to all Awards granted under the 1994 Plan. In addition,
the aggregate Fair Market Value of Shares (determined at the Effective Date of
Grant) with respect to which ISO granted under all ISOs of the Company, a Parent
or Subsidiary, are exercisable by the Employee for the first time during any
calendar year shall not exceed $100,000. The Option Price shall be established
by the Committee in its sole discretion. With respect to an ISO, the Option
Price shall not be less than 100% of the Fair Market Value of a Share on the
Effective Date of Grant. With respect to a NQO, the Option Price shall not be
less than 50% of the Fair Market Value of a Share on the Effective Date of
Grant. Any Award to an Employee will be considered to be a NQO to the extent
that any or all of the grant is in conflict with any other provision of the 1994
Plan or with any requirement for ISOs pursuant to Code Section 422A and the
regulations issued thereunder.
An Option may be terminated, subject to the Change of Control Provisions,
as follows: (i) during the period of continuous employment with the Company,
Parent or Subsidiary, an Option will be terminated only if it has been fully
exercised or it has expired by its terms; (ii) upon termination of employment,
the Option will terminate upon the earliest of (a) the full exercise of the
Option, (b) the expiration of the Option by its terms, and (c) not more than
three months following the date of employment termination; provided, however,
should termination of employment (1) result from the death or Permanent and
Total Disability of the Participant, such period shall be one year or (2) be for
Cause, the Option will terminate on the date of employment termination. For
purposes of the 1994 Plan, a leave of absence approved by the Company shall not
be deemed to be termination of employment except with respect to an ISO as
required to comply with Code Section 422A and the regulations issued thereunder;
(iii) subject to the terms of the agreement with the Participant with respect to
an Award (an "Agreement"), if a Participant shall die or becomes subject to a
Permanent and Total Disability prior to the termination of employment with the
Company, Parent or Subsidiary and prior to the termination of an Option, such
Option may be exercised to the extent that the Participant shall have been
entitled to exercise it at the time of death or disability, as the case may be,
by the Participant, the estate of the Participant or the person or persons to
whom the Option may have been transferred by will or by the laws of descent and
distribution. Except as otherwise expressly provided in the Agreement with the
Participant, in no event will the continuation of the term of an Option beyond
the date of termination of employment allow the Participant, or his
beneficiaries or heirs, to accrue additional rights under the 1994 Plan, or to
purchase more Shares through the exercise of an Option than could have been
purchased on the day that employment was terminated.
STOCK APPRECIATION RIGHTS. The Committee, in its sole discretion, may grant
to a Participant an SAR. The SAR Price shall be established by the Committee in
its sole discretion. The SAR Price shall not be less than 100% of Fair Market
Value of a share of Company Common Stock on the Effective Date of Grant for an
SAR issued in tandem with an Incentive Stock Option and for other SARs, shall
not be less than 50% of Fair Market
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Value of a share of Company Common Stock on the Effective Date of Grant. Upon
exercise of an SAR, the Participant shall be entitled, subject to the terms and
conditions of the 1994 Plan and the Agreement, to receive the excess of each
share being exercised under the SAR (i) the Fair Market Value of a share of
Company Common Stock on the date of exercise over (ii) the SAR Price for such
share. At the sole discretion of the Committee, the payment of such excess shall
be made in (i) cash, (ii) shares of Company Common Stock, or (iii) a combination
of cash and shares of Company Common Stock. Shares used for this payment shall
be valued at their Fair Market Value on the date of exercise of the applicable
SAR. An Award of an SAR shall be considered an Award for purposes of the number
of shares of Company Common Stock subject to an Award unless the Agreement
making the Award of the SAR provides that the exercise of an SAR results in the
termination of an unexercised Option for the same number of shares of Company
Common Stock.
An SAR may be terminated, subject to the Change of Control Provisions, as
follows: (i) during the period of continuous employment with the Company, Parent
or Subsidiary, an SAR will be terminated only if it has been fully exercised or
it has expired by its terms; (ii) upon termination of employment, the SAR will
terminate upon the earliest of (a) the full exercise of the SAR, (b) the
expiration of the SAR by its terms, and (c) not more than three months following
the date of employment termination; provided, however, should termination of
employment (1) result from the death or Permanent and Total Disability of the
Participant, such three month period shall be one year or (2) be for Cause, the
SAR will terminate on the date of employment termination. For purposes of the
1994 Plan, a leave of absence approved by the Company shall not be deemed to be
termination of employment unless otherwise provided in the Agreement or by the
Company on the date of the leave of absence; (iii) subject to the terms of the
Agreement with the Participant if a Participant shall die or becomes subject to
a Permanent and Total Disability prior to the termination of employment with the
Company, Parent or Subsidiary and prior to the termination of an SAR, such SAR
may be exercised to the extent that the Participant shall have been entitled to
exercise it at the time of death or disability, as the case may be, by the
Participant, the estate of the Participant or the person or persons to whom the
SAR may have been transferred by will or by the laws of descent and
distribution. Except as otherwise expressly provided in the Agreement with the
Participant, in no event will the continuation of the term of an SAR beyond the
date of termination of employment allow the Employee, or his beneficiaries or
heirs, to accrue additional rights under the 1994 Plan, have additional SARs
available for exercise or to receive a higher benefit than the benefit payable
as if the SAR was exercised on the date of employment termination. No SARs were
granted pursuant to the 1996 Annual Grants.
RESTRICTED STOCK. The Committee may award to a Participant Restricted Stock
under such terms or conditions as the Committee, in its sole discretion, shall
determine and as otherwise provided in the 1994 Plan. Restricted Stock shall be
shares of Company Common Stock which are subject to a Restriction Period. Should
the Participant terminate employment for any reason, all Restricted Stock which
is still subject to the Restriction Period shall be forfeited and returned to
the Company for no payment. Upon such forfeiture, shares representing such
forfeited Restricted Stock shall become available for Award under the 1994 Plan.
No Restricted Stock was granted pursuant to the 1996 Annual Grants.
METHOD AND TIME OF PAYMENT. With respect to an Award, or portion thereof,
which requires payment of an Option Price, the Option Price shall be payable on
the exercise of the Award and shall be paid in (i) cash, (ii) shares of Company
Common Stock, including shares acquired pursuant to the 1994 Plan, or (iii) part
in cash and part in shares. Shares transferred in payment of the Option Price
shall be valued as of date of transfer based on their Fair Market Value.
EXERCISABILITY AND NON-TRANSFERABILITY OF AWARDS. Each Award shall be for a
term of up to ten years from the Effective Date of Grant as determined in the
sole discretion of the Committee. The vesting requirements of each Award shall
be determined in the sole discretion of the Committee. No Award, Option, SAR, or
Restricted Stock (prior to the expiration of the Restriction Period) shall be
transferable by the Participant, except by will or the laws of descent and
distribution upon the Participant's death and subject to any other limitations
of the 1994 Plan. In addition to any other restriction thereunder or otherwise
provided in the Agreement, no shares acquired pursuant to an Award of any type
may be sold, transferred or otherwise disposed of prior to the end of the six
month period which begins on the Effective Date of Grant of such Award. During
the Participant's lifetime, an Option or SAR may be exercised only by the
Participant, or on the Participant's behalf by the Participant's legal guardian.
ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. The Committee shall make
appropriate adjustments in the number of Awarded Shares or in the Option Price
or SAR Price in order to give effect to changes made in the
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number of outstanding Shares as a result of a merger, consolidation,
recapitalization, reclassification, combination, stock dividend, stock split, or
other relevant change.
CHANGE OF CONTROL PROVISIONS. Notwithstanding any provision in the 1994
Plan to the contrary, in the event of a Change of Control, any Option held by
any employee of the Company (the "Optionee") shall vest at the earlier of (i)
the date or dates for vesting of shares provided in the Agreement or Agreements
to which the Optionee is a signatory and (ii) the date of termination of the
Optionee's employment with the Company or any successor thereto, provided that
the Optionee receives notice of termination during the period commencing on the
date on which a Change of Control occurs (the "Effective Date") and ending on
the fourth anniversary of such date, and that either the Optionee's employment
is terminated by the Company other than for Cause, Disability, Death, or
Retirement (as defined herein), or the Optionee terminates employment for Good
Reason. For purposes of the 1994 Plan, a "Change of Control" shall mean: (i) the
acquisition by any individual, entity or group (within the meaning of Section
13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) (a "Person") of beneficial ownership (within the meaning of
Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either (a) the
then outstanding shares of Company Common Stock (the "Outstanding Company Common
Stock") or (b) the combined voting power of the then outstanding voting
securities of the Company entitled to vote generally in the election of
directors (the "Outstanding Company Voting Securities"); provided, however, that
for purposes of this paragraph (i), the following acquisitions shall not
constitute a Change of Control: (a) any acquisition directly from the Company,
(b) any acquisition by the Company, (c) any acquisition by any employee benefit
plan (or related trust) sponsored or maintained by the Company or any
corporation controlled by the Company or (d) any acquisition by any corporation
pursuant to a transaction which complies with clauses (a), (b) and (c) of
subsection (iii) of this paragraph; or (ii) individuals who, as of the date of
the approval by the Board of the Change of Control Provisions, constitute the
Board (the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual becoming a
director subsequent to the date of the approval by the Board of the Change of
Control Provisions whose election, or nomination for election by the Company's
Shareholders, was approved by a vote of at least a majority of the directors
then comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office occurs as a
result of an actual or threatened election contest with respect to the election
or removal of directors or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the Board; or (iii) consummation
of a reorganization, merger or consolidation or sale or other disposition of all
or substantially all of the assets of the Company (a "Business Combination"), in
each case, unless, following such Business Combination, (a) all or substantially
all of the individuals and entities who were the beneficial owners,
respectively, of the Outstanding Company Common Stock and Outstanding Company
Voting Securities immediately prior to such Business Combination beneficially
own, directly or indirectly, more than 50% of, respectively, the then
outstanding shares of common stock and the combined voting power of the then
outstanding voting securities entitled to vote generally in the election of
directors, as the case may be, of the corporation resulting from such Business
Combination (including, without limitation, a corporation which as a result of
such transaction owns the Company or all or substantially all of the Company's
assets either directly or through one or more subsidiaries) in substantially the
same proportions as their ownership, immediately prior to such Business
Combination of the Outstanding Company Common Stock and Outstanding Company
Voting Securities, as the case may be, (b) no Person (excluding any corporation
resulting from such Business Combination or any employee benefit plan (or
related trust) of the Company or such corporation resulting from such Business
Combination) beneficially owns, directly or indirectly, 20% or more of,
respectively, the then outstanding shares of common stock of the corporation
resulting from such Business Combination or the combined voting power of the
then outstanding voting securities of such corporation except to the extent that
such ownership existed prior to the Business Combination and (c) at least a
majority of the members of the board of directors of the corporation resulting
from such Business Combination were members of the Incumbent Board at the time
of the execution of the initial agreement, or of the action of the Board,
providing for such Business Combination; or (iv) approval by the Shareholders of
the Company of a complete liquidation or dissolution of the Company.
For purposes of the Change of Control Provisions, "Disability" shall mean
the absence of the Optionee from the Optionee's duties with the Company on a
full-time basis for 180 consecutive business days as a result of incapacity due
to mental or physical illness which is determined to be total and permanent by a
physician selected by the Company or its insurers and acceptable to the Optionee
or the Optionee's legal representative; "Retirement" shall mean the termination
of employment by the Optionee due to his voluntary normal or early retirement
49
<PAGE>
under a pension plan sponsored by his Employer or its affiliates, as defined in
such plan; and "Good Reason" shall have the meaning ascribed to it in the
Company's Director Severance Policy.
ADDITIONAL PROVISIONS. Awards authorized under the 1994 Plan may contain
any other provisions or restrictions as the Committee in its sole and absolute
discretion shall deem advisable including, but not limited to: (i) offering
Options in tandem with or reduced by other Options, SARs or other employee
benefits and reducing one Award by the exercise of another option, SAR or
benefit; or (ii) providing for the issuance to the Participant upon exercise of
an Option and payment of the exercise price thereof with previously owned shares
of Company Common Stock, of an additional Award for the number of shares so
delivered, having such other terms and conditions not inconsistent with the 1994
Plan as the Committee shall determine.
AMENDMENT AND TERMINATION OF THE 1994 PLAN. The Board may at any time
amend, suspend, or discontinue the 1994 Plan; provided, however, that without
further approval of the Shareholders of the Company no amendments by the Board
shall change the class of Employees eligible to participate or increase the
number of shares which may be subject to Options granted under the 1994 Plan. No
amendment to the 1994 Plan shall alter or impair any Award granted under the
1994 Plan, as amended, without the consent of the holders thereof.
FEDERAL INCOME TAX CONSIDERATIONS
The following brief summary of the United States federal income tax rules
currently applicable to NQOs, ISOs, SARS, and Restricted Stock is not intended
to be specific tax advice to Participants under the 1994 Plan.
Two types of stock options may be granted under the 1994 Incentive Plan:
NQOs, and ISOs. SARs and Restricted Stock may also be granted under the Plan.
The grant of an Award generally has no immediate tax consequences to the
Participant or the Company. Generally, participants will recognize ordinary
income upon: (i) the exercise of NQOs or SARs; (ii) the vesting of shares of
Restricted Stock; and (iii) the actual receipt of cash or stock pursuant to
performance awards. In the case of NQOs and SARs, the amount of income
recognized is measured by the difference between the exercise price and the fair
market value of Company Common Stock on the date of exercise. In the case of
Restricted Stock, the amount of income is equal to the fair market value of the
stock received. The exercise of an ISO for cash generally has no immediate tax
consequences to a Participant or to the Company. Participants may in certain
circumstances recognize ordinary income upon the disposition of shares of
Company Common Stock acquired by exercise of an ISO, depending upon how long
such shares of Company Common Stock were held prior to disposition. Special
rules apply to shares of Company Common Stock acquired by exercise of ISOs for
previously held shares of Company Common Stock. In addition, special tax rules
may result in the imposition of a 20% excise tax on any "excess parachute
payments" that result from the acceleration of the vesting or exercisability of
Awards upon a Change of Control.
The Company is generally required to withhold applicable income and Social
Security taxes ("employment taxes") from ordinary income which a Participant
recognized on the exercise or receipt of an Award. The Company thus may either
require Participants to pay to the Company an amount equal to the employment
taxes the Company is required to withhold or retain or sell without notice a
sufficient number of the shares to cover the amount required to be withheld.
The Company will generally be entitled to a deduction for the amount
includible in a Participant's gross income for federal income tax purposes upon
the exercise or actual receipt of an Award. However, such deduction generally is
available only if the Company timely complies with applicable information
reporting requirements under Section 6041 and 6041A of the Code. Furthermore,
Section 162(m) of the Code and the regulations thereunder may in some
circumstance limit deductibility with respect to "covered employees" whose total
annual compensation exceeds $1 million, and Section 280G of the Code and the
regulations thereunder may render nondeductible amounts includible in income by
employees that are contingent upon a Change of Control and that are
characterized as "excess parachute payments."
TERMS OF THE AUGUST 28, 1996 GRANTS
In addition to the terms described in the 1994 Plan, the Option Agreements
pursuant to which the Options granted on August 28, 1996 were awarded, including
the CFO Grant, provide that such Options shall expire (the "Expiration Date") on
the earlier of (i) 10 years from the date of the grant; (ii) three months after
the Optionee ceases to be an Employee of the Company, a Parent or a Subsidiary
(12 months if termination of employment is
50
<PAGE>
due to the Optionee's death or the Optionee having incurred a Permanent and
total Disability or the date of termination of employment, if termination of
employment is due to Cause); (iii) the date the Option is fully exercised; or
(iv) the date mutually agreed to by the Committee and the Optionee. The Option
Agreements also provide that the Options shall vest one-third on the second
anniversary date of the Option Agreement; one-third on the third anniversary
date of the Option Agreement and the balance (one-third) on the fourth
anniversary date of the Option Agreement. The foregoing provisions are qualified
by the terms of the Change of Control Provisions. The Option Agreements also
provide that the Options shall be Incentive Stock Options.
ESTIMATE OF BENEFITS
The grant of future Awards under the 1994 Plan is subject to the discretion
of the Committee. As of the date of this Proxy Statement/Prospectus, other than
as indicated below, there has been no determination with respect to future
Awards under the 1994 Plan. Under the Merger Agreement, the Company is not
permitted to grant additional Awards under the 1994 Plan without the prior
written consent of Toys "R" Us, which consent shall not be unreasonably
withheld, until the Effective Time, unless the Merger Agreement is terminated in
accordance with the terms thereof. See "The Merger Agreement -- Certain
Covenants -- Conduct of Business of the Company." The amounts that were awarded
by the Committee on August 28, 1996, subject to the approval of the Shareholders
of the amendment to increase the number of shares of Company Common Stock
available under the 1994 Plan, are as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES
SUBJECT TO
NAME AND POSITION OPTIONS GRANTED
<S> <C>
Jodi L. Taylor 25,000
Chief Financial Officer,
Treasurer and Secretary
All Other Employees 369,250
(170 persons)
</TABLE>
51
<PAGE>
MANAGEMENT COMPENSATION
EXECUTIVE COMPENSATION
The following table summarizes the compensation earned for services
provided during the fiscal year ended January 31, 1996 and during each of the
preceding two fiscal years, by the Company's Chief Executive Officer and by each
of the other named executive officers of the Company during the fiscal year
ended January 31, 1996 (collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION
AWARDS
SECURITIES
NAME AND FISCAL OTHER ANNUAL UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY (1) BONUS COMPENSATION OPTIONS (2) COMPENSATION
<S> <C> <C> <C> <C> <C> <C>
Jack P. Tate 1995 $ 250,000 $ -0- $ -0- -0- $ -0-
Chairman of the 1994 254,000 -0- 4,530 -0- 6,860
Board and Chief 1993 254,000 192,500 -0- -0- 76,860
Executive Officer
Linda M. Robertson 1995 196,500 -0- -0- -0- -0-
President and Chief 1994 154,000 46,500 4,530 -0- -0-
Operating Officer 1993 114,000 86,500 -0- -0- -0-
Jodi L. Taylor 1995 141,250 -0- -0- 10,000 -0-
Chief Financial 1994 88,615 10,000 -0- 71,250 -0-
Officer, Treasurer 1993 61,231 15,000 -0- -0- -0-
and Secretary
</TABLE>
(1) Amounts include $4,000 of directors' fees for each of the Named Executive
Officers in fiscal 1994 and for each of Mr. Tate and Ms. Robertson in fiscal
1993. Amount for Ms. Taylor in fiscal 1993 includes directors' fees of
$2,000. Beginning in fiscal 1995, directors' fees were no longer paid to
Company employees.
(2) Securities represent shares of Company Common Stock underlying Options
granted during the indicated fiscal year. Included in the amount reflected
for Ms. Taylor in fiscal 1994 are Options for the purchase of 33,750 shares
of Company Common Stock that were exercised in fiscal 1994.
OPTION GRANTS
The following table sets forth information with respect to Options granted
during the fiscal year ended January 31, 1996 to the Company's Chief Financial
Officer. No Options were granted during such year to any of the other Named
Executive Officers.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
PERCENT OF VALUE AT ASSUMED
NUMBER OF TOTAL OPTIONS ANNUAL RATES OF
SECURITIES GRANTED TO STOCK PRICE
UNDERLYING EMPLOYEES IN APPRECIATION FOR
OPTIONS LAST FISCAL EXERCISE EXPIRATION OPTION TERM
NAME GRANTED YEAR PRICE DATE 5% 10%
<S> <C> <C> <C> <C> <C> <C>
Jodi L. Taylor.......................... 10,000 5.7% $41.50 10/26/05 $261,000 $661,400
</TABLE>
52
<PAGE>
OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUES
The following table sets forth information with respect to the Named
Executive Officers relating to Option exercises during the fiscal year ended
January 31, 1996, and the number and value of unexercised Options held at year
end.
OPTION EXERCISES AND FISCAL 1995 YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED IN-THE-
SHARES UNDERLYING UNEXERCISED MONEY OPTIONS AT FISCAL
ACQUIRED ON VALUE OPTIONS AT FISCAL YEAR-END YEAR-END (2)
NAME EXERCISE REALIZED (1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
<S> <C> <C> <C> <C> <C> <C>
Jack P. Tate.................. -0- $ -0- 202,500 -0- $ 9,666,050 $ -0-
Linda M. Robertson............ -0- -0- 67,500 -0- 3,216,150 -0-
Jodi L. Taylor................ 6,750 311,530 -0- 47,500 -0- 1,438,750
</TABLE>
(1) Amount represents the difference between the aggregate price paid for the
Company Common Stock upon exercise of the Option and the aggregate market
value of such shares based on the last sale price per share of the Company
Common Stock as reported on the Nasdaq National Market on the date of
exercise.
(2) Calculated on the basis of a per share price of $48.50, the last sale price
per share of the Company Common Stock as reported on the Nasdaq National
Market on January 31, 1996. Based on $25.00, the last sale price per share
of Company Common Stock on December 24, 1996, the value of the exercisable
Options held by Mr. Tate is $4,907,300, the value of the exercisable Options
held by Ms. Robertson is $1,629,900, and the value of the unexercisable
Options held by Ms. Taylor is $487,500. For the treatment of these Options
in the Merger, see "The Merger Agreement -- Treatment of Stock Options."
DIRECTOR COMPENSATION
Currently, non-employee directors of the Company are paid a fee of $1,000
for attendance at each meeting of the Board. Pursuant to the Outside Director
Plan, each non-employee director of the Company who has been elected by the
Company's Shareholders receives an automatic annual grant of NQOs to purchase
5,000 shares of Company Common Stock. The exercise price of all Options is the
fair market value of the Company Common Stock on the date of the grant. An
Option may be exercised in whole or in part at any time during its term, but no
Option may be exercised after the expiration of five years from the date the
Option is granted or prior to the date six months from the date it is granted,
and only during the period in which the Option holder remains a director of the
Company and for one year thereafter, unless the director's membership on the
Board is terminated for Cause (as defined in the Outside Director Plan), in
which case all Options granted to such director will expire upon such
termination. Options are not transferrable by Option holders and must be paid in
full upon exercise. The Company has reserved 120,000 shares of Company Common
Stock for issuance under the Outside Director Plan. Pursuant to the Merger
Agreement, at the Effective Time, each outstanding Option issued pursuant to the
Outside Director Plan will be assumed by Toys "R" Us and will constitute an
option to acquire shares of Toys "R" Us Common Stock on substantially the same
terms and subject to substantially the same conditions as were applicable to
such Options prior to the Effective Time. See "The Merger Agreement -- Treatment
of Stock Options."
CHANGE-IN-CONTROL ARRANGEMENTS
The Company has entered into the Employment Agreement, which provides for
payments, under certain circumstances, following a change in control. See "The
Merger -- Interests of Certain Persons in the Merger; Potential Conflicts of
Interest -- Change of Control Employment Agreement."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal 1995, the Compensation Committee of the Board was composed of
Messrs. Langone and Teague, neither of whom has served at any time as an officer
of the Company. Mr. Langone is Chairman, Chief Executive Officer and President
of Invemed and principal shareholder of its corporate parent. Invemed served as
an underwriter in connection with the Company's public offering of the
Convertible Notes in September 1995 and the Company's public offerings of
Company Common Stock in September 1994 and in March 1995 and has
53
<PAGE>
acted as a financial advisor with respect to the Merger. See "The
Merger -- Opinion of the Company's Financial Advisor" and " -- Interests of
Certain Persons in the Merger; Potential Conflicts of Interest."
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth information regarding beneficial ownership
as of December 24, 1996 of Company Common Stock by certain beneficial owners of
five percent or more of the outstanding shares of Company Common Stock,
directors of the Company, nondirector executive officers of the Company and
directors and executive officers of the Company as a group:
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED (1)
NAME NUMBER PERCENT
<S> <C> <C>
Toys "R" Us, Inc. (2)...................................................................... 9,000,000 46.3%
461 From Road
Paramus, New Jersey 07652
FMR Corp. (3).............................................................................. 2,018,600 10.5%
82 Devonshire Street
Boston, Massachusetts 02109
Jack P. Tate (4)........................................................................... 9,000,000 46.3%
1201 Woods Chapel Road
Duncan, South Carolina 29334
Linda M. Robertson (5)..................................................................... 900,000 4.7
Kenneth G. Langone (6)..................................................................... 110,000 *
Thomas L. Teague (7)....................................................................... 85,020 *
Robert E. Howard (8)....................................................................... 84,385 *
Jodi L. Taylor............................................................................. 67,229 *
Roger G. Owens (9)......................................................................... 5,247 *
All directors and executive officers as a group (7 persons)................................ 10,251,881 52.4
</TABLE>
* Amount represents less than 1.0%.
(1) Except as otherwise indicated, the Company believes that the beneficial
owners of the shares of Company Common Stock listed in the table, based on
information furnished by such owners, have sole investment and voting power
with respect to such shares.
(2) According to the Schedule 13D, dated as of October 1, 1996, of Toys "R" Us,
Toys "R" Us, due to the voting agreements with respect to the Tate Shares
set forth in the Shareholders Agreement, may be deemed to beneficially own,
for purposes of Section 13(d) of the Exchange Act, the 9,000,000 shares of
Company Common Stock, over which Toys "R" Us has shared power to vote, but
does not have sole power to vote or the sole power or shared power to
dispose or to direct the disposition of any such shares of Company Common
Stock.
(3) According to the Schedule 13G, dated as of November 30, 1996, of FMR Corp.
("FMR"), FMR has sole disposition power with respect to all shares reflected
as beneficially owned, and sole voting power with respect to 9,400 shares.
(4) Shares reflected as beneficially owned include 202,500 shares of Company
Common Stock issuable pursuant to currently exercisable Options.
(5) Shares reflected as beneficially owned include 67,500 shares of Company
Common Stock issuable pursuant to currently exercisable Options.
(6) Shares reflected as beneficially owned include 65,250 shares issuable
pursuant to currently exercisable Warrants and 10,000 shares issuable
pursuant to currently exercisable Options.
(7) Shares reflected as beneficially owned include 65,250 shares issuable
pursuant to currently exercisable Warrants, 10,000 shares issuable pursuant
to currently exercisable Options and 20 shares held by family members.
(8) Shares reflected as beneficially owned include 10,000 shares issuable
pursuant to currently exercisable Options.
54
<PAGE>
(9) Shares reflected as beneficially owned include 5,000 shares issuable
pursuant to currently exercisable Options.
SHAREHOLDER PROPOSALS
The Company will hold a 1997 Annual Meeting of Shareholders only if the
Merger is not consummated prior thereto. In the event of such a meeting, any
Shareholder who desires to present a proposal at the 1997 Annual Meeting of
Shareholders for inclusion in the proxy statement and form of proxy relating to
that meeting must have submitted such proposal to the Company at its principal
executive offices on or before December 28, 1996.
OTHER MATTERS
Under South Carolina law, only business within the purposes described in
the Notice of Special Meeting transmitted with this Proxy Statement/Prospectus
may be transacted at the Special Meeting.
LEGAL MATTERS
The validity of the shares of Toys "R" Us Common Stock to be issued in
connection with the Merger will be passed upon for Toys "R" Us by Weil, Gotshal
& Manges LLP, New York, New York.
Certain federal income tax matters in connection with the transaction will
be passed upon for the Company by Wachtell, Lipton, Rosen & Katz, New York, New
York and for Toys "R" Us by Weil, Gotshal & Manges LLP, New York, New York.
EXPERTS
The consolidated financial statements of Toys "R" Us and its subsidiaries
at February 3, 1996 and for each of the three years in the period then ended
incorporated by reference in the Toys "R" Us Annual Report (Form 10-K) for the
year ended February 3, 1996 and incorporated by reference in this Proxy
Statement/Prospectus have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon incorporated by reference in the
Toys "R" Us Annual Report (Form 10-K) for the year ended February 3, 1996 and
incorporated herein by reference and are incorporated by reference in this Proxy
Statement/Prospectus in reliance upon such report given upon the authority of
such firm as experts in accounting and auditing.
The consolidated financial statements incorporated in this Proxy
Statement/Prospectus by reference from the Company's Annual Report on Form 10-K
for the year ended January 31, 1996 have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report, which is incorporated herein by
reference and have been so incorporated in reliance upon such report of such
firm given upon their authority as experts in accounting and auditing.
With respect to the unaudited interim financial information for the periods
ended May 1, 1996, July 31, 1996 and October 30, 1996 which is incorporated
herein by reference, Deloitte & Touche LLP have applied limited procedures in
accordance with professional standards for a review of such information.
However, as stated in their reports included in the Company's Quarterly Reports
on Form 10-Q for the quarters ended May 1, 1996, July 31, 1996 and October 30,
1996 and incorporated by reference herein, they did not audit and they do not
express an opinion on that interim financial information. Accordingly, the
degree of reliance on their reports on such information should be restricted in
light of the limited nature of the review procedures applied. Deloitte & Touche
LLP are not subject to the liability provisions of Section 11 of the Securities
Act of 1933 for their reports on the unaudited interim financial information
because those reports are not "reports" or a "part" of the registration
statement prepared or certified by an accountant within the meaning of Sections
7 and 11 of the Act.
55
<PAGE>
ANNEX A
AGREEMENT AND PLAN OF MERGER
AMONG
TOYS "R" US, INC.,
BSST ACQUISITION CORP.,
BABY SUPERSTORE, INC.
AND
JACK P. TATE
DATED AS OF OCTOBER 1, 1996
AND AS AMENDED AND RESTATED AS OF DECEMBER 26, 1996
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C> <C>
ARTICLE I
The Merger; Effective Time; Closing
1.1. The Merger........................................................................................ A-1
1.2. Effective Time.................................................................................... A-1
1.3. Closing........................................................................................... A-1
1.4. Effects of the Merger............................................................................. A-2
<CAPTION>
ARTICLE II
Articles of Incorporation and By-Laws
of the Surviving Corporation
<S> <C> <C> <C>
2.1. Certificate of Incorporation...................................................................... A-2
2.2. The By-Laws....................................................................................... A-2
<CAPTION>
ARTICLE III
Directors and Officers
of the Surviving Corporation
<S> <C> <C> <C>
3.1. Directors......................................................................................... A-2
3.2. Officers.......................................................................................... A-2
<CAPTION>
ARTICLE IV
Merger Consideration; Conversion
or Cancellation of Shares in the Merger
<S> <C> <C> <C>
4.1. Share Consideration for the Merger; Conversion or Cancellation of Shares in the Merger............ A-2
4.2. Exchange Procedures............................................................................... A-4
4.3. Dividends, Fractional Shares, Etc................................................................. A-4
4.4. Dissenting Shares................................................................................. A-6
<CAPTION>
ARTICLE V
Representations and Warranties
<S> <C> <C> <C>
5.1. Representations and Warranties of the Company..................................................... A-6
(a) Corporate Organization and Qualification.................................................... A-6
(b) Capitalization.............................................................................. A-6
(c) Approvals; Fairness Opinion................................................................. A-7
(d) Authority Relative to This Agreement........................................................ A-7
(e) Consents and Approvals; No Violation........................................................ A-7
(f) Litigation; Compliance with Laws............................................................ A-8
(g) SEC Reports; Financial Statements........................................................... A-8
(h) Undisclosed Liabilities; Absence of Certain Changes or Events............................... A-9
(i) Employment Agreements....................................................................... A-9
(j) Brokers and Finders......................................................................... A-9
(k) S-4 Registration Statement and Proxy Statement/Prospectus................................... A-9
(l) Taxes....................................................................................... A-10
(m) Employee Benefits........................................................................... A-11
(n) Title to Properties; Assets Other Than Real Property Interests.............................. A-12
(o) Intangible Property......................................................................... A-13
(p) Certain Contracts........................................................................... A-13
(q) Insurance................................................................................... A-14
(r) Unlawful Payments and Contributions......................................................... A-14
(s) Listings.................................................................................... A-14
(t) Environmental Matters....................................................................... A-14
(u) State Takeover Statutes..................................................................... A-15
(v) Inventories; Receivables; Payables.......................................................... A-15
(w) Transactions With Affiliates................................................................ A-15
(x) Disclosure.................................................................................. A-15
</TABLE>
A-i
<PAGE>
<TABLE>
<CAPTION>
PAGE
5.2. Representations and Warranties of Acquiror and Merger Sub......................................... A-15
<S> <C> <C> <C>
(a) Corporate Organization and Qualification.................................................... A-15
(b) Capitalization.............................................................................. A-16
(c) Authorization for Acquiror Common Shares.................................................... A-16
(d) Authority Relative to This Agreement........................................................ A-16
(e) Consents and Approvals; No Violation........................................................ A-16
(f) SEC Reports; Financial Statements........................................................... A-17
(g) Undisclosed Liabilities; Absence of Certain Changes or Events............................... A-17
(h) Litigation.................................................................................. A-17
(i) S-4 Registration Statement and Proxy Statement/Prospectus................................... A-18
(j) Brokers and Finders......................................................................... A-18
(k) Ownership of Shares......................................................................... A-18
(l) Disclosure.................................................................................. A-18
(m) Operations of Merger Sub.................................................................... A-18
5.3. Representations and Warranties of Tate............................................................ A-18
(a) Authority Relative to This Agreement and Shareholders' Agreement............................ A-18
(b) The Tate Shares............................................................................. A-18
(c) Consents and Approvals; No Violation........................................................ A-18
(d) Certain Acknowledgements.................................................................... A-19
<CAPTION>
ARTICLE VI
Additional Covenants and Agreements
<S> <C> <C> <C>
6.1. Conduct of Business............................................................................... A-19
6.2. No Solicitation................................................................................... A-21
6.3. Meeting of Shareholders........................................................................... A-22
6.4. S-4 Registration Statement; Proxy Statement....................................................... A-22
6.5. Access to Information............................................................................. A-22
6.6. Publicity......................................................................................... A-22
6.7. Indemnification of Directors and Officers......................................................... A-22
6.8. Affiliates of the Company......................................................................... A-23
6.9. Taxes............................................................................................. A-24
6.10. Maintenance of Insurance.......................................................................... A-24
6.11. Representations and Warranties.................................................................... A-24
6.12. Antitrust Notification............................................................................ A-24
6.13. Reasonable Best Efforts; Other Action............................................................. A-24
6.14. Notification of Certain Matters................................................................... A-25
6.15. Blue Sky Permits.................................................................................. A-25
6.16. NYSE Listing...................................................................................... A-25
6.17. Comfort Letter.................................................................................... A-25
6.18. Benefit Matters................................................................................... A-25
6.19. Convertible Notes................................................................................. A-25
<CAPTION>
ARTICLE VII
Conditions
<S> <C> <C> <C>
7.1. Conditions to the Obligations of Acquiror......................................................... A-26
(a) Certificate................................................................................. A-26
(b) Company Shareholder Approval................................................................ A-26
(c) No Litigation............................................................................... A-26
(d) S-4 Registration Statement.................................................................. A-26
(e) Listing of Acquiror Common Shares........................................................... A-26
(f) Governmental Filings and Consents; HSR Act.................................................. A-26
(g) Third-Party Consents........................................................................ A-27
(h) Delivery of Comfort Letter.................................................................. A-27
(i) Affiliate Letters........................................................................... A-27
(j) Delivery of Tax Opinion..................................................................... A-27
</TABLE>
A-ii
<PAGE>
<TABLE>
<CAPTION>
PAGE
7.2. Conditions to the Obligations of the Company...................................................... A-27
<S> <C> <C> <C>
(a) Certificate................................................................................. A-27
(b) Company Shareholder Approval................................................................ A-27
(c) Injunction.................................................................................. A-27
(d) S-4 Registration Statement.................................................................. A-27
(e) Listing of Acquiror Common Shares........................................................... A-27
(f) HSR Act..................................................................................... A-27
(g) Delivery of Tax Opinion..................................................................... A-27
<CAPTION>
ARTICLE VIII
Termination
<S> <C> <C> <C>
8.1. Termination by Mutual Consent..................................................................... A-28
8.2. Termination by Either Acquiror or the Company..................................................... A-28
8.3. Termination by Acquiror........................................................................... A-28
8.4. Termination by the Company........................................................................ A-28
8.5. Effect of Termination and Abandonment............................................................. A-29
<CAPTION>
ARTICLE IX
Miscellaneous and General
<S> <C> <C> <C>
9.1. Payment of Expenses............................................................................... A-29
9.2. Survival of Representations and Warranties........................................................ A-29
9.3. Modification or Amendment......................................................................... A-29
9.4. Waiver of Conditions.............................................................................. A-29
9.5. Counterparts...................................................................................... A-29
9.6. Governing Law..................................................................................... A-30
9.7. Notices........................................................................................... A-30
9.8. Entire Agreement; Assignment...................................................................... A-30
9.9. Parties in Interest............................................................................... A-31
9.10. Certain Definitions............................................................................... A-31
(a) "Affiliate"................................................................................. A-31
(b) "subsidiary"................................................................................ A-31
(c) "Material Adverse Effect"................................................................... A-31
(d) "Person".................................................................................... A-31
9.11. Severability...................................................................................... A-31
9.12. Specific Performance.............................................................................. A-31
9.13. Captions.......................................................................................... A-31
<CAPTION>
EXHIBITS
<S> <C> <C> <C>
Shareholders Agreement...................................................................................Exhibit A
Registration Rights Agreement............................................................................Exhibit B
Affiliate Letter.........................................................................................Exhibit C
Tax Certificates.........................................................................................Exhibit D
</TABLE>
A-iii
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of October 1,
1996, and as amended and restated as of December 27, 1996, among Toys "R" Us,
Inc., a Delaware corporation ("Acquiror"), BSST Acquisition Corp., a South
Carolina corporation and direct wholly owned subsidiary of Acquiror ("Merger
Sub"), Baby Superstore, Inc., a South Carolina corporation (the "Company"), and
Jack P. Tate ("Tate").
W I T N E S S E T H:
WHEREAS, Acquiror and the Company have entered into an Agreement and Plan
of Merger, dated as of October 1, 1996 (the "Original Agreement"), providing for
the merger of the Company with and into Acquiror;
WHEREAS, Acquiror and the Company desire to amend and restate the Original
Agreement in its entirety to provide for the merger of Merger Sub with and into
the Company in lieu of the merger of the Company with and into Acquiror, and
Merger Sub desires to become a party thereto;
WHEREAS, the Boards of Directors of Acquiror, Merger Sub and the Company
each have determined that it is in the best interests of their respective
stockholders for Merger Sub to merge with and into the Company upon the terms
and subject to the conditions of this Agreement;
WHEREAS, for federal income tax purposes, it is intended that the Merger
(as defined in Section 1.1) shall qualify as a reorganization within the meaning
of Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code");
WHEREAS, Tate is the beneficial owner and holder of record of 9,000,000
shares of Common Stock, no par value, of the Company (collectively, the "Tate
Shares");
WHEREAS, concurrently with the execution of the Original Agreement, certain
holders (each, a "Shareholder" and, collectively, the "Shareholders") of Shares
(as defined in Section 4.1(b)), including Tate, entered into the Shareholders
Agreement, a copy of which is attached as Exhibit A hereto (the "Shareholders
Agreement") and the Registration Rights Agreement, a copy of which is attached
as Exhibit B hereto (the "Registration Rights Agreement"); and
WHEREAS, Acquiror, Merger Sub, the Company and Tate desire to make certain
representations, warranties, covenants and agreements in connection with the
Merger.
NOW, THEREFORE, in consideration of the mutual representations, warranties,
covenants and agreements set forth herein, Acquiror, Merger Sub the Company and
Tate hereby agree as follows:
ARTICLE I
THE MERGER; EFFECTIVE TIME; CLOSING
1.1. THE MERGER. Upon the terms and subject to the conditions set forth in
this Agreement, and in accordance with the Business Corporation Act of the State
of South Carolina (the "BCA"), at the Effective Time (as defined in Section 1.2
below), the Company and Merger Sub shall consummate a merger (the "Merger") in
which (a) Merger Sub shall be merged with and into the Company and the separate
corporate existence of Merger Sub shall thereupon cease, and (b) the Company
shall continue as the surviving corporation in the Merger ("Surviving
Corporation") and shall succeed to and assume all of the rights, properties,
liabilities and obligations of Merger Sub.
1.2. EFFECTIVE TIME. Subject to the provisions of this Agreement, Acquiror,
Merger Sub and the Company shall cause the Merger to be consummated by filing
Articles of Merger (the "Articles of Merger") with the Secretary of State of the
State of South Carolina, in such form as required by, and executed in accordance
with, the relevant provisions of the BCA as soon as practicable on or after the
Closing Date (as defined in Section 1.3). The Merger shall become effective upon
such filing or at such time thereafter as is provided in the Articles of Merger
(the "Effective Time").
1.3. CLOSING. Unless this Agreement shall have been terminated and the
transactions herein contemplated shall have been abandoned pursuant to Article
VIII, and subject to the satisfaction or waiver of the conditions set forth in
Article VII, the closing of the Merger (the "Closing") shall take place at 10:00
a.m., New York City time,
A-1
<PAGE>
on the second business day after satisfaction of the conditions set forth in
Article VII (or as soon as practicable thereafter following satisfaction or
waiver of the conditions set forth in Article VII) (the "Closing Date"), at the
offices of Weil, Gotshal & Manges LLP, 767 Fifth Avenue, New York, New York
10153, unless another date, time or place is agreed to in writing by the parties
hereto.
1.4. EFFECTS OF THE MERGER. The Merger shall have the effects set forth in
the applicable provisions of the DGCL and the BCA.
ARTICLE II
ARTICLES OF INCORPORATION AND BY-LAWS
OF THE SURVIVING CORPORATION
2.1. ARTICLES OF INCORPORATION. At the Effective Time, the Articles of
Incorporation of Merger Sub as in effect immediately prior to the Effective Time
shall become the Articles of Incorporation of the Surviving Corporation.
2.2. THE BY-LAWS. At the Effective Time, the Restated By-Laws of Merger Sub
as in effect immediately prior to the Effective Time shall become the By-Laws of
the Surviving Corporation.
ARTICLE III
DIRECTORS AND OFFICERS
OF THE SURVIVING CORPORATION
3.1. DIRECTORS. The directors of Merger Sub at the Effective Time shall,
from and after the Effective Time, be the directors of the Surviving Corporation
until their successors have been duly elected or appointed and qualified or
until their earlier death, resignation or removal in accordance with the
Surviving Corporation's Articles of Incorporation and By-Laws.
3.2. OFFICERS. The officers of Merger Sub at the Effective Time shall, from
and after the Effective Time, be the officers of the Surviving Corporation until
their successors have been duly elected or appointed and qualified or until
their earlier death, resignation or removal in accordance with the Surviving
Corporation's Articles of Incorporation and By-Laws.
ARTICLE IV
MERGER CONSIDERATION; CONVERSION
OR CANCELLATION OF SHARES IN THE MERGER
4.1. SHARE CONSIDERATION FOR THE MERGER; CONVERSION OR CANCELLATION OF
SHARES IN THE MERGER. The manner of converting or canceling shares of the
Company and Merger Sub in the Merger shall be as follows:
(a) Subject to Section 4.4, at the Effective Time, each share of common
stock, no par value, of the Company (the "Shares") issued and outstanding
immediately prior to the Effective Time (other than Shares owned by Acquiror or
any direct or indirect wholly owned subsidiary of Acquiror (collectively,
"Acquiror Companies") or by the Company) shall, by virtue of the Merger and
without any action on the part of the holder thereof, be converted into: (i) for
each Share other than the Tate Shares, the right to receive 0.8121 of a Share of
Common Stock, par value $0.10 per share, of Acquiror ("Acquiror Common Shares")
and (ii) for each Tate Share, the right to receive 0.5150 of an Acquiror Common
Share (as applicable, the "Merger Consideration"). If, prior to the Effective
Time, Acquiror should split or combine the Acquiror Common Shares, or pay a
stock dividend or other stock distribution in Acquiror Common Shares, then the
Merger Consideration will be appropriately adjusted to reflect such split,
combination, dividend or other distribution.
(b) Each Share that is directly owned by any of the Acquiror Companies and
each Share that is directly owned by the Company shall be canceled and retired
and shall cease to exist and no consideration shall be delivered or deliverable
in exchange therefor.
(c) All Shares to be converted pursuant to this Section 4.1 shall, by
virtue of the Merger and without any action on the part of the holders thereof,
cease to be outstanding, be canceled and retired and cease to exist, and each
holder of a certificate representing any such Shares (a "Company Certificate")
shall thereafter cease to have any rights with respect to such Shares, except
the right to receive for each of the Shares, upon the surrender of
A-2
<PAGE>
such certificate in accordance with Section 4.2, the Merger Consideration and
cash in lieu of fractional Acquiror Common Shares as contemplated by Section
4.4(c).
(d) At the Effective Time, each share of common stock of Merger Sub issued
and outstanding immediately prior to the Effective Time shall, by virtue of the
Merger and without any action on the part of the holder thereof, be converted
into the same number of shares of common stock of the Surviving Corporation.
(e) Subject to Section 4.1(f), at the Effective Time, each outstanding
option to purchase Shares (each, an "Option") issued pursuant to the 1988
non-qualified stock option plan and the 1988 qualified stock option plan of the
Company (collectively, the "1988 Plans"), the 1994 Baby Superstore, Inc. Stock
Incentive Plan (the "1994 Plan"), the 1995 Stock Option Plan for Outside
Directors of the Company (the "1995 Plan") (collectively, the 1988 Plans, the
1994 Plan and the 1995 Plan are referred to herein as the "Option Plans")
whether vested or unvested, shall be assumed by Acquiror and shall constitute an
option to acquire, on substantially the same terms and subject to substantially
the same conditions as were applicable under such Option, including, without
limitation, term, exercisability, vesting schedule, status as an "incentive
stock option" under Section 422 of the Code, acceleration and termination
provisions, the same number of Acquiror Common Shares, rounded down to the
nearest whole share, determined by multiplying the number of Shares subject to
such Option immediately prior to the Effective Time by 0.8121, at an exercise
price per share of Acquiror Common Shares (increased to the nearest whole cent)
equal to the exercise price per share of Shares immediately prior to the
Effective Time divided by 0.8121; PROVIDED, HOWEVER, that in the case of any
Option to which Section 421 of the Code applies by reason of its qualification
as an incentive stock option under Section 422 of the Code, the conversion
formula shall be adjusted if necessary to comply with Section 424(a) of the
Code. Employment with the Company shall be credited to the optionees for
purposes of determining the number of vested Acquiror Common Shares subject to
exercise under converted Options after the Effective Time. Except as set forth
in Section 5.1(m) of the Company Disclosure Schedule (as defined in Section
5.1), none of the Options that are unvested at the Effective Time shall become
vested as a result of the execution and delivery of this Agreement or the
consummation of the Merger. As soon as practicable after the Effective Time, but
no later than 30 days thereafter, Acquiror shall deliver to the holders of
Options appropriate notices informing such holders that such Options have been
assumed by Acquiror and will constitute options to purchase Acquiror Common
Shares on substantially the same terms and conditions as their Options (subject
to the adjustments required by this Section 4.1 after giving effect to the
Merger).
(f) On the date hereof, Tate is the holder of 202,500 Options and Linda M.
Robertson ("Robertson") is the holder of 67,500 Options. At the Effective Time,
(i) each then outstanding vested Option held by Tate shall be settled by the
Company in exchange for an amount of cash equal to the difference between (A)
0.5150 multiplied by the closing per share sales price of the Acquiror Common
Shares on the NYSE composite tape on the Closing Date (the "Closing Price") and
(B) the exercise price per share of such Option, subject to any required
withholding of taxes and (ii) each then outstanding vested Option held by
Robertson shall be settled by the Company in exchange for an amount of cash
equal to the difference between (A) 0.8121 multiplied by the Closing Price and
(B) the exercise price per share of such Option, subject to any required
withholding of taxes (each such amount being hereinafter referred to as, the
"Option Consideration"). From and after the Effective Time, such Options shall
represent only the right of Tate and Robertson to receive the Option
Consideration upon the surrender thereof. Upon receipt of the Option
Consideration, the corresponding Option shall be canceled. The surrender by Tate
and Robertson of such Options to the Company in exchange for the Option
Consideration shall be deemed a release of any and all rights which Tate and
Robertson had or may have had in respect of such Options.
(g) Acquiror shall use its best efforts to cause there to be effective as
of a date as soon as practicable after the Effective Time a registration
statement on Form S-8 (or any successor form) or another appropriate form, with
respect to the Acquiror Common Shares subject to such Options, and shall use its
best efforts to maintain the effectiveness of such registration statement or
registration statements (and maintain the current status of the prospectus or
prospectuses contained therein) for so long as such Options remain outstanding.
(h) At the Effective Time, each of the warrants to purchase Shares listed
in Section 5.1(b)(2.) of the Company Disclosure Schedule (each, a "Warrant" and,
collectively, the "Warrants") shall be assumed by Acquiror and shall be deemed
to constitute a warrant to acquire, on the terms and conditions as were
applicable under such Warrant, the same number of Acquiror Common Shares as the
holder of such Warrant would have been entitled to receive pursuant to the
Merger had such holder exercised such Warrant in full immediately prior to the
Effective Time (not taking into account whether such Warrant was in fact
exercisable at such time), at a price per share
A-3
<PAGE>
equal to (x) the aggregate exercise price for the Shares subject to such Warrant
divided by (y) the number of Acquiror Common Shares deemed purchasable pursuant
to such Warrant; PROVIDED, HOWEVER, that the number of Acquiror Common Shares
that may be purchased upon exercise of such Warrant shall not include any
fractional share and, upon exercise of the Warrant, a cash payment shall be made
for any fractional share based upon the closing price of an Acquiror Common
Share on the NYSE on the trading day immediately preceding the date of exercise.
Acquiror expressly agrees to assume the obligations of the Company pursuant to
Section 7 of the Warrants and to enter into an assumption agreement, effective
as of the Effective Time, with the holders of the Warrants.
4.2. EXCHANGE PROCEDURES. (a) Prior to the Effective Time, Acquiror shall
designate a bank or trust company to act as exchange agent in the Merger (the
"Exchange Agent"), and Acquiror shall deposit with the Exchange Agent as of the
Effective Time (or otherwise when requested by the Exchange Agent from time to
time in order to effect any exchange pursuant to this Section 4.2) for the
benefit of the holders of the Shares for exchange in accordance with this
Article IV, through the Exchange Agent, certificates evidencing the Acquiror
Common Shares issuable pursuant to Section 4.1 in exchange for outstanding
Shares. Such Acquiror Common Shares, together with any dividends or
distributions with respect thereto with a record date after the Effective Time,
shall hereinafter be referred to as the "Exchange Fund." The Exchange Agent
shall, pursuant to irrevocable instructions, deliver the Acquiror Common Shares
pursuant to Section 4.1 out of the Exchange Fund.
(b) As soon as reasonably practicable after the Effective Time, the
Exchange Agent shall mail to each holder of record of Shares immediately prior
to the Effective Time (excluding any Shares which will be canceled pursuant to
Section 4.1(b) or which are subject to Section 4.4) (i) a letter of transmittal
(the "Letter of Transmittal") (which shall specify that delivery shall be
effected, and risk of loss and title to the Company Certificates shall pass,
only upon delivery of such Company Certificates to the Exchange Agent and shall
be in such form and have such other provisions as Acquiror shall specify) and
(ii) instructions for use in effecting the surrender of the Company Certificates
in exchange for the Merger Consideration with respect to the Shares formerly
represented thereby.
(c) Upon surrender of a Company Certificate for cancellation to the
Exchange Agent, together with the Letter of Transmittal, duly executed, and such
other documents as Acquiror or the Exchange Agent shall reasonably request, the
holder of such Company Certificate shall be entitled to receive in exchange
therefor (i) Acquiror Certificates representing that number of Acquiror Common
Shares, if any, which such holder has the right to receive pursuant to this
Article IV and (ii) a certified or bank cashier's check in the amount equal to
any cash in lieu of fractional shares which such holder is entitled to receive
pursuant to Section 4.3(c) (in each case less the amount of any required
withholding taxes, if any, determined in accordance with Section 4.4(g)), and
the Company Certificate so surrendered shall forthwith be canceled. Until
surrendered as contemplated by this Section 4.2, each Company Certificate shall
be deemed at any time after the Effective Time to represent only the right to
receive the Merger Consideration with respect to the Shares formerly represented
thereby.
4.3. DIVIDENDS, FRACTIONAL SHARES, ETC.
(a) Notwithstanding any other provisions of this Agreement, no dividends or
other distributions declared after the Effective Time on Acquiror Common Shares
shall be paid with respect to any whole Acquiror Common Shares represented by a
Company Certificate until such Company Certificate is surrendered for exchange
as provided herein. Subject to the effect of applicable laws, following
surrender of any such Company Certificate, there shall be paid to the holder of
the Acquiror Certificates issued in exchange therefor, without interest, (i) at
the time of such surrender, the amount of dividends or other distributions with
a record date after the Effective Time theretofore payable with respect to such
whole Acquiror Common Shares and not paid, less the amount of any withholding
taxes which may be required thereon, and (ii) at the appropriate payment date,
the amount of dividends or other distributions with a record date after the
Effective Time but prior to surrender and a payment date subsequent to surrender
payable with respect to such whole Acquiror Common Shares, less the amount of
any withholding taxes which may be required thereon.
(b) At or after the Effective Time, there shall be no transfers on the
stock transfer books of the Company of the Shares which were outstanding
immediately prior to the Effective Time. If, after the Effective Time, Company
Certificates representing any such shares are presented to the Surviving
Corporation, they shall be canceled and exchanged for certificates for the
Merger Consideration deliverable in respect thereof pursuant to this Agreement
in accordance with the procedures set forth in this Article IV. Company
Certificates surrendered for
A-4
<PAGE>
exchange by any Person constituting an "affiliate" of the Company for purposes
of Rule 145(c) under the Securities Act shall not be exchanged until Acquiror
has received a written agreement from such Person as provided in Section 6.8.
(c) (i) No certificates or scrip evidencing fractional Acquiror Common
Shares shall be issued upon the surrender for exchange of Company
Certificates, and such fractional share interests will not entitle the owner
thereof to vote or to any rights of a stockholder of Acquiror. In lieu of
any such fractional shares, the Exchange Agent shall, on behalf of all
holders of fractional Acquiror Common Shares, as soon as practicable after
the Effective Time, aggregate all such fractional interests (collectively,
the "Fractional Shares") and, at Acquiror's option, such Fractional Shares
shall be purchased by Acquiror or otherwise sold by the Exchange Agent as
agent for the holders of such Fractional Shares, in either case at the then
prevailing price on the NYSE, all in the manner provided hereinafter. Until
the net proceeds of such sale or sales have been distributed to the holders
of Fractional Shares, the Exchange Agent shall retain such proceeds in trust
for the benefit of such holders. Acquiror shall pay all commissions,
transfer taxes and other out-of-pocket transaction costs, including expenses
and compensation of the Exchange Agent, incurred in connection with such
sale of the Fractional Shares.
(ii) To the extent not purchased by Acquiror, the sale of the
Fractional Shares by the Exchange Agent shall be executed on the NYSE or
through one or more member firms of the NYSE and will be executed in round
lots to the extent practicable. In either case, the Exchange Agent will
determine the portion, if any, of the net proceeds of such sale to which
each holder of Fractional Shares is entitled, by multiplying the amount of
the aggregate net proceeds of the sale of the Fractional Shares by a
fraction, the numerator of which is the amount of Fractional Shares to
which such holder is entitled and the denominator of which is the aggregate
amount of Fractional Shares to which all holders of Fractional Shares are
entitled.
(iii) As soon as practicable after the determination of the amount of
cash, if any, to be paid to holders of Fractional Shares in lieu of such
Fractional Shares, the Exchange Agent shall mail such amounts, without
interest, to such holders; PROVIDED, HOWEVER, that no such amount will be
paid to any holder of such Fractional Shares prior to the surrender by such
holder of the Company Certificates formerly representing such holder's
Shares.
(d) Any portion of the Exchange Fund that remains undistributed to the
holders of Shares for six months after the Effective Time shall be delivered to
Acquiror, upon demand, and any holders of Shares who have not theretofore
complied with this Article IV shall thereafter look only to Acquiror for the
Merger Consideration, net cash proceeds from the sale of Fractional Shares and
unpaid dividends and distributions on the Acquiror Common Shares to which they
are entitled. All interest accrued in respect of the Exchange Fund shall inure
to the benefit of and be paid to Acquiror.
(e) None of Acquiror, Merger Sub, the Company or the Exchange Agent shall
be liable to any holder of Shares for any Acquiror Common Shares, net cash
proceeds from the sale of Fractional Shares or unpaid dividends or distributions
with respect to Acquiror Common Shares from the Exchange Fund delivered to a
public official pursuant to any applicable abandoned property, escheat or
similar law. If any Company Certificates shall not have been surrendered prior
to seven years after the Effective Time (or immediately prior to such earlier
date on which any Acquiror Common Shares, net cash proceeds from the sale of
Fractional Shares or unpaid dividends or distributions with respect to Acquiror
Common Shares in respect of such Company Certificates would otherwise escheat to
or become the property of any governmental authority), any such Acquiror Common
Shares, cash or unpaid dividends or distributions in respect of such Company
Certificates shall, to the extent permitted by applicable laws, become the
property of Acquiror.
(f) In the event that any Company Certificate shall have been lost, stolen
or destroyed, upon the making of an affidavit of that fact by the Person
claiming such Company Certificate to be lost, stolen or destroyed and, if
required by Acquiror, the posting by such Person of a bond in such reasonable
amount as Acquiror may direct as indemnity against any claim that may be made
against it with respect to such Company Certificate, the Exchange Agent (or
Acquiror, as the case may be) will issue in exchange for such lost, stolen or
destroyed Company Certificate the Merger Consideration, cash in lieu of
fractional shares, and unpaid dividends and distributions on Acquiror Common
Shares deliverable in respect thereof pursuant to this Agreement.
A-5
<PAGE>
(g) Acquiror shall be entitled to, or shall be entitled to cause the
Exchange Agent to, deduct and withhold from the consideration otherwise payable
pursuant to this Agreement to any holder of Shares such amounts as are required
to be deducted and withheld with respect to the making of such payment under the
Code, or any provision of state, local or foreign tax law. To the extent that
amounts are so withheld by Acquiror or the Exchange Agent, as the case may be,
such withheld amounts shall be treated for all purposes of this Agreement as
having been paid to the holder of the Shares in respect of which such deduction
and withholding was made by Acquiror or the Exchange Agent.
4.4. DISSENTING SHARES. Notwithstanding any other provisions of this
Agreement to the contrary, Shares that are outstanding immediately prior to the
Effective Time and which are held by shareholders who shall have not voted in
favor of the Merger or consented thereto in writing and who shall have demanded
properly in writing appraisal for such shares in accordance with Article XIII of
the BCA (collectively, the "Dissenting Shares") shall not be converted into or
represent the right to receive the Merger Consideration. Such shareholders
instead shall be entitled to receive payment of the appraised value of such
Shares held by them in accordance with the provisions of Article III of the BCA,
except that all Dissenting Shares held by shareholders who shall have failed to
perfect or who effectively shall have withdrawn or lost their rights to
appraisal of such Shares under Article III of the BCA shall thereupon be deemed
to have been converted into and to have become exchangeable, as of the Effective
Time, for the right to receive, without any interest thereon, the Merger
Consideration upon surrender in the manner provided in Section 4.1, of the
Company Certificate or Certificates that, immediately prior to the Effective
Time, evidenced such Shares. All payments with respect to Dissenting Shares
shall be paid by the Surviving Corporation with funds of the Company and not
with funds provided by any of the Acquiror Companies.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
5.1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants to Acquiror and Merger Sub that (except to the extent
set forth on the Disclosure Schedule previously delivered by the Company to
Acquiror (the "Company Disclosure Schedule")):
(a) CORPORATE ORGANIZATION AND QUALIFICATION. Each of the Company and its
subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of its respective jurisdiction of incorporation and is
qualified and in good standing as a foreign corporation in each jurisdiction
where the properties owned, leased or operated, or the business conducted, by it
require such qualification, except where failure to so qualify or be in good
standing would not have a Material Adverse Effect (as defined in Section 9.10)
with respect to the Company and its subsidiaries. Each of the Company and its
subsidiaries has all requisite power and authority (corporate or otherwise) to
own its properties and to carry on its business as it is now being conducted.
All of the subsidiaries of the Company, together with an organizational chart,
are set forth in Section 5.1(a) of the Company Disclosure Schedule. The Company
has heretofore made available to Acquiror complete and correct copies of its
Amended and Restated Articles of Incorporation and By-Laws.
(b) CAPITALIZATION. The authorized capital stock of the Company consists of
(i) 50,000,000 Shares, of which, as of October 1, 1996, 19,235,533 Shares were
issued and outstanding and no Shares were held in treasury, and (ii) 10,000,000
shares of preferred stock, none of which are issued or outstanding. All of the
outstanding shares of capital stock of the Company have been duly authorized and
validly issued and are fully paid and nonassessable. The Company has no
outstanding stock appreciation rights. Except as set forth in Section 5.1(b) of
the Company Disclosure Schedule, no Shares are owned by any subsidiary of the
Company. Except as set forth in Section 5.1(b) of the Company Disclosure
Schedule, all outstanding shares of capital stock or other equity interests of
the subsidiaries of the Company are owned by the Company or a direct or indirect
wholly owned subsidiary of the Company, free and clear of all liens, charges,
encumbrances, claims and options of any nature. Except for (i) options
outstanding on the date hereof to purchase 1,125,625 Shares under the Option
Plans, (ii) 146,357 Shares issuable under the Baby Superstore, Inc. Employee
Stock Purchase Plan, a true, complete and correct copy of which the Company has
delivered to Acquiror prior to the date hereof, (iii) the Warrants, true,
complete and correct copies of which have been delivered to Acquiror prior to
the date hereof, (iv) $115,000,000 aggregate outstanding principal amount of the
Company's 4 7/8% Convertible Subordinated Notes due October 1, 2000 (the
"Convertible Notes") which are convertible into Shares at a conversion price of
$53.875 per share, and (iv) as set
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<PAGE>
forth in Section 5.1(b) of the Company Disclosure Schedule, there are not as of
the date hereof and there will not be at the Effective Time any outstanding or
authorized options, warrants, calls, rights (including preemptive rights),
commitments or any other agreements of any character to which the Company or any
of its subsidiaries is a party, or by which it may be bound, requiring it to
issue, transfer, sell, purchase, redeem or acquire any shares of capital stock
or any securities or rights convertible into, exchangeable for, or evidencing
the right to subscribe for, any shares of capital stock of the Company or any of
its subsidiaries. There are not as of the date hereof and there will not be at
the Effective Time any shareholder agreements (other than the Shareholders
Agreement), voting trusts or other agreements or understandings to which the
Company is a party or to which it is bound relating to the voting of any shares
of the capital stock of the Company.
(c) APPROVALS; FAIRNESS OPINION.
(i) The Board of Directors at a meeting duly called and held, has (i)
determined that this Agreement and the transactions contemplated hereby,
including the Merger are fair to and in the best interests of the
shareholders of the Company and has approved the same, and (ii) resolved to
recommend that the holders of the Shares approve this Agreement and the
transactions contemplated hereby, including the Merger. Except for the
approval of the holders of a majority of the outstanding Shares required by
the BCA and the Company's Articles of Incorporation, no other approval of
the stockholders of the Company is required in order to consummate the
transactions contemplated by this Agreement.
(ii) The Board of Directors of the Company has received an opinion
from CS First Boston Corporation to the effect that the exchange ratio to
be offered to the holders of Shares (other than Tate) in the Merger is fair
to such holders from a financial point of view. As of the date hereof, such
opinion has not been withdrawn, revoked or modified.
(d) AUTHORITY RELATIVE TO THIS AGREEMENT. The Company has the requisite
corporate power and authority to approve, authorize, execute and deliver this
Agreement and to consummate the transactions contemplated hereby (subject to the
approval of the Merger by the affirmative vote of the holders of a majority of
the votes entitled to be cast by the holders of Shares in accordance with the
BCA and the Company's Articles of Incorporation). This Agreement and the
consummation by the Company of the transactions contemplated hereby have been
duly and validly authorized by the Board of Directors of the Company and no
other corporate proceedings on the part of the Company are necessary to
authorize this Agreement or to consummate the transactions contemplated hereby
(other than the approval of the Merger by the affirmative vote of the holders of
a majority of the votes entitled to be cast by the holders of Shares in
accordance with the BCA and the Company's Articles of Incorporation). This
Agreement has been duly and validly executed and delivered by the Company and,
assuming this Agreement constitutes the valid and binding agreement of Acquiror,
constitutes the valid and binding agreement of the Company, enforceable against
the Company in accordance with its terms, subject, as to enforceability, to
bankruptcy, insolvency, reorganization and other laws of general applicability
relating to or affecting creditors' rights and to general principles of equity.
(e) CONSENTS AND APPROVALS; NO VIOLATION. Neither the execution and
delivery of this Agreement by the Company nor the consummation by the Company of
the transactions contemplated hereby will (i) conflict with or result in any
breach of any provision of the respective Articles of Incorporation (or other
similar documents) or By-Laws (or other similar documents) of the Company or any
of its subsidiaries; (ii) require any consent, approval, authorization or permit
of, or filing with or notification to, any governmental or regulatory authority
or any other Person, except (A) in connection with the applicable requirements,
if any, of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended
(the "HSR Act"), (B) pursuant to the applicable requirements of the Securities
Act of 1933, as amended (the "Securities Act"), and the rules and regulations
promulgated thereunder, and the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and the rules and regulations promulgated thereunder, (C) the
filing of the Articles of Merger pursuant to the BCA and appropriate documents
with the relevant authorities of other states in which the Company is authorized
to do business, (D) such filings and consents as may be required under any
environmental, health or safety law or regulation pertaining to any
notification, disclosure or required approval triggered by the Merger or the
transactions contemplated by this Agreement, as set forth in Section 5.1(e) of
the Company Disclosure Schedule, (E) the consents, approvals, orders,
authorizations, registrations, declarations and filings required under the laws
of foreign countries, as set forth in Section 5.1(e) of the Company Disclosure
Schedule, (F) the approval of the holders of a majority of the outstanding
Shares required by the BCA and the Company's Articles of Incorporation, (G) such
filings as
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may be required with the NASDAQ National Market or (H) where the failure to
obtain such consent, approval, authorization or permit, or to make such filing
or notification, would not in the aggregate have a Material Adverse Effect with
respect to the Company and its subsidiaries or adversely affect the ability of
the Company to consummate the transactions contemplated hereby; (iii) except as
set forth in Section 5.1(e) of the Company Disclosure Schedule, result in a
violation or breach of, or constitute (with or without notice or lapse of time
or both) a default (or give rise to any right of termination, cancellation or
acceleration or result in the creation of any lien or other charge or
encumbrance) under any of the terms, conditions or provisions of any note,
license, agreement or other instrument or obligation to which the Company or any
of its subsidiaries or any of their assets may be bound, except for such
violations, breaches and defaults (or rights of termination, cancellation or
acceleration or creations of lien or other charge or encumbrance) as to which
requisite waivers or consents have been obtained or which, in the aggregate,
would not have a Material Adverse Effect with respect to the Company and its
subsidiaries or adversely affect the ability of the Company to consummate the
transactions contemplated hereby; or (iv) assuming the consents, approvals,
authorizations or permits and filings or notifications referred to in this
Section 5.1(e) are duly and timely obtained or made and the approval of the
Merger and the approval of this Agreement by the Company's stockholders has been
obtained, violate any order, writ, injunction, decree, statute, rule or
regulation applicable to the Company or any of its subsidiaries or to any of
their respective assets, except for violations which would not in the aggregate
have a Material Adverse Effect with respect to the Company and its subsidiaries
or adversely affect the ability of the Company to consummate the transactions
contemplated hereby. Except as set forth in Section 5.1(e) of the Company
Disclosure Schedule, the Company does not know of any pending or proposed
legislation, regulation or order (other than those affecting businesses such as
the Company's generally) applicable to the Company or any of its subsidiaries or
to the conduct of the business or operations of the Company or any of its
subsidiaries which, if enacted or adopted, could have a Material Adverse Effect
with respect to the Company and its subsidiaries.
(f) LITIGATION; COMPLIANCE WITH LAWS. Except as disclosed in the Company
SEC Reports (as defined in Section 5.1(g)) filed and publicly available prior to
the date of this Agreement or as disclosed in Section 5.1(f) of the Company
Disclosure Schedule, there are no actions, suits, or proceedings pending or, to
the best knowledge of the Company, threatened against the Company or any of its
subsidiaries which could, individually or in the aggregate, if adversely
determined, reasonably be expected to have a Material Adverse Effect with
respect to the Company and its subsidiaries, nor is there any judgment, decree,
injunction, rule or order of any governmental or regulatory authority or
arbitrator outstanding against the Company or any of its subsidiaries, which
could, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect with respect to the Company and its subsidiaries. Except
as set forth in Section 5.1(f) of the Company Disclosure Schedule, as of the
date of this Agreement, no investigation or review by any governmental or
regulatory authority with respect to the Company or any of its subsidiaries is
to the knowledge of the Company, pending or threatened, nor has the Company
received any notice from any governmental or regulatory authority indicating an
intention to conduct the same. Neither the Company nor any of its subsidiaries
has violated or failed to comply with any statute, law, ordinance, regulation,
rule, judgment, decree or order of any governmental authority or regulatory
agency applicable to its business or operations, except for violations and
failures to comply that could not, individually or in the aggregate, reasonably
be expected to result in a Material Adverse Effect with respect to the Company
and its subsidiaries.
(g) SEC REPORTS; FINANCIAL STATEMENTS.
(i) Since September 27, 1994, the Company has filed all forms, reports
and documents with the Securities and Exchange Commission (the "SEC")
required to be filed by it pursuant to the federal securities laws and the
SEC rules and regulations thereunder, all of which complied in all material
respects with all applicable requirements of the Securities Act and the
Exchange Act and the rules and regulations promulgated thereunder
(collectively, the "Company SEC Reports"). None of the Company SEC Reports,
including, without limitation, any financial statements or schedules
included therein, at the time filed contained any untrue statement of a
material fact or omitted to state a material fact required to be stated
therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading.
(ii) The consolidated balance sheets and the related consolidated
statements of income, stockholders' equity (deficit) and cash flows
(including the related notes thereto) of the Company included in the
Company SEC Reports complied as to form in all material respects with
applicable accounting requirements and
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the published rules and regulations of the SEC with respect thereto, have
been prepared in accordance with generally accepted accounting principles
("GAAP") applied on a basis consistent with prior periods (except as
otherwise noted therein), and present fairly the consolidated financial
position of the Company and its consolidated subsidiaries as of their
respective dates, and the consolidated results of their operations and
their cash flows for the periods presented therein (subject, in the case of
the unaudited interim financial statements, to normal year-end
adjustments). Except as set forth in Section 5.1(g) of the Company
Disclosure Schedule, since January 1, 1993, there has not been any material
change, or any application or request for any material change, by the
Company or any of its subsidiaries in accounting principles, methods or
policies for financial accounting purposes that have affected or will
affect the Company's consolidated financial statements included in the
Company SEC Reports or for tax purposes, except as required by concurrent
changes in GAAP.
(h) UNDISCLOSED LIABILITIES; ABSENCE OF CERTAIN CHANGES OR EVENTS. Neither
the Company nor any of its subsidiaries has any material indebtedness,
obligations or liabilities of any kind (whether accrued, absolute, contingent or
otherwise, and whether due or to become due or asserted or unasserted), and, to
the best knowledge of the Company, there is no basis for the assertion of any
claim or liability of any nature against the Company or any of its subsidiaries,
which is not fully reflected in, reserved against or otherwise described in the
financial statements included in the Company SEC Reports filed and publicly
available prior to the date of this Agreement. Except as disclosed in the
Company SEC Reports filed and publicly available prior to the date of this
Agreement or in Section 5.1(h) of the Company Disclosure Schedule, or as
contemplated by this Agreement, since January 1, 1996, the business of the
Company and its subsidiaries has been carried on only in the ordinary and usual
course and there has not been (i) any damage, destruction or loss, whether
covered by insurance or not, which has, or insofar as reasonably can be foreseen
in the future is reasonably likely to have, individually or in the aggregate, a
Material Adverse Effect with respect to the Company and its subsidiaries; (ii)
any declaration, setting aside or payment of any dividend or other distribution
(whether in cash, stock or property) with respect to the Shares or any
redemption, purchase or other acquisition of the Shares; (iii) any change,
occurrence or circumstance in the business, results of operations, properties,
assets, liabilities, prospects or condition (financial or otherwise) of any
character (whether or not in the ordinary course of business) which,
individually or in the aggregate, has had or is reasonably likely to have, a
Material Adverse Effect with respect to the Company and its subsidiaries; or
(iv) other than in the ordinary course of business consistent with past
practice, any increase in the benefits payable under or establishment of any
bonus, insurance, severance, deferred compensation, pension, retirement, profit
sharing, stock option (including without limitation the granting of stock
options, stock appreciation rights, performance awards or restricted stock
awards), stock purchase or other employee benefit plan, or any other increase in
the compensation payable or to become payable to any officers or key employees
of the Company or any of its subsidiaries.
(i) EMPLOYMENT AGREEMENTS. Except as set forth in Section 5.1(i) of the
Company Disclosure Schedule, the Company is not a party to any employment,
consulting, non-competition, severance, golden parachute, indemnification
agreement or any other agreement providing for payments or benefits or the
acceleration of payments or benefits upon the change of control of the Company
(including, without limitation, any contract to which the Company is a party
involving employees of the Company).
(j) BROKERS AND FINDERS. Except for the fees and expenses payable to CS
First Boston Corporation and Invemed Associates, Inc., which fees and expenses
are reflected in its agreement with the Company, a true and complete copy of
which (including all amendments) has been furnished to Acquiror, the Company has
not employed any investment banker, broker, finder, consultant or intermediary
in connection with the transactions contemplated by this Agreement which would
be entitled to any investment banking, brokerage, finder's or similar fee or
commission in connection with this Agreement or the transactions contemplated
hereby.
(k) S-4 REGISTRATION STATEMENT AND PROXY STATEMENT/PROSPECTUS. None of the
information supplied or to be supplied by the Company for inclusion or
incorporation by reference in the S-4 Registration Statement or the Proxy
Statement (as such terms are defined in Section 6.4) will (i) in the case of the
S-4 Registration Statement, at the time it becomes effective or at the Effective
Time, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein not misleading, or (ii) in the case of the Proxy Statement,
at the time of the mailing of the Proxy Statement and at the time of the
Shareholder Meeting (as such term is defined in Section 6.3), contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the
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statements therein, in light of the circumstances under which they are made, not
misleading. If at any time prior to the Effective Time any event with respect to
the Company, its officers and directors or any of its subsidiaries should occur
which is required to be described in a supplement to the S-4 Registration
Statement or the Proxy Statement such event shall be so described, and such
supplement shall be promptly filed with the SEC and, as required by law,
disseminated to the stockholders of the Company. The Proxy Statement will (only
with respect to the Company) comply as to form in all material respects with the
requirements of the Exchange Act and the rules and regulations promulgated
thereunder.
(l) TAXES. (i) The Company and each of its subsidiaries, and each affiliated
group (within the meaning of Section 1504 of the Code) of which the Company
or any of its subsidiaries is or has ever been a member, has timely filed
all Federal income Tax Returns (as defined below) and all other material Tax
Returns and reports required to be filed by it. All such Tax Returns are
complete and correct in all material respects. The Company and each of its
subsidiaries has paid (or the Company has paid on its subsidiaries' behalf)
all Taxes (as defined below) shown due on such Tax Returns. The most recent
consolidated financial statements contained in the SEC Reports reflect an
adequate reserve for all Taxes payable by the Company and its subsidiaries
for all taxable periods and portions thereof through the date of such
financial statements.
(ii) Except as disclosed on Section 5.1(l)of the Company Disclosure
Schedule, no material deficiencies for any Taxes have been proposed,
asserted or assessed against the Company or any of its subsidiaries that
have not been fully paid or adequately provided for in the appropriate
financial statements of the Company and its subsidiaries, no requests for
waivers of the time to assess any Taxes are pending, and no power of
attorney with respect to any Taxes has been executed or filed with any
taxing authority. No material issues relating to Taxes have been raised in
writing by the relevant taxing authority during any presently pending audit
or examination.
(iii) No material liens for Taxes exist with respect to any assets or
properties of the Company or any of its subsidiaries, except for statutory
liens for Taxes not yet due.
(iv) Except as disclosed on Section 5.1(l) of the Company Disclosure
Schedule and other than with respect to contractual tax indemnity
obligations of the Company and its subsidiaries involving claims for state
and local Taxes which are not material in amount, none of the Company or
any of its subsidiaries is a party to or is bound by any tax sharing
agreement, tax indemnity obligation or similar agreement, arrangement or
practice with respect to Taxes (including any advance pricing agreement,
closing agreement or other agreement relating to Taxes with any taxing
authority).
(v) None of the Company or any of its subsidiaries has taken or agreed
to take any action that would prevent the Merger from constituting a
reorganization qualifying under the provisions of Section 368(a)(1) of the
Code.
(vi) The Company and its subsidiaries have complied in all material
respects with all applicable laws, rules and regulations relating to the
payment and withholding of Taxes.
(vii) Except as disclosed in Section 5.1(l) of the Company Disclosure
Schedule, no Federal, state, local or foreign audits or other
administrative proceedings or court proceedings are presently pending with
regard to any Federal income or material state, local or foreign Taxes or
Tax Returns of the Company or its subsidiaries and neither the Company nor
any of its subsidiaries has received a written notice of any pending audit
or proceeding.
(viii) Neither the Company nor any of its subsidiaries has agreed to
or is required to make any adjustment under Section 481(a) of the Code.
(ix) Neither the Company nor any of its subsidiaries has, with regard
to any assets or property held or acquired by any of them, filed a consent
to the application of Section 341(f) of the Code or agreed to have Section
341(f)(2) of the Code apply to any disposition of a subsection (f) asset
(as such term is defined in Section 341(f)(4) of the Code) owned by the
Company or any of its subsidiaries.
(x) No property owned by the Company or any of its subsidiaries (i) is
property required to be treated as being owned by another Person pursuant
to the provisions of Section 168(f)(8) of the Internal Revenue Code of
1954, as amended and in effect immediately prior to the enactment of the
Tax Reform Act of 1986; (ii) constitutes "tax exempt use property" within
the meaning of Section 168(h)(1) of the Code; or (iii) is tax
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exempt bond financed property within the meaning of Section 168(g) of the
Code. The Company and each of its subsidiaries are not currently, have not
been within the past five years, and do not anticipate becoming a "United
States real property holding corporation" within the meaning of Section
897(c) of the Code.
(xi) For purpose of the Agreement, (A) the terms "Tax" or "Taxes"
shall mean all taxes, charges, fees, imposts, levies, gaming or other
assessments, including, without limitation, all net income, gross receipts,
capital, sales, use, ad valorem, value added, transfer, franchise, profits,
inventory, capital stock, license, withholding, payroll, employment, social
security, unemployment, excise, severance, stamp, occupation, property and
estimated taxes, customs duties, fees, assessments and charges of any kind
whatsoever, together with any interest and any penalties, fines, additions
to tax or additional amounts imposed by any taxing authority (domestic or
foreign) and shall include any transferee liability in respect of Taxes,
any liability in respect of Taxes imposed by contract, tax sharing
agreement, tax indemnity agreement or any similar agreement and (B) the
term "Tax Return" shall mean any report, return, document, declaration or
any other information or filing required to be supplied to any taxing
authority or jurisdiction (foreign or domestic) with respect to Taxes,
including, without limitation, information returns, any document with
respect to or accompanying payments or estimated Taxes, or with respect to
or accompanying requests for the extension of time in which to file any
such report, return document, declaration or other information.
(m) EMPLOYEE BENEFITS. Section 5.1(m) of the Company Disclosure Schedule
contains an accurate and complete list of all Company Benefit Plans (as defined
below). None of the Company Benefit Plans is a "multiemployer plan" as defined
in Section 3(37) of ERISA or a multiple employer plan covered by Section 4063 or
4064 of ERISA.
(i) Except as disclosed in Section 5.1(m) of the Company Disclosure
Schedule, each Company Benefit Plan intended to qualify under Section 401
of the Code does so qualify and the trust maintained pursuant thereto is
exempt from federal income taxation under Section 501 of the Code. Nothing
has occurred with respect to the operation of such plans which could cause
the loss of such qualification or exemption or the imposition of any
liability, penalty, or tax under ERISA or the Code.
(ii) True and correct copies of the following documents with respect
to each Company Benefit Plans have been made available or delivered to
Acquiror by the Company: (A) any plans, and amendments thereto, (B) the
most recent forms 5500 and any financial statements attached thereto, (C)
the last Internal Revenue Service determination letter (if any), (D)
summary plan descriptions, (E) the two most recent actuarial reports,
including any such reports for purposes of FASB 87, 106 and 112, and (F)
written descriptions of all materials, non-written agreements relating to
the Company Benefit Plans.
(iii) The Company Benefit Plans have been maintained in accordance
with their terms and with all provisions of ERISA and other applicable law.
Neither the Company nor any of its subsidiaries has any liability with
respect to a non-exempt prohibited transaction within the meaning of
Section 4975 of the Code or Section 406 of ERISA.
(iv) Neither the Company nor any ERISA Affiliate maintains any Company
Benefit Plan subject to Title IV of ERISA has unfunded benefit liabilities,
as defined in Section 4001(a)(18) of ERISA.
(v) Except as disclosed in Section 5.1(m) of the Company Disclosure
Schedule, neither the Company nor any of its subsidiaries maintains retiree
life insurance or retiree health plans which are "welfare benefit plans"
within the meaning of Section 3(1) of ERISA and which provide for
continuing benefits or coverage for any participant or any beneficiary of a
participant after such participant's termination of employment where such
participant was an employee of the Company or any subsidiary of the
Company, other than as required by Part 6 of Title I of ERISA.
(vi) Except as disclosed in Section 5.1(m) of the Company Disclosure
Schedule, neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will (A) result in any
payment (including, without limitation, bonus or other compensation
severance, unemployment compensation, golden parachute or otherwise)
becoming due to any employee of the Company under any Company Benefit Plan,
any individual agreement or otherwise, (B) increase any benefits otherwise
payable under any Company Benefit Plan, or (C) result in the acceleration
of the time of payment or vesting of any such benefits.
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(vii) (A) None of the employees of the Company or any of its
subsidiaries is represented in his or her capacity as an employee of such
company by any labor organization; (B) neither the Company nor any of its
subsidiaries has recognized any labor organization nor has any labor
organization been elected as the collective bargaining agent of any of
their employees, nor has the Company or any of its subsidiaries signed any
collective bargaining agreement or union contract recognizing any labor
organization as the bargaining agent of any of their employees; and (C) to
the best knowledge of the Company, there is no active or current union
organization activity involving the employees of the Company or any
subsidiary of the Company, nor has there ever been union representation
involving employees of the Company and/or its subsidiaries.
(viii) For the purposes of this Agreement: (A) the term "Company
Benefit Plan" shall include all employee benefit plans (as defined in
Section 3(3) of ERISA) and all other employee benefit plans, arrangements
or payroll practices, including, without limitation, severance pay, sick
leave, vacation pay, salary continuation for disability, scholarship
programs, deferred compensation, incentive compensation, stock option or
restricted stock plans maintained by the Company or any ERISA Affiliate of
the Company (whether formal or informal, whether for the benefit of a
single individual or for more than one individual and whether for the
benefit of current or former employees or their beneficiaries) on behalf of
the Company or any of the employees of the Company or any of its
subsidiaries or to which or under which or pursuant to which the Company or
any ERISA Affiliate of the Company has contributed or is obligated to make
contributions on behalf of the Company or any employees of the Company or
any of its subsidiaries; (B) the term "ERISA" shall refer to the Employee
Retirement Income Security Act of 1974, as amended; and (C) the term "ERISA
Affiliate" shall refer to any trade or business (whether or not
incorporated) under common control or treated as a single employer with the
Company within the meaning of Section 414(b), (c), (m) or (o) of the Code.
(n) TITLE TO PROPERTIES; ASSETS OTHER THAN REAL PROPERTY INTERESTS. (i)
Section 5.1(n) of the Company Disclosure Schedule sets forth a complete
list of all real property and interests in real property owned or leased by
the Company or any of its subsidiaries, and indicates whether such property
is owned or leased (each such owned property, an "Owned Property" and each
such leased property, a "Leased Property", and collectively "Real
Property"). Except as set forth in Section 5.1(n) of the Company Disclosure
Schedule, each of the Company or one of its subsidiaries has good and
marketable title to each Owned Property, or a valid leasehold interest in
each Leased Property, in each case free and clear of all liens and except
for easements, restrictive covenants and similar encumbrances of record
that, individually or in the aggregate, do not and will not materially
interfere with its ability to conduct its business as currently conducted.
Except as set forth in Section 5.1(n) of the Company Disclosure Schedule,
each of the Company and each of its subsidiaries has complied in all
material respects with the terms of all material leases to which it is a
party, and all such leases are in full force and effect. Each of the
Company and each of its subsidiaries enjoys peaceful and undisturbed
possession under all such material leases.
(ii) The Company or one of its subsidiaries has good and valid title
to all its properties and assets, in each case free and clear of all liens,
except (A) such as are set forth in Section 5.1(n) of the Company
Disclosure Schedule, (B) mechanics', carriers', workmen's, repairmen's or
other similar liens arising or incurred in the ordinary course of business,
(C) liens arising under conditional sales contracts and equipment leases
with third parties entered into in the ordinary course of business, (D)
liens for Taxes which are not due and payable or which may thereafter be
paid without penalty, (E) liens which secure debt that is reflected as a
liability on the most recent financial statement included in the Company
SEC Reports filed and publicly available prior to the date of this
Agreement and the existence of which is indicated in the notes thereto and
(F) other imperfections of title or encumbrances, if any, which do not,
individually or in the aggregate, materially impair the continued use and
operation of the assets to which they relate in the business of the Company
and its subsidiaries. This paragraph (ii) does not relate to Real Property
or interests in Real Property, such items being the subject of paragraph
(i) above.
(iii) The occupancies and uses of the Real Property, as well as the
development, construction, management, maintenance, servicing and operation
of the Real Property, comply in all material respects with all applicable
laws, ordinances, rules, regulations, orders and requirements of all
governmental authorities having jurisdiction and are not in material
violation of any thereof; and the certificate(s) of occupancy and all other
licenses and permits required by law for the proper use and operation of
the Real Property are in full force and effect. All approvals, consents,
permits, utility installations and connections, curb cuts and street
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openings required for the development, construction, maintenance, operation
and servicing of the Real Property have been granted, effected, or
performed and completed (as the case may be), and all fees and charges
therefor have been fully paid. The Company has not received written notice
of, and does not otherwise have knowledge of, any material violations,
suits, orders, decrees or judgments relating to zoning, building use and
occupancy, traffic, fire, health, sanitation, air pollution, ecological,
environmental or other laws or regulations, against, or with respect to,
the Real Property.
(iv) There is adequate access between each Owned Property or Leased
Property and public roads and there are no pending or threatened
proceedings that could have the effect of impairing or restricting such
access. There are sufficient parking spaces on material Owned Property or
Leased Property to comply with all applicable provisions of any agreements
to which such Real Property is subject, local zoning requirements and all
other applicable laws and governmental requirements. The material
improvements upon the Real Property contain no asbestos and there are no
material defects in the roof, foundation, sprinkler mains, structural,
mechanical and HVAC systems and masonry walls in any of the material
improvements upon the Real Property and no significant repairs thereof are
required, and all periodic maintenance has been done and is being done
which is consistent with first class maintenance standard for Real Property
of similar size and age in the vicinity of such Real Property.
(o) INTANGIBLE PROPERTY. (i) Section 5.1(o) of the Company Disclosure
Statement sets forth a list of each patent, trademark, trade name, service
mark, brand mark, brand name, industrial design and copyright owned or used
in business by the Company and its subsidiaries, as well as all
registrations thereof and pending applications therefor, and each license
or other contract relating thereto (collectively with any other
intellectual property owned or used in the business by the Company and its
subsidiaries, and all of the goodwill associated therewith, the "Intangible
Property") and indicates, with respect to each item of Intangible Property
listed thereon, the owner thereof and, if applicable, the name of the
licensor and licensee thereof and the terms of such license or other
contract relating thereto. Except as set forth in Section 5.1(o) of the
Company Disclosure Schedule, each of the foregoing is owned free and clear
of any and all liens, mortgages, pledges, security interests, levies,
charges, options or any other encumbrances, restrictions or limitations of
any kind whatsoever and none of the Company or any of its subsidiaries has
received any notice to the effect that any other entity has any claim of
ownership with respect thereto. To the best knowledge of the Company, the
use of the foregoing by the Company and its subsidiaries does not conflict
with, infringe upon, violate or interfere with or constitute an
appropriation of any right, title, interest or goodwill, including, without
limitation, any intellectual property right, patent, trademark, trade name,
service mark, brand mark, brand name, computer program, industrial design,
copyright or any pending application therefor of any other entity. Except
as set forth in Section 5.1(o) of the Company Disclosure Schedule, no
claims have been made, and none of the Company or any of its subsidiaries
has received any notice, that any of the foregoing is invalid, conflicts
with the asserted rights of other entities, or has not been used or
enforced (or has failed to be used or enforced) in a manner that would
result in the abandonment, cancellation or unenforceability of any item of
the Intangible Property.
(ii) The Company and its subsidiaries possess all Intangible Property,
including, without limitation, all know-how, formulae and other proprietary
and trade rights necessary for the conduct of their businesses as now
conducted. None of the Company or any of its subsidiaries has taken or
failed to take any action that would result in the forfeiture or
relinquishment of any such Intangible Property used in the conduct of their
respective businesses as now conducted.
(p) CERTAIN CONTRACTS. Section 5.1(p) of the Company Disclosure Schedule
lists all of the following contracts to which the Company or a subsidiary is a
party or by which any one of them or any of their properties or assets may be
bound ("Listed Agreements"): (i) all employment or other contracts with any
employee, consultant, officer or director of the Company or any subsidiary of
the Company (or any company which is controlled by any such individual) whose
total rate of annual remuneration is estimated to exceed $100,000 in 1996; (ii)
union, guild or collective bargaining contracts relating to employees of the
Company or any subsidiary; (iii) instruments for money borrowed (including,
without limitation, any indentures, guarantees, loan agreements, sale and
leaseback agreements, or purchase money obligations incurred in connection with
the acquisition of property other than in the ordinary course of business) in
excess of $500,000; (iv) underwriting, purchase or similar agreements entered
into in connection with the Company's or any of its subsidiaries' currently
existing indebtedness; (v) agreements for acquisitions or dispositions (by
merger, purchase or sale of assets or stock or otherwise) of
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material assets entered into within the last two years, as to which the
transactions contemplated have been consummated or are currently pending; (vi)
joint venture or partnership agreements entered into; (vii) material licensing,
merchandising and distribution contracts; (viii) contracts granting any person
or other entity registration rights; (ix) guarantees, suretyships,
indemnification and contribution agreements, in excess of $500,000; and (x)
other contracts which materially affect the business, properties or assets of
the Company and its subsidiaries taken as a whole, and are not otherwise
disclosed in this Agreement or were entered into other than in the ordinary
course of business. A true and complete copy (including all amendments) of each
Listed Agreement has been made available to Acquiror. Neither the Company nor
any subsidiary (i) is in breach or default under any of the Listed Agreements or
(ii) has any knowledge of any other breach or default under any Listed Agreement
by any other party thereto or by any other person or entity bound thereby,
except in the case of (i) or (ii) breaches or defaults which would not,
individually or in the aggregate, have a Material Adverse Effect with respect to
the Company and its subsidiaries. At the Effective Time, no person will have the
right, by contract or otherwise, to become, nor does any entity have the right
to designate or cause the Company to appoint a person as, a director of the
Company.
(q) INSURANCE. The Company and its subsidiaries have obtained and
maintained in full force and effect insurance with responsible and reputable
insurance companies or associations in such amounts, on such terms and covering
such risks, including fire and other risks insured against by extended coverage,
as is usually carried by companies engaged in similar businesses and owning
similar properties similarly situated or otherwise required by law, and each has
maintained in full force and effect public liability insurance, insurance
against claims for personal injury or death or property damage occurring in
connection with any of the activities of the Company or its subsidiaries or any
of the properties owned, occupied or controlled by the Company or its
subsidiaries, in such amount as reasonably deemed necessary by the Company or
its subsidiaries. To the extent the Company self-insures against such risks or
damages, the liabilities reflected or reserved against in the Company's most
recent financial statements (or the notes thereto) included in the Company SEC
Reports filed and publicly available prior to the date of this Agreement are
adequate to cover against such risks and damages.
(r) UNLAWFUL PAYMENTS AND CONTRIBUTIONS. None of the Company, any
subsidiary of the Company or, to the knowledge of the Company, any of their
respective directors, officers or any of their respective employees or agents
has, with respect to the businesses of the Company and its subsidiaries, (i)
used any funds for any unlawful contribution, endorsement, gift, entertainment
or other unlawful expense relating to political activity; (ii) made any direct
or indirect unlawful payment to any foreign or domestic government official or
employee; (iii) violated or is in violation of any provision of the Foreign
Corrupt Practices Act of 1977, as amended; or (iv) made any bribe, rebate,
payoff, influence payment, kickback or other unlawful payment to any person or
entity.
(s) LISTINGS. The Company's securities are not listed or quoted for trading
on any U.S. domestic or foreign securities exchange, except as set forth in
Section 5.1(s) of the Company Disclosure Schedule.
(t) ENVIRONMENTAL MATTERS. Except as disclosed in Section 5.1(t) of the
Company Disclosure Schedule or in the Company SEC Reports filed and publicly
available prior to the date of this Agreement, (i) the Company and its
subsidiaries and the operations thereof are in material compliance with all
Environmental Laws (as defined below); (ii) there are no judicial or
administrative actions, suits or proceedings pending or, to the knowledge of the
Company, threatened and, to the knowledge of the Company, there are no
investigations pending or threatened against the Company or any subsidiary of
the Company alleging the violation of any Environmental Law and neither the
Company nor any subsidiary of the Company has received notice from any
governmental body or person alleging any violation of or liability under any
Environmental Laws, in either case which could reasonably be expected to result
in material Environmental Costs and Liabilities; and (iii) to the knowledge of
the Company, there are no facts, circumstances or conditions relating to,
arising from, associated with or attributable to the Company or its subsidiaries
or any real property currently or previously owned, operated or leased by the
Company or its subsidiaries that could reasonably be expected to result in
material Environmental Costs and Liabilities. For the purpose of this Section
5.1(t), the following terms have the following definitions: (A) "Environmental
Costs and Liabilities" means any losses, liabilities, obligations, damages,
fines, penalties, judgments, actions, claims, costs and expenses (including,
without limitation, fees, disbursements and expenses of legal counsel, experts,
engineers and consultants and the costs of investigation and feasibility
studies, remedial or removal actions and cleanup activities) arising from or
under any Environmental Law; (B) "Environmental
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Laws" means any applicable federal, state, local, or foreign law (including
common law), statute, code, ordinance, rule, regulation or other requirement
relating to the environment, natural resources, or public or employee health and
safety; (C) "Hazardous Material" means any substance, material or waste
regulated by federal, state or local government, including, without limitation,
any substance, material or waste which is defined as a "hazardous waste,"
"hazardous material," "hazardous substance," "toxic waste" or "toxic substance"
under any provision or Environmental Law and including but not limited to
petroleum and petroleum products.
(u) STATE TAKEOVER STATUTES. Neither the South Carolina Control Share
Acquisition Statute (Sections 35-2-101 ET SEQ. of the BCA) nor the South
Carolina Business Combination Statute (Sections 35-2-201 ET SEQ. of the BCA),
nor, to the Company's knowledge, any other state takeover statute or similar
statute or regulation, is applicable to the Merger and the other transactions
contemplated by this Agreement.
(v) INVENTORIES; RECEIVABLES; PAYABLES. (i) The inventories of the Company
and its subsidiaries are in good and marketable condition, and are saleable
in the ordinary course of business. Adequate reserves have been reflected on
the most recent balance sheet included in the Company SEC Documents and,
after the date of the most recent balance sheet included in the Company SEC
Documents, will be reflected on the books of the Company, for shorts, drops,
off-cuts, obsolete or otherwise unusable inventory, which reserves were
calculated in accordance with GAAP consistently applied.
(ii) All accounts receivable of the Company and its subsidiaries have arisen
from bona fide transactions in the ordinary course of business. All accounts
receivable of the Company and its subsidiaries reflected on the most recent
balance sheet included in the Company SEC Documents are good and collectible
at the aggregate recorded amounts thereof, net of any applicable reserve for
returns or doubtful accounts reflected thereon, which reserves are adequate
and were calculated in accordance with GAAP consistently applied. All
accounts receivable arising after the date of the most recent balance sheet
included in the Company SEC Documents are good and collectible at the
aggregate recorded amounts thereof, net of any applicable reserve for
returns or doubtful accounts, which reserves are adequate and were
calculated in accordance with GAAP consistently applied.
(iii) All accounts payable of the Company and its subsidiaries reflected on
the most recent balance sheet included in the Company SEC Documents or
arising after the date thereof are the result of bona fide transactions in
the ordinary course of business and have been paid or are not yet due and
payable.
(w) TRANSACTIONS WITH AFFILIATES. Other than the transactions contemplated
by this Agreement and except to the extent disclosed in the Company SEC Reports
filed and publicly available prior to the date of this Agreement, or as set
forth in Section 5.1(w) of the Company Disclosure Schedule, since January 1,
1994, there have been no transactions, agreements, arrangements or
understandings between the Company or its subsidiaries, on the one hand, and the
Company's Affiliates (other than wholly owned subsidiaries of the Company) or
other Persons, on the other hand, that would be required to be disclosed under
Item 404 of Regulation S-K under the Securities Act.
(x) DISCLOSURE. No representation or warranty by the Company in this
Agreement and no statement contained in the Company Disclosure Schedules or any
certificate delivered by the Company to Acquiror pursuant to this Agreement,
contains any untrue statement of a material fact or omits any material fact
necessary to make the statements herein or therein not misleading when taken
together in light of the circumstances in which they were made, it being
understood that as used in this Section 5.1(x) "material" means material to the
Company and its subsidiaries taken as a whole.
5.2. REPRESENTATIONS AND WARRANTIES OF ACQUIROR. Acquiror and Merger Sub
jointly and severally represent and warrant to the Company that (provided that
the representations and warranties set forth herein with respect to Merger Sub
shall be made as of December 26, 1996):
(a) CORPORATE ORGANIZATION AND QUALIFICATION. Each of Acquiror, Merger Sub
and Acquiror's Significant Subsidiaries (within the meaning of Rule 1-02 of
Regulation S-X promulgated by the SEC) is a corporation duly organized, validly
existing and in good standing under the laws of its respective jurisdiction of
incorporation and is qualified and in good standing as a foreign corporation in
each jurisdiction where the properties owned, leased or operated, or the
business conducted, by it require such qualification, except where the failure
to so qualify or be in such good standing would not have a Material Adverse
Effect with respect to Acquiror and its subsidiaries. Each of Acquiror, Merger
Sub and Acquiror's Significant Subsidiaries has all requisite power and
authority (corporate or otherwise) to own its properties and to carry on its
business as it is now being conducted. Acquiror has
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heretofore made available to the Company complete and correct copies of the
Articles of Incorporation and By-Laws of Merger Sub, which are the Articles of
Incorporation and By-Laws of Merger Sub which shall be in effect immediately
prior to the Effective Time.
(b) CAPITALIZATION. The authorized capital stock of Acquiror consists of
650,000,000 Acquiror Common Shares of which, as of August 3, 1996, approximately
274,235,794 Acquiror Common Shares were issued and outstanding. All of the
outstanding shares of capital stock of Acquiror have been duly authorized and
validly issued and are fully paid and nonassessable. All outstanding shares of
capital stock or other equity interests of the subsidiaries of Acquiror are
owned by Acquiror or a direct or indirect wholly owned subsidiary of Acquiror,
free and clear of all liens, charges, encumbrances, claims and options of any
nature. Except as set forth in the Acquiror SEC Reports (as defined in Section
5.2(f)) or as contemplated by this Agreement, there are not, as of the date
hereof, any outstanding or authorized options, warrants, calls, rights
(including preemptive rights), commitments or any other agreements or any
character which Acquiror or any of its subsidiaries is a party to, or may be
bound by, requiring it to issue, transfer, sell, purchase, redeem or acquire any
Acquiror Common Shares or any shares of capital stock or any of its securities
or rights convertible into, exchangeable for, or evidencing the right to
subscribe for, any shares of capital stock of Acquiror or any of its
subsidiaries. There are not as of the date hereof and there will not be at the
Effective Time any stockholder agreements, voting trusts or other agreements or
understandings to which Acquiror is a party or to which it is bound relating to
the voting of any shares of the capital stock of Acquiror or Merger Sub.
Acquiror has reserved for issuance under a stock option plan or plans of
Acquiror a sufficient number of Acquiror Common Shares to cover the exercise of
the Options and Warrants to be assumed by Acquiror in accordance with Section
4.1(d). The authorized capital stock of Merger Sub consists of 100 shares of
common stock, without par value. All of the outstanding shares of capital stock
of Merger Sub have been duly authorized and validly issued and are fully paid
and nonassessable and are owned by Acquiror, free and clear of all liens,
charges, encumbrances, claims and options of any nature.
(c) AUTHORIZATION FOR ACQUIROR COMMON SHARES. Acquiror has taken all
necessary action to permit it to issue the number of Acquiror Common Shares
required to be issued pursuant to the Merger. The Acquiror Common Shares issued
pursuant to Article IV will, when issued, be validly issued, fully paid and
nonassessable and no person will have any preemptive right of subscription of
purchase in respect thereof. The Acquiror Common Shares issued pursuant to the
Merger will, when issued, be registered under the Securities Act and the
Exchange Act and registered or exempt from registration under any applicable
state securities laws and will, when issued, be listed on the NYSE, subject to
official notice of issuance.
(d) AUTHORITY RELATIVE TO THIS AGREEMENT. Each of Acquiror and Merger Sub
has the requisite corporate power and authority to approve, authorize, execute
and deliver this Agreement and to consummate the transactions contemplated
hereby. This Agreement and the consummation by Acquiror of the transactions
contemplated hereby have been duly and validly authorized by the respective
Boards of Directors of Acquiror and Merger Sub and by Acquiror as the sole
shareholder of Merger Sub, and no other corporate proceedings on the part of
Acquiror or Merger Sub are necessary to authorize this Agreement or to
consummate the transactions contemplated hereby. This Agreement has been duly
and validly executed and delivered by each of Acquiror and Merger Sub and,
assuming this Agreement constitutes the valid and binding agreement of the
Company, constitutes a valid and binding agreement of each of Acquiror and
Merger Sub, enforceable against each of Acquiror and Merger Sub in accordance
with its terms, subject, as to enforceability, to bankruptcy, insolvency,
reorganization and other laws of general applicability relating to or affecting
creditors' rights and to general principles of equity.
(e) CONSENTS AND APPROVALS; NO VIOLATION. Neither the execution and
delivery of this Agreement by Acquiror and Merger Sub nor the consummation by
Acquiror and Merger Sub of the transactions contemplated hereby will (i)
conflict with or result in any breach of any provision of the Restated
Certificate of Incorporation and the Restated By-Laws of Acquiror or the
Articles of Incorporation and the By-Laws of Merger Sub; (ii) require any
consent, approval, authorization or permit of, or filing with or notification
to, any governmental or regulatory authority or any other Person, except (A) in
connection with the applicable requirements, if any, of the HSR Act, (B)
pursuant to the applicable requirements of the Securities Act and the Exchange
Act, (C) the filing of the Articles of Merger pursuant to the BCA and
appropriate documents with the relevant authorities of other states in which the
Company is authorized to do business, (D) as may be required by any applicable
state securities or takeover laws, (E) such filings and consents as may be
required under any environmental, health or safety law or regulation pertaining
to any notification, disclosure or required approval triggered by the Merger or
the
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transactions contemplated by this Agreement, (F) such filings, consents,
approvals, orders, authorizations, registrations, declarations and filings as
may be required under the laws of any foreign country, (G) filings with, and
approval of, the NYSE or, (H) where the failure to obtain such consent,
approval, authorization or permit, or to make such filing or notification, would
not in the aggregate have a Material Adverse Effect with respect to Acquiror and
its subsidiaries or adversely affect the ability of Acquiror or Merger Sub to
consummate the transactions contemplated hereby; (iii) result in a violation or
breach of, or constitute (with or without due notice or lapse of time or both) a
default (or give rise to any right of termination, cancellation or acceleration
or result in the creation of any lien or other charge or encumbrance) under any
of the terms, conditions or provisions of any note, license, agreement or other
instrument or obligation to which Acquiror or any of its subsidiaries or any of
their assets may be bound, except for such violiations, breaches and defaults
(or rights of termination, cancellation, or acceleration or creations of lien or
other charge or encumbrance) as to which requisite waivers or consents have been
obtained or which, in the aggregate, would not have a Material Adverse Effect
with respect to Acquiror and its subsidiaries or adversely affect the ability of
Acquiror or Merger Sub to consummate the transactions contemplated hereby; or
(iv) assuming the consents, approvals, authorizations or permits and filings or
notifications referred to in this Section 5.2(e) are duly and timely obtained or
made, violate any order, writ, injunction, decree, statute, rule or regulation
applicable to Acquiror or any of its subsidiaries or to any of their respective
assets, except for violations which would not in the aggregate have a Material
Adverse Effect with respect to Acquiror and its subsidiaries or adversely affect
the ability of Acquiror or Merger Sub to consummate the transactions
contemplated hereby.
(f) SEC REPORTS; FINANCIAL STATEMENTS.
(i) Since January 1, 1993, Acquiror has filed all forms, reports and
documents with the SEC required to be filed by it pursuant to the federal
securities laws and the SEC rules and regulations thereunder, all of which
complied in all material respects with all applicable requirements of the
Securities Act and the Exchange Act (the "Acquiror SEC Reports"). None of
the Acquiror SEC Reports, including, without limitation, any financial
statements or schedules included therein, at the time filed contained any
untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
(ii) The consolidated balance sheets and the related statements of
income, stockholders' equity and cash flow (including the related notes
thereto) of Acquiror included in the Acquiror SEC Reports comply as to form
in all material respects with applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto, have been
prepared in accordance with GAAP applied on a basis consistent with prior
periods (except as otherwise noted therein), and present fairly the
consolidated financial position of Acquiror and its consolidated
subsidiaries as of their respective dates, and the results of its
operations and its cash flow for the periods presented therein (subject, in
the case of the unaudited interim financial statements, to normal year-end
adjustments).
(g) UNDISCLOSED LIABILITIES; ABSENCE OF CERTAIN CHANGES OR EVENTS. Neither
Acquiror nor any of its subsidiaries has any material indebtedness, obligations
or liabilities of any kind (whether accrued, absolute, contingent or otherwise,
and whether due or to become due or asserted or unasserted), and, to the best
knowledge of Acquiror, there is no basis for the assertion of any claim or
liability of any nature against Acquiror or any of its subsidiaries, which is
not fully reflected in, reserved against or otherwise described in the financial
statements included in the Acquiror SEC Reports filed and publicly available
prior the date of this Agreement. Except as disclosed in Acquiror SEC Reports
filed and publicly available prior to the date of this Agreement or as
contemplated by this Agreement, since January 1, 1996, the business of Acquiror
and its subsidiaries has been carried on only in the ordinary and usual course
and there has not been any adverse change in its business, properties,
operations or financial condition and no event has occurred and no fact or set
of circumstances has arisen which has resulted in or could reasonably be
expected to result in a Material Adverse Effect with respect to Acquiror and its
subsidiaries.
(h) LITIGATION. Except as disclosed in the Acquiror SEC Reports filed and
publicly available prior to the date of this Agreement, there are no actions,
suits or proceedings pending or, to the best knowledge of Acquiror threatened
(or to the best knowledge of Acquiror any investigation pending or threatened)
against Acquiror or any of its subsidiaries which could, individually or in the
aggregate, if adversely determined, reasonably be
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expected to have a Material Adverse Effect with respect to Acquiror and its
subsidiaries, nor is there any judgment, decree, injunction, rule or order of
any governmental or regulatory authority or arbitration outstanding against
Acquiror or any of its subsidiaries, which could, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect with respect
to Acquiror and its subsidiaries.
(i) S-4 REGISTRATION STATEMENT AND PROXY STATEMENT/PROSPECTUS. None of the
information to be supplied by Acquiror or Merger Sub for inclusion or
incorporation by reference in the S-4 Registration Statement or the Proxy
Statement will, (i) in the case of the S-4 Registration Statement, at the time
it becomes effective and at the Effective Time, contain any untrue statement of
a material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein not misleading, or (ii) in
the case of the Proxy Statement, at the time of the mailing of the Proxy
Statement and at the time of the Shareholder Meeting, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they are made, not misleading. If at any time
prior to the Effective Time any event with respect to Acquiror, its officers and
directors or any of its subsidiaries shall occur which is required to be
described in the S-4 Registration Statement, such event shall be so described,
and an amendment or supplement shall be promptly filed with the SEC and, as
required by law, disseminated to the shareholders of the Company. The S-4
Registration Statement will comply (only with respect to Acquiror and Merger
Sub) as to form in all material respects with the provisions of the Securities
Act and the rules and regulations promulgated thereunder.
(j) BROKERS AND FINDERS. Except for Goldman, Sachs & Co., neither Acquiror
nor Merger Sub has employed any investment banker, broker, finder, consultant or
intermediary in connection with the transactions contemplated by this Agreement
which would be entitled to any investment banking, brokerage, finder's or
similar fee or commission in connection with this Agreement or the transactions
contemplated hereby.
(k) OWNERSHIP OF SHARES. As of the date hereof, none of the Acquiror
Companies owns any Shares.
(l) DISCLOSURE. No representation or warranty by Acquiror or Merger Sub in
this Agreement and no statement contained in the Acquiror Disclosure Schedules
or any certificate delivered by Acquiror or Merger Sub to the Company pursuant
to this Agreement, contains any untrue statement of a material fact or omits any
material fact necessary to make the statements herein or therein not misleading
when taken together in light of the circumstances in which they were made, it
being understood that as used in this Section 5.2(l) "material" means material
to Acquiror and its subsidiaries taken as a whole.
(m) OPERATIONS OF MERGER SUB. Merger Sub was formed solely for the purpose
of engaging in the transactions contemplated by this Agreement and has not
engaged in any business activities or conducted any operations other than in
connection with the transactions contemplated by this Agreement.
5.3. REPRESENTATIONS AND WARRANTIES OF TATE. Tate hereby represents and
warrants to Acquiror:
(a) AUTHORITY RELATIVE TO THIS AGREEMENT AND SHAREHOLDERS' AGREEMENT. Tate
has the requisite power and authority to enter into, execute and deliver this
Agreement and the Shareholders Agreement and to perform fully his obligations
hereunder and thereunder. Each of this Agreement and the Shareholders Agreement
has been duly executed and delivered by Tate and constitutes the valid and
binding agreement of Tate, enforceable against Tate in accordance with its
terms.
(b) THE TATE SHARES. All of the Tate Shares are owned of record and
beneficially by Tate, free and clear of all liens, charges, encumbrances, claims
and options of any nature.
(c) CONSENTS AND APPROVALS; NO VIOLATION. The execution and delivery of
this Agreement will not (i) require any consent, approval, authorization or
permit of, or filing with or notification to, any governmental or regulatory
authority or any other Person, except in connection with the applicable
requirements, if any, of the HSR Act pursuant to the applicable requirements of
the Securities Act and the rules and regulations promulgated thereunder, and the
Exchange Act and the rules and regulations promulgated thereunder; or (ii)
result in a violation or breach of, or default (or give rise to any right of
termination, cancellation or acceleration or result in the creation of any lien
or other charges or encumbrance) under any of the terms, conditions or provision
of any note, license, agreement or other instrument or obligation to which Tate
may be bound, except for such violations, breaches and
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defaults (or rights of termination, cancellation or acceleration or creations of
liens or other charges or encumbrances) as to which requisite waivers or
consents have been obtained or which, in the aggregate, would not adversely
affect the ability of Acquiror to consummate the Merger.
(d) CERTAIN ACKNOWLEDGEMENTS. Tate acknowledges that he is an informed and
sophisticated investor and, together with his advisors, has undertaken such
investigation as he has deemed necessary, including the review of this Agreement
and the Shareholders Agreement, to enable him to make an informed and
intelligent decision with respect to the Agreement and the Shareholders
Agreement and the transactions contemplated hereby and thereby, including the
Merger. Tate acknowledges that pursuant to the Merger he will receive less
consideration per Share than will other holders of Shares.
ARTICLE VI
ADDITIONAL COVENANTS AND AGREEMENTS
6.1. CONDUCT OF BUSINESS.
(a) The Company covenants and agrees that, during the period from the date
of this Agreement to the Effective Time (unless Acquiror shall otherwise agree
in writing, which agreement shall not be unreasonably withheld, and except as
otherwise contemplated by this Agreement), the Company will, and will cause each
of its subsidiaries to, conduct its operations according to its ordinary and
usual course of business consistent with past practice and, to the extent
consistent therewith, with no less diligence and effort than would be applied in
the absence of this Agreement, seek to preserve intact its current business
organizations, keep available the service of its current officers and employees
and preserve its relationships with customers, suppliers and others having
business dealings with it to the end that goodwill and ongoing businesses shall
be unimpaired at the Effective Time. Without limiting the generality of the
foregoing, and except as otherwise permitted in this Agreement or disclosed in
Section 6.1 of the Company Disclosure Schedule, prior to the Effective Time,
neither the Company nor any of its subsidiaries will, without the prior written
consent of Acquiror, which consent shall not be unreasonably withheld:
(i) (A) declare, set aside or pay any dividends on, or make any other
distributions in respect of, any of its capital stock, other than dividends
and distributions by any direct or indirect wholly owned subsidiary of the
Company to its parent, (B) split, combine or reclassify any of its capital
stock or, except pursuant to the exercise of options, warrants, conversion
rights, exchange rights and other contractual rights existing on the date
hereof, issue or authorize the issuance of any other securities in respect
of, in lieu of or in substitution for shares of its capital stock or other
equity interests or (C) purchase, redeem or otherwise acquire or amend any
shares of capital stock or other equity interests of the Company or any of
its subsidiaries or any other securities thereof or any rights, warrants or
options to acquire any such shares, interests or other securities;
(ii) issue, deliver, sell, pledge or otherwise encumber or amend any
shares of its capital stock, any other voting securities or any securities
convertible into, or any rights, warrants or options to acquire, any such
shares, interests, voting securities or convertible securities, including
pursuant to the Option Plans, other than (A) the issuance of Shares upon
the conversion of Convertible Notes outstanding on the date of this
Agreement in accordance with their present terms, (B) the issuance of
Shares upon the exercise of Options outstanding on the date of this
Agreement in accordance with their present terms and (C) the issuance of
Shares upon the exercise of the Warrants outstanding on the date of this
Agreement in accordance with their present terms;
(iii) amend its Articles of Incorporation, By-Laws or other comparable
charter or organizational documents;
(iv) acquire or agree to acquire (A) by merging or consolidating with,
or by purchasing a substantial portion of the assets of, or by any other
manner, any business or any corporation, partnership, joint venture,
association or other business organization or division thereof or (B) any
asset requiring or involving an expenditure or purchase price in excess of
$100,000, except (x) mergers and consolidations between or among one or
more wholly owned subsidiaries of the Company that will not create adverse
tax consequences to the Company or its subsidiaries, and (y) purchases of
inventory in the ordinary course of business consistent with past practice;
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(v) sell, lease, license, mortgage or otherwise encumber or subject to
any lien or otherwise dispose of any of its properties or assets, except in
the ordinary course of business consistent with past practice;
(vi) (A) other than incurrences of indebtedness (which term shall be
deemed not to include trade payables incurred in the ordinary course of
business) in the ordinary course of business which, in the aggregate, do
not exceed $50,000, incur any indebtedness for borrowed money or guarantee
any such indebtedness of another person, issue or sell any debt securities
or warrants or other rights to acquire any debt securities of the Company
or any of its subsidiaries, guarantee any debt securities of another
person, enter into any "keep well" or other agreement to maintain any
financial statement condition of another person or enter into any
arrangement having the economic effect of any of the foregoing or (B) make
any loans, advances or capital contributions to, or investments in, any
other person other than to the Company or any direct or indirect wholly
owned subsidiary of the Company;
(vii) pay, discharge, settle or satisfy any claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge, settlement or satisfaction,
in accordance with their terms of liabilities reflected or reserved against
in the most recent consolidated financial statements (or the notes thereto)
of the Company included in the Company SEC Reports filed and publicly
available prior to the date of this Agreement or incurred in the ordinary
course of business consistent with past practice since the date of such
financial statements, or waive the benefits of, or agree to modify in any
manner, any confidentiality, standstill or similar agreement to which the
Company or any of its subsidiaries is a party;
(viii) (A) adopt, enter into, terminate or amend any Company Benefit
Plan or other arrangement for the benefit or welfare of any director,
officer or current or former employee of the Company or any of its
subsidiaries, (B) increase in any manner the compensation or fringe
benefits of, or pay any bonus to, any such director, officer or employee
(except for normal increases or bonuses as contractually required pursuant
to agreements disclosed in the Company SEC Reports filed and publicly
available prior to the date of this Agreement or in the ordinary course of
business consistent with past practice to employees other than directors
and executive officers of the Company and that, in the aggregate, do not
result in any material increase in benefits or compensation expense to the
Company and its subsidiaries relative to the level in effect prior to such
action (but in no event shall the aggregate amount of the increases granted
to any such director, officer or employee exceed 5% of the aggregate
annualized compensation of such director, officer or employee and in no
event shall the aggregate amount of all such increases exceed 1% of the
aggregate annualized compensation expense of the Company and its
subsidiaries reported in the most recent consolidated financial statements
of the Company included in the Company SEC Reports filed and publicly
available prior to the date of this Agreement) and except as contractually
required pursuant to agreements included as part of a Company SEC Reports
filed and publicly available prior to the date of this Agreement), (C) pay
any benefit not provided for under any Company Benefit Plan, (D) except for
payments or awards in cash permitted by clause (B), grant any awards under
any bonus, incentive, performance or other compensation plan or arrangement
or Company Benefit Plan (including the grant of stock options, stock
appreciation rights, stock-based or stock-related awards, performance units
or restricted stock, or the removal of existing restrictions in any Company
Benefit Plans or agreements or awards made thereunder) or (E) take any
action to fund or in any other way secure the payment of compensation or
benefits under any employee plan, agreement, contract or arrangement or
Company Benefit Plan;
(ix) make or agree to make any capital expenditure or expenditures
other than for maintenance purposes;
(x) modify, amend or terminate any contract or agreement set forth in
the Company SEC Reports or any real property lease to which the Company or
any of its subsidiaries is a party, or waive, release or assign any
material rights or claims thereunder;
(xi) take or agree to take any action that would prevent the Merger
from constituting a reorganization qualifying under the provisions of
Section 368(a)(1) of the Code;
(xii) conduct its business in a manner or take, or cause to be taken,
any other action that would or might reasonably be expected to prevent or
materially delay the Company, Merger Sub or Acquiror from consummating the
transactions contemplated hereby in accordance with the terms of this
Agreement (regardless of
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whether such action would otherwise be permitted or not prohibited
hereunder), including, without limitation, any action which may materially
limit the ability of the Company, Merger Sub or Acquiror to consummate the
transactions contemplated hereby as a result of antitrust or other
regulatory concerns; or
(xiii) authorize any of, or commit or agree to take any of, the
foregoing actions.
(b) Acquiror covenants and agrees that, during the period from the date of
this Agreement to the Effective Time, neither Acquiror or any of its
subsidiaries will, without the prior written consent of the Company, which
consent shall not be unreasonably withheld:
(i) take or agree to take any action that would prevent the Merger
from constituting a reorganization qualifying under the provisions of
Section 368(a)(1) of the Code;
(ii) conduct its business in a manner or take, or cause to be taken,
any other action that would or might reasonably be expected to prevent or
materially delay Acquiror, Merger Sub or the Company from consummating the
transactions contemplated hereby in accordance with the terms of this
Agreement (regardless of whether such action would otherwise be permitted
or not prohibited hereunder), including, without limitation, any action
which may materially limit the ability of Acquiror, Merger Sub or the
Company to consummate the transactions contemplated hereby as a result of
antitrust or other regulatory concerns; or
(iii) authorize any of, or commit or agree to take any of, the
foregoing actions.
(c) During the period of time from the date of this Agreement to the
Effective Time, Merger Sub shall not engage in any activities of any nature,
except as provided in or contemplated by this Agreement.
6.2. NO SOLICITATION. (a) The Company, its subsidiaries and their
respective officers, directors, employees, representatives, agents or affiliates
(including, without limitation, any investment banker, attorney or accountant
retained by the Company or any of its subsidiaries) (collectively, the
"Company's Representatives") shall immediately cease any discussions or
negotiations with any party that may be ongoing with respect to a Competing
Transaction (as defined below). From and after the date hereof until the
termination of this Agreement, neither the Company nor any of its subsidiaries
will, nor will the Company authorize or permit any of its subsidiaries or any of
the Company Representatives to, directly or indirectly, initiate, solicit or
knowingly encourage (including by way of furnishing non-public information), or
take any other action to facilitate, any inquiries or the making of any proposal
that constitutes, or may reasonably be expected to lead to, any Competing
Transaction, or participate in any discussions or negotiations regarding any
Competing Transaction or agree to or endorse any Competing Transaction, and the
Company shall notify Acquiror orally (within one business day) and in writing
(as promptly as practicable) of all of the relevant details relating to all
inquiries and proposals which it or any of its subsidiaries or any such Company
Representative may receive relating to any such matters and, if such inquiry or
proposal is in writing, the Company shall deliver to Acquiror a copy of such
inquiry or proposal promptly; PROVIDED, HOWEVER, that nothing contained in this
Section 6.2 shall prohibit the Company or its Board of Directors from (i) taking
and disclosing to its stockholders a position contemplated by Exchange Act Rule
14e-2 or (ii) making any disclosure to its stockholders that, in the good faith
judgment of its Board of Directors, after consultation with and based upon the
advice of independent legal counsel (who may be the Company's regularly engaged
independent legal counsel), is required under applicable law; PROVIDED FURTHER,
that nothing contained in this Section 6.2 shall prohibit the Company from
furnishing information to, or entering into discussions or negotiations with,
any person or entity that after the date hereof states in an unsolicited writing
that it has a bona fide serious interest to make a Superior Proposal (as defined
below) if (1) (x) the Board of Directors of the Company, after consultation with
and based upon the advice of independent legal counsel (who may be the Company's
regularly engaged independent legal counsel), determines in good faith that such
action is necessary for the Board of Directors of the Company to comply with its
fiduciary duties to stockholders under applicable law and (y) after consultation
with and based upon the advice of an independent financial advisor (who may be
the Company's regularly engaged independent financial advisor) determines in
good faith that such person or entity is capable of making, financing and
consummating a Superior Proposal and (2) prior to taking such action, the
Company (x) provides at least two business days' notice to Acquiror to the
effect that it is taking such action and (y) receives from such person or entity
an executed confidentiality agreement on terms no less restrictive than the
Confidentiality Agreement (as defined below). For purposes of this Agreement,
"Competing Transaction" shall
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mean any of the following (other than the transactions between the Company,
Merger Sub and Acquiror contemplated hereunder) involving the Company: (i) any
merger, consolidation, share exchange, recapitalization, business combination,
or other similar transaction; (ii) any sale, lease, exchange, mortgage, pledge,
transfer or other disposition of all or a substantial portion of the assets of
the Company and its subsidiaries, taken as a whole, or of more than 25% of the
equity securities of the Company or any of its subsidiaries, in any case in a
single transaction or series of transactions; (iii) any tender offer or exchange
offer for 25% or more of the outstanding shares of capital stock of the Company
or the filing of a registration statement under the Securities Act in connection
therewith; or (iv) any public announcement of a proposal, plan or intention to
do any of the foregoing or any agreement to engage in any of the foregoing.
(b) Except as set forth in this Section 6.2, the Board of Directors of the
Company shall not (i) withdraw or modify, or propose to withdraw or modify, in a
manner adverse to Acquiror, the approval or recommendation by such Board of
Directors of this Agreement or the Merger, or (ii) approve or recommend, or
cause the Company to enter into any agreement with respect to, any Competing
Transaction. Notwithstanding the foregoing, if the Board of Directors of the
Company, after consultation with and based upon the advice of independent legal
counsel (who may be the Company's regularly engaged independent legal counsel),
determines in good faith that it is necessary to do so in order to comply with
its fiduciary duties to stockholders under applicable law, the Board of
Directors of the Company may modify or withdraw its approval or recommendation
of this Agreement and the Merger, approve or recommend a Superior Proposal (as
defined below) or cause the Company to enter into an agreement with respect to a
Superior Proposal, but in each case only after providing at least two business
days' written notice to Acquiror (a "Notice of Superior Proposal") advising
Acquiror that the Board of Directors of the Company has received a Superior
Proposal, specifying the material terms and conditions of such Superior Proposal
and identifying the person making such Superior Proposal. In addition, if the
Company proposes to enter into an agreement with respect to any Competing
Transaction, it shall concurrently with entering into such an agreement pay, or
cause to be paid, to Acquiror the fee required by Section 8.5(a) hereof. For
purposes of this Agreement, a "Superior Proposal" means any bona fide proposal
to acquire, directly or indirectly, for consideration consisting of cash and/or
securities, all or substantially all the Shares then outstanding or all or
substantially all the assets of the Company and otherwise on terms which the
Board of Directors of the Company determines in its good faith judgment (based
on the advice of a financial advisor of nationally recognized reputation) to be
more favorable to the Company's shareholders than the Merger.
6.3. MEETING OF SHAREHOLDERS. The Company will take all action necessary in
accordance with applicable law and its Articles of Incorporation and By-Laws to
convene a meeting of its shareholders (the "Shareholder Meeting") as promptly as
practicable to consider and vote upon the approval of this Agreement. Subject to
the fiduciary duties of the Company's Board of Directors under applicable law
after consultation with and based upon the advice of independent legal counsel,
except as otherwise provided in Section 6.2, the Board of Directors of the
Company shall recommend and declare advisable such approval and the Company
shall use its best efforts to solicit, and use its best efforts to obtain, such
approval.
6.4. S-4 REGISTRATION STATEMENT; PROXY STATEMENT. Acquiror will, as
promptly as practicable, prepare and file with the SEC a registration statement
on Form S-4 (the "S-4 Registration Statement"), containing a proxy
statement/prospectus and a form of proxy, in connection with the registration
under the Securities Act of Acquiror Common Shares issuable pursuant to the
Merger. The Company will, as promptly as practicable, prepare and file with the
SEC a proxy statement that will be the same proxy statement/prospectus contained
in the S-4 Registration Statement and a form of proxy, in connection with the
vote of the Company's stockholders with respect to this Agreement (such proxy
statement/prospectus, together with any amendments thereof or supplements
thereto, in each case in the form or forms mailed to the Company's stockholders,
is herein called the "Proxy Statement"). Acquiror and the Company will, and will
cause their accountants and lawyers to, use their best efforts to have or cause
the S-4 Registration Statement declared effective as promptly as practicable,
including, without limitation, causing their accountants to deliver necessary or
required instruments such as opinions and certificates, and will take any other
action required or necessary to be taken under federal or state securities laws
or otherwise in connection with the registration process. The Company will cause
the Proxy Statement to be mailed to stockholders of the Company at the earliest
practicable date and will coordinate and cooperate with Acquiror with respect to
the timing of the Shareholder Meeting and shall hold such Shareholders Meeting
as soon as practicable after the date hereof.
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6.5. ACCESS TO INFORMATION. Upon reasonable notice, the Company shall (and
shall cause each of its subsidiaries to) afford to officers, employees, counsel,
accountants and other authorized representatives of Acquiror ("Acquiror's
Representatives") reasonable access, during normal business hours throughout the
period prior to the Effective Time, to its properties, books and records and,
during such period, shall (and shall cause each of its subsidiaries to) furnish
promptly to Acquiror's Representatives all information concerning the business,
properties and personnel of the Company and its subsidiaries as may reasonably
be requested, including the opportunity to observe the full physical chain-wide
inventory count of the Company and its subsidiaries to be taken in October 1996
(which inventory count shall be completed no later than October 31, 1996),
provided that no investigation pursuant to this Section 6.5 shall affect or be
deemed to modify any of the representations or warranties made by the Company.
Acquiror agrees that it will not, and will cause Acquiror's Representatives not
to, use any information obtained pursuant to this Section 6.5 for any purpose
unrelated to the consummation of the transactions contemplated by this
Agreement. In connection with the foregoing, the Company agrees to cause the
Company's independent accountants to provide their workpapers to Acquiror upon
the terms and subject to the conditions on which such workpapers have previously
been provided to Acquiror. The Confidentiality Agreement, dated July 16, 1996
(the "Confidentiality Agreement"), between Acquiror and the Company shall apply
with respect to the information furnished hereunder and survive any termination
of this Agreement, subject to the terms and conditions set forth in such
Confidentiality Agreement.
6.6. PUBLICITY. The parties hereto agree that they will consult with each
other concerning any proposed press release or public announcement pertaining to
the Merger and the other transactions contemplated hereby in order to seek to
agree upon the text of any such press release or the making of such public
announcement.
6.7. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
(a) From and after the Effective Time and for a period of six years
thereafter, Acquiror shall indemnify, defend and hold harmless each person who
is now, or has been at any time prior to the date hereof or who becomes prior to
the Effective Time, an officer or director of the Company or any of its
subsidiaries (the "Indemnified Parties") against all losses, claims, damages,
costs, expenses (including attorneys' fees and expenses), liabilities or
judgments or amounts that are paid in settlement of or in connection with any
threatened or actual claim, action, suit, proceeding or investigation based in
whole or in part on or arising in whole or in part out of the fact that such
person is or was a director or officer of the Company or any of its
subsidiaries, whether pertaining to any matter existing or occurring at or prior
to the Effective Time and whether asserted or claimed prior to, or at or after,
the Effective Time ("Indemnified Liabilities"), including, without limitation,
all Indemnified Liabilities based in whole or in part on, or arising in whole or
in part out of, or pertaining to this Agreement or the transactions contemplated
hereby, in each case to the fullest extent a corporation is permitted under the
BCA to indemnify its own directors or officers, as the case may be; PROVIDED,
HOWEVER, that all right to indemnification in respect of any claim asserted or
made within such period shall continue until the disposition of such claim. In
the event of an Indemnified Liability, (i) Acquiror shall pay the reasonable
fees and expenses of counsel selected by the Indemnified Parties, which counsel
shall be reasonably satisfactory to Acquiror, promptly after statements therefor
are received and otherwise advance to such Indemnified Party upon request
reimbursement of documented expenses reasonably incurred, in either case to the
extent not prohibited by the BCA and upon receipt of any affirmation and
undertaking required by the BCA, (ii) Acquiror will cooperate in the defense of
any such matter and (iii) any determination required to be made with respect to
whether an Indemnified Party's conduct complies with the standards set forth
under the BCA shall be made by independent counsel mutually acceptable to
Acquiror and the Indemnified Party; PROVIDED, HOWEVER, that Acquiror shall not
be liable for any settlement effected without its written consent (which consent
shall not be unreasonably withheld). The Indemnified Parties as a group may
retain only one law firm with respect to each related matter except to the
extent there is, in the opinion of counsel to an Indemnified Party, under
applicable standards of professional conduct, a conflict on any significant
issue between positions of any two or more Indemnified Parties.
(b) This Section 6.7 is intended to benefit the Indemnified Parties and
shall be binding on all successors and assigns of Acquiror, the Company and the
Surviving Corporation.
6.8. AFFILIATES OF THE COMPANY. Prior to the Closing Date, the Company
shall identify to Acquiror all persons (each, a "Company Affiliate") who may be
deemed to be "affiliates" of the Company for purposes of Rule 145 under the
Securities Act. The Company shall use its best reasonable efforts to cause each
Company Affiliate to
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deliver to Acquiror, on or prior to the Closing Date, a written agreement
substantially in the form attached hereto as Exhibit C.
6.9. TAXES. In respect of Tax Returns of the Company or any subsidiary not
required to be filed prior to the date hereof, the Company shall, to the extent
permitted by law without any penalty, delay (or cause such subsidiary to delay)
the filing of any such Tax Returns until after the Effective Time; PROVIDED,
HOWEVER, that the Company shall notify Acquiror of its intention to delay (or
cause such subsidiary to delay) any such filing and shall not so delay the
filing of a Tax Return if Acquiror and the Company agree that so delaying the
filing of such Tax Return is not in the best interests of either the Company or
Acquiror. If any such Tax Return is required to be filed on or prior to the
Effective Time, the Company or its subsidiaries, as the case may be, shall
prepare and timely file such Tax Return in a manner consistent with prior years
and all applicable laws and regulations; PROVIDED, HOWEVER, that Acquiror shall
be notified and given an opportunity to review and to comment, prior to the
filing thereof, on any such Tax Return.
6.10. MAINTENANCE OF INSURANCE. Between the date hereof and through the
Effective Time the Company will maintain in full force and effect all of its
presently existing policies of insurance or insurance comparable to the coverage
afforded by such policies.
6.11. REPRESENTATIONS AND WARRANTIES. None of the Company, Acquiror, Merger
Sub or Tate will take any action that would cause any of the representations and
warranties set forth in Section 5.1, 5.2 or 5.3, as the case may be, not to be
true and correct (subject to the standard set forth in the proviso of Section
7.1(a) or 7.2(a), respectively) at and as of the Effective Time.
6.12. ANTITRUST NOTIFICATION. The Company and Acquiror shall as promptly as
practicable, but in no event later than ten Business Days following the
execution and delivery of this Agreement, file with the United States Federal
Trade Commission (the "FTC") and the United States Department of Justice (the
"DOJ") the notification and report form required for the transactions
contemplated hereby and any supplemental information requested in connection
therewith pursuant to the HSR Act. Any such notification and report form and
supplemental information shall be in substantial compliance with the
requirements of the HSR Act. The Company and Acquiror shall furnish to each
other such necessary information and reasonable assistance as the other may
request in connection with its preparation of any filing or submission which is
necessary under the HSR Act. The Company and Acquiror shall keep each other
apprised of the status of any communications with, and any inquiries or requests
for additional information from, the FTC and the DOJ and shall comply promptly
with any such inquiry or request. The Company and Acquiror shall use reasonable
efforts to obtain any clearance required under the HSR Act for the completion of
the Merger, which efforts for purposes of this Section 6.12 shall not require
Acquiror to agree to any prohibition, limitation or other requirement of the
type set forth in clauses (B), (C) and (D) of Section 7.1(c).
6.13. REASONABLE BEST EFFORTS; OTHER ACTION. (a) Upon the terms and subject
to the conditions set forth in this Agreement, each of the parties agrees to use
all reasonable best efforts to take, or cause to be taken, all actions, and to
do, or cause to be done, and to assist and cooperate with the other parties in
doing, all things necessary, proper or advisable to consummate and make
effective, in the most expeditious manner practicable, the Merger and the other
transactions contemplated by this Agreement, including (i) the obtaining of all
necessary actions or nonactions, waivers, consents and approvals from all
applicable governmental and regulatory authorities and the making of all
necessary registrations and filings (including filings with governmental and
regulatory authorities, if any) and the taking of all reasonable steps as may be
necessary to obtain an approval or waiver from, or to avoid an action or
proceeding by, any governmental and regulatory authority, (ii) the obtaining of
all necessary consents, approvals or waivers from all other Persons, (iii) the
defending of any lawsuits or other legal proceedings, whether judicial or
administrative, challenging this Agreement or the consummation of any of the
transactions contemplated by this Agreement, including seeking to have any stay
or temporary restraining order entered by any court or other governmental or
regulatory authority vacated or reversed and (iv) the execution and delivery of
any additional instruments necessary to consummate the transactions contemplated
by, and to fully carry out the purposes of, this Agreement. Each party hereto
will notify the other party promptly of the receipt of any comments from the SEC
or its staff and of any other governmental officials for amendments or
supplements to the S-4 Registration Statement, the Proxy Statement or any other
filing described in or made pursuant to Section 6.12 or this Section 6.13 hereof
and will supply the other with copies of all correspondence
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between such party or any of its representatives, on the one hand, and the SEC,
its staff or any other governmental officials, on the other hand, with respect
to the S-4 Registration Statement, the Proxy Statement or such other filings.
6.14. NOTIFICATION OF CERTAIN MATTERS. Each of the Company, Merger Sub and
Acquiror shall give prompt notice to one another of (a) any notice of, or other
communication relating to, a default or event which, with notice or lapse of
time or both, would become a default, received by it or any of its subsidiaries
subsequent to the date of this Agreement and prior to the Effective Time, under
any contract material to the financial condition, properties, businesses or
results of operations of it and its subsidiaries taken as a whole to which it or
any of its subsidiaries is a party or is subject, (b) any notice or other
communication from any third party alleging that the consent of such third party
is or may be required in connection with the transactions contemplated by this
Agreement, (c) any material adverse change in their respective (together with
their respective subsidiaries taken as a whole) businesses, results of
operations, properties, assets, liabilities, prospects or condition (financial
or otherwise), other than changes resulting from general economic conditions,
(d) any representation or warranty made by it contained in this Agreement
becoming untrue or inaccurate in any material respect (including in the case of
representations or warranties by the Company or Acquiror, as applicable, such
party's receiving knowledge of any fact, event or circumstance which may cause
any representation qualified as to the knowledge of such party to be or become
untrue or inaccurate in any material respect) or (e) the failure by it to comply
with or satisfy in any material respect any covenant, condition or agreement to
be complied with or satisfied by it under this Agreement; PROVIDED, HOWEVER,
that no such notification shall affect the representations, warranties,
covenants or agreements of the parties or the conditions to the obligations of
the parties under this Agreement.
6.15. BLUE SKY PERMITS. Acquiror shall use its best efforts to obtain,
prior to the effective date of the S-4 Registration Statement, all necessary
state securities laws or "blue sky" permits and approvals required to carry out
the transactions contemplated by this Agreement, and will pay all expenses
incident thereto.
6.16. NYSE LISTING. Acquiror shall use its best efforts to cause the
Acquiror Common Shares to be issued pursuant to the Merger to be listed, prior
to the Effective Time, on the NYSE, subject to notice of official issuance
thereof.
6.17. COMFORT LETTER. The Company shall cause to be delivered to Acquiror a
letter of Deloitte & Touche LLP, independent public accountants to the Company,
dated a date within two business days before the date on which the S-4
Registration Statement shall become effective and addressed to Acquiror, in form
and substance reasonably satisfactory to Acquiror and customary in scope and
substance for letters delivered by independent public accountants in connection
with registration statements similar to the S-4 Registration Statement.
6.18. BENEFIT MATTERS. The employees of the Company and its subsidiaries
shall be eligible to participate in the Acquiror 401(k), profit sharing, stock
option and stock purchase plans and Acquiror medical, life insurance, disability
insurance and vacation plans (the "Plans") effective (a) February 2, 1997 or (b)
if the Effective Time is after February 2, 1997, the first day of the month
following the Effective Time (the "Eligibility Date"). Participation in the
Plans shall be subject to the eligibility requirements and the terms and
conditions of each of the Plans. For purposes of the eligibility and vesting
requirements of the Plans, service credit will be given for employment with the
Company and its Subsidiaries prior to the Effective Time. The medical plan of
the Acquiror shall not include pre-existing condition exclusions with respect to
employees of the Company and its subsidiaries as of the Effective Time, except
to the extent such exclusions were applicable under the medical plan of the
Company on the Effective Time. Effective as of the Eligibility Date, all welfare
benefit plans and the vacation plan of the Company and its subsidiaries will be
terminated. Acquiror shall perform the Company's obligations under all
employment, consulting and other compensation arrangements disclosed in Sections
5.1(i) and (m) of the Company Disclosure Schedule.
6.19 CONVERTIBLE NOTES. At the Effective Time, pursuant to Section 1211 of
the Indenture, dated as of October 3, 1995, between the Company and The Bank of
New York Trust Company of Florida, as successor trustee (the "Indenture"), the
Surviving Corporation and Acquiror shall execute and deliver a supplemental
indenture pursuant to, and satisfying the requirements of, Article IX of the
Indenture, which supplemental indenture shall be in form and substance
reasonably satisfactory to the Trustee and otherwise in compliance with the
terms of the Indenture.
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ARTICLE VII
CONDITIONS
7.1. CONDITIONS TO THE OBLIGATIONS OF ACQUIROR AND MERGER SUB. The
obligations of Acquiror and Merger Sub to consummate the Merger are subject to
the fulfillment at or prior to the Effective Time of the following conditions,
any or all of which may be waived in whole or in part by Acquiror to the extent
permitted by applicable law.
(a) CERTIFICATE. The representations and warranties of the Company and Tate
set forth in this Agreement shall be true and correct in all material respects
on and as of the Effective Time with the same force and effect as though the
same had been made on and as of the Effective Time (except to the extent they
relate to a particular date), the Company and Tate shall have performed in all
material respects all of its material obligations under this Agreement
theretofore to be performed, and Acquiror and Merger Sub shall have received at
the Effective Time a certificate to that effect dated the Effective Time and
executed by the Chief Executive Officer or President of the Company, PROVIDED,
HOWEVER, that no representation or warranty of the Company contained in Section
5.1 hereof shall be deemed untrue or incorrect as a consequence of the existence
of any fact, circumstance or event unless such fact, circumstance or event,
individually or taken together with all other facts circumstances or events
inconsistent with any paragraph of Section 5.1 has had or is expected to have a
Material Adverse Effect with respect to the Company and its subsidiaries.
(b) COMPANY SHAREHOLDER APPROVAL. This Agreement shall have been duly
approved by the holders of a majority of the votes entitled to be cast by the
holders of Shares at the Shareholder meeting, in accordance with applicable law
and the Articles of Incorporation and By-Laws of the Company.
(c) NO LITIGATION. There shall not be pending or threatened by any
governmental authority or regulatory agency, any suit, action or proceeding, (A)
challenging or seeking to restrain or prohibit the Merger or any of the other
transactions contemplated by this Agreement or seeking to obtain from Acquiror
or the Company or any of their respective subsidiaries in connection with the
Merger any material damages, (B) seeking to prohibit or limit the ownership or
operation by Acquiror or the Company or any of their respective subsidiaries of
any material portion of the business or assets of Acquiror or the Company or any
of their respective subsidiaries, or to compel Acquiror, the Company or any of
their respective subsidiaries to dispose of or hold separate any material
portion of the business or assets of Acquiror, the Company or any of their
respective subsidiaries in each case as a result of the Merger or any of the
other transactions contemplated by this Agreement, (C) seeking to impose
limitations on the ability of Acquiror to acquire or hold, or exercise full
rights of ownership of, the Shares, including the right to vote the Shares on
all matters properly presented to the stockholders of the Company, (D) seeking
to prohibit Acquiror or any of its subsidiaries from effectively controlling in
any material respect the business or operations of the Company or any of its
subsidiaries or (E) which otherwise is reasonably likely to have a Material
Adverse Effect with respect to the Company and its subsidiaries or Acquiror and
its subsidiaries. There shall be in effect no preliminary or permanent
injunction or other order of a court or governmental or regulatory agency of
competent jurisdiction directing that the transactions contemplated herein not
be consummated.
(d) S-4 REGISTRATION STATEMENT. The S-4 Registration Statement shall have
become effective and no stop order suspending the effectiveness of the S-4
Registration Statement shall have been issued and no proceedings for such
purpose shall have been initiated and be continuing or threatened by the SEC.
(e) LISTING OF ACQUIROR COMMON SHARES. The Acquiror Common Shares to be
issued pursuant to the Merger and the other such shares required to be reserved
for issuance in connection with the Merger shall have been authorized for
listing on the NYSE, subject to notice of official issuance.
(f) GOVERNMENTAL FILINGS AND CONSENTS; HSR ACT. Subject in each case to the
provisions of Section 7.1(c), (i) all governmental filings required to be made
prior to the Effective Time by the Company with, and all governmental consents
required to be obtained prior to the Effective Time from, governmental and
regulatory authorities in connection with the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby shall
have been made or obtained, except where the failure to make such filing or
obtain such consent would not reasonably be expected to have a Material Adverse
Effect with respect to Acquiror (assuming the Merger had taken place) and (ii)
the waiting periods under the HSR Act shall have expired or been terminated.
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(g) THIRD-PARTY CONSENTS. All required authorizations, consents and
approvals of any Person (other than a governmental authority), the failure to
obtain which would have a Material Adverse Effect with respect to Acquiror
(assuming the Merger had taken place), shall have been obtained.
(h) DELIVERY OF COMFORT LETTER. Deloitte & Touche LLP shall have delivered
to the Company, for delivery by it to Acquiror, one or more letters with respect
to the financial information contained in the Proxy Statement as contemplated by
Section 6.17.
(i) AFFILIATE LETTERS. The Company shall have used its reasonable best
efforts to obtain from each Company Affiliate an executed copy of an agreement
substantially in the form of Exhibit C.
(j) DELIVERY OF TAX OPINION. Acquiror shall have received from Weil,
Gotshal & Manges LLP, counsel to Acquiror, an opinion addressed to Acquiror,
substantially to the effect that (i) the Merger will be treated for federal
income tax purposes as a reorganization within the meaning of Section 368(a) of
the Code; (ii) each of Acquiror, Merger Sub and the Company will be a party to
the reorganization within the meaning of Section 368(b) of the Code; and (iii)
no gain or loss will be recognized by Acquiror, Merger Sub or the Company as a
result of the Merger, dated the Closing Date, and such opinion shall not have
been withdrawn or modified in any material respect. In rendering such opinion,
Weil, Gotshal & Manges LLP may receive and rely upon representations contained
in certificates attached as Exhibit D hereto (the "Certificates") and agreements
of the Company, Acquiror, Merger Sub and certain shareholders of the Company.
7.2. CONDITIONS TO THE OBLIGATIONS OF THE COMPANY. The obligation of the
Company to consummate the Merger is subject to the fulfillment at or prior to
the Effective Time of the following conditions, any or all of which may be
waived in whole or in part by the Company to the extent permitted by applicable
law.
(a) CERTIFICATE. The representations and warranties of Acquiror and Merger
Sub set forth in this Agreement shall be true and correct in all material
respects on and as of the Effective Time with the same force and effect as
though the same had been made on and as of the Effective Time (except to the
extent they relate to a particular date), Acquiror and Merger Sub shall have
performed in all material respects all of their respective obligations under
this Agreement theretofore to be performed, and the Company shall have received
at the Effective Time certificates to that effect dated the Effective Time and
executed by the Chief Executive Officer or President of each of Acquiror and
Merger Sub, PROVIDED, HOWEVER, that no representation or warranty of Acquiror
contained in Section 5.2 hereof shall be deemed untrue or incorrect as a
consequence of the existence of any fact, circumstance or event unless such
fact, circumstance or event, individually or taken together with all other
facts, circumstances or events inconsistent with any paragraph of Section 5.2
has had or is expected to have a Material Adverse Effect with respect to
Acquiror and its subsidiaries.
(b) COMPANY SHAREHOLDER APPROVAL. This Agreement shall have been duly
approved by the holders of a majority of the votes entitled to be cast by the
holders of Shares at the Shareholder Meeting, in accordance with applicable law
and the Articles of Incorporation and By-Laws of the Company.
(c) INJUNCTION. There shall be in effect no preliminary or permanent
injunction or other order of a court or governmental or regulatory agency of
competent jurisdiction directing that the transactions contemplated herein not
be consummated; PROVIDED, HOWEVER, that prior to invoking this condition the
Company shall use its best efforts to have such injunction or order vacated.
(d) S-4 REGISTRATION STATEMENT. The S-4 Registration Statement shall have
become effective and no stop order suspending the effectiveness of the S-4
Registration Statement shall have been issued and no proceedings for such
purpose shall have been initiated and be continuing or threatened by the SEC.
(e) LISTING OF ACQUIROR COMMON SHARES. The Acquiror Common Shares to be
issued pursuant to the Merger and such other shares required to be reserved for
issuance in connection with the Merger shall have been authorized for listing on
the NYSE, subject to official notice of issuance.
(f) HSR ACT. The waiting periods under the HSR Act shall have expired or
been terminated.
(g) DELIVERY OF TAX OPINION. The Company shall have received from Wachtell,
Lipton, Rosen & Katz, counsel to the Company, an opinion addressed to the
Company substantially to the effect that (i) the Merger will be treated for
federal income tax purposes as a reorganization within the meaning of Section
368(a) of the Code; (ii) each of Acquiror, Merger Sub and the Company will be a
party to the reorganization within the meaning of
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Section 368(b) of the Code; and (iii) no gain or loss will be recognized by a
shareholder of the Company as a result of the Merger except (x) with respect to
cash received by such shareholder in lieu of fractional shares or pursuant to
the exercise of appraisal rights and (y) except to the extent a shareholder
receives consideration different in amount from other shareholders, dated the
Closing Date, and such opinion shall not have been withdrawn or modified in any
material respect. In rendering such opinion, Wachtell, Lipton, Rosen & Katz may
receive and rely upon representations contained in the Certificates. Acquiror
hereby agrees that the representations numbered 2, 3 and 9 in the Certificate of
Acquiror and Merger Sub (the "Representations") shall also be for the benefit of
the shareholders of the Company and shall survive the Effective Time,
notwithstanding the provisions of Section 9.2 hereof. Acquiror further agrees to
indemnify and hold harmless the shareholders of the Company from and against any
and all damages, claims, losses, expenses, costs, obligations and liabilities,
including, without limiting the generality of the foregoing, liabilities for all
reasonable attorneys' fees and expenses (including, but not limited to, attorney
and expert fees and expenses incurred to enforce the terms of this provision)
suffered, directly or indirectly, by any such shareholder by reason of, or
arising out of, any breach of any of the Representations; PROVIDED, HOWEVER,
that Acquiror shall only be required to indemnify the shareholders of the
Company in respect of a breach of Representation number 3 if the representation
numbered 3 in the Certificate of the Company is true and correct.
ARTICLE VIII
TERMINATION
8.1. TERMINATION BY MUTUAL CONSENT. This Agreement may be terminated and
the Merger may be abandoned at any time prior to the Effective Time, before or
after the approval by holders of Shares, either by the mutual written consent of
Acquiror and the Company, or by mutual action of their respective Boards of
Directors.
8.2. TERMINATION BY EITHER ACQUIROR OR THE COMPANY. This Agreement may be
terminated and the Merger may be abandoned by action of the Board of Directors
of either Acquiror or the Company if (i) the Merger shall not have been
consummated by May 31, 1997 (provided that the right to terminate this Agreement
under this Section 8.2(i) shall not be available to any party whose failure to
fulfill any obligation under this Agreement has been the cause of or resulted in
the failure of the Merger to occur on or before such date); (ii) any court of
competent jurisdiction in the United States or some other governmental body or
regulatory authority shall have issued an order, decree or ruling or taken any
other action permanently restraining, enjoining or otherwise prohibiting the
Merger and such order, decree, ruling or other action shall have become final
and nonappealable; or (iii) the Merger shall have been voted on by shareholders
of the Company at a meeting duly convened therefor and the vote shall not have
been sufficient to satisfy the conditions set forth in Sections 7.1(b) and
7.2(b).
8.3. TERMINATION BY ACQUIROR. This Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time, before or after
the approval by holders of Shares, by action of the Board of Directors of
Acquiror, if (i) the Company shall have failed to comply in any material respect
with any of the covenants or agreements contained in this Agreement to be
complied with or performed or fulfilled by the Company at or prior to such date
of termination, which failure to comply has not been cured within fifteen
business days following receipt by the Company of notice of such failure to
comply, (ii) any representation or warranty of the Company contained in the
Agreement shall not be true in all material respects when made (provided such
breach has not been cured within fifteen business days following receipt by the
Company of notice of the breach) or (except to the extent they relate to a
particular date) on and as of the Effective Time as if made on and as of the
Effective Time (in each case subject to the standard set forth in the proviso of
Section 7.1(a)), or (iii) (A) the Board of Directors of the Company shall
withdraw, modify or change its recommendation of this Agreement or the Merger in
a manner adverse to Acquiror or Merger Sub, or shall have approved or
recommended to the stockholders of the Company any Competing Transaction or (B)
the Company shall have entered into any agreement with respect to any Competing
Transaction or (C) the Board of Directors of the Company shall resolve to do any
of the foregoing.
8.4. TERMINATION BY THE COMPANY. This Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time, before or after
the approval by holders of Shares, by action of the Board of Directors of the
Company, if (i) Acquiror or Merger Sub shall have failed to comply in any
material respect with any of the covenants or agreements contained in this
Agreement to be complied with or performed or fulfilled by Acquiror or Merger
Sub at or prior to such date of termination, which failure to comply has not
been cured within
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fifteen business days following receipt by the breaching party of notice of such
failure to comply, (ii) any representation or warranty of Acquiror or Merger Sub
contained in this Agreement shall not be true in all material respects when made
(provided such breach has not been cured within fifteen business days following
receipt by the breaching party of notice of the breach) or (except to the extent
they relate to a particular date) on and as of the Effective Time as if made on
and as of the Effective Time (in each case subject to the standard set forth in
the proviso of Section 7.2(a)) or (iii) the Company enters into a definitive
agreement relating to a Superior Proposal in accordance with Section 6.2(b),
provided it has complied with all of the provisions thereof and has made payment
of the fees required by Section 8.5 hereof.
8.5. EFFECT OF TERMINATION AND ABANDONMENT. (a) In the event of termination
of this Agreement by either the Company or Acquiror as provided in this Article
VIII, this Agreement shall forthwith become void and there shall be no liability
or obligation on the part of Acquiror, Merger Sub, the Company or Tate or their
respective affiliates, officers, directors or stockholders except (x) with
respect to this Section 8.5 and Section 9.1 and (y) to the extent that such
termination results from the breach of a party hereto or any of its
representations or warranties, or any of its covenants or agreements, in each
case, as set forth in this Agreement; PROVIDED, HOWEVER, that the Company agrees
that if this Agreement shall be terminated pursuant to (i) Section 8.2(iii), if
at or prior to the time of the Shareholder Meeting (x) a Competing Transaction
shall have been commenced, publicly proposed or publicly disclosed and (y) the
Company has not rejected such Competing Transaction, (ii) Section 8.3(iii), or
(iii) Section 8.4(iii), then the Company shall pay to Acquiror an amount equal
to $12 million; and PROVIDED, FURTHER, that Acquiror agrees that if this
Agreement shall be terminated pursuant to Section 8.4(i) or 8.4(ii), then
Acquiror shall pay to the Company an amount equal to $20 million.
(b) Any payment required to be made pursuant to Section 8.5(a) shall be
made as promptly as practicable but not later than two business days after the
occurrence of the event giving rise to such payment and shall be made by wire
transfer of immediately available funds to an account designated by Acquiror or
the Company, as the case may be, except that any payment to be made pursuant to
clause (iii) of the first proviso of Section 8.5(a) shall be made not later than
the termination of this Agreement by the Company pursuant to Section 8.4(iii).
ARTICLE IX
MISCELLANEOUS AND GENERAL
9.1. PAYMENT OF EXPENSES. Whether or not the Merger shall be consummated,
except as otherwise provided in Section 8.5, each party hereto and the
shareholders of the Company shall pay their own expenses incident to preparing
for, entering into and carrying out this Agreement and the consummation of the
transactions contemplated hereby, provided that the Surviving Corporation shall
pay, with funds of the Company and not with funds provided by any of Acquiror
Companies, any and all property or transfer taxes imposed on the Surviving
Corporation. The cost of printing the S-4 Registration Statement and the Proxy
Statement shall be borne equally by the Company and the Acquiror.
9.2. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Except as provided in
Section 7.2(g), the representations and warranties made herein shall not survive
beyond the Effective Time or a termination of this Agreement. This Section 9.2
shall not limit any covenant or agreement of the parties hereto which by its
terms contemplates performance after the Effective Time.
9.3. MODIFICATION OR AMENDMENT. Subject to the applicable provisions of the
BCA, at any time prior to the Effective Time, Acquiror, Merger Sub and the
Company may modify or amend this Agreement, by written agreement executed and
delivered by duly authorized officers of Acquiror, Merger Sub and the Company;
PROVIDED, HOWEVER, that after approval of this Agreement by the shareholders of
the Company, no amendment shall be made which changes the consideration payable
in the Merger or adversely affects the rights of the Company's shareholders
hereunder without the approval of such shareholders.
9.4. WAIVER OF CONDITIONS. The conditions to each of the parties'
obligations to consummate the Merger are for the sole benefit of such party and
may be waived by such party in whole or in part to the extent permitted by
applicable law.
9.5. COUNTERPARTS. For the convenience of the parties hereto, this
Agreement may be executed in any number of counterparts, each such counterpart
being deemed to be an original instrument, and all such counterparts shall
together constitute the same agreement.
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9.6. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, without regard to any
applicable conflicts of law, except that matters relating to the Merger shall be
governed by and construed in accordance with the laws of Delaware and South
Carolina to the extent applicable.
9.7. NOTICES. Any notice, request, instruction or other document to be
given hereunder by any party to the other parties shall be in writing and
delivered personally or sent by registered or certified mail, postage prepaid,
or by facsimile transmission (with a confirming copy sent by overnight courier),
as follows:
(a) if to the Company or Tate, to
Baby Superstore, Inc.
1201 Woods Chapel Road
Duncan, South Carolina 29334
Attention: Jodi Taylor
Telephone: (800) 324-1340
Facsimile: Call to arrange facsimile.
with a copy to:
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Attention: Edward Herlihy, Esq.
Telephone: (212) 403-1000
Facsimile: (212) 403-2000
(b) if to Acquiror or Merger Sub, to
TOYS "R" US, Inc.
462 From Road
Paramus, New Jersey 07652
Attention: Michael Goldstein
Telephone: (201) 262-7800
Facsimile: (201) 262-8919
with a copy to:
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, New York 10153
Attention: Dennis J. Block, Esq.
Telephone: (212) 310-8000
Facsimile: (212) 310-8007
or to such other persons or addresses as may be designated in writing by the
party to receive such notice.
9.8. ENTIRE AGREEMENT; ASSIGNMENT. This Agreement, including the Disclosure
Schedules and Exhibits, and the Confidentiality Agreement, (i) constitutes the
entire agreement among the parties with respect to the subject matter hereof and
supersedes all other prior agreements and understandings, both written and oral,
among the parties or any of them with respect to the subject matter hereof, and
(ii) shall not be assigned by operation of law or otherwise, except that Merger
Sub may assign, in its sole discretion, any or all of its rights, interests and
obligations under this Agreement to any direct wholly owned subsidiary of
Acquiror, provided that such subsidiary makes the representations and warranties
made by Merger Sub hereunder and that no such assignment shall relieve Merger
Sub of any of its obligations hereunder.
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9.9. PARTIES IN INTEREST. Subject to Section 9.8, this Agreement shall be
binding upon and inure solely to the benefit of each party hereto and their
respective successors and assigns; PROVIDED, HOWEVER, that Tate shall only have
the right to receive Acquiror Common Shares pursuant to Article IV and shall not
have the right to enforce any other provision of this Agreement. Nothing in this
Agreement, express or implied, other than the right to receive the consideration
payable in the Merger pursuant to Article IV hereof, is intended to or shall
confer upon any other person any rights, benefits or remedies of any nature
whatsoever under or by reason of this Agreement; PROVIDED, HOWEVER, that the
provisions of Section 6.7 shall inure to the benefit of and be enforceable by
the Indemnified Parties and that the provisions of the last two sentences of
Section 7.2(g) shall inure to the benefit of and shall be enforceable by the
shareholders of the Company.
9.10. CERTAIN DEFINITIONS. As used herein:
(a) "Affiliate" shall mean, with respect to any Person, any other Person
directly or indirectly controlling, controlled by or under common control with
such other Person.
(b) "Subsidiary" shall mean, when used with reference to any entity, any
entity fifty percent (50%) or more of the outstanding voting securities or
interests of which are owned directly or indirectly by such former entity.
(c) "Material Adverse Effect" shall mean, with respect to any person, any
change or effect (or any development that, insofar as can reasonably by
foreseen, is likely to result in any change or effect) that is materially
adverse to the business, properties, assets, condition (financial or otherwise),
results of operations or prospects of such party and its subsidiaries taken as a
whole, other than changes or effects which result from the execution and
delivery of this Agreement or the consummation of any transactions contemplated
hereby.
(d) "Person" shall mean an individual, corporation, partnership, trust or
unincorporated organization or a government or any agency or political
subdivision thereof.
9.11. SEVERABILITY. If any term or other provision of this Agreement is
invalid, illegal or unenforceable, all other provisions of this Agreement shall
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated hereby is not affected in any manner materially
adverse to any party.
9.12. SPECIFIC PERFORMANCE. The parties hereto acknowledge that irreparable
damage would result if this Agreement were not specifically enforced, and they
therefore consent that the rights and obligations of the parties under this
Agreement may be enforced by a decree of specific performance issued by a court
of competent jurisdiction. Such remedy shall, however, not be exclusive and
shall be in addition to any other remedies, including arbitration, which any
party may have under this Agreement or otherwise.
9.13. CAPTIONS. The Article, Section and paragraph captions herein are for
convenience of reference only, do not constitute part of this Agreement and
shall not be deemed to limit or otherwise affect any of the provisions hereof.
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IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
the duly authorized officers of the parties hereto and shall be effective as of
the date first hereinabove written.
TOYS "R" US, INC.
By: /s/ MICHAEL GOLDSTEIN
Name: Michael Goldstein
Title: Vice Chairman and
Chief Executive Officer
BSST ACQUISITION CORP.
By: /s/ MICHAEL GOLDSTEIN
Name: Michael Goldstein
Title: Chairman and
Chief Executive Officer
BABY SUPERSTORE, INC.
By: /s/ JACK P. TATE
Name: Jack P. Tate
Title: Chief Executive Officer
/S/ JACK P. TATE
Jack P. Tate
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ANNEX B
[Letterhead of CS First Boston Corporation]
October 1, 1996
Board of Directors
Baby Superstore, Inc.
1201 Woods Chapel Road
Duncan, South Carolina 29334
DEAR SIRS AND MESDAMES:
You have asked us to advise you with respect to the fairness, from a
financial point of view, to the stockholders of Baby Superstore, Inc. ("Baby
Superstore"), other than Mr. Jack P. Tate ("Tate"), of the exchange ratio to be
offered to such stockholders pursuant to the terms of the Agreement and Plan of
Merger (the "Merger Agreement"), dated as of October 1, 1996, among Toys "R" Us,
Inc. ("Toys R Us"), Baby Superstore and Tate. The Merger Agreement provides,
among other things, for the merger (the "Merger") of Baby Superstore with and
into Toys R Us pursuant to which each outstanding share of common stock, no par
value, of Baby Superstore ("Baby Superstore Common Stock"), other than shares
held by Tate, Baby Superstore, Toys R Us or any wholly-owned subsidiary of Toys
R Us or as to which dissenters' rights have been perfected, would be exchanged
for shares of common stock, par value $0.10 per share, of Toys R Us ("Toys R Us
Common Stock") at a ratio (the "Exchange Ratio") of 0.8121 shares of Toys R Us
Common Stock for each share of Baby Superstore Common Stock. Shares of Baby
Superstore Common Stock held by Tate will be exchanged for shares of Toys R Us
Common Stock at a ratio (the "Tate Exchange Ratio") of 0.5150 shares of Toys R
Us Common Stock for each share of Baby Superstore Common Stock.
In arriving at our opinion, we have reviewed certain publicly available
business and financial information relating to Baby Superstore and Toys R Us, as
well as the Merger Agreement. We have also reviewed certain other information,
including financial forecasts, provided to us by Baby Superstore and Toys R Us,
and have met with the managements of Baby Superstore and Toys R Us to discuss
the business and prospects of Baby Superstore and Toys R Us.
We have also considered certain financial and stock market data of Baby
Superstore and Toys R Us, and we have compared that data with similar data for
other publicly held companies in businesses similar to those of Baby Superstore
and Toys R Us. In addition, we have considered the financial terms of certain
other business combinations which have recently been effected. We also
considered such other information, financial studies, analyses and
investigations and financial, economic and market criteria which we deemed
relevant.
In connection with our review, we have not assumed any responsibility for
independent verification of any of the foregoing information and have relied on
its being complete and accurate in all material respects. With respect to the
financial forecasts, we have assumed that they have been reasonably prepared on
bases reflecting the best currently available estimates and judgments of the
managements of Baby Superstore and Toys R Us as to the future financial
performance of Baby Superstore and Toys R Us. In addition, we have not made an
independent evaluation or appraisal of the assets or liabilities (contingent or
otherwise) of Baby Superstore or Toys R Us, nor have we been furnished with any
such evaluations or appraisals. Our opinion is necessarily based upon financial,
economic, market and other conditions as they exist and can be evaluated on the
date hereof. We were not requested to, and did not, solicit third party
indications of interest in acquiring all or any part of Baby Superstore. We are
not expressing any opinion as to the value of the Toys R Us Common Stock upon
its issuance to
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<PAGE>
stockholders of Baby Superstore pursuant to the Merger or the prices at which
the Toys R Us Common Stock will trade subsequent to the consummation of the
Merger.
We have acted as financial co-advisor to Baby Superstore in connection with
the Merger and will receive a fee for our services, substantially all of which
is contingent upon the consummation of the Merger. We will also receive a fee
for rendering this opinion.
As we have disclosed to you, Invemed Associates, Inc., a New York Stock
Exchange member firm engaged in investment banking and brokerage of which Mr.
Kenneth G. Langone, a director of Baby Superstore, serves as its Chairman of the
Board, Chief Executive Officer and President and is a principal shareholder of
its parent, has acted as a financial advisor in connection with the Merger and,
as such, will be entitled to a portion of the fees payable to us upon
consummation of the Merger.
In the past, we have performed certain investment banking services for Baby
Superstore and have received customary fees for such services. In the ordinary
course of our business, CS First Boston and its affiliates may actively trade
the debt, equity and convertible securities of both Baby Superstore and Toys R
Us for their own account and for the accounts of customers and, accordingly, may
at any time hold a long or short position in such securities.
It is understood that this letter is for the information of the Board of
Directors of Baby Superstore in connection with its evaluation of the Merger and
is not intended to be and shall not be deemed to constitute a recommendation to
any stockholder as to how such stockholder should vote on the Merger. It is
understood that this opinion may be included in its entirety (including all
attachments thereto) in any proxy statement by Baby Superstore to the
stockholders of Baby Superstore; PROVIDED, HOWEVER that CS First Boston has had
the opportunity to review such proxy statement prior to the filing with the
Securities and Exchange Commission and prior to its dissemination to
stockholders.
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the Exchange Ratio to be offered to the stockholders of Baby
Superstore, other than Tate, in the Merger is fair to such stockholders of Baby
Superstore from a financial point of view. We are expressing no opinion as to
whether the Tate Exchange Ratio is fair to Tate from a financial point of view.
Very truly yours,
CS FIRST BOSTON CORPORATION
By: /s/ ANDREW R. TAUSSIG
ANDREW R. TAUSSIG
MANAGING DIRECTOR
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ANNEX C
SOUTH CAROLINA BUSINESS CORPORATION ACT
CHAPTER 13. DISSENTERS' RIGHTS
ARTICLE 1. RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES
(SECTION MARK) 33-13-101. DEFINITIONS.
In this chapter:
(1) "Corporation" means the issuer of the shares held by a dissenter before
the corporate action, or the surviving or acquiring corporation by merger or
share exchange of that issuer.
(2) "Dissenter" means a shareholder who is entitled to dissent from
corporate action under Section 33-13-102 and who exercises that right when and
in the manner required by Sections 33-13-200 through 33-13-280.
(3) "Fair value", with respect to a dissenter's shares, means the value of
the shares immediately before the effectuation of the corporate action to which
the dissenter objects, excluding any appreciation or depreciation in
anticipation of the corporate action to which the dissenter objects, excluding
any appreciation or depreciation in anticipation of the corporate action unless
exclusion would be inequitable. The value of the shares is to be determined by
techniques that are accepted generally in the financial community.
(4) "Interest" means interest from the effective date of the corporate
action until the date of payment, at the average rate currently paid by the
corporation on its principal bank loans or, if none, at a rate that is fair and
equitable under all the circumstances.
(5) "Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of shares to
the extent of the rights granted by a nominee certificate on file with a
corporation.
(6) "Beneficial shareholder" means the person who is a beneficial owner of
shares held by a nominee as the record shareholder.
(7) "Shareholder" means the record shareholder or the beneficial
shareholder.
(SECTION MARK) 33-13-102. RIGHT TO DISSENT.
A shareholder is entitled to dissent from, and obtain payment of the fair
value of, his shares in the event of any of the following corporate actions:
(1) consummation of a plan of merger to which the corporation is a party
(i) if shareholder approval is required for the merger by Section
33-11-103 or the articles of incorporation and the shareholder is entitled
to vote on the merger or
(ii) if the corporation is a subsidiary that is merged with its parent
under Section 33-11-104 or 33-11-108 or if the corporation is a parent that
is merged with its subsidiary under Section 33-11-108;
(2) consummation of a plan of share exchange to which the corporation is a
party as the corporation whose shares are to be acquired, if the shareholder is
entitled to vote on the plan;
(3) consummation of a sale or exchange of all, or substantially all, of the
property of the corporation other than in the usual and regular course of
business, if the shareholder is entitled to vote on the sale or exchange,
including a sale in dissolution, but not including a sale pursuant to court
order or a sale for cash pursuant to a plan by which all or substantially all of
the net proceeds of the sale must be distributed to the shareholders within one
year after the date of sale;
(4) an amendment of the articles of incorporation that materially and
adversely affects rights in respect of a dissenter's shares because it:
(i) alters or abolishes a preferential right of the shares;
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(ii) creates, alters, or abolishes a right in respect of redemption,
including a provision respecting a sinking fund for the redemption or
repurchase, of the shares;
(iii) alters or abolishes a preemptive right of the holder of the
shares to acquire shares or other securities;
(iv) excludes or limits the right of the shares to vote on any matter,
or to cumulate votes, other than a limitation by dilution through issuance
of shares or other securities with similar voting rights; or
(v) reduces the number of shares owned by the shareholder to a
fraction of a share if the fractional share so created is to be acquired
for cash under Section 33-6-104; or
(5) the approval of a control share acquisition under Article 1 of Chapter
2 of Title 35;
(6) any corporate action to the extent the articles of incorporation,
bylaws, or a resolution of the board of directors provides that voting or
nonvoting shareholders are entitled to dissent and obtain payment for their
shares.
(SECTION MARK) 33-13-103. DISSENT BY NOMINEES AND BENEFICIAL OWNERS.
(a) A record shareholder may assert dissenters' rights as to fewer than all
the shares registered in his name only if he dissents with respect to all shares
beneficially owned by any one person and notifies the corporation in writing of
the name and address of each person on whose behalf he asserts dissenters'
rights. The rights of a partial dissenter under this subsection are determined
as if the shares to which he dissents and his other shares were registered in
the names of different shareholders.
(b) A beneficial shareholder may assert dissenters' rights as to shares
held on his behalf only if he dissents with respect to all shares of which he is
the beneficial shareholder or over which he has power to direct the vote. A
beneficial shareholder asserting dissenters' rights to shares held on his behalf
shall notify the corporation in writing of the name and address of the record
shareholder of the shares, if known to him.
ARTICLE II. PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS
(SECTION MARK) 33-13-200. NOTICE OF DISSENTERS' RIGHTS.
(a) If proposed corporate action creating dissenters' rights under Section
33-13-102 is submitted to a vote at a shareholders' meeting, the meeting notice
must state that shareholders are or may be entitled to assert dissenters' rights
under this chapter and be accompanied by a copy of this chapter.
(b) If corporate action creating dissenters' rights under Section 33-13-102
is taken without a vote of shareholders, the corporation shall notify in writing
all shareholders entitled to assert dissenters' rights that the action was taken
and send them the dissenters' notice described in Section 33-13-220.
(SECTION MARK) 33-13-210. NOTICE OF INTENT TO DEMAND PAYMENT.
(a) If proposed corporate action creating dissenters' rights under Section
33-13-102 is submitted to a vote at a shareholders' meeting, a shareholder who
wishes to assert dissenters' rights (1) must give to the corporation before the
vote is taken written notice of his intent to demand payment for his shares if
the proposed action is effectuated and (2) must not vote his shares in favor of
the proposed action. A vote in favor of the proposed action cast by the holder
of a proxy solicited by the corporation shall not disqualify a shareholder from
demanding payment for his shares under this chapter.
(b) A shareholder who does not satisfy the requirements of subsection (a)
is not entitled to payment for his shares under this chapter.
(SECTION MARK) 33-13-220. DISSENTERS' NOTICE.
(a) If proposed corporate action creating dissenters' rights under Section
33-13-102 is authorized at a shareholders' meeting, the corporation shall
deliver a written dissenters' notice to all shareholders who satisfied the
requirements of Section 33-13-210(a).
(b) The dissenters' notice must be delivered no later than ten days after
the corporate action was taken and must:
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(1) state where the payment demand must be sent and where certificates
for certificated shares must be deposited;
(2) inform holders of uncertificated shares to what extent transfer of
the shares is to be restricted after the payment demand is received;
(3) supply a form for demanding payment that includes the date of the
first announcement to news media or to shareholders of the terms of the
proposed corporate action and requires that the person asserting
dissenters' rights certify whether or not he or, if he is a nominee
asserting dissenters' rights on behalf of a beneficial shareholder, the
beneficial shareholder acquired beneficial ownership of the shares before
that date;
(4) set a date by which the corporation must receive the payment
demand, which may not be fewer than thirty nor more than sixty days after
the date the subsection (a) notice is delivered and set a date by which
certificates for certificated shares must be deposited, which may not be
earlier than twenty days after the demand date; and
(5) be accompanied by a copy of this chapter.
(SECTION MARK) 33-13-230. SHAREHOLDERS' PAYMENT DEMAND.
(a) A shareholder sent a dissenters' notice described in Section 33-13-220
must demand payment, certify whether he (or the beneficial shareholder on whose
behalf he is asserting dissenters' rights) acquired beneficial ownership of the
shares before the date set forth in the dissenters' notice pursuant to Section
33-13-220(b)(3), and deposit his certificates in accordance with the terms of
the notice.
(b) The shareholder who demands payment and deposits his share certificates
under subsection (a) retains all other rights of a shareholder until these
rights are canceled or modified by the taking of the proposed corporate action.
(c) A shareholder who does not comply substantially with the requirements
that he demand payment and deposit his share certificates where required, each
by the date set in the dissenters' notice, is not entitled to payment for his
shares under this chapter.
(SECTION MARK) 33-13-240. SHARE RESTRICTIONS.
(a) The corporation may restrict the transfer of uncertificated shares from
the date the demand for payment for them is received until the proposed
corporate action is taken or the restrictions are released under Section 33-
13-260.
(b) The person for whom dissenters' rights are asserted as to
uncertificated shares retains all other rights of a shareholder until these
rights are canceled or modified by the taking of the proposed corporate action.
(SECTION MARK) 33-13-250. PAYMENT.
(a) Except as provided in Section 33-13-270, as soon as the proposed
corporate action is taken, or upon receipt of a payment demand, the corporation
shall pay each dissenter who substantially complied with Section 33-13-230 the
amount the corporation estimates to be the fair value of his shares, plus
accrued interest.
(b) The payment must be accompanied by:
(1) the corporation's balance sheet as of the end of a fiscal year
ending not more than sixteen months before the date of payment, an income
statement for that year, a statement of changes in shareholders' equity for
that year, and the latest available interim financial statements, if any;
(2) a statement of the corporation's estimate of the fair value of the
shares and an explanation of how the fair value was calculated;
(3) an explanation of how the interest was calculated;
(4) a statement of the dissenter's right to demand additional payment
under Section 33-13-280; and
(5) a copy of this chapter.
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(SECTION MARK) 33-13-260. FAILURE TO TAKE ACTION.
(a) If the corporation does not take the proposed action within sixty days
after the date set for demanding payment and depositing share certificates, the
corporation, within the same sixty-day period, shall return the deposited
certificates and release the transfer restrictions imposed on uncertificated
shares.
(b) If, after returning deposited certificates and releasing transfer
restrictions, the corporation takes the proposed action, it must send a new
dissenters' notice under Section 33-13-220 and repeat the payment demand
procedure.
(SECTION MARK) 33-13-270. AFTER-ACQUIRED SHARES.
(a) A corporation may elect to withhold payment required by section
33-13-250 from a dissenter as to any shares of which he (or the beneficial owner
on whose behalf he is asserting dissenters' rights) was not the beneficial owner
on the date set forth in the dissenters' notice as the date of the first
announcement to news media or to shareholders of the terms of the proposed
corporate action, unless the beneficial ownership of the shares devolved upon
him by operation of law from a person who was the beneficial owner on the date
of the first announcement.
(b) To the extent the corporation elects to withhold payment under
subsection (a), after taking the proposed corporate action, it shall estimate
the fair value of the shares, plus accrued interest, and shall pay this amount
to each dissenter who agrees to accept it in full satisfaction of his demand.
The corporation shall send with its offer a statement of its estimate of the
fair value of the shares, an explanation of how the fair value and interest were
calculated, and a statement of the dissenter's right to demand additional
payment under Section 33-13-280.
(SECTION MARK) 33-13-280. PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT OR
OFFER.
(a) A dissenter may notify the corporation in writing of his own estimate
of the fair value of his shares and amount of interest due and demand payment of
his estimate (less any payment under Section 33-13-250) or reject the
corporation's offer under Section 33-13-270 and demand payment of the fair value
of his shares and interest due, if the:
(1) dissenter believes that the amount paid under Section 33-13-250 or
offered under Section 33-13-270 is less than the fair value of his shares
or that the interest due is calculated incorrectly;
(2) corporation fails to make payment under Section 33-13-250 or to
offer payment under Section 33-13-270 within sixty days after the date set
for demanding payment; or
(3) corporation, having failed to take the proposed action, does not
return the deposited certificates or release the transfer restrictions
imposed on uncertificated shares within sixty days after the date set for
demanding payment.
(b) A dissenter waives his right to demand additional payment under this
section unless he notifies the corporation of his demand in writing under
subsection (a) within thirty days after the corporation made or offered payment
for his shares.
ARTICLE III. JUDICIAL APPRAISAL OF SHARES
(SECTION MARK) 33-13-300. COURT ACTION.
(a) If a demand for additional payment under Section 33-13-280 remains
unsettled, the corporation shall commence a proceeding within sixty days after
receiving the demand for additional payment and petition the court to determine
the fair value of the shares and accrued interest. If the corporation does not
commence the proceeding within the sixty-day period, it shall pay each dissenter
whose demand remains unsettled the amount demanded.
(b) The corporation shall commence the proceeding in the circuit court of
the county where the corporation's principal office (or, if none in this State,
its registered office) is located. If the corporation is a foreign corporation
without a registered office in this State, it shall commence the proceeding in
the county in this State where the principal office (or, if none in this State,
the registered office) of the domestic corporation merged with or whose shares
were acquired by the foreign corporation was located.
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(c) The corporation shall make all dissenters (whether or not residents of
this State) whose demands remain unsettled parties to the proceeding as in an
action against their shares and all parties must be served with a copy of the
petition. Nonresidents may be served by registered or certified mail or by
publication, as provided by law.
(d) The jurisdiction of the court in which the proceeding is commenced
under subsection (b) is plenary and exclusive. The court may appoint persons as
appraisers to receive evidence and recommend decisions on the question of fair
value. The appraisers have the powers described in the order appointing them or
in any amendment to it. The dissenters are entitled to the same discovery rights
as parties in other civil proceedings.
(e) Each dissenter made a party to the proceeding is entitled to judgment
for the amount, if any, by which the court finds the fair value of his shares,
plus interest, exceeds the amount paid by the corporation.
(SECTION MARK) 33-13-310. COURT COSTS AND COUNSEL FEES.
(a) The court in an appraisal proceeding commenced under Section 33-13-300
shall determine all costs of the proceeding, including the reasonable
compensation and expenses of appraisers appointed by the court. The court shall
assess the costs against the corporation, except that the court may assess costs
against all or some of the dissenters, in amounts the court finds equitable, to
the extent the court finds the dissenters acted arbitrarily, vexatiously, or not
in good faith in demanding payment under Section 33-13-280.
(b) The court also may assess the fees and expenses of counsel and experts
for the respective parties, in amounts the court finds equitable:
(1) against the corporation and in favor of any or all dissenters if
the court finds the corporation did not comply substantially with the
requirements of Sections 33-13-200 through 33-13-280; or
(2) against either the corporation or a dissenter, in favor of any
other party, if the court finds that the party against whom the fees and
expenses are assessed acted arbitrarily, vexatiously, or not in good faith
with respect to the rights provided by this chapter.
(c) If the court finds that the services of counsel for any dissenter were
of substantial benefit to other dissenters similarly situated, and that the fees
for those services should not be assessed against the corporation, the court may
award to these counsel reasonable fees to be paid out of the amounts awarded the
dissenters who were benefited.
(d) In a proceeding commenced by dissenters to enforce the liability under
Section 33-13-300(a) of a corporation that has failed to commence an appraisal
proceeding within the sixty-day period, the court shall assess the costs of the
proceeding and the fees and expenses of dissenters' counsel against the
corporation and in favor of the dissenters.
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ANNEX D
1994 BABY SUPERSTORE, INC. STOCK INCENTIVE PLAN
AMENDED AND RESTATED AS OF SEPTEMBER 30, 1996
1. PURPOSES
1.1. The purposes of the 1994 Baby Superstore, Inc. Stock Incentive Plan
are to (i) provide an incentive and reward to key employees of the Company, and
consultants and advisors to the Company, who are and have been in a position to
contribute materially to improving the Company's profits, (ii) aid in the growth
of the Company, and (iii) encourage ownership of Shares by employees.
2. DEFINITIONS
2.1. For purposes of this Plan the following terms shall have the
definition which is attributed to them below, unless another definition is
clearly indicated by a particular usage and context.
(a) "AGREEMENT" means the written document issued by the Committee to
a Participant whereby an Award is made to that Participant.
(b) "AWARD" means the issuance pursuant to this Plan of an Option, an
SAR or Restricted Stock.
(c) "AWARDED SHARES" means Shares subject to outstanding Awards.
(d) "BOARD" means the Company's Board of Directors.
(e) "CAUSE" means theft or destruction of property of the Company, a
Parent or Subsidiary, disregard of Company rules or policies, or conduct
evidencing willful or wanton disregard of the interest of the Company. Such
determination shall be made by the Committee based on information presented
by the Company and the Participant and shall be final and binding on all
parties to the Agreement.
(f) "CODE" means the Internal Revenue Code of 1986, as amended.
(g) "COMMITTEE" means the Stock Incentive Plan Committee appointed by
the Board pursuant to Section 3.1.
(h) "COMPANY" means Baby Superstore, Inc., a corporation incorporated
under the laws of the state of South Carolina, and any successor thereto.
(i) "CONSULTANT" means any person or entity that provides services to
the Company as a consultant or advisor.
(j) "EFFECTIVE DATE OF GRANT" means the effective date on which the
Committee makes an Award.
(k) "EMPLOYEE" means any individual who performs services as a common
law employee for the Company, a Parent or Subsidiary, and is included on
the regular payroll of the Company, a Parent or Subsidiary.
(l) "FAIR MARKET VALUE" means the value established by the Committee
based upon such factors as the Committee in its sole discretion shall
decide including, but not limited to, a valuation prepared by an
independent third party appraiser selected or approved by the Committee. If
at any time the Shares are traded on an established trading system, it
means the last sale price reported on any stock exchange or over-the-
counter trading system on which Shares are trading on a specified date or,
if not so trading, the average of the closing bid and asked prices for a
Share on a specified date. If no sale has been made on the specified date,
then prices on the last preceding day on which any such sale shall have
been made shall be used in determining fair market value under either
method prescribed in the previous sentence.
(m) "INCENTIVE STOCK OPTION" means any option granted under this Plan
which meets the requirements of Code (section mark) 422A and any
regulations or rulings promulgated thereunder and is designated by the
Committee as an Incentive Stock Option.
(n) "NONQUALIFIED STOCK OPTION" means any Option granted under this
Plan which is not an Incentive Stock Option.
(o) "OPTION" means the right to purchase from the Company a stated
number of Shares at a specified price.
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(p) "OPTION PRICE" means the purchase price per Share subject to an
Option and shall be fixed by the Committee.
(q) "PARENT" means any corporation (other than the Company) in an
unbroken chain of corporations ending with the Company if, at the time of
the granting of the Award, each of the corporations (other than the
Company) owns stock possessing 50% or more of the total combined voting
power of all classes of stock in one of the other corporations in such
chain within the meaning of Code (section mark) 425(e) and any regulations
or rulings promulgated thereunder.
(r) "PARTICIPANT" means an Employee or a Consultant who has received
an Award under this Plan.
(s) "PERMANENT AND TOTAL DISABILITY" shall have the same meaning as
given to that term by Code (section mark) 22(e)(3) and any regulations or
rulings promulgated thereunder.
(t) "PLAN" means this 1994 Baby Superstore, Inc. Stock Incentive Plan,
as evidenced herein and as amended from time to time.
(u) "RESTRICTED STOCK" means Shares issued to the Participant pursuant
to Section 9 which are subject to the restrictions of this Plan and the
Agreement.
(v) "RESTRICTION PERIOD" means a period commencing on the Effective
Date of Grant and ending on such date or upon the achievement of such
performance or other criteria as the Committee shall determine. The
Restriction Period may, in the sole discretion of the Committee, be
structured to provide for a release of restrictions in installments.
(w) "SAR" means stock appreciation rights issued to a Participant
pursuant to Section 8.
(x) "SAR PRICE" means the base value established by the Committee for
an SAR on the Effective Date of Grant used in determining the amount of
benefit, if any, paid to a Participant.
(y) "SHARE" means one share of the common stock of the Company.
(z) "SUBSIDIARY" means any corporation in an unbroken chain of
corporations beginning with the Company if, at the time of the granting of
the Award, each of the corporations (other than the last corporation) in
the unbroken chain owns stock possessing 50% or more of the total combined
voting power of all classes of stock in one of the other corporations in
such chain, within the meaning of Code (section mark) 425(f) and any
regulations or rulings promulgated thereunder.
(aa) "1933 ACT" means the Securities Act of 1933, as amended.
(bb) "1934 ACT" means the Securities Exchange Act of 1934, as amended.
3. ADMINISTRATION
3.1. This Plan shall be administered by a Committee of not less than two
members. The members of the Committee shall be appointed by the Board. The Board
may from time to time remove members from or add members to the Committee.
Vacancies on the Committee, howsoever caused, shall be filled by the Board.
3.2. The action of a majority of the Committee at which a quorum is
present, or an action approved in writing by a majority of the Committee, shall
be the valid action of the Committee.
3.3. The Committee shall from time to time at its discretion designate the
Employees and Consultants who shall be Participants, determine all the terms and
conditions as set forth in Section 6.1 or otherwise, including the type of Award
to be made to each, the exercise period, expiration date and other applicable
time periods for each Award, the number of Shares subject to each Award, with
respect to each Option whether it is an Incentive Stock Option or Nonqualified
Stock Option and, if applicable, the Option Price or SAR Price and the general
terms of the Award.
3.4. The interpretation and construction by the Committee of any provisions
of this Plan or of any Option granted under it and all actions of the Committee
shall be final and binding on all parties hereto. No member of the Board or the
Committee shall be liable for any action or determination made in good faith
with respect to this Plan or any Award granted under it.
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4. ELIGIBILITY
4.1. Each Participant shall be an Employee who is a key employee or a
Consultant of the Company, a Parent or a Subsidiary as selected by the Committee
in its sole discretion from time to time.
4.2. A Participant may hold more than one Award, but only on the terms and
subject to the restrictions set forth in this Plan.
5. SHARES SUBJECT TO AWARD
5.1. The securities subject to the Awards shall be 1,000,000 Shares.
5.2. In the event that any outstanding Award under this Plan expires or is
terminated for any reason, the Awarded Shares subject to that Award may again be
the subject of an Award under this Plan.
6. TERMS AND CONDITIONS
6.1. Awards granted pursuant to this Plan shall be authorized by the
Committee under terms and conditions approved by the Committee and shall be
evidenced by Agreements in such form as the Committee shall from time to time
approve, which Agreements shall contain or shall be subject to the following
terms and conditions, whether or not such terms and conditions are specifically
included therein:
(a) NUMBER OF SHARES. Each Award shall state the number of Shares to
which it pertains.
(b) DATE. Each Award shall state the Effective Date of Grant.
(c) PRICE. With respect to each Award or portion thereof, which
requires payment of an Option Price, it shall state the Option Price. With
respect to an SAR, it shall state the SAR Price.
(d) METHOD AND TIME OF PAYMENT. With respect to an Award, or portion
thereof, which requires payment of an Option Price, the Option Price shall
be payable on the exercise of the Award and shall be paid in (i) cash, (ii)
Shares, including Shares acquired pursuant to this Plan, or (iii) part in
cash and part in Shares. Shares transferred in payment of the Option Price
shall be valued as of date of transfer based on their Fair Market Value.
(e) TRANSFER OF OPTION OR STOCK. No Award, Option, SAR, or Restricted
Stock (prior to the expiration of the Restriction Period) shall be
transferable by the Participant, except by will or the laws of descent and
distribution upon the Participant's death and subject to any other
limitations of this Plan. In addition to any other restriction hereunder or
otherwise provided in the Agreement with the Participant, no Shares
acquired pursuant to an Award of any type may be sold, transferred or
otherwise disposed of prior to the end of the six month period which begins
on the Effective Date of Grant of such Award.
(f) RECAPITALIZATION. The Committee shall make appropriate adjustments
in the number of Awarded Shares or in the Option Price or SAR Price in
order to give effect to changes made in the number of outstanding Shares as
a result of a merger, consolidation, recapitalization, reclassification,
combination, stock dividend, stock split, or other relevant change.
(g) INVESTMENT PURPOSE.
(i) The Company shall not be obligated to sell or issue any Shares
pursuant to any Award unless such Shares are at that time effectively
registered or exempt from registration under the 1933 Act. The
determination of whether a Share is exempt from registration shall be
made by the Company's legal counsel and its determination shall be
conclusive and binding on all parties to the Agreement.
(ii) Notwithstanding anything in this Plan to the contrary, each
Award under this Plan shall be granted on the condition that the
purchases of Shares thereunder shall be for investment purposes and not
with a view for resale or distribution except that in the event the
Shares subject to such Award are registered under the 1933 Act, or in
the event of a resale of such Shares without such registration that
would otherwise be permissible, such condition shall be inoperative if
in the opinion of counsel for the Company such condition is not required
under the 1933 Act or any other applicable law, regulation, or rule of
any governmental agency.
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(h) OTHER PROVISIONS. Awards authorized under this Plan may contain
any other provisions or restrictions as the Committee in its sole and
absolute discretion shall deem advisable including, but not limited to:
(i) Offering Options in tandem with or reduced by other Options,
SARs or other employee benefits and reducing one Award by the exercise
of another option, SAR or benefit; or
(ii) Providing for the issuance to the Participant upon exercise of
an Option and payment of the exercise price thereof with previously
owned Shares, of an additional Award for the number of shares so
delivered, having such other terms and conditions not inconsistent with
this Plan as the Committee shall determine.
(i) DURATION OF AWARD. Each Award shall be for a term of up to ten
years from the Effective Date of Grant as determined in the sole discretion
of the Committee.
6.2. The Company may place such legends on stock certificates representing
the Shares as the Company, in its sole discretion, deems necessary or
appropriate to reflect restrictions under this Plan, the Agreement, the Code,
the securities laws or otherwise.
6.3. Notwithstanding any provision herein to the contrary, employment shall
be at the pleasure of the board of directors, of its designees, of the Company,
a parent or Subsidiary, as the case may be, at such compensation as the
appropriate board or designee shall determine. Nothing contained in this Plan or
in any Award granted pursuant to it shall confer upon any Participant any right
to continue in the employ of the Company, Parent or Subsidiary, as the case may
be, or to interfere in any way with the right of the Company, Parent or
Subsidiary to terminate employment at any time. So long as the Participant shall
continue to be an Employee or Consultant, the Award shall not be affected by any
change of the Participant's duties or position except to the extent the
Agreement with the Participant provides otherwise.
6.4. Any person entitled to exercise an Option or an SAR may do so in whole
or in part by delivering to the Company at its principal office, attention
Corporate Secretary, a written notice of exercise. The written notice shall
specify the number of shares for which an Option or SAR is being exercised.
(a) With respect to an Option, the notice shall be accompanied by full
payment of the Option Price for the Shares being purchased.
(b) During the Participant's lifetime, an Option or SAR may be
exercised only by the Participant, or on the Participant's behalf by the
Participant's legal guardian.
6.5. Notwithstanding any provision herein to the contrary, in the event of
a Change of Control, all Options shall vest according to the terms and
conditions of this Section 6.5.
(a) VESTING. Any Option held by any employee of the Company (the
"Optionee") shall vest at the earlier of a) the date or dates for vesting
of shares provided in the Option Agreement or Agreements to which the
Optionee is a signatory and b) the date of termination of the Optionee's
employment with the Company or any successor thereto, PROVIDED THAT the
Optionee receives notice of termination during the period commencing on the
Effective Date and ending on the fourth anniversary of such date, and that
either the Optionee's employment is terminated by the Company other than
for Cause, Disability, death, or Retirement, or the Optionee terminates
employment for Good Reason.
(b) CHANGE OF CONTROL. For purposes of this section 6.5, a "Change of
Control" shall mean:
(i) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of 20% or more of either (1) the then outstanding shares
of common stock of the Company (the "Outstanding Company Common Stock")
or (2) the combined voting power of the then outstanding voting
securities of the Company entitled to vote generally in the election of
directors (the "Outstanding Company Voting Securities"); provided,
however, that for purposes of this subsection (i), the following
acquisitions shall not constitute a Change of Control: (1) any
acquisition directly from the Company, (2) any acquisition by the
Company, (3) any acquisition by any employee benefit plan (or related
trust) sponsored or maintained by the Company or any corporation
controlled by the Company or (4) any acquisition by
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any corporation pursuant to a transaction which complies with clauses
(1), (2) and (3) of subsection (iii) of this Section c; or
(ii) Individuals who, as of the date hereof, constitute the Board
(the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual becoming a
director subsequent to the date hereof whose election, or nomination for
election by the Company's shareholders, was approved by a vote of at
least a majority of the directors then comprising the Incumbent Board
shall be considered as though such individual were a member of the
Incumbent Board, but excluding, for this purpose, any such individual
whose initial assumption of office occurs as a result of an actual or
threatened election contest with respect to the election or removal of
directors or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the Board; or
(iii) Consummation of a reorganization, merger or consolidation or
sale or other disposition of all or substantially all of the assets of
the Company (a "Business Combination"), in each case, unless, following
such Business Combination, (1) all or substantially all of the
individuals and entities who were the beneficial owners, respectively,
of the Outstanding Company Common Stock and Outstanding Company Voting
Securities immediately prior to such Business Combination beneficially
own, directly or indirectly, more than 50% of, respectively, the then
outstanding shares of common stock and the combined voting power of the
then outstanding voting securities entitled to vote generally in the
election of directors, as the case may be, of the corporation resulting
from such Business Combination (including, without limitation, a
corporation which as a result of such transaction owns the Company or
all or substantially all of the Company's assets either directly or
through one or more subsidiaries) in substantially the same proportions
as their ownership, immediately prior to such Business Combination of
the Outstanding Company Common Stock and Outstanding Company Voting
Securities, as the case may be, (2) no Person (excluding any corporation
resulting from such Business Combination or any employee benefit plan
(or related trust) of the Company or such corporation resulting from
such Business Combination) beneficially owns, directly or indirectly,
20% or more of, respectively, the then outstanding shares of common
stock of the corporation resulting from such Business Combination or the
combined voting power of the then outstanding voting securities of such
corporation except to the extent that such ownership existed prior to
the Business Combination and (3) at least a majority of the members of
the board of directors of the corporation resulting from such Business
Combination were members of the Incumbent Board at the time of the
execution of the initial agreement, or of the action of the Board,
providing for such Business Combination; or
(iv) Approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company.
(c) EFFECTIVE DATE. For purposes of this section 6.5, the "Effective
Date" shall mean the date on which a Change of Control occurs.
(d) DISABILITY. For purposes of this section 6.5, "Disability" shall
mean the absence of the Optionee from the Optionee's duties with the
Company on a full-time basis for 180 consecutive business days as a result
of incapacity due to mental or physical illness which is determined to be
total and permanent by a physician selected by the Company or its insurers
and acceptable to the Optionee or the Optionee's legal representative.
(e) RETIREMENT. For purposes of this section 6.5, "Retirement" shall
mean the termination of employment by the Optionee due to his voluntary
normal or early retirement under a pension plan sponsored by his Employer
or its affiliates, as defined in such plan.
(f) GOOD REASON. For purposes of this section 6.5, "Good Reason" shall
have the meaning ascribed to it in the Company's Director Severance Policy.
7. INCENTIVE STOCK OPTIONS AND NONQUALIFIED STOCK OPTIONS
7.1. The Committee in its sole discretion may designate whether an Award to
an Employee is to be considered an Incentive Stock Option or a Nonqualified
Stock Option. An Award to a Consultant may be only a Nonqualified Stock Option.
The Committee may grant both an Incentive Stock Option and a Nonqualified Stock
D-5
<PAGE>
Option to the same Employee. However, where both an Incentive Stock Option and a
Nonqualified Stock Option are awarded at one time, such Awards shall be deemed
to have been awarded in separate grants, shall be clearly identified, and in no
event will the exercise of one such Award affect the right to exercise the other
such Award except to the extent the Agreement with the Participant provides
otherwise.
7.2. Any Award to an Employee designated by the Committee as an Incentive
Stock Option will be subject to the general provisions applicable to all Awards
granted under this Plan. In addition, the aggregate Fair Market Value of Shares
(determined at the Effective Date of Grant) with respect to which Incentive
Stock Options granted under all Incentive Stock Option Plans of the Company, a
Parent or Subsidiary, are exercisable by the Employee for the first time during
any calendar year shall not exceed $100,000.
7.3. The Option Price shall be established by the Committee in its sole
discretion. With respect to an Incentive Stock Option, the Option Price shall
not be less than 100% of the Fair Market Value of a Share on the Effective Date
of Grant. With respect to a Nonqualified Stock Option, the Option Price shall
not be less than 50% of the Fair Market Value of a Share on the Effective Date
of Grant.
7.4. Any Award to an Employee will be considered to be a Nonqualified Stock
Option to the extent that any or all of the grant is in conflict with Section
7.2 or with any requirement for Incentive Stock Options pursuant to Code
(section mark) 422A and the regulations issued thereunder.
7.5. An Option may be terminated as follows:
(a) During the period of continuous employment with the Company,
Parent or Subsidiary, an Option will be terminated only if it has been
fully exercised or it has expired by its terms.
(b) Upon termination of employment, the Option will terminate upon the
earliest of (i) the full exercise of the Option, (ii) the expiration of the
Option by its terms, and (iii) not more than three months following the
date of employment termination; PROVIDED, HOWEVER, should termination of
employment (A) result from the death or Permanent and Total Disability of
the Participant, such period shall be one year or (B) be for Cause, the
Option will terminate on the date of employment termination. For purposes
of this Plan, a leave of absence approved by the Company shall not be
deemed to be termination of employment except with respect to an Incentive
Stock Option as required to comply with Code (section mark) 422A and the
regulations issued thereunder.
(c) Subject to the terms of the Agreement with the Participant, if a
Participant shall die or becomes subject to a Permanent and Total
Disability prior to the termination of employment with the Company, Parent
or Subsidiary and prior to the termination of an Option, such Option may be
exercised to the extent that the Participant shall have been entitled to
exercise it at the time of death or disability, as the case may be, by the
Participant, the estate of the Participant or the person or persons to whom
the Option may have been transferred by will or by the laws of descent and
distribution.
7.6. Except as otherwise expressly provided in the Agreement with the
Participant, in no event will the continuation of the term of an Option beyond
the date of termination of employment allow the Participant, or his
beneficiaries or heirs, to accrue additional rights under this Plan, or to
purchase more Shares through the exercise of an Option than could have been
purchased on the day that employment was terminated.
7.7. A Participant shall have no rights as a stockholder with respect to
any Shares subject to an Option until the date of the issuance of a stock
certificate to him for such Shares. No adjustment shall be made for dividends
(ordinary or extraordinary, whether in cash, securities or other property) or
distributions or other rights for which the record date is prior to the date
such stock certificate is issued, except as provided in Section 6.1(f).
7.8. The continuous employment of a Consultant will be deemed terminated
for purposes of this Plan upon receipt of written notice from the Company to the
effect that the Company will no longer transact business with the Consultant.
8. STOCK APPRECIATION RIGHTS
8.1. The Committee, in its sole discretion, may grant to a Participant an
SAR.
8.2. The SAR Price shall be established by the Committee in its sole
discretion. The SAR Price shall not be less than 100% of Fair Market Value of a
Share on the Effective Date of Grant for an SAR issued in tandem with
D-6
<PAGE>
an Incentive Stock Option and for other SARs, shall not be less than 50% of Fair
Market Value of a Share on the Effective Date of Grant.
8.3. Upon exercise of an SAR, the Participant shall be entitled, subject to
the terms and conditions of this Plan and the Agreement, to receive the excess
of each Share being exercised under the SAR (i) the Fair Market Value of a Share
on the date of exercise over (ii) the SAR Price for such Share.
8.4. At the sole discretion of the Committee, the payment of such excess
shall be made in (i) cash, (ii) Shares, or (iii) a combination of cash and
Shares. Shares used for this payment shall be valued at their Fair Market Value
on the date of exercise of the applicable SAR.
8.5. An Award of an SAR shall be considered an Award for purposes of the
number of Shares subject to an Award pursuant to Section 5.1, unless the
Agreement making the Award of the SAR provides that the exercise of an SAR
results in the termination of an unexercised Option for the same number of
Shares.
8.6. An SAR may be terminated as follows:
(a) During the period of continuous employment with the Company,
Parent or Subsidiary, an SAR will be terminated only if it has been fully
exercised or it has expired by its terms.
(b) Upon termination of employment, the SAR will terminate upon the
earliest of (i) the full exercise of the SAR, (ii) the expiration of the
SAR by its terms, and (iii) not more than three months following the date
of employment termination; provided, however, should termination of
employment (I) result from the death or Permanent and Total Disability of
the Participant, such three month period shall be one year or (II) be for
Cause, the SAR will terminate on the date of employment termination. For
purposes of this Plan, a leave of absence approved by the Company shall not
be deemed to be termination of employment unless otherwise provided in the
Agreement or by the Company on the date of the leave of absence.
(c) Subject to the terms of the Agreement with the Participant if a
Participant shall die or becomes subject to a Permanent and Total
Disability prior to the termination of employment with the Company, Parent
or Subsidiary and prior to the termination of an SAR, such SAR may be
exercised to the extent that the Participant shall have been entitled to
exercise it at the time of death or disability, as the case may be, by the
Participant, the estate of the Participant or the person or persons to whom
the SAR may have been transferred by will or by the laws of descent and
distribution.
(d) Except as otherwise expressly provided in the Agreement with the
Participant, in no event will the continuation of the term of an SAR beyond
the date of termination of employment allow the Employee, or his
beneficiaries or heirs, to accrue additional rights under this Plan, have
additional SARs available for exercise or to receive a higher benefit than
the benefit payable as if the SAR was exercised on the date of employment
termination.
8.7. If an SAR which was considered an Award for purposes of Section 8.5 is
terminated or unexercised for any reason, the number of Shares of such SAR that
were unexercised shall be again available for Award under this Plan.
8.8. The Participant shall have no rights as a stockholder with respect to
an SAR. In addition, no adjustment shall be made for dividends (ordinary or
extraordinary, whether in cash, securities or other property) or distributions
or rights except as provided in Section 6.1(f).
9. RESTRICTED STOCK
9.1. The Committee may award to a Participant Restricted Stock under such
terms or conditions as the Committee, in its sole discretion, shall determine
and as otherwise provided herein.
9.2. Restricted Stock shall be Shares which are subject to a Restriction
Period.
9.3. Should the Participant terminate employment for any reason, all
Restricted Stock which is still subject to the Restriction Period shall be
forfeited and returned to the Company for no payment.
9.4. Upon such forfeiture, Shares representing such forfeited restricted
Stock shall become available for Award under the Plan.
D-7
<PAGE>
9.5. The Committee may require under such terms and conditions as it deems
appropriate or desirable that the certificates for Restricted Stock awarded
under this Plan may be held by the Company or its designee until the Restriction
Period expires. In addition, the Committee may place upon such certificate such
legend as the Committee deems necessary or appropriate and may require as a
condition of any receipt of Restricted Stock that the Participant shall deliver
a stock power endorsed in blank relating to the Restricted Stock.
10. AMENDMENT OR DISCONTINUANCE OF PLAN
10.1. The Board may at any time amend, suspend, or discontinue this Plan;
provided, however, that without further approval of the shareholders of the
Company no amendments by the Board shall:
(a) Change the class of Employees eligible to participate; or
(b) Except as provided in Section 5, increase the number of Shares
which may be subject to Options granted under this Plan.
10.2. No amendment to this Plan shall alter or impair any Award granted
under this Plan without the consent of the holders thereof.
11. INDEMNIFICATION OF COMMITTEE
In addition to such other rights of indemnification as they may have as
Directors or as members of the Committee, the members of the Committee shall be
indemnified by the Company against the reasonable expenses, including attorneys'
fees, actually incurred in connection with the defense of any pending,
threatened or possible action, suit or proceeding, or in connection with any
pending, threatened or possible appeal therein, to which they or any of them may
be a party by reason of any actual or alleged action taken or failure to act
under or in connection with this Plan or any option granted thereunder, and
against all amounts paid by them in settlement thereof (provided such settlement
is approved by the Company) or paid by them in satisfaction of a judgment in any
such action, suit or proceeding, except in relation to matters as to which it
shall be adjudged in such action, suit or proceeding that such Committee member
is liable for gross negligence or willful misconduct in the performance of his
duties; provided that within sixty days after institution of any such action,
suit or proceeding a Committee member shall in writing offer the Company the
opportunity, at its own expense, to handle and defend the same.
12. NO OBLIGATION TO EXERCISE OPTION OR SAR
The granting of an Option or SAR shall impose no obligation upon the
Participant to exercise such Option or SAR.
13. EFFECTIVE DATE; DURATION OF PLAN
13.1. This Plan shall become effective as of July 20, 1994.
13.2. No Award may be made after the tenth anniversary of the effective
date of this Plan.
14. EFFECT OF PLAN
The making of an Award under this Plan shall not give the Participant any
right to similar grants in future years or any right to be retained in the
employ of the Company, the Parent or a Subsidiary, but a Participant shall
remain subject to discharge to the same extent as if this Plan were not in
effect.
D-8
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the DGCL grants each corporation organized thereunder, such
as the Registrant, the power to indemnify its directors and officers against
liabilities for certain of their acts. Article SEVENTH of the Registrant's
Restated Certificate of Incorporation provides for indemnification of directors
and officers of the Registrant to the full extent permitted by the DGCL.
Section 102(b)(7) of the DGCL permits a provision in the certificate of
incorporation of each corporation organized thereunder, such as the Registrant,
eliminating or limiting, with certain exceptions, the personal liability of a
director to the corporation or its stockholders for monetary damages for certain
breaches of fiduciary duty as a director. Article NINTH of the Registrant's
Restated Certificate of Incorporation eliminates the personal liability of
directors to the full extent permitted by the DGCL.
The foregoing statements are subject to the detailed provisions of Sections
145 and 102(b)(7) of the DGCL and Articles SEVENTH and NINTH of the Registrant's
Restated Certificate of Incorporation.
ITEM 21. EXHIBITS.
Exhibits identified in parentheses below are on file with the Securities
and Exchange Commission and are incorporated herein by reference to such
previous filings. All other exhibits are provided as part of this electronic
transmission.
<TABLE>
<S> <C>
2 Agreement and Plan of Merger, dated as of October 1, 1996, and as amended and restated as of
December 26, 1996, among Toys "R" Us, Inc., a Delaware corporation, BSST Acquisition Corp., a
South Carolina corporation, Baby Superstore, Inc., a South Carolina corporation, and Jack P.
Tate (Annex A to the Proxy Statement/Prospectus included in this Registration Statement)
(3-A) Restated Certificate of Incorporation of Toys "R" Us, Inc. (Exhibit 3A to the Registrant's
Annual Report on Form 10-K for the year ended February 3, 1996, File No. 1-11609)
(3-B) Amended and Restated Bylaws of Toys "R" Us, Inc. (Exhibit 3B to the Registrant's Annual Report
on Form 10-K for the year ended February 3, 1996, File No. 1-11609)
5 Opinion of Weil, Gotshal & Manges LLP regarding the legality of the securities being registered
8-A Opinion of Weil, Gotshal & Manges LLP regarding certain federal income tax matters
8-B Opinion of Wachtell, Lipton, Rosen and Katz regarding certain federal income tax matters
(10-A) Shareholders Agreement, dated October 1, 1996, by and among Toys "R" Us, Inc., Jack P. Tate
and Linda M. Robertson (Exhibit A to Exhibit 2 to the Registrant's Quarterly Report on Form
10-Q for the quarter ended November 2, 1996, File No. 1-11609)
(10-B) Registration Rights Agreement, dated as of October 1, 1996, by and among Toys "R" Us, Jack P.
Tate and Linda M. Robertson. (Exhibit B to Exhibit 2 to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended November 2, 1996, File No. 1-11609)
23-A Consent of Ernst & Young LLP
23-B Consent of Deloitte & Touche LLP
23-C Consent of Weil, Gotshal & Manges LLP (included in the opinions filed as Exhibits 5 and 8-A)
23-D Consent of Wachtell, Lipton, Rosen & Katz (included in the opinion filed as Exhibit 8-B)
24 Powers of Attorney (included on signature page)
99-A Consent of CS First Boston Corporation
99-B Letter of Deloitte & Touche LLP
</TABLE>
ITEM 22. UNDERTAKINGS.
The Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act;
II-1
<PAGE>
(ii) to reflect in the prospectus any facts or events arising after
the effective date of this Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in this
Registration Statement;
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in this Registration Statement or any
material change to such information in this Registration Statement;
provided, however, that the undertakings set forth in paragraphs (1) (i) and
(1)(ii) above do not apply if the information required to be included in a
post-effective amendment by those paragraphs is contained in periodic reports
filed by the Registrant pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") that are
incorporated by reference in this Registration Statement.
(2) That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new Registration
Statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(4) That, for purposes of determining any liability under the Securities
Act, each filing of the Registrant's Annual Report pursuant to Section 13(a) or
Section 15(d) of the Exchange Act (and where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the Exchange
Act) that is incorporated by reference in this Registration Statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(5) That prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this Registration
Statement, by any person or party who is deemed to be an underwriter within the
meaning of Rule 145(c), the Registrant undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other items of
the applicable form.
(6) That every prospectus: (i) that is filed pursuant to paragraph (5)
immediately preceding, or (ii) purports to meet the requirements of Section
10(a)(3) of the Securities Act and is used in connection with an offering of
securities subject to Rule 415, will be filed as a part of an amendment to the
registration statement and will not be used until such amendment is effective,
and that, for purposes of determining any liability under the Securities Act,
each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(7) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Item 4, 10(b), 11 or 13 of this form,
within one business day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective date of
this Registration Statement through the date of responding to the request.
(8) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein, that
was not the subject of and included in the registration statement when it became
effective.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions referred to in Item 15 (other than the
insurance policies referred to therein), or otherwise, the Registrant has been
advised that, in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted against
the Registrant by such director, officer or controlling person in connection
with the securities being registered, the Registrant will, unless in the opinion
of its counsel the matter has been settled by controlling precedent, submit to a
court of
II-2
<PAGE>
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Toys "R" Us,
Inc. certifies that it has reasonable grounds to believe that it meets all the
requirements for filing on Form S-4 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Paramus, State of New Jersey, on the 27th day of
December, 1996.
TOYS "R" US, INC.
By: /s/ LOUIS LIPSCHITZ
LOUIS LIPSCHITZ
EXECUTIVE VICE PRESIDENT
CHIEF FINANCIAL OFFICER
POWER OF ATTORNEY
The Registrant and each person whose signature appears below hereby appoint
Michael Goldstein and Louis Lipschitz and each of them, as their
attorneys-in-fact, with full power of substitution, to execute in their names
and on behalf of the Registrant and each such person, individually and in each
capacity stated below, one or more amendments (including post-effective
amendments) to this Registration Statement as the attorney-in-fact acting on the
premise shall from time to time deem appropriate and to file any such amendment
to this Registration Statement with the Securities and Exchange Commission.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities
indicated, on this 27th day of December, 1996.
<TABLE>
<CAPTION>
NAME AND SIGNATURE TITLE
<S> <C>
/s/ CHARLES LAZARUS Chairman of the Board
CHARLES LAZARUS
/s/ MICHAEL GOLDSTEIN Vice Chairman and Chief Executive Officer (Principal
MICHAEL GOLDSTEIN Executive Officer)
/s/ ROBERT C. NAKASONE Director, President and Chief Operating Officer
ROBERT C. NAKASONE
/s/ LOUIS LIPSCHITZ Executive Vice President and Chief Financial Officer
LOUIS LIPSCHITZ (Principal Financial Officer)
/s/ JOSEPH J. LOMBARDI Vice President -- Controller (Principal Accounting
JOSEPH J. LOMBARDI Officer)
/s/ ROBERT A. BERNHARD Director
ROBERT A. BERNHARD
/s/ ROANN COSTIN Director
ROANN COSTIN
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
NAME AND SIGNATURE TITLE
<S> <C>
/s/ MILTON S. GOULD Director
MILTON S. GOULD
/s/ SHIRLEY STRUM KENNY Director
SHIRLEY STRUM KENNY
/s/ NORMAN S. MATTHEWS Director
NORMAN S. MATTHEWS
/s/ HOWARD W. MOORE Director
HOWARD W. MOORE
/s/ HAROLD M. WIT Director
HAROLD M. WIT
</TABLE>
II-4
<PAGE>
*********************************APPENDIX***********************************
F O R M O F
BABY SUPERSTORE, INC.
P R O X Y
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR THE SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON FRIDAY, JANUARY 31, 1997,
IN THE CAROLINA BALLROOM OF THE MARRIOTT HOTEL,
ONE PARKWAY EAST, GREENVILLE, SOUTH CAROLINA,
AT 10:00 A.M. LOCAL TIME.
The undersigned hereby appoints Judy Beltz, Linda McAvoy and Linda M.
Robertson, or any of them acting in the absence of the other, as attorneys and
proxies of the undersigned, with full power of substitution, to vote all of the
shares of the common stock of Baby Superstore, Inc., a South Carolina
corporation, held or owned by the undersigned or standing in the name of the
undersigned at the Special Meeting of Shareholders of the Company and at any
adjournment thereof, and the undersigned hereby instructs said attorneys to vote
as follows:
1. Proposal to approve and adopt an Agreement and Plan of Merger, dated as
of October 1, 1996, and as amended and restated as of December 26, 1996,
among Toys "R" Us, Inc., BSST Acquisition Corp., Baby Superstore, Inc.
and Jack P. Tate (the "Merger Agreement") providing for the merger of
BSST Acquisition Corp. with and into Baby Superstore, Inc., with Baby
Superstore, Inc. continuing as the surviving corporation.
( ) For ( ) Against ( ) Abstain
2. Proposal to ratify and approve the increase in the number of shares of
the common stock of Baby Superstore, Inc. authorized for issuance under
the 1994 Baby Superstore, Inc. Stock Incentive Plan from 450,000 to
1,000,000 shares and to ratify and approve the grant on August 28, 1996
of options to purchase 25,000 shares to the Chief Financial Officer of
Baby Superstore, Inc.
( ) For ( ) Against ( ) Abstain
SEE REVERSE SIDE
(Continued and to be signed on the other side)
<PAGE>
(Reverse of Form of Proxy)
3. In their discretion, upon any other business which may properly come
before the meeting or any adjournment thereof.
DATE:
NUMBER OF SHARES:
SIGNATURE
SIGNATURE, IF HELD JOINTLY
(Please sign exactly as shown
on envelope addressed to you.
If shares are held by joint
tenants, both should sign.
When signing as attorney,
executor, administrator,
trustee or guardian, please
give full title as such. If a
corporation, please sign in
full corporate name by an
authorized officer. If a
partnership, please sign in
partnership name by an
authorized person.)
THIS PROXY WILL BE VOTED AS INSTRUCTED. IN THE ABSENCE OF SUCH INSTRUCTIONS,
THIS PROXY WILL BE VOTED "FOR" MATTERS (1) AND (2) ABOVE, AND THE PROXIES HEREIN
NAMED WILL VOTE ON OTHER MATTERS THAT MAY PROPERLY COME BEFORE THE MEETING OR
ANY ADJOURNMENT THEREOF IN ACCORDANCE WITH THEIR JUDGMENT.
EXHIBIT 5
[Weil, Gotshal & Manges LLP Letterhead]
December 27, 1996
Toys "R" Us, Inc.
461 From Road
Paramus, New Jersey 07652
Ladies and Gentlemen:
We have acted as counsel to Toys "R" Us, Inc., a Delaware
corporation (Toys "R" Us), in connection with the preparation and filing of the
registration statement of Toys "R" Us on Form S-4 (the "Registration Statement")
relating to the registration under the Securities Act of 1933, as amended (the
"Securities Act"), of shares of Common Stock, par value $.10 per share ("Toys
"R" Us Common Stock"), of Toys "R" Us to be issued in accordance with the terms
of the Agreement and Plan of Merger, dated as of October 1, 1996, as amended and
restated as of December 26, 1996 (the "Merger Agreement"), among Toys "R" Us,
BSST Acquisition Corp., a South Carolina corporation and wholly owned subsidiary
of Toys "R" Us ("Merger Sub"), Baby Superstore, Inc., a South Carolina
corporation ("Baby Superstore"), and Jack P. Tate pursuant to which Merger Sub
will merge with and into Baby Superstore, with Baby Superstore continuing as the
surviving corporation and a wholly owned subsidiary of Toys "R" Us (the
"Merger").
<PAGE>
Toys "R" Us, Inc.
December 27, 1996
Page 2
In so acting, we have reviewed the Registration Statement,
including the proxy statement and prospectus contained therein (the "Proxy
Statement"), the Restated Certificate of Incorporation of Toys "R" Us (the
"Restated Certificate") and the Merger Agreement. In addition, we have examined
originals or copies, certified or otherwise identified to our satisfaction, of
such corporate records, agreements, documents and other instruments, and such
certificates or comparable documents of public officials and of officers and
representatives of Toys "R" Us, and have made such inquiries of such officers
and representatives, as we have deemed relevant and necessary as a basis for the
opinions hereinafter set forth.
In such examination, we have assumed the genuineness of all
signatures, the legal capacity of natural persons, the authenticity of all
documents submitted to us as originals, the conformity to original documents of
all documents submitted to us as certified or photostatic copies and the
authenticity of the originals of such latter documents. As to all questions of
fact material to this opinion that have not been independently established, we
have relied upon certificates or comparable documents of officers and
representatives of Toys "R" Us.
Based on the foregoing, and subject to the qualifications
stated herein, we are of the opinion that:
1. Toys "R" Us is a corporation duly incor- porated and
validly existing under the laws of the State of Delaware.
2. The shares of Toys "R" Us Common Stock to be issued
pursuant to the Merger Agreement and registered pursuant to the Registration
Statement have been duly authorized and, when issued as contemplated by the
Merger Agreement, will be validly issued, fully paid and non-assessable.
The opinions expressed herein are limited to the corporate
laws of the State of Delaware, and we express no opinion as to the effect on the
matters covered by this letter of the laws of any other jurisdiction.
The opinions expressed herein are rendered solely for your
benefit in connection with the transactions described herein. These opinions may
not be used or relied
<PAGE>
Toys "R" Us, Inc.
December 27, 1996
Page 3
upon by any other person, nor may this letter or any copies thereof be furnished
to a third party, filed with a governmental agency, quoted, cited or otherwise
referred to without our prior written consent.
We hereby consent to the filing of this opinion as an exhibit
to the Registration Statement and to the references to this firm under the
heading "Legal Opinions" in the Proxy Statement, without admitting that we are
"experts" under the Securities Act or the rules and regulations promulgated
thereunder with respect to any part of the Registration Statement.
Very truly yours,
/s/ Weil, Gotshal & Manges LLP
<PAGE>
EXHIBIT 8-A
[Weil, Gotshal & Manges LLP letterhead]
December 27, 1996
Toys "R" Us, Inc.
461 From Road
Paramus, New Jersey 07652
Ladies and Gentlemen:
In connection with the registration by Toys "R" Us, Inc., a
Delaware corporation ("Toys "R" Us"), of shares of Toys "R" Us Common Stock, par
value $.10 per share under the Securities Act of 1933, as amended (the
"Securities Act"), on a Registration Statement on Form S-4, filed with the
Securities and Exchange Commission on December 27, 1996 (with all amendments
thereto, the "Registration Statement"), you have requested our opinion with
respect to the matters set forth below.
In formulating our opinion, we examined such documents as we
deemed appropriate, including the Agreement and Plan of Merger, dated as of
October 1, 1996, as amended and restated as of December 26, 1996 (the "Merger
Agreement"), among Toys "R" Us, BSST Acquisition Corp., a South Carolina
corporation, Baby Superstore, Inc., a South Carolina corporation and Jack P.
Tate and the Registration Statement.
Our opinion set forth below assumes (1) the accuracy of the
statements and facts concerning the Merger (as such term is defined in the
Merger Agreement) set forth in the Merger Agreement and the Registration
Statement and (2) that the Merger is consummated in the manner contemplated by,
and in accordance with the terms set forth in, the Merger Agreement and the
Registration Statement.
<PAGE>
Toys "R" Us, Inc.
December 27, 1996
Page 2
Based upon the facts and statements set forth above, our
examination and review of the documents referred to above and subject to the
assumptions set forth above, we are of the opinion that the legal conclusions
set forth under the heading "Certain Federal Income Tax Consequences" in the
Registration Statement are correct in all material respects. We express no
opinion as to any matter other than those specifically set forth herein.
Our opinion is based on current provisions of the Internal
Revenue Code of 1986, as amended, the Treasury Regulations promulgated
thereunder, published pronouncements of the Internal Revenue Service and case
law, any of which may be changed at any time with retroactive effect. Any change
in applicable laws or the facts and circumstances surrounding the Merger, or any
change or inaccuracy in the statements, facts, assumptions and representations
on which we have relied, may affect the continuing validity of the opinion set
forth herein. We assume no responsibility to inform you of any such change or
inaccuracy that may occur or come to our attention.
We hereby consent to the filing of this opinion as an exhibit
to the Registration Statement and to the references to this firm under the
headings "Certain Federal Income Tax Consequences" and "Legal Matters" in the
Registration Statement, without admitting that we are "experts" under the
Securities Act or the rules and regulations promulgated thereunder with respect
to any part of the Registration Statement.
Very truly yours,
/s/ Weil, Gotshal & Manges LLP
EXHIBIT 8-B
[LETTERHEAD OF WACHTELL, LIPTON, ROSEN & KATZ]
December 27, 1996
Baby Superstore, Inc.
1201 Woods Chapel Road
Duncan, South Carolina 29334
Ladies/Gentlemen:
We have acted as special counsel to Baby Superstore, Inc., a South
Carolina corporation (the "Company"), in connection with the proposed merger
(the "Merger") of BSST Acquisition Corp., a South Carolina corporation
("Merger Corporation") and a wholly-owned subsidiary of Toys "R" Us, Inc.,
a Delaware corporation ("Acquiror") with and into the Company, upon the
terms and conditions set forth in the Agreement and Plan of Merger dated as
of October 1, 1996, and as amended and restated as of December 26, 1996 (the
"Agreement"), by and among the Company, Acquiror, Merger Corporation and Jack
P. Tate ("Tate"). At your request, and pursuant to the Agreement, we are
rendering our opinion concerning the qualification of the Merger as a
reorganization within the meaning of Section 368(a)(1)(A) of the Internal
Revenue Code of 1986, as amended (the "Code").
For purposes of the opinion set forth below, we have relied, with the
consent of Acquiror and Merger Corporation and the consent of the Company,
upon the accuracy and completeness of the statements and representations
(which statements and representations we have neither investigated nor
verified) contained, respectively, in the certificates of the officers of
Acquiror and Merger Corporation and of the Company, and in the certificate
of Tate (copies of which are attached hereto and which are incorporated herein
by reference). Any capitalized term used and not defined herein has the
meaning given to it in the Agreement.
We have also assumed that the transactions contemplated by the Agreement
will be consummated in accordance with the Agreement and that the Merger
will qualify as a statutory merger under the applicable laws of the State
of South Carolina.
<PAGE>
WACHTELL, LIPTON, ROSEN & KATZ
Baby Superstore, Inc.
December 27, 1996
Page 2
Based upon and subject to the foregoing, it is our opinion that, under
presently applicable law, the Merger will constitute a reorganization within
the meaning of Section 368(a)(1)(A) of the Code; each of Acquiror, Merger
Corporation and the Company will be a party to the reorganization within the
meaning of Section 368(b) of the Code; and no gain or loss will be recognized
by a shareholder of the Company as a result of the Merger except (x) with
respect to cash received by such shareholder in lieu of fractional shares
or pursuant to the exercise of appraisal rights and (y) except to the
extent a shareholder receives consideration different in amount from other
shareholders.
This opinion may not be applicable to the Company's shareholders who
received their Company Common Stock pursuant to the exercise of employee stock
options or otherwise as compensation or who are not citizens or residents
of the United States.
We hereby consent to the filing of this opinion with the Securities and
Exchange Commission as an exhibit to the Registration Statement, and to the
reference to this opinion under the caption "THE MERGER -- Certain Federal
Income Tax Consequences" and elsewhere in the Proxy Statement. In giving
such consent, we do not hereby admit that we are in the category of persons
whose consent is required under Section 7 of the Securities Act of 1933, as
amended.
Very truly yours,
/s/Wachtell, Lipton, Rosen & Katz
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-4) and related Prospectus of Baby Superstore,
Inc. for the Registration of 13,841,368 shares of common stock of Toys
"R" Us, Inc. and to the incorporation by reference therein of our report
dated March 31, 1996, with respect to the consolidated financial statements
of Toys "R" Us, Inc. included in Toys "R" Us, Inc.'s Annual Report (Form
10-K) for the year ended February 3, 1996 with the Securities and Exchange
Commission.
(sig of Ernst & Young LLP)
ERNST & YOUNG LLP
New York, New York
December 27, 1996
Exhibit 23-B
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement of
Toys "R" Us, Inc. on Form S-4 of our report dated March 29, 1996, appearing in
the Annual Report on Form 10-K of Baby Superstore, Inc. for the year ended
January 31, 1996, and to the reference to us under the heading "Experts" in the
Prospectus, which is part of this Registration Statement.
/s/ Deloitte & Touche LLP
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Deloitte & Touche LLP
Greenville, South Carolina
December 26, 1996
(Letterhead of CS First Boston)
Exhibit 99-A
CONSENT
OF
CREDIT SUISSE FIRST BOSTON CORPORATION
We hereby consent to the inclusion of (i) our opinion letter, dated October
1, 1996 to the Board of Directors of Baby Superstore, Inc. (the "Company")
as Annex B to the Proxy Statement/Prospectus which forms a part of the
Registration Statement on Form S-4 relating to the proposed merger of the
Company and Toys "R" Us, Inc., and (ii) references made to our firm and such
opinion in the Proxy Statement/Prospectus on the front cover and under the
captions entitled "SUMMARY--Opinion of the Company's Financial Advisor"
and "THE MERGER--Background of the Merger, Reasons of the Company for the
Merger, Opinion of the Company's Financial Advisor". In giving such consent, we
do not admit that we come within the category of persons whose consent is
required under, nor do we admit that we are "experts" for purposes of, the
Securities Act of 1933, as amended, and the rules and regulations promulgated
thereunder.
CREDIT SUISSE FIRST BOSTON CORPORATION
By: (sig of Gail S. Zauder)
-------------------------
Name: Gail S. Zauder
Title Managing Director
December 26, 1996
Exhibit 99-B
[Deloitte & Touche LLP Stationery]
December 26, 1996
Baby Superstore, Inc.
Duncan, South Carolina
We have made a review, in accordance with standards established by the American
Institute of Certified Public Accountants, of the unaudited interim financial
information of Baby Superstore, Inc. for the periods ended May 1, 1996, July 31,
1996, and October 30, 1996, as indicated in our reports dated May 28, 1996,
August 27, 1996, and November 22, 1996, respectively; because we did not perform
an audit, we expressed no opinion on that information.
We are aware that our reports referred to above, which were included in your
Quarterly Reports on Form 10-Q for the quarters ended May 1, 1996, July 31,
1996, and October 30, 1996, are being used in this Registration Statement.
We also are aware that the aforementioned reports, pursuant to Rule 436(c) under
the Securities Act of 1933, are not considered a part of the Registration
Statement prepared or certified by an accountant or a report prepared or
certified by an accountant within the meaning of Sections 7 and 11 of the Act.
/s/ Deloitte & Touche LLP
- ---------------------------
Deloitte & Touche LLP
<PAGE>
