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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
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SCHEDULE 14A INFORMATION
PROXY STATEMENT
AMENDMENT NO. 5
(PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934)
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FILED BY THE REGISTRANT [X]
FILED BY A PARTY OTHER THAN THE REGISTRANT [_]
CHECK THE APPROPRIATE BOX:
[_] PRELIMINARY PROXY STATEMENT
[X] DEFINITIVE PROXY STATEMENT
[_] DEFINITIVE ADDITIONAL MATERIALS
[_] SOLICITING MATERIALS PURSUANT TO (S) 240.14A-11(C) OR (S) 240.14A-12
PETRIE STORES CORPORATION
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
PETRIE STORES CORPORATION
(NAME OF PERSON(S) FILING PROXY STATEMENT)
PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX):
[_] $125 PER EXCHANGE ACT RULES 0-11(C)(1)(II), 14A-6(I)(1), OR 14A-6(J)(2).
[_] $500 PER EACH PARTY TO THE CONTROVERSY PURSUANT TO EXCHANGE ACT RULE 14A-
6(I)(3).
[X] FEE PAID WITH FILING OF PRELIMINARY PROXY STATEMENT
(1) AMOUNT PREVIOUSLY PAID: $297,706.25
(2) DATE FILED: JUNE 24, 1994
[_] FEE COMPUTED ON TABLE BELOW PER EXCHANGE ACT RULES 14A-6(I)(4) AND 0-11.
(1) TITLE OF EACH CLASS OF SECURITIES TO WHICH TRANSACTION APPLIES:
(2) AGGREGATE NUMBER OF SECURITIES TO WHICH TRANSACTION APPLIES:
(3) PER UNIT PRICE OR OTHER UNDERLYING VALUE OF TRANSACTION COMPUTED
PURSUANT TO EXCHANGE ACT RULE 0-11:
(4) PROPOSED MAXIMUM AGGREGATE VALUE OF TRANSACTION:
[_] CHECK BOX IF ANY PART OF THE FEE IS OFFSET AS PROVIDED BY EXCHANGE ACT RULE
0-11(A)(2) AND IDENTIFY THE FILING FOR WHICH THE OFFSETTING FEE WAS PAID
PREVIOUSLY. IDENTIFY THE PREVIOUS FILING BY REGISTRATION STATEMENT NUMBER,
OR THE FORM OR SCHEDULE AND THE DATE OF ITS FILING.
(1) AMOUNT PREVIOUSLY PAID:
(2) FORM, SCHEDULE OR REGISTRATION STATEMENT NO.:
(3) FILING PARTIES:
(4) DATE FILED:
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<PAGE>
PETRIE STORES CORPORATION
70 ENTERPRISE AVENUE
SECAUCUS, NEW JERSEY 07094
November 3, 1994
Dear Shareholder,
You are cordially invited to attend the 1994 Annual Meeting of Shareholders
of Petrie Stores Corporation, a New York corporation ("Petrie"), to be held at
the offices of Skadden, Arps, Slate, Meagher & Flom, 33rd Floor, 919 Third
Avenue, New York, New York, on Tuesday, December 6, 1994, at 9:00 a.m., local
time, and any adjournment or postponement thereof (the "Annual Meeting").
At the Annual Meeting, you will be asked to (i) approve the disposition (the
"Disposition") of Petrie's retail store operations (the "Retail Operations");
(ii) approve the exchange with Toys "R" Us, Inc. ("Toys "R' Us") of all of the
shares of Toys "R" Us common stock, par value $.10 per share ("Toys Common
Stock"), held by Petrie and certain subsidiaries of Petrie (currently,
approximately 39.9 million shares) (the "Toys Shares") and cash (presently
estimated to be approximately $180 million) for a number of shares of Toys
Common Stock equal to (a) the number of shares of Toys Common Stock held by
Petrie, less approximately 3.3 million shares of Toys Common Stock, plus (b)
such amount of cash divided by the market value of a share of Toys Common Stock
(the "Exchange"); (iii) approve the establishment of a liquidating trust (the
"Liquidating Trust") and the complete liquidation and dissolution of Petrie
(the "Liquidation," and together with the Disposition and the Exchange, the
"Transaction"); (iv) elect twelve members to Petrie's Board of Directors; (v)
ratify the selection of David Berdon & Co. as Petrie's independent auditors for
the fiscal year ending January 28, 1995; and (iv) transact such other business
as may properly come before the Annual Meeting.
AFTER TAKING A VOTE ON THE DISPOSITION, THE ELECTION OF DIRECTORS, THE
RATIFICATION OF THE INDEPENDENT AUDITORS AND SUCH OTHER BUSINESS AS MAY
PROPERLY COME BEFORE THE ANNUAL MEETING, THE ANNUAL MEETING WILL BE ADJOURNED.
PETRIE AND TOYS "R" US BELIEVE THAT, IN LIGHT OF THE TRADITIONAL IMPORTANCE OF
SALES RESULTS OF TOYS "R" US DURING THE HOLIDAY SEASON, A VOTE ON THE EXCHANGE
AND THE LIQUIDATION SHOULD NOT OCCUR UNTIL PETRIE'S SHAREHOLDERS HAVE HAD AN
OPPORTUNITY TO CONSIDER SUCH SALES RESULTS. ACCORDINGLY, THIS PROXY
STATEMENT/PROSPECTUS WILL BE SUPPLEMENTED TO INCLUDE SUCH SALES RESULTS ONCE
THEY ARE AVAILABLE AND THE ANNUAL MEETING WILL BE RECONVENED, ON OR ABOUT
JANUARY 20, 1995, TO VOTE ON THE EXCHANGE AND THE LIQUIDATION. A NEW PROXY
CARD, RELATING ONLY TO THE EXCHANGE AND THE LIQUIDATION, WILL BE FURNISHED TO
PETRIE'S SHAREHOLDERS ALONG WITH THE SUPPLEMENT TO THIS PROXY
STATEMENT/PROSPECTUS. PROXIES VOTED IN FAVOR OF THE EXCHANGE AND THE
LIQUIDATION MAY BE REVOKED BY, AMONG OTHER THINGS, DELIVERING A DULY EXECUTED
LATER DATED PROXY TO THE SECRETARY OF PETRIE AT OR BEFORE THE TAKING OF THE
VOTE AT THE RECONVENED ANNUAL MEETING. SEE "THE MEETING--PROXIES."
YOUR BOARD OF DIRECTORS HAS DETERMINED THAT EACH OF THE DISPOSITION, THE
EXCHANGE AND THE LIQUIDATION IS FAIR TO AND IN THE BEST INTEREST OF PETRIE AND
ITS SHAREHOLDERS, HAS APPROVED EACH OF THE DISPOSITION, THE EXCHANGE AND THE
LIQUIDATION AND RECOMMENDS THAT SHAREHOLDERS VOTE FOR APPROVAL OF EACH OF THE
DISPOSITION, THE EXCHANGE AND THE LIQUIDATION. In arriving at its
determination, Petrie's Board of Directors reviewed possible alternatives to
the Transaction, including, without limitation, the continued ownership by
Petrie of both the Toys Shares and the Retail Operations, and considered
numerous factors, including, but not limited to, the following: (i) the adverse
implications to Petrie of the potential requirement to register as an
investment company under the Investment Company Act of 1940, as amended (the
"1940 Act"); (ii) the business, financial condition, management and prospects
of Petrie and the retail industry in general; (iii) the fact that over recent
years the market value of the Toys Shares held by Petrie and certain
subsidiaries of
<PAGE>
Petrie has exceeded the aggregate enterprise value of Petrie (market value of
Petrie common stock, par value $1.00 per share ("Petrie Common Stock") plus
Petrie's debt less Petrie's cash); (iv) the Petrie Board of Directors' belief
that the Transaction would provide Petrie shareholders with a more liquid
investment by giving them a direct interest in Toys Common Stock, which has a
higher trading volume, a higher market capitalization and more holders than
Petrie Common Stock and which does not include a controlling block; and (v) the
ability to consummate the Transaction in a manner that allows Petrie
shareholders to exchange their Petrie shares for Toys Common Stock without the
recognition of taxable income by either Petrie or its shareholders. Petrie's
Board of Directors found it impracticable to, and, therefore, did not, quantify
or otherwise assign specific or relative weights to the above factors in its
consideration of the Transaction, and, instead, considered the various above
factors in their totality. The Exchange and the Liquidation are conditioned
upon, among other things, the receipt by Petrie of a ruling from the Internal
Revenue Service to the effect that the exchange of shares with Toys "R" Us will
be tax-free to Petrie and its shareholders, and the reduction by Petrie, to its
satisfaction, of its contingent liabilities.
UNLESS EACH OF THE DISPOSITION, THE EXCHANGE AND THE LIQUIDATION IS APPROVED
BY PETRIE SHAREHOLDERS, THE AGGREGATE BENEFITS THEREFROM WILL NOT BE REALIZED.
THEREFORE, PETRIE'S BOARD OF DIRECTORS RECOMMENDS THAT PETRIE SHAREHOLDERS VOTE
IN FAVOR OF EACH SUCH PROPOSAL.
Petrie has entered into a definitive agreement with WP Investors, Inc., a
Delaware corporation and an affiliate of E.M. Warburg, Pincus & Co., Inc. ("WP
Investors"), pursuant to which WP Investors and its designees will purchase the
Retail Operations (the "Retail Operations Stock Purchase Agreement"). Such sale
(the "Retail Operations Stock Purchase") would constitute the Disposition. THE
RETAIL OPERATIONS STOCK PURCHASE IS EXPECTED TO BE CONSUMMATED, SUBJECT TO
CERTAIN CONDITIONS, SOON AFTER SHAREHOLDER APPROVAL OF THE DISPOSITION, WHETHER
OR NOT THE IRS RULING HAS BEEN RECEIVED OR THE EXCHANGE AND LIQUIDATION ARE
EITHER ULTIMATELY APPROVED BY PETRIE'S SHAREHOLDERS OR CONSUMMATED. See "THE
RETAIL OPERATIONS STOCK PURCHASE AGREEMENT--Certain Conditions." However,
consummation of the Disposition is a condition to the consummation of the
Exchange and the Liquidation. Therefore, if the sale of the Retail Operations
to WP Investors is not consummated, Petrie may choose to sell the Retail
Operations to another party or effect the Disposition in another form, all of
the foregoing as may be determined by Petrie's Board of Directors to be in the
best interest of Petrie and its shareholders. Your approval of the Disposition
will provide Petrie's Board of Directors with the authority to effect the
Disposition in whatever form, including, without limitation, the Retail
Operations Stock Purchase, that Petrie's Board of Directors deems appropriate
and in the best interest of Petrie and its shareholders, and no further
shareholder approval will be sought with respect to the Disposition. However,
in the event that the Retail Operations Stock Purchase is not consummated
following shareholder approval, and Petrie's Board of Directors chooses to
effect the Disposition in another form, if such form of Disposition may have a
material adverse impact on shareholders, when compared to the Retail Operations
Stock Purchase, Petrie will resolicit approval from its shareholders. Based on
estimated net proceeds to Petrie from the Retail Operations Stock Purchase of
approximately $180 million (after the expenses associated with the Transaction
of approximately $10 million) and the book value of the Retail Operations at
July 30, 1994, Petrie would recognize a loss for financial reporting purposes
on the Retail Operations Stock Purchase of approximately $400 million, or
approximately $8.55 per share if all of Petrie's convertible debentures were
redeemed, or approximately $7.63 per share if all of Petrie's convertible
debentures were converted. See "THE TRANSACTION--Accounting Treatment."
In arriving at its determination to approve the Disposition, Petrie's Board
of Directors considered numerous factors, including, without limitation, the
following: (i) information relating to the business, assets, competitive
position, management and prospects of Petrie and the retail industry in
general; (ii) the relative operating performance of the Retail Operations when
compared to data for publicly-traded specialty retail companies; and (iii) the
fact that Milton Petrie is no longer active in the management of Petrie. In
arriving at its determination to approve the Retail Operations Stock Purchase
Agreement and the Retail Operations Stock Purchase, Petrie's Board of Directors
considered numerous factors, including, without limitation, the following: (i)
Bear, Stearns and Co. Inc.'s ("Bear Stearns") opinion to the effect that the
Retail Operations Stock Purchase is fair, from a financial point of view, to
Petrie shareholders; (ii) the fact that, out of the
<PAGE>
fifteen parties that had expressed interest in the Retail Operations, the bid
presented by WP Investors was the highest and most attractive; and (iii) the
terms of the Retail Operations Stock Purchase Agreement, including the cash
price to be paid and the amount of liabilities to be transferred to and
assumed by Retail Holding Company (as defined herein). Petrie's Board of
Directors found it impracticable to, and, therefore, did not, quantify or
otherwise assign specific or relative weights to the above factors in its
consideration of Disposition and the Retail Operations Stock Purchase, and,
instead, considered the various above factors in their totality. In
considering the recommendation of Petrie's Board of Directors to approve the
Disposition, Petrie shareholders should be aware that certain members of
Petrie's management and the Petrie Board of Directors have interests in the
Retail Operations Stock Purchase that are in addition to the interests of
Petrie shareholders generally. It is presently anticipated that Allan
Laufgraben, Vice Chairman, President, Chief Executive Officer and a director
of Petrie and Peter A. Left, Vice Chairman, Chief Operating Officer, Chief
Financial Officer, Secretary and a director of Petrie will be investors in
Retail Holding Company. Other members of Petrie's senior management may be
invited, in the future, to invest in Retail Holding Company. It is also
presently anticipated that Messrs. Laufgraben and Left and other members of
Petrie's senior management will enter into employment agreements with Retail
Holding Company which will become effective upon the consummation of the
Retail Operations Stock Purchase. See "THE DISPOSITION--Interests of Certain
Persons in the Retail Operations Stock Purchase." In addition, two members of
Petrie's Board of Directors abstained from the vote approving the Retail
Operations Stock Purchase because each believed that he had a conflict of
interest. See "THE DISPOSITION--Reasons for the Disposition and the Retail
Operations Stock Purchase."
Based on the assumptions that, as of the Exchange Closing Date, (i) Petrie
will have 52.416 million shares of Petrie Common Stock outstanding (if all of
Petrie's outstanding convertible debentures were converted); (ii) Petrie will
hold 36.527 million shares of Toys Common Stock at the consummation of the
Exchange; (iii) Petrie will have reduced its contingent liabilities to $200
million and determined to retain $125 million in the Liquidating Trust, in the
form of cash or Toys Common Stock; (iv) the net proceeds from the Disposition,
after related transaction expenses, will have yielded approximately $180
million to Petrie and (v) the average of the high and low reported
consolidated trading sales prices on the New York Stock Exchange ("NYSE") of
Toys Common Stock during the ten trading days next preceding the second
trading day prior to the Exchange Closing Date will be between $30 and $40 per
share, as a result of the liquidation and dissolution of Petrie, Petrie
shareholders will receive distributions of between approximately $22 and $29
worth of Toys Common Stock for each share of Petrie Common Stock owned. In
addition, Petrie shareholders will receive pro rata interests in the
Liquidating Trust. Based upon the assumptions set forth above, the Liquidating
Trust will initially be funded with Toys Common Stock having a value of
approximately $2.38 for each share of Petrie Common Stock owned. In addition
to receiving distributions assumed to be between approximately $22 and $29
worth of Toys Common Stock for each share of Petrie Common Stock owned, Petrie
shareholders will receive interests in the Liquidating Trust that may be
worth, depending upon the amount of Petrie's contingent liabilities that
become actual liabilities, approximately $2.38 for each share of Petrie Common
Stock owned or that may have little or no value. THERE CAN BE NO ASSURANCES AS
TO THE AMOUNT OF PETRIE'S CONTINGENT LIABILITIES, THE SIZE OF THE LIQUIDATING
TRUST OR THE VALUES SET FORTH ABOVE, WHICH ARE PRESENTED FOR ILLUSTRATIVE
PURPOSES ONLY. ACTUAL VALUES MAY VARY SUBSTANTIALLY. See "COMPARATIVE PER
SHARE DATA."
Your Board of Directors recommends that you vote FOR the nominees for
election as directors and FOR the ratification of the selection of David
Berdon & Co. as Petrie's independent auditors for the fiscal year ending
January 28, 1995. If each part of the Transaction is approved by Petrie's
shareholders, and the other conditions to the consummation of the Transaction
are satisfied, the Petrie directors elected at the Annual Meeting will serve
in such capacity only until the consummation of the liquidation and
dissolution of Petrie.
Details of the Disposition, the Exchange and the Liquidation and other
important information concerning Petrie and Toys "R" Us, as well as the other
items of business scheduled for the Annual Meeting, appear in the accompanying
Proxy Statement/Prospectus. Please give this material your careful attention.
<PAGE>
Whether or not you plan to attend the Annual Meeting, please complete, sign
and date the enclosed proxy card and mail it promptly using the enclosed pre-
addressed, postage-paid, return envelope. If you attend the Annual Meeting, you
may vote in person if you wish, even if you have previously returned your proxy
card. Your prompt attention will be greatly appreciated.
Sincerely,
/s/ Allan Laufgraben /s/ Peter A. Left
Allan Laufgraben Peter A. Left
Vice Chairman, President Vice Chairman, Chief
and Chief Executive Officer Operating Officer, Chief
Financial Officer and
Secretary
<PAGE>
PETRIE STORES CORPORATION
70 ENTERPRISE AVENUE
SECAUCUS, NEW JERSEY 07094
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON DECEMBER 6, 1994
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The 1994 Annual Meeting of Shareholders of Petrie Stores Corporation, a New
York corporation ("Petrie"), will be held at the offices of Skadden, Arps,
Slate, Meagher & Flom, 33rd Floor, 919 Third Avenue, New York, New York, on
Tuesday, December 6, 1994, at 9:00 a.m., local time, and any adjournment or
postponement thereof (the "Annual Meeting"), for the following purposes:
1. To approve the disposition of Petrie's retail store operations (the
"Disposition");
2. To elect twelve directors to hold office until the next annual meeting
and until their successors are elected and qualified;
3. To ratify the selection of David Berdon & Co. as Petrie's independent
auditors for the fiscal year ending January 28, 1995;
4. To approve the exchange (the "Exchange") with Toys "R" Us of all of
the shares of Toys Common Stock, held by certain subsidiaries of Petrie
(currently, approximately 39.9 million shares) and cash (presently
estimated to be approximately $180 million) for a number of shares of Toys
Common Stock equal to (a) the number of shares of Toys Common Stock held by
Petrie and certain subsidiaries of Petrie, less approximately 3.3 million
shares of Toys Common Stock, plus (b) such amount of cash divided by the
market value of a share of Toys Common Stock, pursuant to an Acquisition
Agreement, dated as of April 20, 1994, between Toys "R" Us and Petrie, as
amended on May 10, 1994 (the "Toys Acquisition Agreement");
5. To approve the establishment of a liquidating trust and the complete
liquidation and dissolution of Petrie (the "Liquidation"); and
6. To transact such other business as may properly come before the Annual
Meeting.
After taking a vote on the Disposition, the election of directors, the
ratification of the independent auditors and such other business as may
properly come before the Annual Meeting, the Annual Meeting will be adjourned.
Petrie and Toys "R" Us believe that, in light of the traditional importance of
sales results of Toys "R" Us during the holiday season, a vote on the Exchange
and the Liquidation should not occur until Petrie's shareholders have had an
opportunity to consider such sales results. Accordingly, this Proxy
Statement/Prospectus will be supplemented to include such sales results once
they are available and the Annual Meeting will be reconvened, on or about
January 20, 1995, to vote on the Exchange and the Liquidation. A new proxy
card, relating only to the Exchange and the Liquidation, will be furnished to
Petrie's shareholders along with the supplement to this Proxy
Statement/Prospectus. Proxies voted in favor of the Exchange and the
Liquidation may be revoked by, among other things, delivering a duly executed
later dated proxy to the Secretary of Petrie at or before the taking of the
vote at the reconvened Annual Meeting. See "THE MEETING--Proxies."
Approval of the Disposition and the Exchange will constitute approval by
Petrie shareholders in accordance with Section 909 of the New York Business
Corporation Law ("NYBCL") of the sale of all or substantially all of the assets
of Petrie. Approval of the Liquidation will constitute approval by Petrie
shareholders in accordance with Section 1001 of the NYBCL of the dissolution of
Petrie, and adoption by Petrie of the Plan of Liquidation and Dissolution
attached hereto as Annex C, pursuant to which the Liquidating Trust will
succeed to the remaining assets and liabilities of Petrie.
<PAGE>
UNLESS EACH OF THE DISPOSITION, THE EXCHANGE AND THE LIQUIDATION IS APPROVED
BY PETRIE SHAREHOLDERS, THE AGGREGATE BENEFITS THEREFROM WILL NOT BE REALIZED.
THEREFORE, PETRIE'S BOARD OF DIRECTORS RECOMMENDS THAT PETRIE SHAREHOLDERS VOTE
IN FAVOR OF EACH SUCH PROPOSAL.
The Board of Directors of Petrie has fixed the close of business on October
31, 1994, as the record date (the "Meeting Record Date") for the determination
of the shareholders entitled to notice of and to vote at the Annual Meeting.
Accordingly, only holders of record of Petrie Common Stock at the close of
business on the Meeting Record Date shall be entitled to vote at the Annual
Meeting, either by proxy or in person. Each share of Petrie Common Stock is
entitled to one vote on each matter to be acted upon or which may properly come
before the Annual Meeting.
Whether or not you plan to attend the Annual Meeting, please complete, sign
and date the enclosed proxy card and mail it promptly using the enclosed pre-
addressed, postage-paid, return envelope. If you attend the Annual Meeting, you
may vote in person if you wish, even if you have previously returned your proxy
card. Your prompt attention is appreciated.
By order of the Board of
Directors,
/s/ Peter A. Left
Peter A. Left,
Vice Chairman, Chief Operating
Officer, Chief Financial
Officer and Secretary
November 3, 1994
YOUR VOTE IS IMPORTANT. TO VOTE YOUR SHARES, PLEASE COMPLETE, SIGN AND DATE THE
ENCLOSED PROXY CARD AND MAIL IT PROMPTLY USING THE ENCLOSED PRE-ADDRESSED,
POSTAGE-PAID, RETURN ENVELOPE.
<PAGE>
PETRIE STORES CORPORATION
70 ENTERPRISE AVENUE
SECAUCUS, NEW JERSEY 07094
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PROXY STATEMENT
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43,700,000 SHARES
TOYS "R" US, INC.
COMMON STOCK
PROSPECTUS
---------------
This Proxy Statement/Prospectus is being furnished to holders of Petrie
Common Stock, in connection with the solicitation of proxies by Petrie's Board
of Directors for use at the Annual Meeting of Petrie shareholders to be held
at the offices of Skadden, Arps, Slate, Meagher & Flom, 33rd Floor, 919 Third
Avenue, New York, New York, on Tuesday, December 6, 1994, at 9:00 a.m., local
time, and at any adjournment or postponement thereof. After taking a vote on
the Disposition, the election of directors, the ratification of the
independent auditors and such other business as may properly come before the
Annual Meeting, the Annual Meeting will be adjourned. Petrie and Toys "R" Us
believe that, in light of the traditional importance of sales results of Toys
"R" Us during the holiday season, a vote on the Exchange and the Liquidation
should not occur until Petrie's shareholders have had an opportunity to
consider such sales results. Accordingly, this Proxy Statement/Prospectus will
be supplemented and mailed to shareholders, on or about January 9, 1995, to
include, among other things, (i) unaudited Toys "R" Us sales results for the
1994 holiday selling season as compared to the 1993 holiday selling season,
and (ii) Toys "R" Us' year-to-date sales results, as compared to the 1993
period, and the Annual Meeting will be reconvened, on or about January 20,
1995, to vote on the Exchange and the Liquidation. A new proxy card, relating
only to the Exchange and the Liquidation, will be furnished to Petrie's
shareholders along with the supplement to this Proxy Statement/Prospectus.
Proxies voted in favor of the Exchange and the Liquidation may be revoked by,
among other things, delivering a duly executed later dated proxy to the
Secretary of Petrie at or before the taking of the vote at the reconvened
Annual Meeting. See "THE MEETING--Proxies."
This Proxy Statement/Prospectus constitutes a prospectus of Toys "R" Us,
Inc. with respect to up to 43,700,000 shares of Toys Common Stock to be issued
in connection with the exchange with Toys "R" Us of all of the shares of Toys
Common Stock held by Petrie and certain subsidiaries of Petrie (currently,
approximately 39.9 million shares) and cash (presently estimated to be $180
million) for a number of shares of Toys Common Stock equal to (i) the Toys
Shares, less approximately 3.3 million shares of Toys Common Stock, plus (ii)
such amount of cash divided by the market value of Toys Common Stock, pursuant
to the Toys Acquisition Agreement, which will be preceded by the disposition
of Petrie's retail store operations and followed by the complete liquidation
and dissolution of Petrie and the establishment of the Liquidating Trust. As
promptly as practicable following the consummation of the Exchange and the
Disposition, Petrie shall distribute to each of its shareholders of record as
of a date to be set by Petrie's Board of Directors, (i) such shareholder's pro
rata share of the shares of Toys Common Stock received by Petrie in the
Exchange, other than such shares as are set aside in escrow to provide for the
payment of liabilities of Petrie and its subsidiaries, and (ii) such
shareholder's pro rata interest in the Liquidating Trust.
All information contained in this Proxy Statement/Prospectus relating to
Petrie and its subsidiaries has been supplied by Petrie, and all information
relating to Toys "R" Us and its subsidiaries has been supplied by Toys "R" Us.
If there are any material changes to the Transaction, as such is described
in this Proxy Statement/Prospectus, including, but not limited to, the failure
to receive the IRS Ruling by December 5, 1994, the receipt of a ruling from
the Internal Revenue Service that materially differs from that described under
"THE TRANSACTION--Certain Federal Tax Consequences," or if there are material
changes in or information as to either Petrie or Toys "R" Us (or either of
their subsidiaries or affiliates), in each case prior to the Annual Meeting,
Toys "R" Us will file a post-effective amendment to the registration statement
of which this Proxy Statement/Prospectus forms a part and Petrie will
supplement this Proxy Statement/Prospectus. A new proxy card will be furnished
to Petrie's shareholders along with such supplement and, if necessary, the
Annual Meeting will be postponed in order to give shareholders adequate time
to consider the information in such supplement. Proxies may be revoked by,
among other things, delivering a duly executed later dated proxy to the
Secretary of Petrie at or before the taking of the vote at the Annual Meeting.
See "THE MEETING--Proxies."
All members of Petrie's Board of Directors present, at its April 20, 1994
meeting approved each of the Disposition, the Exchange and the Liquidation
and, at its November 1, 1994 meeting, apart from one director who abstained
with respect to the Exchange, the Disposition and the Liquidation because he
believed that he had a potential conflict of interest, resolved to recommend
that Petrie shareholders vote in favor of each such proposal. All members of
Petrie's Board of Directors present at its August 23, 1994 meeting, other than
two directors who abstained because each believed that he had a potential
conflict of interest, approved the Retail Operations Stock Purchase.
---------------
THE SECURITIES TO BE ISSUED PURSUANT TO THIS PROXY STATEMENT/ PROSPECTUS 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
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------
This Proxy Statement/Prospectus and the accompanying form of proxy card are
first being mailed to shareholders of Petrie on or about November 3, 1994.
THE DATE OF THIS PROXY STATEMENT/PROSPECTUS IS NOVEMBER 3, 1994.
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS IN
CONNECTION WITH THE SOLICITATION OF PROXIES OR THE OFFERING OF SECURITIES MADE
HEREBY AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY PETRIE, TOYS "R" US OR ANY OTHER
PERSON. THIS PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL,
OR A SOLICITATION OF AN OFFER TO BUY, ANY SECURITIES, OR THE SOLICITATION OF A
PROXY, IN ANY JURISDICTION, TO OR FROM ANY PERSON TO WHOM IT IS NOT LAWFUL TO
MAKE ANY SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY
OF THIS PROXY STATEMENT/PROSPECTUS NOR ANY DISTRIBUTION OF SECURITIES MADE
HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE AN IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF PETRIE OR TOYS "R" US SINCE THE DATE HEREOF OR
THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
AVAILABLE INFORMATION
Petrie and Toys "R" Us are each subject to the informational requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, file periodic reports and other information with the
Securities and Exchange Commission (the "Commission"). Such reports and other
information filed may be inspected and copied at the public reference
facilities maintained by the Commission at Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549 and at the regional offices of the
Commission located at 7 World Trade Center, New York, New York 10007 and 500
West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of all or any
part of such materials also may be obtained from the Public Reference Section
of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at
prescribed rates. In addition, reports, proxy statements and other information
concerning Petrie and Toys "R" Us may be inspected at the offices of the New
York Stock Exchange ("NYSE"), 20 Broad Street, New York, New York 10005.
Toys "R" Us has filed with the Commission a Registration Statement on Form S-
4 (together with any amendments or supplements thereto, the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities
Act"), with respect to the securities to be issued pursuant to the Toys
Acquisition Agreement. This Proxy Statement/Prospectus does not contain all of
the information set forth in the Registration Statement, certain portions of
which have been omitted as permitted by the rules and regulations of the
Commission. The Registration Statement, the exhibits and the schedules thereto
may be inspected by anyone without charge at the principal office of the
Commission in Washington, D.C. and copies of all or part of it may be obtained
from the Commission upon payment of the prescribed fees. Statements made in
this Proxy Statement/Prospectus as to the contents of any agreement or other
document are not necessarily complete, and in each instance reference is made
to the copy of such agreement or document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference and the exhibits and schedules thereto.
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents which have been filed with the Commission by Petrie
pursuant to the Exchange Act are incorporated by reference in this Proxy
Statement/Prospectus:
(1) Annual Report on Form 10-K for the fiscal year ended January 29, 1994
("Petrie Annual Report").
(2) Quarterly Reports on Form 10-Q for the fiscal quarters ended April 30,
1994 and July 30, 1994.
(3) Current Report on Form 8-K dated April 20, 1994.
(4) Current Report on Form 8-K/A dated April 20, 1994.
(5) Current Report on Form 8-K dated August 26, 1994.
(6) All documents subsequently filed by Petrie pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act prior to the Annual Meeting or
any adjournment thereof.
The following documents which have been filed with the Commission by Toys "R"
Us pursuant to the Exchange Act are incorporated by reference in this Proxy
Statement/Prospectus:
(1) Annual Report on Form 10-K for the fiscal year ended January 29, 1994
("Toys "R' Us Annual Report").
(2) Quarterly Reports on Form 10-Q for the fiscal quarters ended April 30,
1994 and July 30, 1994.
(3) All documents subsequently filed by Toys "R" Us pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act prior to the Annual
Meeting or any adjournment thereof.
(4) The description of the capital stock of Toys "R" Us contained in Item 1
of its Registration Statement on Form 8-A filed with the Commission on
June 13, 1979, including any amendment or reports filed for the purpose
of updating such description.
Any statement incorporated by reference herein shall be deemed to be modified
or superseded for purposes of this Proxy Statement/Prospectus to the extent
that a statement contained herein or in any other subsequently filed document
which 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 of this Proxy
Statement/Prospectus.
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES BY REFERENCE DOCUMENTS RELATING
TO PETRIE AND TOYS "R" US WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH.
THESE DOCUMENTS (NOT INCLUDING EXHIBITS TO SUCH DOCUMENTS OTHER THAN EXHIBITS
SPECIFICALLY INCORPORATED BY REFERENCE INTO SUCH DOCUMENTS) ARE AVAILABLE TO
ANY PERSON, INCLUDING ANY BENEFICIAL OWNER, TO WHOM THIS PROXY
STATEMENT/PROSPECTUS IS DELIVERED, UPON WRITTEN OR ORAL REQUEST. REQUESTS FOR
SUCH DOCUMENTS RELATING TO PETRIE SHOULD BE DIRECTED TO PETER A. LEFT, VICE
CHAIRMAN, CHIEF OPERATING OFFICER, CHIEF FINANCIAL OFFICER AND SECRETARY,
PETRIE STORES CORPORATION, 70 ENTERPRISE AVENUE, SECAUCUS, NEW JERSEY 07094,
TELEPHONE NUMBER (201) 866-3600, AND DOCUMENTS RELATING TO TOYS "R" US TO LOUIS
LIPSCHITZ, SENIOR VICE PRESIDENT--FINANCE AND CHIEF FINANCIAL OFFICER, TOYS "R"
US, INC., 461 FROM ROAD, PARAMUS, NEW JERSEY 07652, TELEPHONE NUMBER (201) 262-
7800. IN ORDER TO ENSURE TIMELY DELIVERY OF ANY REQUESTED DOCUMENT, REQUESTS
SHOULD BE MADE BY NOVEMBER 17, 1994.
3
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THE EXCHANGE AND THE LIQUIDATION ARE CONDITIONED UPON, AMONG OTHER THINGS,
(1) THE APPROVAL THEREOF BY THE HOLDERS OF TWO-THIRDS OF OUTSTANDING PETRIE
COMMON STOCK, (2) THE RECEIPT BY PETRIE AND TOYS "R" US OF A PRIVATE LETTER
RULING FROM THE INTERNAL REVENUE SERVICE (THE "IRS RULING") IN FORM AND
SUBSTANCE REASONABLY SATISFACTORY TO EACH PARTY THAT CERTAIN ASPECTS OF THE
TRANSACTION WILL BE TAX-FREE TO PETRIE, TOYS "R" US AND PETRIE SHAREHOLDERS,
(3) THE CONSUMMATION OF THE DISPOSITION OF PETRIE'S RETAIL OPERATIONS IN A
MANNER CONTEMPLATED BY THE FOREGOING RULING AND (4) THE REASONABLE
DETERMINATION BY TOYS "R" US THAT IT WILL NOT BECOME RESPONSIBLE FOR ANY
LIABILITIES OF PETRIE AS A CONSEQUENCE OF THE CONSUMMATION OF THE TRANSACTION.
EACH OF THE EXCHANGE AND THE LIQUIDATION MAY BE TERMINATED IF THEY ARE NOT
CONSUMMATED BY JANUARY 28, 1995 (OR BY NOVEMBER 15, 1994 IF THE IRS RULING HAS
NOT BEEN RECEIVED OR IF PETRIE HAS NOT WAIVED ITS RIGHT OF TERMINATION AS SET
FORTH IN THE FOLLOWING SENTENCE). IF THE IRS RULING IS NOT RECEIVED IN
SUBSTANTIALLY THE FORM DESCRIBED IN THIS PROXY STATEMENT/PROSPECTUS, AND THE
BOARD OF DIRECTORS OF EACH OF PETRIE AND TOYS "R" US DETERMINE IN ANY EVENT TO
CONSUMMATE THE EXCHANGE AND THE LIQUIDATION BASED ON THE IRS RULING IN THE
FORM RECEIVED OR BASED ON AN OPINION OF COUNSEL, PETRIE SHAREHOLDERS WILL BE
FURNISHED WITH A NEW PROXY CARD RELATING TO THE DISPOSITION, THE EXCHANGE AND
THE LIQUIDATION AND PROVIDED WITH A SUPPLEMENT TO THIS PROXY
STATEMENT/PROSPECTUS DESCRIBING AN OPINION OF PETRIE'S COUNSEL AS TO THE
MATERIAL TAX CONSEQUENCES OF THE EXCHANGE AND THE LIQUIDATION, AND, IF
NECESSARY, THE ANNUAL MEETING WILL BE POSTPONED IN ORDER TO GIVE SHAREHOLDERS
ADEQUATE TIME TO CONSIDER THE INFORMATION IN SUCH SUPPLEMENT. SUCH OPINION
WILL BE FILED BY POST-EFFECTIVE AMENDMENT AS AN EXHIBIT TO THE REGISTRATION
STATEMENT OF WHICH THIS PROXY STATEMENT/PROSPECTUS FORMS A PART. THE EXCHANGE
AND THE LIQUIDATION MAY ALSO BE TERMINATED IF PETRIE REASONABLY DETERMINES
THAT ITS AND ITS SUBSIDIARIES' CONTINGENT LIABILITIES HAVE NOT BEEN REDUCED
BELOW $200 MILLION.
THE DISPOSITION IS CONDITIONED UPON, AMONG OTHER THINGS, APPROVAL THEREOF BY
THE HOLDERS OF TWO-THIRDS OF THE SHARES OF OUTSTANDING PETRIE COMMON STOCK. IN
THE EVENT THAT THE DISPOSITION DOES NOT OCCUR, PETRIE WILL CONTINUE TO OPERATE
ITS RETAIL STORES.
IF PETRIE'S SHAREHOLDERS VOTE TO APPROVE THE DISPOSITION, PETRIE'S BOARD OF
DIRECTORS WILL BE OBLIGATED TO PROCEED WITH THE DISPOSITION PURSUANT TO THE
RETAIL OPERATIONS STOCK PURCHASE AGREEMENT, WHETHER OR NOT THE IRS RULING IS
RECEIVED OR THE EXCHANGE AND THE LIQUIDATION ARE EITHER ULTIMATELY APPROVED BY
PETRIE'S SHAREHOLDERS OR CONSUMMATED. IF THE SALE OF THE RETAIL OPERATIONS TO
WP INVESTORS IS NOT CONSUMMATED, PETRIE MAY CHOOSE TO SELL THE RETAIL
OPERATIONS TO ANOTHER PARTY OR EFFECT THE DISPOSITION IN ANOTHER FORM, ALL OF
THE FOREGOING AS MAY BE DETERMINED BY PETRIE'S BOARD OF DIRECTORS TO BE IN THE
BEST INTEREST OF PETRIE AND ITS SHAREHOLDERS, AND NO FURTHER SHAREHOLDER
APPROVAL WILL BE SOUGHT WITH RESPECT TO THE DISPOSITION. HOWEVER, IN THE EVENT
THAT THE RETAIL OPERATIONS STOCK PURCHASE IS NOT CONSUMMATED FOLLOWING
SHAREHOLDER APPROVAL, AND PETRIE'S BOARD OF DIRECTORS CHOOSES TO EFFECT THE
DISPOSITION IN ANOTHER FORM, IF SUCH FORM OF DISPOSITION MAY HAVE A MATERIAL
ADVERSE IMPACT ON SHAREHOLDERS, WHEN COMPARED TO THE RETAIL OPERATIONS STOCK
PURCHASE, PETRIE WILL RESOLICIT APPROVAL FROM ITS SHAREHOLDERS. IF THE
DISPOSITION IS CONSUMMATED, AND THE EXCHANGE AND THE LIQUIDATION ARE NOT
CONSUMMATED, PETRIE'S SHAREHOLDERS WOULD THEN OWN SHARES IN A COMPANY WHOSE
SOLE ASSETS WOULD BE CASH AND TOYS COMMON STOCK. PETRIE'S BOARD OF DIRECTORS
HAS NOT YET CONSIDERED HOW IT WOULD MANAGE PETRIE IF THE DISPOSITION IS
CONSUMMATED BUT THE EXCHANGE AND THE LIQUIDATION ARE NOT. HOWEVER, PETRIE MAY
BE REQUIRED TO REGISTER AS A CLOSED-END INVESTMENT COMPANY UNDER THE 1940 ACT
IF IT DOES NOT PROMPTLY INVEST A SUFFICIENT AMOUNT OF ITS ASSETS SUCH THAT IT
IS PRIMARILY ENGAGED IN BUSINESSES OTHER THAN INVESTING, REINVESTING AND
TRADING IN, OR OWNING OR HOLDING INVESTMENT SECURITIES. ALTHOUGH IT IS NOT
POSSIBLE TO QUANTIFY THE PER SHARE VALUE OF PETRIE COMMON STOCK WERE PETRIE TO
BECOME AN INVESTMENT COMPANY, IT IS EXPECTED THAT SUCH COMMON STOCK, LIKE THE
COMMON STOCK OF CLOSED-END INVESTMENT COMPANIES GENERALLY, COULD TRADE AT A
DISCOUNT FROM THE VALUE OF ITS UNDERLYING ASSETS, WHICH INITIALLY WOULD
CONSIST PRIMARILY OF TOYS COMMON STOCK. SEE "THE DISPOSITION--INVESTMENT
COMPANY CONSIDERATIONS."
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IN THE EVENT THAT THE DISPOSITION IS CONSUMMATED AND THE EXCHANGE AND
LIQUIDATION ARE NOT, PETRIE INTENDS, IF NECESSARY, TO USE A PORTION OF THE NET
PROCEEDS FROM THE DISPOSITION TO REDEEM ITS 8% CONVERTIBLE SUBORDINATED
DEBENTURES DUE DECEMBER 15, 2010 (THE "CONVERTIBLE DEBENTURES"). BASED ON
RECENT TRADING PRICES OF PETRIE COMMON STOCK, HOWEVER, IT IS EXPECTED THAT
HOLDERS OF THE CONVERTIBLE DEBENTURES WILL ELECT TO CONVERT THEIR CONVERTIBLE
DEBENTURES INTO SHARES OF PETRIE COMMON STOCK ONCE PETRIE CALLS THE
CONVERTIBLE DEBENTURES FOR REDEMPTION. IF THE PRICE OF PETRIE COMMON STOCK
WERE TO DECLINE BELOW THE CONVERSION VALUE OF $23.18 PER SHARE ON OR ABOUT THE
REDEMPTION DATE, IT IS EXPECTED THAT HOLDERS OF THE CONVERTIBLE DEBENTURES
WOULD NOT CONVERT THEIR CONVERTIBLE DEBENTURES AND PETRIE WOULD REDEEM ALL OF
THE OUTSTANDING CONVERTIBLE DEBENTURES. IN SUCH CASE, A PORTION OF THE NET
PROCEEDS FROM THE DISPOSITION WOULD BE USED TO FUND SUCH REDEMPTION. IF ALL OF
THE OUTSTANDING CONVERTIBLE DEBENTURES WERE REDEEMED ON DECEMBER 14, 1994, THE
AGGREGATE AMOUNT NECESSARY FOR REDEMPTION WOULD BE $129,681,635 (INCLUDING
$4,923,491 FOR ACCRUED INTEREST FROM JUNE 15, 1994 TO DECEMBER 14, 1994). SEE
"COMPARATIVE PER SHARE DATA." PETRIE HAS NOT DETERMINED HOW IT WILL USE THE
REMAINING NET PROCEEDS FROM THE DISPOSITION AFTER APPLYING SOME OF SUCH
PROCEEDS FOR THE REDEMPTION OF THE CONVERTIBLE DEBENTURES, OR HOW IT WOULD USE
ALL OF SUCH PROCEEDS IN THE EVENT HOLDERS OF THE CONVERTIBLE DEBENTURES
ELECTED TO CONVERT THEIR CONVERTIBLE DEBENTURES INTO SHARES OF PETRIE COMMON
STOCK. ACCORDINGLY, THE EFFECTS ON PETRIE SHAREHOLDERS IN SUCH EVENTS ARE NOT
PRESENTLY DETERMINABLE.
IF THERE ARE ANY MATERIAL CHANGES TO THE TRANSACTION, AS SUCH IS DESCRIBED
IN THIS PROXY STATEMENT/PROSPECTUS, INCLUDING, BUT NOT LIMITED TO, THE FAILURE
TO RECEIVE THE IRS RULING BY DECEMBER 5, 1994, THE RECEIPT OF A RULING FROM
THE INTERNAL REVENUE SERVICE THAT MATERIALLY DIFFERS FROM THAT DESCRIBED UNDER
"THE TRANSACTION--CERTAIN FEDERAL TAX CONSEQUENCES," OR IF THERE ARE MATERIAL
CHANGES IN OR INFORMATION AS TO EITHER PETRIE OR TOYS "R" US (OR EITHER OF
THEIR SUBSIDIARIES OR AFFILIATES), IN EACH CASE PRIOR TO THE ANNUAL MEETING,
TOYS "R" US WILL FILE A POST-EFFECTIVE AMENDMENT TO THE REGISTRATION STATEMENT
OF WHICH THIS PROXY STATEMENT/PROSPECTUS FORMS A PART AND PETRIE WILL
SUPPLEMENT THIS PROXY STATEMENT/PROSPECTUS. A NEW PROXY CARD WILL BE FURNISHED
TO PETRIE'S SHAREHOLDERS ALONG WITH SUCH SUPPLEMENT AND, IF NECESSARY, THE
ANNUAL MEETING WILL BE POSTPONED IN ORDER TO GIVE SHAREHOLDERS ADEQUATE TIME
TO CONSIDER THE INFORMATION IN SUCH SUPPLEMENT. PROXIES MAY BE REVOKED BY,
AMONG OTHER THINGS, DELIVERING A DULY EXECUTED LATER DATED PROXY TO THE
SECRETARY OF PETRIE AT OR BEFORE THE TAKING OF THE VOTE AT THE ANNUAL MEETING.
SEE "THE MEETING--PROXIES."
5
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TABLE OF CONTENTS
<TABLE>
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AVAILABLE INFORMATION..................................................... 2
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE........................... 3
SUMMARY................................................................... 9
TOYS "R" US SELECTED HISTORICAL FINANCIAL DATA............................ 24
PETRIE SELECTED HISTORICAL FINANCIAL DATA................................. 25
COMPARATIVE PER SHARE DATA................................................ 26
COMPARATIVE MARKET PRICE DATA............................................. 28
THE MEETING............................................................... 29
General................................................................. 29
Matters to be Considered at the Meeting................................. 29
Recommendations of Petrie's Board of Directors.......................... 30
Voting at the Meeting; Meeting Record Date.............................. 30
Proxies................................................................. 31
THE TRANSACTION........................................................... 33
Background of the Transaction........................................... 34
Transfer of Retail Operations to Retail Holding Company and Toys Shares
to Petrie.............................................................. 35
Contingent Liabilities.................................................. 35
Reasons for the Transaction............................................. 36
Certain Federal Income Tax Consequences................................. 37
Accounting Treatment.................................................... 39
Convertible Debentures.................................................. 40
Rights of Dissenting Shareholders....................................... 41
THE DISPOSITION........................................................... 44
General................................................................. 44
Sale of Retail Holding Company.......................................... 44
Rights Offering......................................................... 45
Reasons for the Disposition and the Retail Operations Stock Purchase.... 45
Opinion of Petrie Financial Advisor..................................... 46
Interests of Certain Persons in the Retail Operations Stock Purchase.... 49
Investment Company Considerations....................................... 50
Certain Litigation...................................................... 50
THE RETAIL OPERATIONS STOCK PURCHASE AGREEMENT............................ 52
The Retail Operations Stock Purchase.................................... 52
Retail Operations Purchase Price; Assumption of Liabilities............. 52
Representations and Warranties.......................................... 53
Certain Covenants....................................................... 53
Certain Conditions...................................................... 56
Termination............................................................. 56
Expenses................................................................ 57
Amendment; Waiver....................................................... 57
THE EXCHANGE.............................................................. 58
THE TOYS ACQUISITION AGREEMENT............................................ 58
The Acquisition......................................................... 58
Purchase Consideration.................................................. 59
No Assumption of Liabilities; Indemnification........................... 59
Representations and Warranties.......................................... 59
Certain Covenants....................................................... 60
Certain Conditions...................................................... 61
Termination............................................................. 62
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Amendment; Waiver...................................................... 62
THE LIQUIDATION AND DISSOLUTION.......................................... 63
THE PLAN OF LIQUIDATION AND DISSOLUTION.................................. 65
Distributions from the Liquidating Trust............................... 65
Delisting of Petrie Common Stock Following Distribution Record Date.... 65
Liquidating Trust...................................................... 65
DESCRIPTION OF PETRIE CAPITAL STOCK...................................... 68
COMPARISON OF SHAREHOLDER RIGHTS......................................... 68
Capital Stock.......................................................... 68
Amendments of Certificate of Incorporation............................. 69
Amendments of By-laws.................................................. 69
Number and Election of Directors....................................... 70
Cumulative Voting in the Election of Directors......................... 70
Removal of Directors................................................... 71
Newly-Created Directorships and Vacancies.............................. 71
Vote Required for Mergers.............................................. 72
Dissenters' Rights..................................................... 72
Business Combinations.................................................. 73
Limitations on Directors' Liability.................................... 74
Director and Officer Indemnification................................... 74
Loans to Directors and Officers........................................ 75
Special Meetings....................................................... 75
Notice of Meetings..................................................... 76
Shareholder Action by Written Consent.................................. 76
Payment of Dividends................................................... 76
Warrants or Options.................................................... 76
Compromises or Arrangements............................................ 76
Shareholder Rights Plan................................................ 77
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS, DIRECTORS AND MANAGEMENT
OF PETRIE............................................................... 77
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS, DIRECTORS AND MANAGEMENT
OF TOYS "R" US.......................................................... 78
NOMINEES FOR ELECTION AS DIRECTORS OF PETRIE............................. 79
MEETINGS AND STANDING COMMITTEES OF PETRIE'S BOARD OF DIRECTORS.......... 81
MANAGEMENT OF PETRIE..................................................... 82
EXECUTIVE COMPENSATION OF PETRIE......................................... 85
General................................................................ 85
Options................................................................ 86
Defined Benefit Plans.................................................. 86
Directors' Compensation................................................ 87
Employment Agreements.................................................. 87
Compensation Committee Interlocks and Insider Participation............ 88
Petrie Board of Directors' Report On Executive Compensation............ 88
PERFORMANCE GRAPH........................................................ 89
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS........................... 90
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT OF 1934................ 90
RATIFICATION OF SELECTION OF PETRIE'S INDEPENDENT AUDITORS............... 90
</TABLE>
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OTHER MATTERS............................................................. 91
SHAREHOLDER PROPOSALS..................................................... 91
LEGAL MATTERS............................................................. 91
EXPERTS................................................................... 91
GLOSSARY.................................................................. 92
ANNEX A Retail Operations Stock Purchase Agreement........................ A-1
ANNEX B Toys Acquisition Agreement........................................ B-1
ANNEX C Form of Plan of Liquidation and Dissolution....................... C-1
ANNEX D Form of Liquidating Trust Agreement............................... D-1
ANNEX E Form of Escrow Agreement.......................................... E-1
ANNEX F Opinion of Bear, Stearns & Co. Inc. .............................. F-1
ANNEX G Text of Section 623 of the New York Business Corporation Law...... G-1
</TABLE>
8
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SUMMARY
The following is a summary of certain information contained elsewhere in this
Proxy Statement/Prospectus, including the Annexes hereto, which are a part of
this Proxy Statement/Prospectus. Reference is made to, and this summary is
qualified in its entirety by, the more detailed information contained in this
Proxy Statement/Prospectus. Unless otherwise defined herein, capitalized terms
used in this summary have the respective meanings ascribed to them in the
Glossary or elsewhere in this Proxy Statement/Prospectus. Shareholders are
urged to read this Proxy Statement/Prospectus in its entirety.
THE COMPANIES
Petrie Stores
Corporation............... Petrie and its subsidiaries operate, as of
September 30, 1994, a chain of approximately 1,674
stores, principally under the trade names
"Petrie's," "Marianne," "M.J. Carroll," "Stuarts,"
"Hartfield's," "Winkelman's," "Jean Nicole," "G&G,"
"Rave" and "Plus' Size." The stores sell a full
selection of women's apparel at moderate prices to
teen, junior and contemporary miss customers and
are located in 49 states, Puerto Rico, the U.S.
Virgin Islands and the District of Columbia. The
principal executive offices of Petrie are located
at 70 Enterprise Avenue, Secaucus, New Jersey
07094, and its telephone number is (201) 866-3600.
Toys "R" Us, Inc. ........ Toys "R" Us and its subsidiaries are principally
engaged in the operation, as of September 30, 1994,
of approximately 1,059 children's specialty retail
stores consisting of approximately 591 United
States and 264 international toy stores under the
name "Toys "R' Us" and approximately 204 children's
clothing stores under the name "Kids "R' Us." The
principal executive offices of Toys "R" Us are
located at 461 From Road, Paramus, New Jersey
07652, and its telephone number is (201) 262-7800.
THE MEETING
Time, Date and Place...... The Annual Meeting will be held at the offices of
Skadden, Arps, Slate, Meagher & Flom, 33rd Floor,
919 Third Avenue, New York, New York, on Tuesday,
December 6, 1994, at 9:00 a.m., local time, and any
adjournment or postponement thereof. After taking a
vote on the Disposition, the election of directors,
the ratification of the independent auditors and
such other business as may properly come before the
Annual Meeting, the Annual Meeting will be
adjourned. Petrie and Toys "R" Us believe that, in
light of the traditional importance of sales
results of Toys "R" Us during the holiday season, a
vote on the Exchange and the Liquidation should not
occur until Petrie's shareholders have had an
opportunity to consider such sales results.
Accordingly, this Proxy Statement/Prospectus will
be supplemented and mailed to shareholders, on or
about January 9, 1995, to include, among other
things, (i) unaudited Toys "R" Us sales results for
the 1994 holiday selling season as compared to the
1993 holiday selling season, and (ii) Toys "R" Us'
year-to-date sales results, as compared to the 1993
period, and the Annual Meeting will be reconvened,
on or about January 20, 1995, to vote on the
Exchange and the Liquidation.
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Record Date; Shares
Entitled to Vote......... Shareholders of record of Petrie Common Stock at
the close of business on October 31, 1994, are
entitled to notice of and to vote at the Annual
Meeting. At such date, there were approximately
46,838,776 outstanding shares of Petrie Common
Stock, each of which will be entitled to one vote
on each matter to be acted upon or which may
properly come before the Annual Meeting, and such
shares were held by approximately 3,418 holders of
record.
Purpose of the Meeting.... The purpose of the Annual Meeting is to consider
and vote upon:
(i) the disposition of Petrie's retail store
operations;
(ii) the exchange with Toys "R" Us of all of the
shares of Toys Common Stock held by Petrie and
certain subsidiaries of Petrie (currently,
approximately 39.9 million shares) and cash
(presently estimated to be approximately $180
million) for a number of shares of Toys Common
Stock equal to (1) the Toys Shares, less
approximately 3.3 million shares of Toys Common
Stock, plus (2) such amount of cash divided by the
market value of a share of Toys Common Stock (the
Toys Shares and such cash, the "Exchange Assets"),
pursuant to the Toys Acquisition Agreement;
(iii) the complete liquidation and dissolution of
Petrie and the distribution to Petrie shareholders
of the shares of Toys Common Stock received by
Petrie in the Exchange other than such shares as
are set aside in one or more escrow accounts to
provide for the payment of liabilities of Petrie
and its subsidiaries, and the establishment of the
Liquidating Trust and the distribution to Petrie
shareholders of pro rata interests in the
Liquidating Trust pursuant to a Plan of Liquidation
and Dissolution, one or more Escrow Agreements, and
a Liquidating Trust Agreement to be adopted hereby;
(iv) the election of twelve directors to hold
office until the next annual meeting and until
their successors are duly elected and qualified;
(v) the ratification of the selection of David
Berdon & Co. as Petrie's independent auditors for
the fiscal year ending January 28, 1995; and
(vi) such other business as may properly come
before the Annual Meeting and any adjournment or
postponement thereof.
Approval of the Disposition and the Exchange will
constitute approval by Petrie shareholders, in
accordance with Section 909 of the New York
Business Corporation Law (the "NYBCL"), of the sale
of all or substantially all of the assets of
Petrie.
Approval of the Disposition will provide Petrie's
Board of Directors with the authority to effect the
Disposition in whatever form, including, without
limitation, the Retail Operation Stock Purchase,
that Petrie's Board of Directors deems appropriate
and in the best interest of Petrie and its
shareholders, and no further shareholder approval
will be sought with respect to the Disposition.
However,
10
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in the event that the Retail Operations Stock
Purchase is not consummated following shareholder
approval, and Petrie's Board of Directors chooses
to effect the Disposition in another form, if such
form of Disposition may have a material adverse
impact on shareholders, when compared to the Retail
Operations Stock Purchase, Petrie will resolicit
approval from its shareholders.
Approval of the Liquidation will constitute
approval by Petrie shareholders, in accordance with
Section 1001 of the NYBCL, of the dissolution of
Petrie, and of the adoption by Petrie of the Plan
of Liquidation and Dissolution, the Escrow
Agreements, and the Liquidating Trust Agreement.
The terms of the Plan of Liquidation and
Dissolution, the Escrow Agreements and the
Liquidating Trust Agreement are subject to such
modifications as are deemed necessary by Petrie's
Board of Directors to receive, and thereafter
comply with, the IRS Ruling.
The consummation of the Transaction will allow
Petrie's shareholders to realize the value of
Petrie's longstanding stake in Toys Common Stock,
as well as the value of Petrie's retail store
operations. If Petrie's shareholders vote to
approve the Disposition, Petrie will be obligated
to proceed with the Disposition pursuant to the
Retail Operations Stock Purchase Agreement, whether
or not the IRS Ruling is received or the Exchange
and the Liquidation are either ultimately approved
by Petrie's shareholders or consummated. If the
sale of the Retail Operations to WP Investors is
not consummated, Petrie may choose to sell the
Retail Operations to another party or effect the
Disposition in another form, all of the foregoing
as may be determined by Petrie's Board of Directors
to be in the best interest of Petrie and its
shareholders, and no further shareholder approval
will be sought with respect to the Disposition.
However, in the event that the Retail Operations
Stock Purchase is not consummated following
shareholder approval, and Petrie's Board of
Directors chooses to effect the Disposition in
another form, if such form of Disposition may have
a material adverse impact on shareholders, when
compared to the Retail Operations Stock Purchase,
Petrie will resolicit approval from its
shareholders.
Votes Required............ The approval of each of the Disposition, the
Exchange and the Liquidation will require the
affirmative vote of two-thirds of all outstanding
shares of Petrie Common Stock entitled to vote
thereon. Concurrently with the execution and
delivery of the Toys Acquisition Agreement on April
20, 1994, Milton Petrie, by act of his attorneys-
in-fact, executed and delivered to Toys "R" Us a
Voting Agreement and Proxy (the "Toys Voting
Agreement"), pursuant to which Mr. Petrie, the
record and beneficial owner on the record date of
28,111,274 shares of Petrie Common Stock
(approximately 60 percent of the outstanding Petrie
Common Stock), has agreed to vote, or execute a
consent with respect to, such shares, in favor of
each part of the Transaction and has granted Toys
"R" Us an irrevocable proxy to exercise all voting,
consent and other rights to approve each
11
<PAGE>
part of the Transaction. As a condition to the
execution and delivery of the Toys Voting
Agreement, Mr. Petrie's attorneys-in-fact required
of Petrie's Board of Directors, and Petrie's Board
of Directors agreed, that the Disposition would not
be effected other than in a form that such
attorneys-in-fact found acceptable. Concurrently
with the execution and delivery of the Retail
Operations Stock Purchase Agreement on August 23,
1994, which agreement was found by Mr. Petrie's
attorneys-in-fact to be an acceptable form of the
Disposition, Mr. Petrie, by act of his attorneys-
in-fact, also executed and delivered to WP
Investors a Voting Agreement and Proxy (the "WP
Investors Voting Agreement") pursuant to which he
has agreed to vote, or execute a consent with
respect to, his shares in favor of the Retail
Operations Stock Purchase Agreement and has granted
WP Investors an irrevocable proxy to exercise all
voting, consent and other rights to approve the
Retail Operations Stock Purchase Agreement. The WP
Investors Voting Agreement, which has been
consented and agreed to by Toys "R" Us, provides
that as long as the Toys Voting Agreement remains
in effect and Toys "R" Us has not received notice
that the Retail Operations Stock Purchase Agreement
has been terminated, Toys "R" Us will exercise, and
refrain from exercising, its powers pursuant to the
Toys Voting Agreement so that Mr. Petrie's shares
of Petrie Common Stock will be voted in favor of
the Retail Operations Stock Purchase Agreement. The
presence, in person or by properly executed proxy,
of Mr. Petrie's shares of Petrie Common Stock will
satisfy the quorum required at the Annual Meeting.
Mr. Petrie has not been paid any consideration for
entering into any voting agreement related to the
Transaction.
The election of the directors nominated will
require a plurality of the votes cast in person or
by proxy at the Annual Meeting by holders of Petrie
Common Stock.
Ratification of the selection of David Berdon & Co.
as Petrie's independent auditors will require the
affirmative vote of a majority of the votes cast in
person or by proxy at the Annual Meeting by holders
of Petrie Common Stock.
ALL PROPERLY EXECUTED PROXIES VOTED FOR THE
EXCHANGE AND THE LIQUIDATION PRIOR TO THE
TABULATION OF THE VOTE AT THE RECONVENED ANNUAL
MEETING WILL BE VOTED FOR THE EXCHANGE AND THE
LIQUIDATION AT THE RECONVENED ANNUAL MEETING UNLESS
OTHERWISE REVOKED OR REVOTED BY (I) DELIVERING A
WRITTEN NOTICE OF REVOCATION TO THE SECRETARY OF
PETRIE, (II) SUBMITTING A DULY EXECUTED LATER DATED
PROXY OR (III) ATTENDING THE RECONVENED ANNUAL
MEETING AND VOTING IN PERSON. PROXIES RECEIVED BY
PETRIE WITH RESPECT TO THE EXCHANGE AND THE
LIQUIDATION WILL NOT BE
12
<PAGE>
TABULATED UNTIL THE TAKING OF THE VOTE AT THE
RECONVENED ANNUAL MEETING.
UNLESS EACH OF THE DISPOSITION, THE EXCHANGE AND
THE LIQUIDATION IS APPROVED BY PETRIE SHAREHOLDERS,
THE AGGREGATE BENEFITS THEREFROM WILL NOT BE
REALIZED. THEREFORE, PETRIE'S BOARD OF DIRECTORS
RECOMMENDS THAT ITS SHAREHOLDERS VOTE IN FAVOR OF
EACH SUCH PROPOSAL. IF PETRIE'S SHAREHOLDERS VOTE
TO APPROVE THE DISPOSITION, PETRIE WILL BE
OBLIGATED TO PROCEED WITH THE DISPOSITION PURSUANT
TO THE RETAIL OPERATIONS STOCK PURCHASE AGREEMENT,
WHETHER OR NOT THE IRS RULING IS RECEIVED OR THE
EXCHANGE AND THE LIQUIDATION ARE EITHER ULTIMATELY
APPROVED BY PETRIE'S SHAREHOLDERS OR CONSUMMATED.
IF THE SALE OF THE RETAIL OPERATIONS TO WP
INVESTORS IS NOT CONSUMMATED, PETRIE MAY CHOOSE TO
SELL THE RETAIL OPERATIONS TO ANOTHER PARTY OR
EFFECT THE DISPOSITION IN ANOTHER FORM, ALL OF THE
FOREGOING AS MAY BE DETERMINED BY PETRIE'S BOARD OF
DIRECTORS TO BE IN THE BEST INTEREST OF PETRIE AND
ITS SHAREHOLDERS, AND NO FURTHER SHAREHOLDER
APPROVAL WILL BE SOUGHT WITH RESPECT TO THE
DISPOSITION. HOWEVER, IN THE EVENT THAT THE RETAIL
OPERATIONS STOCK PURCHASE IS NOT CONSUMMATED
FOLLOWING SHAREHOLDER APPROVAL, AND PETRIE'S BOARD
OF DIRECTORS CHOOSES TO EFFECT THE DISPOSITION IN
ANOTHER FORM, IF SUCH FORM OF DISPOSITION MAY HAVE
A MATERIAL ADVERSE IMPACT ON SHAREHOLDERS, WHEN
COMPARED TO THE RETAIL OPERATIONS STOCK PURCHASE,
PETRIE WILL RESOLICIT APPROVAL FROM ITS
SHAREHOLDERS. IF THE DISPOSITION IS CONSUMMATED,
AND THE EXCHANGE AND THE LIQUIDATION ARE NOT
CONSUMMATED, PETRIE'S SHAREHOLDERS WOULD THEN OWN
SHARES IN A COMPANY WHOSE SOLE ASSETS WOULD BE CASH
AND TOYS COMMON STOCK. PETRIE'S BOARD OF DIRECTORS
HAS NOT YET CONSIDERED HOW IT WOULD MANAGE PETRIE
IF THE DISPOSITION IS CONSUMMATED BUT THE EXCHANGE
AND THE LIQUIDATION ARE NOT. HOWEVER, PETRIE MAY BE
REQUIRED TO REGISTER AS A CLOSED-END INVESTMENT
COMPANY UNDER THE 1940 ACT IF IT DOES NOT PROMPTLY
INVEST A SUFFICIENT AMOUNT OF ITS ASSETS SUCH THAT
IT IS PRIMARILY ENGAGED IN BUSINESSES OTHER THAN
INVESTING, REINVESTING AND TRADING IN, OR OWNING OR
HOLDING INVESTMENT SECURITIES. ALTHOUGH IT IS NOT
POSSIBLE TO QUANTIFY THE PER SHARE VALUE OF PETRIE
COMMON STOCK WERE PETRIE TO BECOME AN INVESTMENT
COMPANY, IT IS EXPECTED THAT SUCH COMMON STOCK,
LIKE THE COMMON STOCK OF CLOSED-END INVESTMENT
COMPANIES GENERALLY, COULD TRADE AT A DISCOUNT FROM
THE VALUE OF ITS UNDERLYING ASSETS, WHICH INITIALLY
WOULD CONSIST PRIMARILY OF TOYS COMMON STOCK. SEE
"THE DISPOSITION--INVESTMENT COMPANY
CONSIDERATIONS."
THE TRANSACTION
General................... The Transaction is composed of three separate
actions to be approved by Petrie shareholders and
consists of the following: (i) the Disposition;
(ii) the Exchange; and (iii) the Liquidation.
Background of the
Transaction............... See "THE TRANSACTION--Background of the
Transaction."
13
<PAGE>
Comparative Per Share
Data................ The following chart sets forth the market value of
the Toys Common Stock to be received by Petrie
shareholders as an initial liquidating distribution
by Petrie for each share of Petrie Common Stock
held, based on the assumptions that, as of the
Closing Date, (i) if all of the outstanding
Convertible Debentures were converted, Petrie would
have 52.416 million shares of Petrie Common Stock
outstanding or if all of the outstanding
Convertible Debentures were redeemed, Petrie would
have 46.769 million shares of Petrie Common Stock
outstanding; (ii) Petrie will hold 36.527 million
shares of Toys Common Stock at the consummation of
the Exchange; (iii) Petrie will have reduced its
contingent liabilities to $200 million and
determined to retain $125 million in the
Liquidating Trust (in the form of cash or Toys
Common Stock); (iv) the net proceeds from the
Disposition will have yielded approximately $180
million to Petrie; and (v) the average of the high
and low reported consolidated trading sales prices
on the NYSE of Toys Common Stock during the ten
trading days next preceding the second trading day
prior to the Closing Date are as set forth below.
In addition, Petrie shareholders will receive their
pro rata share of the Liquidating Trust. Based upon
the assumptions set forth above, the Liquidating
Trust will (i) have an aggregate of $125 million in
assets and $200 million in contingent liabilities
and (ii) initially be funded with Toys Common Stock
having a value of approximately $2.38 for each
share of Petrie Common Stock owned, if all of the
outstanding Convertible Debentures were converted,
or approximately $2.67 for each share of Petrie
Common Stock owned, if all of the outstanding
Convertible Debentures were redeemed. Depending
upon the amount of Petrie's contingent liabilities
which become actual liabilities, the interests of
Petrie shareholders in the Liquidating Trust may be
worth as much as approximately $2.38 for each share
of Petrie Common Stock owned or have little or no
value, if all of the outstanding Convertible
Debentures were converted, or approximately $2.67
for each share of Petrie Common Stock owned or may
have little or no value, if all of the outstanding
Convertible Debentures were redeemed. Petrie will
not distribute any fractional shares of Toys Common
Stock to its shareholders and in lieu thereof will
make a cash payment. THERE CAN BE NO ASSURANCES AS
TO THE AMOUNT OF PETRIE'S CONTINGENT LIABILITIES,
THE SIZE OF THE LIQUIDATING TRUST OR THE VALUES SET
FORTH IN THIS PARAGRAPH OR THE MATRIX BELOW, WHICH
ARE PRESENTED FOR ILLUSTRATIVE PURPOSES ONLY.
ACTUAL VALUES MAY VARY SUBSTANTIALLY. See
"COMPARATIVE PER SHARE DATA."
MARKET VALUE OF TOYS COMMON STOCK TO BE RECEIVED IN
EXCHANGE FOR EACH SHARE OF PETRIE COMMON STOCK
<TABLE>
<CAPTION>
WITH WITH
CONVERSION REDEMPTION
OF THE OF THE
MARKET VALUE PER SHARE OF CONVERTIBLE CONVERTIBLE
TOYS COMMON STOCK DEBENTURES DEBENTURES
------------------------- ----------- -----------
<S> <C> <C>
$30.............................. $21.96 $21.84
$35.............................. $25.44 $25.74
$40.............................. $28.92 $29.65
</TABLE>
14
<PAGE>
On October 31, 1994, the most recent practicable
date prior to the printing of this Proxy
Statement/Prospectus, the closing price per share
on the NYSE Composite Tape of Petrie Common Stock
was $26 1/8 and Toys Common Stock was $38 5/8.
Recommendation of the
Petrie Board of
Directors................ Petrie's Board of Directors has considered the
Disposition, the Exchange and the Liquidation and
has concluded that they are in the best interest of
Petrie and its shareholders. Petrie's Board of
Directors believes that the Transaction will allow
Petrie shareholders to realize the value of
Petrie's longstanding stake in Toys Common Stock,
as well as the value of Petrie's retail store
operations. Accordingly, at the April 20, 1994
meeting of the Petrie Board, all members of
Petrie's Board of Directors, other than Milton
Petrie, who was absent, approved each part of the
Transaction and, at its November 1, 1994 meeting,
other than Milton Petrie and Carroll Petrie, who
were absent, and other than Jay Galin who abstained
with respect to the Exchange, the Disposition and
the Liquidation because he believed that he had a
potential conflict of interest, resolved to
recommend that Petrie shareholders vote in favor of
each part of the Transaction. At the meeting of
Petrie's Board of Directors held on August 23,
1994, other than Jay Galin and Alan C. Greenberg,
who abstained because each believed that he had a
potential conflict of interest, and other than
Milton Petrie, who was absent, all members of
Petrie's Board of Directors approved the Retail
Operations Stock Purchase Agreement. Mr. Greenberg
informed Petrie's Board of Directors that, although
he was abstaining because his firm, Bear Stearns,
is advising Petrie's Board of Directors on the
Disposition and the Retail Operations Stock
Purchase, and is providing a fairness opinion with
respect to the Retail Operations Stock Purchase, he
strongly supported Petrie entering into the Retail
Operations Stock Purchase Agreement. At the meeting
of Petrie's Board of Directors held on November 1,
1994, other than Jay Galin, who abstained for the
same reasons given with respect to the Retail
Operations Stock Purchase Agreement, and other than
Milton Petrie and Carroll Petrie, who were absent,
all members of Petrie's Board of Directors approved
the Amendment No. 1 to the Retail Operations Stock
Purchase Agreement, dated as of November 3, 1994
(the "Amendment No. 1 to the Retail Operations
Stock Purchase Agreement"). If Petrie's
shareholders vote to approve the Disposition,
Petrie will be obligated to proceed with the
Disposition pursuant to the Retail Operations Stock
Purchase Agreement, whether or not the IRS Ruling
is received or the Exchange and the Liquidation are
either ultimately approved by Petrie's shareholders
or consummated. If the sale of the Retail
Operations to WP Investors is not consummated,
Petrie may choose to sell the Retail Operations to
another party or effect the Disposition in another
form, all of the foregoing as may be determined by
Petrie's Board of Directors to be in the best
interest of Petrie and its shareholders, and no
further shareholder approval will be sought
15
<PAGE>
with respect to the Disposition. However, in the
event that the Retail Operations Stock Purchase is
not consummated following shareholder approval, and
Petrie's Board of Directors chooses to effect the
Disposition in another form, if such form of
Disposition may have a material adverse impact on
shareholders, when compared to the Retail
Operations Stock Purchase, Petrie will resolicit
approval from its shareholders. See "THE
TRANSACTION--Reasons for the Transaction," "THE
DISPOSITION--Reasons for the Disposition and the
Retail Operations Stock Purchase," "THE
DISPOSITION--Opinion of Petrie Financial Advisor"
and "CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS."
Reasons for the
Transaction............... In arriving at its determination to approve the
Toys Acquisition Agreement and the Transaction, the
Petrie Board of Directors reviewed possible
alternatives to the Transaction, including, without
limitation, the continued ownership by Petrie of
both the Toys Shares and the Retail Operations and
considered numerous other factors, including,
without limitation, the following: (a) the adverse
implications to Petrie of the potential requirement
to register as an investment company under the 1940
Act; (b) the business, financial condition,
management and prospects of Petrie and the retail
industry in general; (c) the fact that over recent
years, the market value of the Toys Shares held by
Petrie and the Shareholding Subsidiaries (as
hereinafter defined) has exceeded the aggregate
enterprise value of Petrie (market value of Petrie
Common Stock plus Petrie's debt less Petrie's
cash); (d) its belief that the Transaction would
provide Petrie shareholders with a more liquid
investment by giving them a direct interest in
shares of Toys Common Stock, which has a higher
trading volume, a higher market capitalization and
more holders than Petrie Common Stock and which
does not include a controlling block; and (e) the
ability to consummate the Transaction in a manner
that allows Petrie shareholders to exchange their
shares of Petrie Common Stock for shares of Toys
Common Stock without the recognition of taxable
income by either Petrie or its shareholders. If one
share of Toys Common Stock were to have a market
value of $30, $35 or $40 at the time of the
Transaction, the tax savings to Petrie in
consummating the Transaction, net of the $115
million discount payable to Toys "R" Us in the
Exchange, as compared to an outright sale by Petrie
of the Toys Shares (based upon a combined federal
and state effective tax rate of 40%), would amount
to approximately $352, $432 or $512 million,
respectively, or approximately $7.53, $9.24 or
$10.94 per share, respectively, without taking into
account the conversion of Petrie's outstanding
convertible debentures, or approximately $6.72,
$8.24 or $9.76 per share, respectively, if all of
Petrie's outstanding convertible debentures were
converted. In addition, Petrie's Board of Directors
considered the fact that there could be no
assurances that, if Petrie did not enter into the
Toys Acquisition Agreement with Toys "R" Us at such
time, a similar or equally advantageous transaction
could be accomplished
16
<PAGE>
or agreed to in the future. Petrie's Board of
Directors found it impracticable to, and,
therefore, did not, quantify or otherwise assign
specific or relative weights to the foregoing
factors in its consideration of the Toys
Acquisition Agreement and the Transaction, and,
instead, considered the various above factors in
their totality. See "THE TRANSACTION--Reasons for
the Transaction."
In arriving at its determination to approve the
Disposition, Petrie's Board of Directors considered
numerous factors, including, without limitation,
the following: (i) information relating to the
business, assets, competitive position, management
and prospects of Petrie and the retail industry in
general; (ii) the relative operating performance of
the Retail Operations when compared to data for
publicly-traded specialty retail companies; and
(iii) the fact that Milton Petrie is no longer
active in the management of Petrie. In arriving at
its determination to approve the Retail Operations
Stock Purchase Agreement and the transactions
contemplated thereby (the "Retail Operations Stock
Purchase"), Petrie's Board of Directors considered
numerous factors, including, without limitation,
the following: (i) Bear, Stearns and Co. Inc.'s
("Bear Stearns") opinion to the effect that the
Retail Operations Stock Purchase is fair, from a
financial point of view, to Petrie shareholders;
(ii) the fact that, out of the fifteen parties that
had expressed interest in the Retail Operations,
the bid presented by WP Investors was the highest
and most attractive; and (iii) the terms of the
Retail Operations Stock Purchase Agreement,
including the cash price to be paid and the amount
of liabilities to be transferred to and assumed by
Retail Holding Company (as defined herein).
Petrie's Board of Directors found it impracticable
to, and, therefore, did not, quantify or otherwise
assign specific or relative weights to the above
factors in its consideration of the Disposition and
the Retail Operations Stock Purchase, and, instead,
considered the various above factors in their
totality. See "THE DISPOSITION--Reasons for the
Disposition and the Retail Operations Stock
Purchase."
Security Ownership and
Voting of Management and
Certain Other Persons.... As of September 30, 1994, directors and executive
officers of Petrie and its affiliates, as a group
(22 persons), may be deemed to beneficially own
approximately 28,831,000 shares of Petrie Common
Stock, constituting approximately 61.6 percent of
the outstanding shares of Petrie Common Stock
(approximately 54.9 percent on a fully diluted
basis). Milton Petrie, the record and beneficial
owner on the record date of 28,111,274 shares of
Petrie Common Stock (approximately 60 percent of
the outstanding Petrie Common Stock), by act of his
attorneys-in-fact, has agreed to vote, or execute a
consent with respect to, such shares in favor of
(i) the Disposition, the Exchange and the
Liquidation and has granted Toys "R" Us an
irrevocable proxy to exercise all voting, consent
and other rights to approve the Disposition, the
Exchange and the Liquidation and (ii)
17
<PAGE>
the Retail Operations Stock Purchase Agreement and
has granted WP Investors an irrevocable proxy to
exercise all voting, consent and other rights to
approve the Retail Operations Stock Purchase
Agreement.
Effective Time of the
Transaction.............. It is anticipated that the Transaction will be
consummated as promptly as is practical after the
requisite shareholder approval has been obtained
and all other conditions to the Transaction have
been satisfied or waived.
Conditions to the
Transaction; Termination
of the Transaction....... The Exchange and the Liquidation are conditioned
upon, among other things, (i) the approval thereof
by the holders of two-thirds of outstanding Petrie
Common Stock, (ii) the receipt by Petrie and Toys
"R" Us of the IRS Ruling described below, (iii) the
consummation of the Disposition in a manner
contemplated by the foregoing ruling and (iv) the
reasonable determination by Toys "R" Us that it
will not incur any liabilities as a consequence of
the consummation of the Transaction. Each of the
Exchange and the Liquidation may be terminated if
they are not consummated by January 28, 1995 (or by
November 15, 1994 if the IRS Ruling has not been
received or if Petrie has not waived its right of
termination as set forth below). If the IRS Ruling
is not received in substantially the form described
in this Proxy Statement/Prospectus, and the Board
of Directors of each of Petrie and Toys "R" Us
determine in any event to consummate the Exchange
and the Liquidation based on the IRS Ruling in the
form received or based on an opinion of counsel,
Petrie shareholders will be furnished with a new
proxy card relating to the Disposition, the
Exchange and the Liquidation and provided with a
supplement to this Proxy Statement/Prospectus
describing an opinion of Petrie's counsel as to the
material tax consequences of the Exchange and the
Liquidation, and, if necessary, the Annual Meeting
will be postponed in order to give shareholders
adequate time to consider the information in such
supplement. Such opinion will be filed by post-
effective amendment as an exhibit to the
registration statement of which this Proxy
Statement/Prospectus forms a part. The Exchange and
Liquidation may also be terminated if Petrie
reasonably determines that its and its
subsidiaries' contingent liabilities, primarily
liabilities related to lease obligations and a
multiemployer pension plan, have not been reduced
below $200 million. As of October 31, 1994, Petrie
believes that its and its subsidiaries' contingent
liabilities have been reduced to approximately $225
million. This number is only an estimate and the
actual amount of Petrie's and its subsidiaries'
contingent liabilities may vary substantially
therefrom. See "THE TOYS ACQUISITION AGREEMENT--
Certain Conditions."
The Disposition is conditioned upon, among other
things, (i) approval thereof by the holders of two-
thirds of outstanding Petrie Common Stock and (ii)
WP Investors having available to it for draw the
financing contemplated by the commitment letter,
dated as of November 3, 1994. In the event that the
Disposition does not occur,
18
<PAGE>
Petrie will continue to operate its retail stores.
If Petrie's shareholders vote to approve the
Disposition, Petrie will be obligated to proceed
with the Disposition pursuant to the Retail
Operations Stock Purchase Agreement, whether or not
the IRS Ruling is received or the Exchange and the
Liquidation are either ultimately approved by
Petrie's shareholders or consummated. If the sale
of the Retail Operations to WP Investors is not
consummated, Petrie may choose to sell the Retail
Operations to another party or effect the
Disposition in another form, all of the foregoing
as may be determined by Petrie's Board of Directors
to be in the best interest of Petrie and its
shareholders, and no further shareholder approval
will be sought with respect to the Disposition.
However, in the event that the Retail Operations
Stock Purchase is not consummated following
shareholder approval, and Petrie's Board of
Directors chooses to effect the Disposition in
another form, if such form of Disposition may have
a material adverse impact on shareholders, when
compared to the Retail Operations Stock Purchase,
Petrie will resolicit approval from its
shareholders.
If there are any material changes to the
Transaction, as such is described in this Proxy
Statement/Prospectus, including, but not limited
to, the failure to receive the IRS Ruling by
December 5, 1994, the receipt of a ruling from the
Internal Revenue Service that materially differs
from that described under "THE TRANSACTION--Certain
Federal Tax Consequences," or if there are material
changes in or information as to either Petrie or
Toys "R" Us (or either of their subsidiaries or
affiliates), in each case prior to the Annual
Meeting, Toys "R" Us will file a post-effective
amendment to the registration statement of which
this Proxy Statement/ Prospectus forms a part and
Petrie will supplement this Proxy
Statement/Prospectus. A new proxy card will be
furnished to Petrie's shareholders along with such
supplement and, if necessary, the Annual Meeting
will be postponed in order to give shareholders
adequate time to consider the information in such
supplement. Proxies may be revoked by, among other
things, delivering a duly executed later dated
proxy to the Secretary of Petrie at or before the
taking of the vote at the Annual Meeting. See "THE
MEETING--Proxies."
Certain Relationships and
Related Transactions..... In considering the recommendation of Petrie's Board
of Directors with respect to the Transaction,
Petrie shareholders should be aware that if WP
Investors consummates the Retail Operations Stock
Purchase, certain members of Petrie's senior
management, including certain persons who are
directors of Petrie, may be investors in Retail
Holding Company (as defined herein) and such
persons may enter into employment agreements with
such company. Additionally, the Retail Operations
Stock Purchase Agreement provides that, from and
after the closing date of the Retail Operations
Stock Purchase, Retail Holding Company will
indemnify each Petrie nonemployee director and each
other director in his capacity as such from
19
<PAGE>
liabilities relating to the business of Retail
Holding Company other than the Excluded Liabilities
(as hereinafter defined). See "THE DISPOSITION--
Opinion of Petrie Financial Advisor," "THE
DISPOSITION--Interests of Certain Persons in the
Retail Operations Stock Purchase" and "CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS."
Call of Convertible
Debentures................ Prior to the consummation of the Transaction,
Petrie will call for the redemption of all of its
outstanding 8% Convertible Subordinated Debentures
due December 15, 2010 (the "Convertible
Debentures") at a redemption price of $1,008 plus
accrued interest for each $1,000 principal amount
of Convertible Debentures. Until the redemption
date, Convertible Debentures may be converted into
shares of Petrie Common Stock at a conversion price
of $22.125 per share (equivalent to 45.1977 shares
of Common Stock for each $1,000 principal amount of
Convertible Debentures). See "THE TRANSACTION--
Convertible Debentures."
Rights of Dissenting
Shareholders.............. Section 910 of the NYBCL provides that shareholders
who comply with the requirements of Section 623 of
the NYBCL are entitled to certain dissenters'
rights in connection with any merger or share
exchange, sale, exchange or other disposition of
all or substantially all of the assets of the
corporation and in connection with certain
reclassifications and other transactions which may
adversely affect the rights or preferences of
shareholders. A condition to consummation of the
Exchange and the Liquidation is that holders of no
more than 9.5 percent of the shares of Petrie
Common Stock outstanding on the Exchange Closing
Date shall have perfected dissenters' rights with
respect to the Transaction or the other
transactions contemplated by the Toys Acquisition
Agreement. Any Petrie shareholder electing to
exercise dissenters' rights with respect to the
Exchange must deliver to Petrie before the Annual
Meeting, or at such Annual Meeting but before the
vote on the Exchange is taken, a written objection
to the Exchange which shall include: (i) a notice
of such shareholder's election to dissent; (ii)
such shareholder's name and residence address;
(iii) the number of shares as to which such
shareholder dissents; and (iv) a demand for payment
of the fair value of such shareholder's Petrie
Common Stock if the Exchange is consummated. This
written objection must be in addition to and
separate from any proxy or vote against the
Exchange. ANY SHAREHOLDER WHO ELECTS TO EXERCISE
DISSENTERS' RIGHTS MUST NOT VOTE IN FAVOR OF THE
EXCHANGE. Because a proxy card left blank will,
unless revoked, be voted FOR the Exchange, in order
to be assured that such shareholder's Petrie Common
Stock is not voted in favor of the Exchange, a
shareholder electing to exercise dissenters' rights
who votes by proxy must not leave the proxy card
blank but must (i) vote AGAINST the Exchange or
(ii) ABSTAIN from voting for or against the
Exchange. Neither a vote against the Exchange nor a
proxy card directing such vote nor an abstention
will satisfy the requirement that a written
objection to the transaction be delivered to Petrie
before the vote upon the Exchange. See "THE
TRANSACTION--Rights of Dissenting Shareholders."
20
<PAGE>
Certain Federal Income
Tax Consequences......... A condition to the consummation of the Exchange and
the Liquidation is the receipt by Petrie and Toys
"R" Us of a favorable private letter ruling from
the Internal Revenue Service (the "IRS Ruling"),
upon which Petrie, Toys "R" Us and WP Investors
will be solely relying with respect to tax matters,
to the effect that the Exchange and the Liquidation
will together qualify as a tax-free reorganization
under Section 368(a)(1)(C) of the Internal Revenue
Code of 1986, as amended (the "Code"), and
specifically that Petrie shareholders will
generally not recognize gain or loss upon the
receipt of shares of Toys Common Stock in exchange
for shares of Petrie. Gain may be recognized,
however, to the extent that a Petrie shareholder is
deemed to receive property other than shares of
Toys Common Stock as a consequence of receiving an
interest in the Liquidating Trust (which would be
the case to the extent that cash is contributed to
the Liquidating Trust). Moreover, the IRS Ruling
would confirm that neither Petrie nor Toys "R" Us
will recognize any taxable income or gain as a
result of the Exchange, and that Petrie will not
recognize any taxable income or gain as a result of
the Liquidation. Finally, the IRS Ruling would
confirm that neither Petrie nor any of its
subsidiaries that currently own Toys Shares will
recognize any taxable income or gain as a result of
the liquidation of such subsidiaries. A copy of the
IRS Ruling will be filed as an exhibit to the
Registration Statement of which this Proxy
Statement/ Prospectus is a part when such ruling is
issued by the Internal Revenue Service. The IRS
Ruling may not be issued until after the Annual
Meeting. If there are any material changes to the
Transaction, as such is described in this Proxy
Statement/ Prospectus, including, but not limited
to, the failure to receive the IRS Ruling by
December 5, 1994, the receipt of a ruling from the
Internal Revenue Service that materially differs
from that described under "THE TRANSACTION--Certain
Federal Tax Consequences," or if there are material
changes in or information as to either Petrie or
Toys "R" Us (or either of their subsidiaries or
affiliates), in each case prior to the Annual
Meeting, Toys "R" Us will file a post-effective
amendment to the registration statement of which
this Proxy Statement/Prospectus forms a part and
Petrie will supplement this Proxy
Statement/Prospectus. A new proxy card will be
furnished to Petrie's shareholders along with such
supplement and, if necessary, the Annual Meeting
will be postponed in order to give shareholders
adequate time to consider the information in such
supplement. Proxies may be revoked by, among other
things, delivering a duly executed later dated
proxy to the Secretary of Petrie at or before the
taking of the vote at the Annual Meeting. See "THE
MEETING--Proxies." See "THE TRANSACTION--Certain
Federal Income Tax Consequences."
Accounting Treatment...... Based on estimated net proceeds to Petrie from the
Retail Operations Stock Purchase of approximately
$180 million (after the expenses associated with
the Transaction of approximately $10 million) and
the estimated book value of the Retail Operations
at July 30, 1994, Petrie
21
<PAGE>
would recognize a loss on the Disposition of
approximately $400 million, or $8.55 per share if
all of Petrie's convertible debentures were
redeemed, or approximately $7.63 per share if all
of Petrie's convertible debentures were converted.
See "THE TRANSACTION--Accounting Treatment."
Certain Litigation........ Petrie and certain members of its management and
Board of Directors have been named as defendants in
three class action complaints filed by persons
claiming to be Petrie shareholders. Each of the
complaints contends that Petrie's directors have
violated their fiduciary duties of loyalty and fair
dealing by, among other things, exclusively
negotiating with WP Investors for the sale of the
Retail Operations at an inadequate price and by
failing to explore other third-party interests in
the Retail Operations. The defendants believe that
the claims asserted in these complaints are without
merit and intend to defend them vigorously. See
"THE DISPOSITION--Certain Litigation."
Comparison of Shareholder
Rights................... If the Transaction is consummated, holders of
Petrie Common Stock will become holders of Toys
Common Stock, and their rights as holders of Toys
Common Stock will be governed by the laws of the
State of Delaware and the Restated Certificate of
Incorporation and By-laws of Toys "R" Us. Material
differences exist between the rights of holders of
Petrie Common Stock and holders of Toys Common
Stock. As Petrie is organized under the laws of the
State of New York, and Toys "R" Us is organized
under the laws of the State of Delaware, these
differences arise from differences in various
provisions of the corporate laws of such states as
well as from differences in various provisions of
the Restated Certificate of Incorporation and By-
laws of Petrie and the Restated Certificate of
Incorporation and By-laws of Toys "R" Us. For a
summary of such material differences, see
"COMPARISON OF SHAREHOLDER RIGHTS." Such material
differences include the following: (i) while
holders of Toys Common Stock are entitled to
cumulative voting rights in the election of
directors, holders of Petrie Common Stock are not
entitled to cumulative voting rights; (ii) while
under Delaware law, the affirmative vote of a
majority of a corporation's outstanding shares is
sufficient to approve a merger or sale of all or
substantially all of a corporation's assets or any
similar transaction, if not made in the usual
course of the business actually conducted by the
corporation, under New York law, the affirmative
vote of two-thirds of a corporation's shares is
required for such approval; and (iii) while under
Delaware law, any action required to be taken, or
which may be taken, at an annual meeting of
stockholders, may be taken without a vote at a
meeting upon the written consent of not less than
the minimum number of votes that would be necessary
to authorize or take such action at a meeting,
under New York law, generally, unless a
corporation's certificate of incorporation provides
otherwise (Petrie's Restated Certificate of
Incorporation does not so provide), the unanimous
written consent of all holders of the outstanding
common stock entitled to vote is required to
authorize action without a vote at a meeting.
22
<PAGE>
Revocability of Proxy..... Any proxy given pursuant to this solicitation may
be revoked by the person giving it at any time
before it is voted. Proxies may be revoked by (i)
filing with the Secretary of Petrie, at or before
the taking of the vote at the Annual Meeting, a
written notice of revocation bearing a later date
than the proxy; (ii) duly executing a later dated
proxy relating to the same shares and delivering it
to the Secretary of Petrie before the taking of the
vote at the Annual Meeting or (iii) attending the
Annual Meeting and voting in person (although
attendance at the Annual Meeting will not in and of
itself constitute a revocation of a proxy). Any
written notice of revocation or subsequent proxy
should be sent so as to be delivered to Petrie
Stores Corporation, 70 Enterprise Avenue, Secaucus,
New Jersey 07094, Attention: Secretary, or hand-
delivered to the Secretary of Petrie, at or before
the taking of the vote at the Annual Meeting.
ALL PROPERLY EXECUTED PROXIES VOTED FOR THE
EXCHANGE AND THE LIQUIDATION PRIOR TO THE
TABULATION OF THE VOTE AT THE RECONVENED ANNUAL
MEETING WILL BE VOTED FOR THE EXCHANGE AND THE
LIQUIDATION AT THE RECONVENED ANNUAL MEETING UNLESS
OTHERWISE REVOKED OR REVOTED BY (I) DELIVERING A
WRITTEN NOTICE OF REVOCATION TO THE SECRETARY OF
PETRIE, (II) SUBMITTING A DULY EXECUTED LATER DATED
PROXY OR (III) ATTENDING THE RECONVENED ANNUAL
MEETING AND VOTING IN PERSON. PROXIES RECEIVED BY
PETRIE WITH RESPECT TO THE EXCHANGE AND THE
LIQUIDATION WILL NOT BE TABULATED UNTIL THE TAKING
OF THE VOTE AT THE RECONVENED ANNUAL MEETING.
23
<PAGE>
TOYS "R" US SELECTED HISTORICAL FINANCIAL DATA
The following table presents selected historical financial data for the
periods indicated. The financial data for the five fiscal years ended January
29, 1994 have been derived from the audited consolidated financial statements
of Toys "R" Us for such periods. The financial data for the 26 weeks ended July
30, 1994 and July 31, 1993 are unaudited, but in the opinion of Toys "R" Us
reflect all adjustments (consisting only of normal recurring accruals)
necessary for a fair presentation of such data. The data for the 26 weeks ended
July 30, 1994 and July 31, 1993 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.
<TABLE>
<CAPTION>
26 WEEKS ENDED FISCAL YEAR ENDED
----------------- -----------------------------------------------------------
JULY 30, JULY 31, JANUARY 29, JANUARY 30, FEBRUARY 1, FEBRUARY 2, JANUARY 28,
1994 1993 1994 1993 1992 1991(1) 1990
-------- -------- ----------- ----------- ----------- ----------- -----------
(IN MILLIONS EXCEPT PER SHARE AMOUNTS AND AS NOTED)
<S> <C> <C> <C> <C> <C> <C> <C>
Net Sales............... $ 2,914 $ 2,603 $ 7,946 $ 7,169 $ 6,124 $ 5,510 $ 4,788
Net Earnings............ 76 71 483 438 340 326 321
Per Share Data:
Net Earnings.......... .26 .24 1.63 1.47 1.15 1.11 1.09
Cash Dividends........ -- -- -- -- -- -- --
Weighted Average
Number of Shares
Outstanding
(in thousands)....... 291,673 297,593 296,463 297,718 296,139 294,895 293,858
Total Assets............ 6,429 5,495 6,150 5,323 4,583 3,582 3,075
Long-Term Obligations... 755 688 724 671 391 195 173
</TABLE>
- - --------
(1) Fiscal Year ended February 2, 1991 was 53 weeks; all other years were 52
weeks.
24
<PAGE>
PETRIE SELECTED HISTORICAL FINANCIAL DATA
The following table presents selected historical financial data for the
periods indicated. The financial data for the five fiscal years ended January
29, 1994 have been derived from the audited consolidated financial statements
of Petrie for such periods. The financial data for the six months ended July
30, 1994 and July 31, 1993 are unaudited, but in the opinion of Petrie reflect
all adjustments (consisting only of normal recurring accruals) necessary for a
fair presentation of such data. The data for the six months ended July 30, 1994
and July 31, 1993 are not necessarily 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 Petrie incorporated by reference in this Proxy
Statement/Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED FISCAL YEAR ENDED
-------------------- ---------------------------------------------------------------
JULY 30, JULY 31, JANUARY 29, JANUARY 30, FEBRUARY 1, FEBRUARY 2, FEBRUARY 3,
1994 1993(1) 1994(2) 1993(4) 1992 1991 1990(5)
---------- -------- ----------- ----------- ----------- ----------- -----------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
Net Sales............... $ 697,912 $694,113 $1,480,071 $1,438,160 $1,354,525 $1,281,845 $1,257,522
Other Income............ 2,446 3,492 6,563 8,104 10,343 11,543 12,780
Earnings (Loss) From
Investments in Common
Stock.................. -- (13,661) (13,661) -- -- (16,676) 282
Earnings (Loss) From
Continuing Operations
Before Income Taxes and
Cumulative Effect of
Changes in Accounting
Principles............. (23,239) (66,227) (77,452) 23,042 25,603 (3,932) 53,410
Earnings (Loss) Before
Cumulative Effect of
Changes in Accounting
Principles............. (13,943) (38,873) (48,683) 14,842 16,005 2,996 32,265
---------- -------- ---------- ---------- ---------- ---------- ----------
Net Earnings (Loss).... $ (13,943) $(36,073) $ (37,998) $ 14,842 $ 16,005 $ 2,996 $ 32,265
---------- -------- ---------- ---------- ---------- ---------- ----------
Per Share Data:
Earnings (Loss) Before
Cumulative Effect of
Changes in Accounting
Principles............ $ (.30) $ (.83) $ (1.04) $ .32 $ .34 $ .06 $ .69
---------- -------- ---------- ---------- ---------- ---------- ----------
Net Earnings (Loss).... $ (.30) $ (.77) $ (.81) $ .32 $ .34 $ .06 $ .69
---------- -------- ---------- ---------- ---------- ---------- ----------
Cash Dividends......... $ (.10) $ (.10) $ .20 $ .20 $ .20 $ .20 $ .20
---------- -------- ---------- ---------- ---------- ---------- ----------
Weighted Average Number
of Shares............. 46,772 46,768 46,768 46,758 46,756 46,768 46,765
---------- -------- ---------- ---------- ---------- ---------- ----------
Total Assets............ $2,085,620 $882,636 $2,187,807(3) $ 906,062 $ 894,204 $ 890,717 $ 897,437
---------- -------- ---------- ---------- ---------- ---------- ----------
Long-Term Obligations... $ 124,811 $124,974 $ 124,952 $ 124,974 $ 124,974 $ 124,995 $ 125,234
---------- -------- ---------- ---------- ---------- ---------- ----------
</TABLE>
- - --------
(1) The results for the six months ended July 31, 1993 include the write-down
of Petrie's carrying value of its investment in Deb Shops Inc. of
$13,661,000 (net $8,261,000 or $.18 per share), a restructuring charge of
$35,000,000 (net $20,383,000 or $.44 per share) primarily due to the write-
down of fixed assets and lease settlements associated with expected store
closings and net income of $2,800,000 or $.06 per share as a result of
Petrie's adoption of Statement of Financial Accounting Standards No. 109
(Accounting for Income Taxes).
(2) Fiscal Year ended January 29, 1994 includes a restructuring charge of
$35,000,000 ($22,225,000 net of taxes or $.48 per share) and cumulative
effect of changes in accounting for investments and income taxes, which
decreased the net (loss) by $10,685,000 ($.23 per share).
(3) Total assets at January 29, 1994 includes an increase of $1,340,462,000 as
a result of carrying investments in common stock at a fair market value of
$1,517,677,000 due to the adoption of Statement of Financial Accounting
Standards No. 115 (Accounting for Certain Investments in Debt and Equity
Securities).
(4) Fiscal Year ended January 30, 1993 includes a charge against earnings in
connection with the granting of stock options to two executive officers
amounting to approximately $3,400,000 ($2,100,000 net of taxes or $.04 per
share).
(5) Fiscal Year ended February 3, 1990 was 53 weeks; all other years were 52
weeks.
25
<PAGE>
COMPARATIVE PER SHARE DATA
The following table sets forth certain historical per share data for Toys
Common Stock and Petrie Common Stock for the periods indicated. The financial
data for the three fiscal years ended January 29, 1994 have been derived from
the respective audited consolidated statements of Toys "R" Us and Petrie for
such periods. The respective financial data of Toys "R" Us, for the 26 weeks
ended July 30, 1994 and July 31, 1993, and Petrie, for the six months ended
July 30, 1994 and July 31, 1993, are unaudited. The information presented
herein should be read in conjunction with the respective consolidated financial
statements, related notes and other financial information of Toys "R" Us and
Petrie appearing elsewhere herein or incorporated by reference in this Proxy
Statement/Prospectus.
<TABLE>
<CAPTION>
26 WEEKS ENDED FISCAL YEAR ENDED
----------------- -----------------------------------
JULY 30, JULY 31, JANUARY 29, JANUARY 30, FEBRUARY 1,
1994 1993 1994 1993 1992
-------- -------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
HISTORICAL--TOYS "R" US
Net Earnings.............. $ .26 $ .24 $ 1.63 $1.47 $1.15
Book Value................ $10.86 $9.63 $10.87 $9.86 $8.39
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED FISCAL YEAR ENDED
----------------- ---------------------------------------
JULY 30, JULY 31, JANUARY 29, JANUARY 30, FEBRUARY 1,
1994 1993 1994 1993 1992
-------- -------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
HISTORICAL--PETRIE
Net Earnings (loss). $ (.30) $ (.77)(1) $ (.81)(2) $ .32 (3) $ .34
Book Value.......... $27.33 $13.03 $29.18 (4) $13.90 $13.78
</TABLE>
- - --------
(1) The results for the six months ended July 31, 1993 include the write-down
of Petrie's carrying value of its investment in Deb Shops Inc. of
$13,661,000 (net $8,261,000 or $.18 per share), a restructuring charge of
$35,000,000 (net $20,383,000 or $.44 per share) primarily due to the write-
down of fixed assets and lease settlements associated with expected store
closings and net income of $2,800,000 or $.06 per share as a result of
Petrie's adoption of Statement of Financial Accounting Standards No. 109
(Accounting for Income Taxes).
(2) Fiscal year ended January 29, 1994 includes a restructuring charge of
$35,000,000 ($22,225,000 net of taxes or $.48 per share) and cumulative
effect of changes in accounting for investments and income taxes, which
decreased the net (loss) by $10,685,000 ($.23 per share).
(3) Fiscal year ended January 30, 1993 includes a charge against earnings in
connection with the granting of stock options to two executive officers
amounting to approximately $3,400,000 ($2,100,000 net of taxes or $.04 per
share).
(4) Total assets at January 29, 1994 includes an increase of $1,340,462,000 as
a result of carrying investments in common stock at a fair market value of
$1,517,677,000 due to the adoption of Statement of Financial Accounting
Standards No. 115 (Accounting for Certain Investments in Debt and Equity
Securities).
The following chart sets forth the market value of the Toys Common Stock to
be received by Petrie shareholders as an initial liquidating distribution by
Petrie for each share of Petrie Common Stock held, based on the assumptions
that, as of the Closing Date, (i) if all of the outstanding Convertible
Debentures were converted, Petrie would have 52.416 million shares of Petrie
Common Stock outstanding or if all of the outstanding Convertible Debentures
were redeemed, Petrie would have 46.769 million shares of Petrie Common Stock
outstanding; (ii) Petrie will hold 36.527 million shares of Toys Common Stock
at the consummation of the Exchange; (iii) Petrie will have reduced its
contingent liabilities to $200 million and determined to retain $125 million in
the Liquidating Trust (in the form of cash or Toys Common Stock); (iv) the net
proceeds from the Disposition will have yielded approximately $180 million to
Petrie; and (v) the average of the high and low reported consolidated trading
sales prices on the NYSE of Toys Common Stock during the ten trading days next
preceding the second trading day prior to the Closing Date are as set forth
below. In addition, Petrie shareholders will receive their pro rata share of
the Liquidating Trust. Based upon
26
<PAGE>
the assumptions set forth above, the Liquidating Trust will (i) have an
aggregate of $125 million in assets and $200 million in contingent liabilities
and (ii) initially be funded with Toys Common Stock having a value of
approximately $2.38 for each share of Petrie Common Stock owned, if all of the
outstanding Convertible Debentures were converted, or approximately $2.67 for
each share of Petrie Common Stock owned, if all of the outstanding Convertible
Debentures were redeemed. Depending upon the amount of Petrie's contingent
liabilities which become actual liabilities, the interests of Petrie
shareholders in the Liquidating Trust may be worth as much as approximately
$2.38 for each share of Petrie Common Stock owned or have little or no value,
if all of the outstanding Convertible Debentures were converted, or
approximately $2.67 for each share of Petrie Common Stock owned or may have
little or no value, if all of the outstanding Convertible Debentures were
redeemed. Petrie will not distribute any fractional shares of Toys Common Stock
to its shareholders and in lieu thereof will make a cash payment. THERE CAN BE
NO ASSURANCES AS TO THE AMOUNT OF PETRIE'S CONTINGENT LIABILITIES, THE SIZE OF
THE LIQUIDATING TRUST OR THE VALUES SET FORTH IN THIS PARAGRAPH OR THE MATRIX
BELOW, WHICH ARE PRESENTED FOR ILLUSTRATIVE PURPOSES ONLY. ACTUAL VALUES MAY
VARY SUBSTANTIALLY. See "COMPARATIVE MARKET PRICE DATA."
MARKET VALUE OF TOYS COMMON STOCK TO BE RECEIVED IN
EXCHANGE FOR EACH SHARE OF PETRIE COMMON STOCK
<TABLE>
<CAPTION>
WITH WITH
CONVERSION REDEMPTION
OF THE OF THE
MARKET VALUE PER SHARE OF CONVERTIBLE CONVERTIBLE
TOYS COMMON STOCK DEBENTURES DEBENTURES
------------------------- ----------- -----------
<S> <C> <C>
$30.............................................. $21.96 $21.84
$35.............................................. $25.44 $25.74
$40.............................................. $28.92 $29.65
</TABLE>
On October 31, 1994, the most recent practicable date prior to the printing
of this Proxy Statement/Prospectus, the closing price per share on the NYSE
Composite Tape of Petrie Common Stock was $26 1/8 and Toys Common Stock was $38
5/8.
27
<PAGE>
COMPARATIVE MARKET PRICE DATA
Petrie Common Stock is listed and traded on the NYSE under the symbol "PST."
Toys Common Stock is listed and traded on the NYSE under the symbol "TOY." The
following table sets forth the high and low sales prices of Petrie Common Stock
and Toys Common Stock on the NYSE Composite Tape and the quarterly dividends
paid per share of Petrie Common Stock for the quarters indicated. Toys "R" Us
has never paid a cash dividend.
<TABLE>
<CAPTION>
PETRIE DIVIDENDS TOYS "R" US
COMMON STOCK DECLARED COMMON STOCK
--------------- PER PETRIE ---------------
HIGH LOW COMMON SHARE HIGH LOW
------- ------- ------------ ------- -------
<S> <C> <C> <C> <C> <C>
Fiscal year ended February 1,
1992:
First Quarter.................. $21 5/8 $18 3/4 $.05 $30 3/4 $ 25
Second Quarter................. 22 5/8 18 3/4 .05 32 1/8 27
Third Quarter.................. 25 3/8 19 7/8 .05 36 27 7/8
Fourth Quarter................. 24 1/2 18 3/4 .05 36 26 1/8
Fiscal year ended January 30,
1993:
First Quarter.................. 25 1/4 19 7/8 .05 38 5/8 30 3/8
Second Quarter................. 23 3/8 20 .05 37 1/8 31
Third Quarter.................. 25 1/2 21 5/8 .05 41 34 3/4
Fourth Quarter................. 26 5/8 23 1/4 .05 41 1/4 35 5/8
Fiscal year ended January 29,
1994:
First Quarter.................. 27 3/8 23 5/8 .05 42 3/8 36 5/8
Second Quarter................. 27 7/8 22 3/4 .05 39 3/4 32 3/8
Third Quarter.................. 29 3/4 24 .05 40 3/8 33 3/4
Fourth Quarter................. 30 7/8 26 1/8 .05 42 7/8 36
Fiscal year ending January 28,
1995:
First Quarter.................. 27 3/4 23 5/8 .05 37 3/8 32 3/4
Second Quarter................. 26 1/2 24 1/4 .05 36 3/4 32 1/4
Third Quarter (through
October 31, 1994).............. 26 7/8 23 1/2 .05 38 3/4 33
</TABLE>
On April 19, 1994, the last full trading day prior to the execution and
delivery of the Toys Acquisition Agreement and the public announcement thereof,
the closing price per share of Petrie Common Stock on the NYSE Composite Tape
was $24 3/8 and the closing price per share of Toys Common Stock on the NYSE
Composite Tape was $32 3/4.
On October 31, 1994, the most recent practicable date prior to the printing
of this Proxy Statement/Prospectus, the closing price per share on the NYSE
Composite Tape of Petrie Common Stock was $26 1/8 and Toys Common Stock was $38
5/8.
28
<PAGE>
THE MEETING
GENERAL
This Proxy Statement/Prospectus is being furnished to the holders of Petrie
Common Stock in connection with the solicitation of proxies by the Petrie Board
of Directors for use at the Annual Meeting to be held at the offices of
Skadden, Arps, Slate, Meagher & Flom, 33rd Floor, 919 Third Avenue, New York,
New York, on Tuesday, December 6, 1994, at 9:00 a.m., local time, and at any
adjournment or postponement thereof.
After taking a vote on the Disposition, the election of directors, the
ratification of the independent auditors and such other business as may
properly come before the Annual Meeting, the Annual Meeting will be adjourned.
Petrie and Toys "R" Us believe that, in light of the traditional importance of
sales results of Toys "R" Us during the holiday season, a vote on the Exchange
and the Liquidation should not occur until Petrie's shareholders have had an
opportunity to consider such sales results. Accordingly, this Proxy
Statement/Prospectus will be supplemented to include such sales results once
they are available and the Annual Meeting will be reconvened, on or about
January 20, 1995, to vote on the Exchange and the Liquidation. A new proxy
card, relating only to the Exchange and the Liquidation, will be furnished to
Petrie's shareholders along with the supplement to this Proxy
Statement/Prospectus. Proxies voted in favor of the Exchange and the
Liquidation may be revoked by, among other things, delivering a duly executed
later dated proxy to the Secretary of Petrie at or before the taking of the
vote at the reconvened Annual Meeting. See "--Proxies."
This Proxy Statement/Prospectus and accompanying form of proxy card are first
being mailed to shareholders of Petrie on or about November 3, 1994.
MATTERS TO BE CONSIDERED AT THE MEETING
At the Annual Meeting, holders of Petrie Common Stock will consider and vote
upon (i) the Disposition, (ii) the Exchange, (iii) the Liquidation, (iv) the
election of twelve directors to hold office until the next annual meeting and
until their successors are elected and qualified, (v) the ratification of the
selection of David Berdon & Co. as Petrie's independent auditors for the fiscal
year ending January 28, 1995, and (vi) such other matters as may properly be
brought before the Annual Meeting and any adjournment or postponement thereof.
Approval of the proposals discussed in (i) and (ii) above will constitute
approval by Petrie shareholders, in accordance with Section 909 of the NYBCL,
of the sale of all of the assets of Petrie. Approval of the proposal discussed
in (i) will provide Petrie's Board of Directors with the authority to effect
the Disposition in whatever form, including, without limitation, the Retail
Operations Stock Purchase, that Petrie's Board of Directors deems appropriate
and in the best interest of Petrie and its shareholders, and no further
shareholder approval will be sought with respect to the Disposition. However,
in the event that the Retail Operations Stock Purchase is not consummated
following shareholder approval, and Petrie's Board of Directors chooses to
effect the Disposition in another form, if such form of Disposition may have a
material adverse impact on shareholders, when compared to the Retail Operations
Stock Purchase, Petrie will resolicit approval from its shareholders. Approval
of the proposal discussed in (iii) above will constitute approval by Petrie
shareholders, in accordance with Section 1001 of the NYBCL, of the dissolution
of Petrie and of the adoption by Petrie of the Plan of Liquidation and
Dissolution, the Escrow Agreements and the Liquidating Trust Agreement.
If there are any material changes to the Transaction, as such is described in
this Proxy Statement/Prospectus, including, but not limited to, the failure to
receive the IRS Ruling by December 5, 1994, the receipt of a ruling from the
Internal Revenue Service that materially differs from that described under "THE
TRANSACTION--Certain Federal Tax Consequences," or if there are material
changes in or information as to either Petrie or Toys "R" Us (or either of
their subsidiaries or affiliates), in each case prior to the Annual Meeting,
Toy "R" Us will file a post-effective amendment to the registration statement
of which
29
<PAGE>
Proxy Statement/Prospectus forms a part and Petrie will supplement this Proxy
Statement/Prospectus.
A new proxy card will be furnished to Petrie's shareholders along with such
supplement and, if necessary, the Annual Meeting will be postponed in order to
give shareholders adequate time to consider the information in such
supplement. Proxies may be revoked by, among other things, delivering a duly
executed later dated proxy to the Secretary of Petrie at or before the taking
of the vote at the Annual Meeting. See "--Proxies."
RECOMMENDATIONS OF PETRIE'S BOARD OF DIRECTORS
At a meeting held on April 20, 1994, Petrie's Board of Directors, with one
director absent, approved the disposition of Petrie's retail store operations,
the exchange of cash and the Toys Shares for shares of Toys Common Stock, the
complete liquidation and dissolution of Petrie and the establishment of the
Liquidating Trust, and has recommended a vote FOR approval of the Disposition,
the Exchange and the Liquidation by the shareholders of Petrie. See "THE
TRANSACTION--Reasons for the Transaction."
At a meeting held on August 23, 1994, Petrie's Board of Directors, with one
director absent and two directors abstaining because of potential conflicts of
interest, approved the Retail Operations Stock Purchase. At a meeting held on
November 1, 1994, Petrie's Board of Directors, with two directors absent and
one abstaining, approved the Amendment No. 1 to the Retail Operations Stock
Purchase Agreement. See "THE DISPOSITION--Reasons for the Disposition and the
Retail Operations Stock Purchase."
The directors of Petrie also have approved and recommend a vote FOR the
election of the twelve nominees for election as directors of Petrie and FOR
ratification of the selection of David Berdon & Co. as Petrie's independent
auditors for the fiscal year ending January 28, 1995.
VOTING AT THE MEETING; MEETING RECORD DATE
The Petrie Board of Directors has fixed October 31, 1994 as the record date
(the "Meeting Record Date") for the determination of Petrie shareholders
entitled to notice of, and to vote at, the Annual Meeting. Accordingly, only
holders of record of Petrie Common Stock at the close of business on the
Meeting Record Date will be entitled to notice of and to vote at the Annual
Meeting. As of the close of business on the Meeting Record Date, there were
46,838,776 shares of Petrie Common Stock outstanding and entitled to vote,
which shares were held by approximately 3,418 holders of record. Each holder
of record of Petrie Common Stock at the close of business on the Meeting
Record Date is entitled to cast one vote per share on all matters properly
submitted for the vote of Petrie shareholders, exercisable in person or by
properly executed proxy, at the Annual Meeting. The presence, in person or by
properly executed proxy, of the holders of a majority of the outstanding
Petrie Common Stock entitled to vote at the Annual Meeting, is necessary to
constitute a quorum at the Annual Meeting.
The affirmative vote of two-thirds of all outstanding shares of Petrie
Common Stock entitled to vote thereon is required to approve each of the
Disposition, the Exchange and the Liquidation. The election of the directors
nominated requires a plurality of the votes cast in person or by proxy at the
Annual Meeting by holders of shares of Petrie Common Stock. Approval of the
appointment of Petrie's independent auditors will require the affirmative vote
of a majority of the votes cast in person or by proxy at the Annual Meeting by
holders of shares of Petrie Common Stock. Under the rules of the New York
Stock Exchange, brokers who hold shares in "street name" have the authority to
vote on certain matters when they do not receive instructions from beneficial
owners. Brokers that do not receive instructions are entitled to vote on the
election of directors and the ratification of the selection of David Berdon &
Co. as Petrie's independent auditors for the fiscal year ending January 28,
1995. With respect to the proposal to approve each of the Disposition, the
Exchange and the Liquidation, brokers may not vote shares held for customers
without specific instructions from such customers. Under applicable New York
law, in tabulating the vote for any matter, abstentions and broker non-votes
will be disregarded and will have no effect on the outcome of the vote.
In connection with the execution and delivery of the Toys Acquisition
Agreement, Milton Petrie, the record and beneficial owner of 28,111,274 shares
of Petrie Common Stock (approximately 60% of the
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outstanding Petrie Common Stock), by act of his attorneys-in-fact, has entered
into the Toys Voting Agreement, and has agreed to vote, or execute a consent
with respect to, such shares in favor of each part of the Transaction and has
granted Toys "R" Us an irrevocable proxy to exercise all voting, consent and
other rights to approve each part of the Transaction. As a condition to the
execution and delivery of the Toys Voting Agreement, Mr. Petrie's attorneys-in-
fact required of Petrie's Board of Directors, and Petrie's Board of Directors
agreed, that the Disposition would not be effected other than in a form that
such attorneys-in-fact found acceptable. In connection with the execution and
delivery of the Retail Operations Stock Purchase Agreement, which agreement was
found by Mr. Petrie's attorneys-in-fact to be an acceptable form of the
Disposition, Mr. Petrie, by act of his attorneys-in-fact, has also entered into
the WP Investors Voting Agreement, and has agreed to vote, or exercise a
consent with respect to, his shares in favor of the Retail Operations Stock
Purchase Agreement and has granted WP Investors an irrevocable proxy to
exercise all voting, consent and other rights to approve the Retail Operations
Stock Purchase Agreement. The WP Investors Voting Agreement, which has been
consented and agreed to by Toys "R" Us, provides that as long as the Toys
Voting Agreement remains in effect and Toys "R" Us has not received notice that
the Retail Operations Stock Purchase Agreement has been terminated, Toys "R" Us
will exercise, and refrain from exercising, its powers pursuant to the Toys
Voting Agreement so that Mr. Petrie's shares of Petrie Common Stock will be
voted in favor of the Retail Operations Stock Purchase Agreement. As Mr.
Petrie, who owns approximately 60 percent of the outstanding shares of Petrie
Common Stock, intends to vote in favor of each part of the Transaction, only
12.5 percent of the shares of Petrie Common Stock not held by Mr. Petrie, or
approximately 6 percent of the total number of shares of Petrie Common Stock
entitled to vote, is needed to approve each part of the Transaction. The
presence, in person or by properly executed proxy, of Mr. Petrie's shares of
Petrie Common Stock will satisfy the quorum required at the Annual Meeting.
Joseph Flom (a member of Petrie's Board of Directors), Bernard Petrie (the
son of Mr. Petrie), Jerome A. Manning and Albert Ratner have a general power of
attorney from Mr. Petrie to act on his behalf (pursuant to majority vote),
including the ability to direct the voting or the disposition of the shares of
Petrie Common Stock owned by Mr. Petrie.
PROXIES
This Proxy Statement/Prospectus is being furnished to Petrie shareholders in
connection with the solicitation of proxies by and on behalf of Petrie's Board
of Directors for use at the Annual Meeting.
All shares of Petrie Common Stock which are entitled to vote and are
represented at the Annual Meeting by properly executed proxies received prior
to or at the Annual Meeting, and not revoked, will be voted at such Annual
Meeting in accordance with the instructions indicated on such proxies. If no
instructions are indicated, such proxies will be voted as follows:
FOR approval of the Disposition,
FOR approval of the Exchange,
FOR approval of the Liquidation,
FOR the election of the twelve nominees for election as directors of Petrie,
and
FOR ratification of the selection of David Berdon & Co. as Petrie's
independent auditors for the fiscal year ending January 28, 1995.
If any other matters are properly presented for consideration at the Annual
Meeting, including, among other things, consideration of a motion to adjourn or
postpone the Annual Meeting to another time and/or place (including, without
limitation, for the purpose of soliciting additional proxies), the persons
named in the enclosed proxy card and acting thereunder will have discretion to
vote on such matters in accordance with their best judgment. However, proxies
voted against any of the Disposition, the Exchange or the Liquidation will not
be used by management to vote for adjournment pursuant to its discretionary
authority.
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Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by (i) filing
with the Secretary of Petrie at or before the taking of the vote at the Annual
Meeting, a written notice of revocation bearing a later date than the proxy,
(ii) duly executing a later dated proxy relating to the same shares and
delivering it to the Secretary of Petrie before the taking of the vote at the
Annual Meeting or (iii) attending the Annual Meeting and voting in person
(although attendance at the Annual Meeting will not in and of itself constitute
a revocation of a proxy). Any written notice of revocation or subsequent proxy
should be sent so as to be delivered to Petrie Stores Corporation, 70
Enterprise Avenue, Secaucus, New Jersey 07094, Attention: Secretary, or hand-
delivered to the Secretary of Petrie, at or before the taking of the vote at
the Annual Meeting.
ALL PROPERLY EXECUTED PROXIES VOTED FOR THE EXCHANGE AND THE LIQUIDATION
PRIOR TO THE TABULATION OF THE VOTE AT THE RECONVENED ANNUAL MEETING WILL BE
VOTED FOR THE EXCHANGE AND THE LIQUIDATION AT THE RECONVENED ANNUAL MEETING
UNLESS OTHERWISE REVOKED OR REVOTED BY (I) DELIVERING A WRITTEN NOTICE OF
REVOCATION TO THE SECRETARY OF PETRIE, (II) SUBMITTING A DULY EXECUTED LATER
DATED PROXY OR (III) ATTENDING THE RECONVENED ANNUAL MEETING AND VOTING IN
PERSON. PROXIES RECEIVED BY PETRIE WITH RESPECT TO THE EXCHANGE AND THE
LIQUIDATION WILL NOT BE TABULATED UNTIL THE TAKING OF THE VOTE AT THE
RECONVENED ANNUAL MEETING.
In addition to solicitation by use of the mails, proxies may be solicited by
directors, officers and employees of Petrie in person or by telephone, telegram
or other means of communication. Such directors, officers and employees will
not be additionally compensated, but may be reimbursed for reasonable out-of-
pocket expenses in connection with such solicitation. Arrangements will also be
made with custodians, nominees and fiduciaries for the forwarding of proxy
solicitation materials to beneficial owners of shares held of record by such
custodians, nominees and fiduciaries, and Petrie will reimburse such
custodians, nominees and fiduciaries for reasonable expenses incurred in
connection therewith. All costs and expenses of this solicitation, including
the cost of preparing and mailing this Proxy Statement/Prospectus, will be
borne by the party incurring such expenses.
SHAREHOLDERS SHOULD NOT SEND ANY STOCK CERTIFICATES WITH THEIR PROXY CARDS.
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THE TRANSACTION
The Transaction is composed of three separate actions each to be approved by
Petrie shareholders and consists of the following: (i) the disposition of
Petrie's retail store operations; (ii) the exchange with Toys "R" Us of cash
(presently estimated to be approximately $180 million) and all of the Toys
Shares held by Petrie and certain subsidiaries of Petrie (currently,
approximately 39.9 million shares) for shares of Toys Common Stock and (iii)
the complete liquidation and dissolution of Petrie and the distribution to
Petrie shareholders of the shares of Toys Common Stock received by Petrie in
the Exchange other than such shares as are set aside in escrow to provide
adequately for the payment of all liabilities of Petrie and its subsidiaries
and the establishment of the Liquidating Trust, and the distribution to Petrie
shareholders of pro rata interests in the Liquidating Trust. The Exchange and
the Liquidation are conditioned upon, among other things, (i) the approval
thereof by the holders of two-thirds of Petrie's outstanding common stock; (ii)
the receipt by Petrie and Toys "R" Us of a private letter ruling from the
Internal Revenue Service in form and substance reasonably satisfactory to each
party that certain aspects of the Transaction will be tax-free to Petrie, Toys
"R" Us and Petrie shareholders; (iii) the consummation of the disposition of
Petrie's retail store operations in a manner contemplated by the foregoing
ruling and (iv) the reasonable determination by Toys "R" Us that it will not
become responsible for any liabilities of Petrie as a consequence of the
consummation of the Transaction. The Exchange and the Liquidation may be
terminated if they are not consummated by January 28, 1995 (or by November 15,
1994 if the IRS Ruling has not been received, or if Petrie has not waived its
right of termination as set forth below). If the IRS Ruling is not received in
substantially the form described in this Proxy Statement/Prospectus, and the
Board of Directors of each of Petrie and Toys "R" Us determine in any event to
consummate the Exchange and the Liquidation based on the IRS Ruling in the form
received or based on an opinion of counsel, Petrie shareholders will be
furnished with a new proxy card relating to the Disposition, the Exchange and
the Liquidation and provided with a supplement to this Proxy
Statement/Prospectus describing an opinion of Petrie's counsel as to the
material tax consequences of the Exchange and the Liquidation, and, if
necessary, the Annual Meeting will be postponed in order to give shareholders
adequate time to consider the information in such supplement. Such opinion will
be filed by post-effective amendment as an exhibit to the registration
statement of which this Proxy Statement/Prospectus forms a part. The Exchange
and the Liquidation may also be terminated if Petrie reasonably determines that
its and its subsidiaries' contingent liabilities, primarily liabilities related
to lease obligations and a multiemployer pension plan, have not been reduced
below $200 million. As of October 31, 1994, Petrie believes that its and its
subsidiaries' contingent liabilities have been reduced to approximately $225
million. This number is only an estimate and the actual amount of Petrie's and
its subsidiaries' contingent liabilities may vary substantially therefrom.
The Disposition is conditioned upon, among other things, approval thereof by
the holders of two-thirds of outstanding Petrie Common Stock. In the event that
the Disposition does not occur, Petrie will continue to operate its retail
stores. If Petrie's shareholders vote to approve the Disposition, Petrie will
be obligated to proceed with the Disposition pursuant to the Retail Operations
Stock Purchase Agreement, whether or not the IRS Ruling is received or the
Exchange and the Liquidation are either ultimately approved by Petrie's
shareholders or consummated. If the sale of the Retail Operations to WP
Investors is not consummated, Petrie may choose to sell the Retail Operations
to another party or effect the Disposition in another form, all of the
foregoing as may be determined by Petrie's Board of Directors to be in the best
interest of Petrie and its shareholders, and no further shareholder approval
will be sought with respect to the Disposition. However, in the event that the
Retail Operations Stock Purchase is not consummated following shareholder
approval, and Petrie's Board of Directors chooses to effect the Disposition in
another form, if such form of Disposition may have a material adverse impact on
shareholders, when compared to the Retail Operations Stock Purchase, Petrie
will resolicit approval from its shareholders. If the Disposition is
consummated, and the Exchange and the Liquidation are not consummated, Petrie's
shareholders would then own shares in a company whose sole assets would be cash
and Toys Common Stock. Petrie's Board of Directors has not yet considered how
it would manage Petrie if the Disposition is consummated but the Exchange and
the Liquidation are not. However, Petrie may be required to register as a
closed-end investment company under the 1940 Act if it does not promptly invest
a sufficient amount of its assets such that it is primarily engaged
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in businesses other than investing, reinvesting and trading in, or owning or
holding investment securities. Although it is not possible to quantify the per
share value of Petrie Common Stock were Petrie to become an investment company,
it is expected that such common stock, like the common stock of closed-end
investment companies generally, could trade at a discount from the value of its
underlying assets, which initially would consist primarily of Toys Common
Stock. See "THE DISPOSITION--Investment Company Considerations."
Assuming that all conditions to the consummation of the Exchange and the
Liquidation are either satisfied or waived, the Exchange will be consummated
promptly following approval by shareholders of the Exchange at the reconvened
Annual Meeting. Petrie currently expects that within sixty days of the Exchange
there will be an initial liquidating distribution of Toys Common Stock to
Petrie's shareholders. Thereafter, additional liquidating distributions to
shareholders will be declared by Petrie's Board of Directors, if appropriate.
Within one year of shareholder approval of the Liquidation at the reconvened
Annual Meeting, Petrie will file a certificate of dissolution with the
Secretary of State of the State of New York and Petrie shareholders will
receive pro rata interests in the Liquidating Trust.
If there are any material changes to the Transaction, as such is described in
this Proxy Statement/Prospectus, including, but not limited to, the failure to
receive the IRS Ruling by December 5, 1994, the receipt of a ruling from the
Internal Revenue Service that materially differs from that described under "--
Certain Federal Tax Consequences," or if there are material changes in or
information as to either Petrie or Toys "R" Us (or either of their subsidiaries
or affiliates), in each case prior to the Annual Meeting, Toys "R" Us will file
a post-effective amendment to the registration statement of which this Proxy
Statement/Prospectus forms a part and Petrie will supplement this Proxy
Statement/Prospectus. A new proxy card will be furnished to Petrie's
shareholders along with such supplement and, if necessary, the Annual Meeting
will be postponed in order to give shareholders adequate time to consider the
information in such supplement. Proxies may be revoked by, among other things,
delivering a duly executed later dated proxy to the Secretary of Petrie at or
before the taking of the vote at the Annual Meeting. See "THE MEETING--
Proxies."
UNLESS EACH OF THE DISPOSITION, THE EXCHANGE AND THE LIQUIDATION IS APPROVED
BY PETRIE SHAREHOLDERS, THE AGGREGATE BENEFITS THEREFROM WILL NOT BE REALIZED.
THEREFORE, PETRIE'S BOARD OF DIRECTORS RECOMMENDS THAT PETRIE SHAREHOLDERS VOTE
IN FAVOR OF EACH SUCH PROPOSAL.
BACKGROUND OF THE TRANSACTION
From time to time over the past several years, Petrie and its advisors have
been considering the separation of Petrie's investment in Toys "R" Us from the
Retail Operations. These considerations arose out of the possibility that
Petrie would be considered an investment company and potentially be required to
register as such under the 1940 Act if the value of Petrie's stake in Toys "R"
Us continued to grow and if the Retail Operations experienced ongoing operating
losses or were substantially downsized. Registration under the 1940 Act would
impose on Petrie various burdens that it does not currently bear, including
restrictions on its ability to act freely with respect to its investment assets
and reconstitution of its Board of Directors, as well as other burdensome
regulatory and reporting requirements. While Petrie believes that it may have
been able to avoid such 1940 Act issues if it sold off some of the Toys Shares
and invested the proceeds elsewhere, such a sale would have caused Petrie to
suffer material adverse tax consequences due to the low tax basis Petrie and
its subsidiaries maintain in the Toys Shares. In the fall of 1993, following
the retirement of Milton Petrie from the active management of Petrie, and given
that (i) Mr. Petrie was the founder and the driving force of Petrie and is its
majority shareholder, (ii) the profitability of the Retail Operations had
declined in recent years and (iii) over the same period the value of the Toys
Shares had increased, Petrie's advisors, including the attorneys-in-fact of
Milton Petrie, reexamined the separation of Petrie's investment in Toys "R" Us
from the Retail Operations, as well as other means of maximizing shareholder
value, including merging Petrie with another company or selling the Retail
Operations to a third party and thereafter continuing Petrie as an investment
holding company. In connection with the foregoing, there have been ongoing
consultations between Petrie's Board of Directors and Mr. Petrie's attorneys-
in-fact, one of whom is a member of Petrie's Board of Directors. Petrie
concluded, based in part on the advice of Bear Stearns, that it was unlikely
that a transaction other than one with Toys "R" Us would provide as high a
level of shareholder value, due in part to Petrie's belief that the Transaction
could be effected without the incurrence of any significant federal income tax
by Petrie or its shareholders.
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In November 1993, Petrie began discussions concerning various alternative
transaction structures with Toys "R" Us. After several weeks of discussions
involving various types of transactions, including merger transactions between
Toys "R" Us and Petrie, which Toys "R" Us rejected, Toys "R" Us and Petrie
focused their discussions on a structure similar to the one described in this
Proxy Statement/Prospectus. Discussions regarding such a transaction continued
from time to time thereafter as the parties explored the requirements for such
a transaction and the ramifications of such a transaction for the Retail
Operations. Discussions were also held with the advisors and attorneys-in-fact
of Milton Petrie, who is Petrie's majority shareholder and whose consent would
be required for any transaction. Petrie and Toys "R" Us completed negotiations
and executed the Toys Acquisition Agreement on April 20, 1994.
From and after November 1993, Petrie has explored various alternatives for
the disposition of the Retail Operations, including preliminary discussions
commencing in November 1993 with E.M. Warburg, Pincus & Co., Inc. and other
investor groups. Following the announcement, on April 21, 1994, of the terms of
the Toys Acquisition Agreement and of Petrie's intent to dispose of the Retail
Operations, Petrie held discussions with approximately 15 parties regarding the
possible purchase of the Retail Operations. Petrie furnished confidential
information to 12 qualified parties who signed confidentiality agreements, and
Petrie requested that such parties submit proposals for the acquisition of the
Retail Operations. See "THE DISPOSITION--Opinion of Petrie Financial Advisor."
As a result of such process, Petrie held discussions with an investor group led
by E.M. Warburg, Pincus & Co., Inc. (the "Investor Group") which culminated in
Petrie entering into the Retail Operations Stock Purchase Agreement with WP
Investors, an affiliate of the Investor Group, on August 23, 1994. On November
3, 1994, Petrie and WP Investors entered into the Amendment No. 1 to the Retail
Operations Stock Purchase Agreement to provide, among other things, for the
waiver of certain conditions to the respective obligations of each of Petrie
and WP Investors to consummate the Retail Operations Stock Purchase. If
Petrie's shareholders vote to approve the Disposition, Petrie will be obligated
to proceed with the Disposition pursuant to the Retail Operations Stock
Purchase Agreement, whether or not the IRS Ruling is received or the Exchange
and the Liquidation are either ultimately approved by Petrie's shareholders or
consummated. If the sale of the Retail Operations to WP Investors is not
consummated, Petrie may choose to sell the Retail Operations to another party
or effect the Disposition in another form, all of the foregoing as may be
determined by Petrie's Board of Directors to be in the best interest of Petrie
and its shareholders, and no further shareholder approval will be sought with
respect to the Disposition. See "THE DISPOSITION--Reasons for the Disposition
and the Retail Operations Stock Purchase."
TRANSFER OF RETAIL OPERATIONS TO RETAIL HOLDING COMPANY AND TOYS SHARES TO
PETRIE
Petrie and its subsidiaries operate, as of September 30, 1994, a chain of
approximately 1,674 stores that sell moderately priced women's apparel, with
locations in 49 states, the District of Columbia, Puerto Rico and the U.S.
Virgin Islands. Petrie and certain subsidiaries of Petrie (the "Shareholding
Subsidiaries") currently hold an aggregate of approximately 39.9 million shares
of Toys Common Stock (the "Toys Shares"). Pursuant to the Toys Acquisition
Agreement, Petrie has agreed that in advance of the Exchange it will sell or
otherwise dispose of all of the assets, and require the transferee to assume
substantially all of the liabilities (other than pursuant to the Lease
Guarantees, as described below) (the "Retail Operations"), of Petrie and its
subsidiaries, other than the Toys Shares and such cash as Petrie desires to
retain, subject to the terms and provisions of the Toys Acquisition Agreement.
The Disposition will be effected by Petrie transferring to one of its
subsidiaries ("Retail Holding Company"), which currently conducts retail
activities but is not a Shareholding Subsidiary, all of the Retail Operations
that it holds directly, and the stock of all of its subsidiaries that are not
Shareholding Subsidiaries. Petrie will then cause each Shareholding Subsidiary
to transfer all of its Retail Operations to Retail Holding Company. Immediately
thereafter, each Shareholding Subsidiary will merge into Petrie, so that all of
the Toys Shares will be held directly by Petrie, and all of the Retail
Operations will be held by Retail Holding Company.
CONTINGENT LIABILITIES
Petrie or its subsidiaries are parties to, as of September 30, 1994,
approximately 1,674 leases relating to Petrie's Retail Operations (the "Retail
Leases"), with remaining payments of approximately $565 million in
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base rent and $282.5 million in additional rent and other charges. Petrie has
guaranteed, or will be contingently liable for, approximately 1,230 of the
Retail Leases (the "Lease Guarantees") and is therefore contingently liable for
approximately $428 million in base rent and $208.5 million in additional rent
and other charges. In addition, approximately 676 leases contain provisions
restricting the transfer or assignment of the lease. Petrie is seeking consents
of the lessors under such Retail Leases to allow (i) the release of Petrie from
its guarantee obligations upon the assumption of such obligations by third
parties meeting certain criteria, including, but not limited to, the
satisfaction of certain minimum net worth requirements and (ii) the transfer or
assignment of the Retail Leases in connection with the Disposition. Although
Petrie expects to obtain requisite consents from the lessors under the Retail
Leases to the transfer of its guarantee obligations and the transfer or
assignment of the underlying leases, there can be no assurances that it will be
able to do so.
The Toys Acquisition Agreement is conditioned upon Petrie having reasonably
determined that it has reduced its and its subsidiaries' contingent
liabilities, primarily liabilities relating to the Lease Guarantees and the
Multiemployer Plan (as hereinafter defined), below $200 million, and may be
terminated by Toys "R" Us if Petrie has not satisfied or waived this condition
by November 15, 1994. As of October 31, 1994, Petrie believes that its and its
subsidiaries' contingent liabilities have been reduced to approximately $225
million. This number is only an estimate and the actual amount of Petrie's and
its subsidiaries' contingent liabilities may vary substantially therefrom.
Petrie's Board of Directors has not yet determined the amount it intends to
deposit into the Liquidating Trust. Assuming $125 million is deposited in the
Liquidating Trust, the initial value of Petrie shareholders' interests in the
Liquidating Trust will be approximately $2.38 for each share of Petrie Common
Stock owned, if all of the outstanding Convertible Debentures were converted,
or approximately $2.67 for each share of Petrie Common Stock owned, if all of
the outstanding Convertible Debentures were redeemed. Depending upon the amount
of contingent liabilities which become actual liabilities, the value of each
shareholder's interest in the Liquidating Trust may be reduced until it has
little or no value. Toys "R" Us is entitled to terminate the Transaction if it
reasonably determines that it could become responsible for any liabilities of
Petrie or its subsidiaries as a consequence of the consummation of the
Transaction. In making this determination, Toys "R" Us may take into
consideration, among other things, whether as a matter of law it may succeed to
certain of such liabilities, the form and amount of Petrie's and its
subsidiaries' contingent liabilities, including liabilities relating to the
Lease Guarantees and the Multiemployer Plan, the amount deposited in the
Liquidating Trust, the financial condition of the acquiror of Retail Holding
Company, and the extent to which Retail Holding Company and its acquiror
indemnifies Toys "R" Us against Petrie's and its subsidiaries' liabilities.
REASONS FOR THE TRANSACTION
PETRIE
At a meeting held on April 20, 1994, the Petrie Board of Directors, other
than Milton Petrie, who was absent, unanimously determined that the Toys
Acquisition Agreement and the Transaction contemplated thereby are fair to and
in the best interest of Petrie and its shareholders, and approved the Toys
Acquisition Agreement and the Transaction.
In arriving at its determination to approve the Toys Acquisition Agreement
and the Transaction, the Petrie Board of Directors reviewed possible
alternatives to the Transaction, including, without limitation, the continued
ownership by Petrie of both the Toys Shares and the Retail Operations and
considered numerous other factors, including, without limitation, the
following: (a) the adverse implications to Petrie of the potential requirement
to register as an investment company under the 1940 Act; (b) the business,
financial condition, management and prospects of Petrie and the retail industry
in general; (c) the fact that over recent years the market value of the Toys
Shares held by Petrie and the Shareholding Subsidiaries has exceeded the
aggregate enterprise value of Petrie (market value of Petrie Common Stock plus
Petrie's debt less Petrie's cash); (d) its belief that the Transaction would
provide Petrie shareholders with a more liquid investment by giving them a
direct interest in shares of Toys Common Stock, which has a higher trading
volume, a higher market capitalization and more holders than Petrie Common
Stock and which does not include a controlling
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block; and (e) the ability to consummate the Transaction in a manner that
allows Petrie shareholders to exchange their shares of Petrie Common Stock for
shares of Toys Common Stock without the recognition of taxable income by either
Petrie or its shareholders. If a share of Toys Common Stock were to have a
market value of $30, $35 or $40 at the time of the Transaction, the tax savings
to Petrie in consummating the Transaction, net of the $115 million discount
payable to Toys "R" Us in the Exchange, as opposed to an outright sale by
Petrie of the Toys Shares (based upon a combined federal and state effective
tax rate of 40%), would amount to approximately $352, $432 or $512 million,
respectively, or approximately $7.53, $9.24 or $10.94 per share, respectively,
without taking into account the conversion of Petrie's outstanding convertible
debentures, or approximately $6.72, $8.24 or $9.76 per share, respectively, if
all of Petrie's outstanding convertible debentures were converted. In addition,
Petrie's Board of Directors considered the fact that there could be no
assurances that, if Petrie did not enter into the Toys Acquisition Agreement
with Toys "R" Us at such time, a similar or equally advantageous transaction
could be accomplished or agreed to in the future.
On balance, each of the foregoing material factors supported the
determination of Petrie's Board of Directors to approve and to recommend that
Petrie shareholders approve the Transaction. However, Petrie's Board of
Directors found it impracticable to, and, therefore, did not, quantify or
otherwise assign specific or relative weights to the above factors in its
consideration of the Transaction, and, instead, considered the above factors in
their totality.
TOYS "R" US
Toys "R" Us decided to engage in the Transaction because it will enhance
stockholder value as a result of Toys "R" Us acquiring the shares currently
held by Petrie in exchange for approximately 3.3 million fewer shares of Toys
Common Stock (which shares had a value of $115 million when the Toys
Acquisition Agreement was executed) than will be transferred to Toys "R" Us, by
ensuring an orderly and widespread distribution of the shares of Toys Common
Stock held by Petrie, and by reducing the number of shares of Toys Common Stock
held by any one person.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
CONSEQUENCES TO PETRIE SHAREHOLDERS
A condition to the consummation of the Transaction is the receipt of the IRS
Ruling, upon which Petrie, Toys "R" Us and WP Investors will be solely relying
with respect to tax matters. In the event that the IRS Ruling is not issued
prior to the Annual Meeting held on December 6, 1994, or materially differs
from that described below, Petrie will supplement this Proxy
Statement/Prospectus and shareholders will be given the opportunity to change
their votes on the Disposition, the Exchange and the Liquidation. A new proxy
card will be furnished to Petrie's shareholders along with such supplement and,
if necessary, the Annual Meeting will be postponed in order to give
shareholders adequate time to consider the information in such supplement.
Proxies may be revoked by, among other things, delivering a duly executed later
dated proxy to the Secretary of Petrie at or before the taking of the vote at
the Annual Meeting. See "THE MEETING--Proxies." The IRS Ruling would state, in
effect, that the Exchange and the Liquidation will together constitute a tax-
free reorganization under Section 368(a)(1)(C) of the Code, and accordingly
that the tax consequences of the Transaction to Petrie shareholders (other than
those Petrie shareholders who exercise dissenters' rights) will be as follows.
First, Petrie shareholders will generally not recognize gain or loss for
federal income tax purposes upon the receipt of Toys Common Stock in exchange
for shares of Petrie. As described more fully below, however, gain may be
recognized to the extent that a Petrie shareholder is deemed to receive
property other than Toys Common Stock as a consequence of receiving a
Beneficial Interest in the Liquidating Trust (which would be the case to the
extent that cash is contributed to the Liquidating Trust). Second, the tax
basis of the Toys Common Stock received by the Petrie shareholders in the
Liquidation, including any Toys Common Stock that is deemed to be received by
Petrie shareholders as a result of receiving a Beneficial Interest in the
Liquidating Trust, will generally be the same as the tax basis of the Petrie
shares exchanged therefor. Such basis will be decreased, however, by the amount
of any property other than Toys Common
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Stock deemed received as a result of the receipt of a Beneficial Interest in
the Liquidating Trust, and will be increased by the amount of any gain that is
recognized as a result of the receipt of such other property. Third, the
holding period of the Toys Common Stock received in the Liquidation will
include the holding period of the Petrie shares exchanged therefor, provided
that such Petrie shares were held as a capital asset as of the effective date
of the Transaction.
Some of the Toys Common Stock received by Petrie in the Exchange, and some
amount of cash, if any, will be placed into the Liquidating Trust, subject to
one or more Escrows, to provide for any liabilities, including any contingent
liabilities, of Petrie. For federal income tax purposes, a pro rata share of
such assets will be deemed to have been distributed to each Petrie shareholder
and contributed by such shareholder to the Liquidating Trust. The Liquidating
Trust will not itself be subject to tax; rather, each holder of a Beneficial
Interest in the Liquidating Trust will be treated as owning a pro rata share of
the assets of the Liquidating Trust, and will be required to take into account
his proportionate share of each of the Liquidating Trust's items of income or
deduction. Since the Exchange and the Liquidation will constitute a tax-free
reorganization, as described above, Petrie shareholders will not recognize any
gain or loss to the extent that the assets deemed distributed to them, and
contributed to the Liquidating Trust, consist solely of Toys Common Stock. If a
Petrie shareholder, however, realizes gain in the Transaction (i.e., if the
total value of all the consideration received by such shareholder in the
Transaction, including Toys Common Stock, exceeds his adjusted basis in his
Petrie shares), he must recognize such gain to the extent that his pro rata
share of the assets of the Liquidating Trust, net of any fixed liabilities of
Petrie that are assumed by the Liquidating Trust, consists of property other
than Toys Common Stock.
The tax basis of the Toys Common Stock received by Petrie shareholders in the
Liquidation, including any Toys Common Stock that is deemed to be received by
Petrie shareholders as a result of receiving a Beneficial Interest in the
Liquidating Trust, will be equal to the basis of any shares of Petrie
surrendered in exchange therefor, decreased by the amount of any property other
than Toys Common Stock deemed received as a result of the receipt of a
Beneficial Interest in the Liquidating Trust, and increased by the amount of
any gain that is recognized as a result of the receipt of such other property.
The tax basis of the shares of Petrie surrendered in the exchange will be
allocated between the Toys Common Stock actually received and the Petrie
shareholder's pro rata share of the Toys Common Stock held in the Liquidating
Trust.
If the Liquidating Trust disposes of any of its Toys Common Stock, each
Petrie shareholder will recognize gain or loss equal to the difference between
his pro rata share of the amount realized by the Liquidating Trust on the
disposition of such shares, and the shareholder's tax basis in such shares. If
the Liquidating Trust makes any payments in satisfaction of liabilities of
Petrie that were contingent as of the inception of the Liquidating Trust, a
holder of a Beneficial Interest in the Liquidating Trust will generally be
entitled to increase his basis in the Toys Common Stock acquired in the
Transaction (including such holder's pro rata share of any Toys Common Stock
held in the Liquidating Trust) by an amount equal to such holder's pro rata
share of such payment. Moreover, if the Liquidating Trust earns any other type
of income, such as interest or dividends, such income will be taxable to a
holder of a Beneficial Interest in the Liquidating Trust in accordance with his
method of accounting.
If a Petrie shareholder disposes of his Beneficial Interest in the
Liquidating Trust, such shareholder will generally recognize gain or loss equal
to the difference between the amount realized by the holder on such disposition
and the holder's basis in the Beneficial Interest. Such basis will initially be
equal to the sum of (i) the Petrie shareholder's basis in his pro rata share of
the Toys Common Stock held in the Liquidating Trust (which, as described above,
will be determined with reference to the shareholder's basis in the Petrie
shares prior to the Transaction), and (ii) his pro rata share of any other
property held in the Liquidating Trust as of that date. The basis in a
Beneficial Interest will be increased by the amount of any taxable income
allocated to a holder of a Beneficial Interest, and decreased by the basis of
any Toys Common Stock, and the amount of any cash, distributed to a holder of a
Beneficial Interest. The Petrie shareholder's holding period in the interest in
the Liquidating Trust will be determined with reference to the assets of the
Liquidating Trust: the holding period with respect to the Toys Common Stock
will include the holding period of the Petrie stock
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<PAGE>
surrendered in exchange therefor (provided that such Petrie stock was held as
a capital asset), while the holding period for any other property held in the
Liquidating Trust will begin on the date that such property was acquired by
the Liquidating Trust.
The Liquidating Trust will provide to the holders of its Beneficial
Interests initially, and thereafter on an annual basis, such information as is
necessary for the holder of the Beneficial Interest to report its income and
gain to the Internal Revenue Service, both with respect to the Transaction and
thereafter.
CONSEQUENCES TO DISSENTING SHAREHOLDERS
A Petrie shareholder who perfects dissenters' rights will recognize gain or
loss, as of the last day on which such shareholder may revoke his election to
dissent, equal to the difference between such shareholder's basis in his
Petrie shares and the "amount realized" in respect of such shares. The "amount
realized" will be equal to the mean of the highest and lowest trading price on
the last day on which shares of Petrie Common Stock are traded on the New York
Stock Exchange. Such gain or loss will be capital gain or loss, provided that
such shares were held as a capital asset as of such date, and such gain or
loss will be long-term if the shareholder's holding period exceeds one year as
of such date. Such shareholder will recognize additional ordinary income if
the amount actually received pursuant to the procedures applicable to
dissenters exceeds the amount realized. Such shareholder will recognize
capital loss, however, if the amount actually received pursuant to the
procedures applicable to dissenters is less than the amount realized.
CONSEQUENCES OF THE TRANSACTION TO PETRIE AND TOYS "R" US
The IRS Ruling would further confirm that neither Petrie nor Toys "R" Us
will recognize any taxable income or gain as a result of the Exchange, and
that Petrie will not recognize any taxable income or gain either as a result
of the Liquidation, or as a result of the liquidation of the Shareholding
Subsidiaries. Although the Disposition will not itself be part of the tax-free
reorganization, Petrie does not expect to recognize a significant amount of
net taxable gain, if any, as a result thereof.
The discussion set forth above is a summary of the material Federal income
tax consequences of the Transaction to Petrie, Toys "R" Us and the Petrie
shareholders. It does not address all potential tax consequences that may be
applicable to a Petrie shareholder, and may not be applicable to certain
categories of shareholders, such as non-United States persons. It also does
not address the state, local or foreign tax consequences of the Transaction.
Shareholders should consult their tax advisors with respect to the specific
tax consequences to them of the Transaction, including the applicability and
effect of state, local and foreign tax laws.
ACCOUNTING TREATMENT
The exchange of shares of Toys Common Stock for shares held by Petrie will
be treated by Toys "R" Us as a treasury stock transaction and the issuance of
shares of Toys Common Stock for cash will be treated as an issuance of
treasury stock. The Transaction will not have an effect on the results of
operations of Toys "R" Us.
Set forth below is Petrie's accounting treatment of the Transaction.
THE EXCHANGE
The Exchange will result in a reduction in the net worth of Petrie equal to
the value of the excess of the number of shares of Toys Common Stock
transferred by Petrie to Toys "R" Us over the number of shares of such stock
transferred by Toys "R" Us to Petrie in respect of the Toys Common Stock held
by Petrie (such excess being approximately 3.3 million shares of Toys Common
Stock), offset by the related deferred taxes previously provided for on the
appreciation in value of such shares. Such consideration, for accounting
purposes, will be equal to the market value of such shares at the date of the
Exchange. The number of shares has been fixed based on the market value of
Toys Common Stock ($34.5688 per share), as determined pursuant to the
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terms of the Toys Acquisition Agreement. Based on the market value of these
shares ($34.38 per share) at July 30, 1994, or a market value of $30, $35 or
$40 per share, the reduction in the net worth of Petrie would amount to
approximately $114 (net $69), $100 (net $60), $116 (net $70) or $133 (net $80)
million, respectively.
THE DISPOSITION
Petrie will recognize a loss on the Disposition based upon the difference
between the consideration received for the Retail Operations and the book
value of the Retail Operations.
Based on estimated net proceeds to Petrie from the Disposition of
approximately $180 million and the estimated book value of the Retail
Operations at July 30, 1994, Petrie would recognize a loss on the Disposition
of approximately $400 million, or approximately $8.55 per share if all of
Petrie's convertible debentures were redeemed, or approximately $7.63 per
share if all of Petrie's convertible debentures were converted.
Under generally accepted accounting principles ("GAAP"), such a loss is not
accrued unless information available prior to the issuance of financial
statements indicates that it is probable ("future event is likely to occur")
that an asset has been impaired or liability has been incurred at the date of
the financial statements (end of the most recent accounting period for which
financial statements are being presented). Petrie's latest financial
statements were issued as of July 30, 1994. Under GAAP, recognition of a loss
on the Disposition of the Retail Operations would not be appropriate until
such time as it is probable that one or more future events will occur
confirming the likelihood of such loss. As of the date of the issuance of the
July 30, 1994 financial statements, Petrie did not have sufficient information
available to determine if it is probable that the Disposition will occur. A
loss contingency equal to the estimated loss on the Disposition will have to
be accrued on subsequently issued Petrie financial statements if, at the time
of such issuance, Petrie's management has obtained sufficient information to
form a belief that it is probable that the Disposition will take place.
THE LIQUIDATION
The complete liquidation and dissolution of Petrie, through the
establishment of the Liquidating Trust and the distribution to Petrie
shareholders of Toys Common Stock received by Petrie in the Exchange and pro
rata interests in the Liquidating Trust, will be recorded as a dividend and
result in a reduction in the equity of Petrie to zero. The following chart
sets forth the estimate of the equity of Petrie at July 30, 1994, as if the
Exchange and Disposition had taken place and assuming that the net proceeds
from the Disposition pursuant to the Retail Operations Stock Purchase
Agreement were approximately $180 million and the market value of the Toys
Common Stock was as indicated:
<TABLE>
<CAPTION>
EQUITY OF
PETRIE PRIOR TO
MARKET VALUE PER SHARE THE LIQUIDATION
OF TOYS COMMON STOCK AND DISSOLUTION
---------------------- ---------------
<S> <C>
$30.......................... $ 848,363
$34.38**..................... 944,245
$35.......................... 957,943
$40.......................... 1,067,523
</TABLE>
- - --------
** Stock price at July 30, 1994
CONVERTIBLE DEBENTURES
As required by the Toys Acquisition Agreement, Petrie will call for
redemption, prior to the consummation of the Exchange, all of its outstanding
8% Convertible Subordinated Debentures due December 15, 2010 (the "Convertible
Debentures") at a redemption price of $1,008 plus accrued interest from June
15, 1994 to the redemption date for each $1,000 principal amount of
Convertible Debentures. Until 5:00 p.m., New York City time, on the redemption
date, Convertible Debentures may be converted into shares of Petrie Common
Stock at a conversion price of $22.125 per share (equivalent to 45.1977 shares
of Common
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Stock for each $1,000 principal amount of Convertible Debentures). Thereafter,
no further conversions of Convertible Debentures may be made and any
Convertible Debentures not duly surrendered for conversion or for redemption
shall become due and shall cease to accrue interest. As of September 30, 1994,
the principal amount of the outstanding Convertible Debentures was $123,768,000
and the premium thereon amounted to $990,144.
The conversion price of the Convertible Debentures is $22.125 per share of
Petrie Common Stock. If all of the outstanding Convertible Debentures were
redeemed on December 14, 1994 (the last date on which the Convertible
Debentures can be redeemed prior to the next interest payment date), a holder
of the Convertible Debentures would be entitled to receive approximately $1,048
for $1,000 principal amount of Convertible Debentures. A holder who converts
such holder's Convertible Debentures would receive 45.1977 shares of Petrie
Common Stock per $1,000 principal amount of Convertible Debentures.
Accordingly, a holder of the Convertible Debentures would be expected to
convert if the price of a share of Petrie Common Stock were above approximately
$23.18 ($1,048/45.1977 shares of Petrie Common Stock). Based on recent trading
prices of Petrie Common Stock, which have been above $23.18 per share (See
"COMPARATIVE MARKET PRICE DATA"), it is expected that holders of the
Convertible Debentures will elect to convert their Convertible Debentures into
shares of Petrie Common Stock once Petrie calls the Convertible Debentures for
redemption. However, if the price of Petrie Common Stock were to decline below
the conversion value of $23.18 per share on or about the redemption date, it is
expected that holders of the Convertible Debentures would not convert their
Convertible Debentures and Petrie would have to redeem all of the outstanding
Convertible Debentures. In such case, it is presently anticipated that a
portion of the net proceeds from the Disposition would be used to fund such
redemption. If all of the outstanding Convertible Debentures were redeemed on
December 14, 1994, the aggregate amount necessary for redemption would be
$129,681,635 (including $4,923,491 for accrued interest from June 15, 1994 to
December 14, 1994). See "COMPARATIVE PER SHARE DATA."
RIGHTS OF DISSENTING SHAREHOLDERS
Section 910 of the NYBCL provides that shareholders who comply with the
requirements of Section 623 of the NYBCL are entitled to certain dissenters'
rights in connection with any merger or share exchange, sale, exchange or other
disposition of all or substantially all of the assets of the corporation and in
connection with certain reclassifications and other transactions which may
adversely affect the rights or preferences of shareholders. A condition to
consummation of the Exchange is that holders of no more than 9.5 percent of the
shares of Petrie Common Stock outstanding on the Exchange Closing Date shall
have perfected dissenters' rights with respect to the Exchange or the other
transactions contemplated by the Toys Acquisition Agreement.
The following is a summary of the statutory procedure to be followed by a
holder of Petrie Common Stock in order to dissent from the Exchange and enforce
his right to receive payment for his shares of Petrie Common Stock if the
Exchange is approved and consummated. This summary does not purport to be
complete and is qualified in its entirety by reference to Section 623 of the
NYBCL, the text of which is set forth in Annex G hereto.
Any Petrie shareholder electing to exercise dissenters' rights with respect
to the Exchange must deliver to Petrie before the Annual Meeting, or at such
Annual Meeting but before the vote on the Exchange is taken, a written
objection to the Exchange which shall include (i) a notice of such
shareholder's election to dissent, (ii) such shareholder's name and residence
address, (iii) the number of shares as to which such shareholder dissents, and
(iv) a demand for payment of the fair value of such shareholder's Petrie Common
Stock if the Exchange is consummated. This written objection must be in
addition to and separate from any proxy or vote against the Exchange. ANY
SHAREHOLDER WHO ELECTS TO EXERCISE DISSENTERS' RIGHTS MUST NOT VOTE IN FAVOR OF
THE EXCHANGE. Because a proxy card left blank will, unless revoked, be voted
FOR the Exchange, in order to be assured that such shareholder's Petrie Common
Stock is not voted in favor of the Exchange, a shareholder electing to exercise
dissenters' rights who votes by proxy must not leave the proxy card blank
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but must (i) vote AGAINST the Exchange or (ii) ABSTAIN from voting for or
against the Exchange. Neither a vote against the Exchange nor a proxy card
directing such vote nor an abstention will satisfy the requirement that a
written objection to the transaction be delivered to Petrie before the vote
upon the Exchange.
A written objection is not required from any shareholder to whom Petrie did
not give notice of such meeting in accordance with the NYBCL.
Within ten days after the shareholders' authorization date, which term as
used in Section 623 of the NYBCL means the date on which the shareholders' vote
authorizing such action was taken, or the date on which such consent without a
meeting was obtained from the requisite shareholders, Petrie shall give written
notice of such authorization or consent by registered mail to each shareholder
who filed written objection or from whom written objection was not required,
excepting any shareholder who voted for or consented in writing to the proposed
action and who thereby is deemed to have elected not to enforce his right to
receive payment for his shares.
Within twenty days after the giving of notice to him, any shareholder from
whom written objection was not required and who elects to dissent shall file
with Petrie written notice of such election, stating his name and residence
address, the number and classes of shares as to which he dissents and a demand
for payment of the fair value of his shares.
A shareholder may not dissent as to less than all of the shares as to which
he has a right to dissent, held by him of record or that he owns beneficially.
A nominee or fiduciary may not dissent on behalf of any beneficial owner as to
less than all of the shares of such owner as to which such nominee or the
fiduciary has a right to dissent, held of record by such nominee or fiduciary.
Only a holder of record of Petrie Common Stock is entitled to assert appraisal
rights for Petrie Common Stock registered in that holder's name. The objection
should be executed by or for the holder of record, fully and correctly, as the
holder's name appears on the holder's share certificates. If the shares are
owned of record in a fiduciary capacity, such as by a trustee, guardian or
custodian, the fiduciary should execute the demand and should state his
fiduciary title by his signature. If the shares are owned of record by two or
more persons, the demand should be executed in a manner consistent with the
voting or non-voting of such shares. An authorized agent, including one of two
or more joint owners, may execute the demand for appraisal for a holder of
record; however, the agent must identify the record owner or owners and
expressly disclose the fact that, in executing the demand, the agent is acting
as agent for the record owner. A record holder, such as a broker, who holds
Petrie Common Stock as nominee for the beneficial owner may exercise his
appraisal rights with respect to the shares held for one or more beneficial
owners while not exercising such rights for other beneficial owners. In such
case, the written demand should set forth the number of shares covered by it.
Where no number of shares is expressly mentioned, the demand will be presumed
to cover all shares outstanding in the name of the record owner on the books of
Petrie.
Upon consummation of the Exchange, each dissenting shareholder shall cease to
have any of the rights of a shareholder and will not have any interest in the
Liquidating Trust. Such shareholder would have the right to be paid the fair
value of his shares and any other rights provided by Section 623 of the NYBCL.
A notice of election to dissent may be withdrawn by the shareholder at any time
prior to his written acceptance of an offer by Petrie to pay the shareholder a
specified price which Petrie considers to be the fair value of Petrie Common
Stock owned by such shareholder. In no case can the shareholder revoke his
election to dissent later than sixty days after the consummation of the
Exchange. If a notice of election to dissent is withdrawn, or the Exchange is
not consummated, or a court shall determine that the shareholder is not
entitled to receive payment for his shares, or the shareholder shall otherwise
lose his dissenters' rights, he shall not have the right to receive payment for
his shares and he shall be reinstated to all his rights as a shareholder as of
the consummation of the Exchange, including any intervening preemptive rights
and the right to payment of any intervening dividend or other distribution or,
if any such rights have expired or any such dividend or distribution other than
in cash has been completed, in lieu thereof, at the election of Petrie, the
fair value thereof in cash as determined by the Board as of the time of such
expiration or completion, but without prejudice otherwise to any corporate
proceedings that may have been taken in the interim.
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<PAGE>
At the time of filing the notice of election to dissent or within one month
thereafter, the dissenting shareholder represented by certificates shall submit
the certificates representing his shares to Petrie, or to its transfer agent,
which shall forthwith note conspicuously thereon that a notice of election to
dissent has been filed and shall return the certificates to the shareholder or
other person who submitted them on his behalf. Any dissenting shareholder
represented by certificates who fails to submit his certificates for such
notation as herein specified shall, at the option of Petrie exercised by
written notice to him within forty-five days from the date of filing of such
notice of election to dissent, lose his dissenters' rights unless a court, for
good cause shown, shall otherwise direct.
Upon transfer of a certificate bearing such notation, each new certificate
issued therefor shall bear a similar notation together with the name of the
original dissenting shareholder of the shares and a transferee shall acquire no
rights in Petrie except those which the original dissenting shareholder had at
the time of the transfer.
Within fifteen days after the expiration of the period within which
shareholders may file their notices of election to dissent, or within fifteen
days after the Exchange is consummated, whichever is later (but in no case
later than ninety days from the shareholders' authorization date), Petrie shall
make a written offer by registered mail to each shareholder who has filed such
notice of election to pay for his shares at a specified price which Petrie
considers to be their fair value. Such offer shall be accompanied by a
statement setting forth the aggregate number of shares with respect to which
notices of election to dissent have been received and the aggregate number of
holders of such shares. If the Exchange has been consummated, such offer shall
also be accompanied by (i) advance payment to each such shareholder who has
submitted his share certificates to Petrie, as provided above, of an amount
equal to eighty percent of the amount of such offer, or (ii) as to each
shareholder who has not yet submitted his share certificates a statement that
advance payment to him of an amount equal to eighty percent of the amount of
such offer will be made by Petrie promptly upon submission of his share
certificates. If the Exchange has not yet been consummated at the time of
making of the offer, such advance payment or statement as to advance payment
shall be sent to each shareholder entitled thereto upon consummation of the
Exchange. Every advance payment or statement as to advance payment shall
include advice to the shareholder to the effect that acceptance of such payment
does not constitute a waiver of any dissenters' rights. If the Exchange has not
been consummated upon the expiration of the ninety-day period after the
shareholders' authorization date, the offer may be conditioned upon the
consummation of the Exchange. Such offer shall be made at the same price per
share to all dissenting shareholders. If within thirty days after the making of
such offer, Petrie and any shareholder agree upon the price to be paid for his
shares, payment therefor shall be made within sixty days after the making of
such offer or the consummation of the Exchange, whichever is later, upon the
surrender of the share certificates.
If Petrie fails to make such offer within such period of fifteen days, or if
it makes the offer and any dissenting shareholder or shareholders fail to agree
with it within the period of thirty days thereafter upon the price to be paid
for such shares, Petrie shall, within twenty days after the expiration of the
latter of the two aforementioned periods, institute a special proceeding in New
York State Supreme Court to determine the rights of dissenting shareholders and
to fix the fair value of their shares. If Petrie fails to institute such a
proceeding within such period of twenty days, any dissenting shareholder may
institute such a proceeding for the same purpose not later than thirty days
after the expiration of such twenty-day period. If such proceeding is not
instituted within such thirty-day period, all dissenters' rights shall be lost
unless the Court, for good cause shown, shall otherwise direct. The Court shall
fix the value of the shares at fair value as of the close of business on the
day prior to the shareholders' authorization of the Exchange. Such fair value
may exceed or be less than what Petrie shareholders would receive in the
Transaction. In fixing the fair value, the Court shall consider the nature of
the Exchange and its effects on Petrie and its shareholders, the concepts and
methods then customary in the relevant securities and financial markets for
determining the fair value of shares of a corporation engaging in a similar
transaction under comparable circumstances and all other relevant factors. The
Court shall determine the fair value of the shares without a jury and without
referral to an appraiser or referee. The final order in the proceeding shall be
entered against Petrie in favor of each
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<PAGE>
dissenting shareholder who is a party to the proceeding and is entitled
thereto for the value of his shares so determined. Within sixty days after
final determination of the proceeding, Petrie shall pay to each dissenting
shareholder the amount found to be due him, upon surrender of the share
certificates.
THE DISPOSITION
GENERAL
Petrie has entered into the Retail Operations Stock Purchase Agreement with
WP Investors, pursuant to which WP Investors and its designee or designees
will purchase the Retail Operations. Such sale would constitute the
Disposition. The Retail Operations Stock Purchase is expected to be
consummated, subject to certain conditions, soon after shareholder approval of
the Disposition, whether or not the IRS Ruling has been received or the
Exchange and the Liquidation are either ultimately approved by Petrie's
shareholders or consummated. See "THE RETAIL OPERATIONS STOCK PURCHASE
AGREEMENT--Certain Conditions." The Disposition is an integral part of the
Transaction and the consummation of the Disposition is a condition to the
completion of the Transaction. Therefore, if the sale of the Retail Operations
to WP Investors is not consummated, Petrie may choose to sell the Retail
Operations to another party or may choose to effect the Disposition in another
form, all the foregoing as may be determined by Petrie's Board of Directors to
be in the best interest of Petrie and its shareholders. Approval of the
Disposition by Petrie shareholders will provide Petrie's Board of Directors
with the authority to effect the Disposition in whatever form, including,
without limitation, the Retail Operations Stock Purchase, that Petrie's Board
of Directors deems appropriate and in the best interest of Petrie and its
shareholders, and no further shareholder approval will be sought with respect
to the Disposition. However, in the event that the Retail Operations Stock
Purchase is not consummated following shareholder approval, and Petrie's Board
of Directors chooses to effect the Disposition in another form, if such form
of Disposition may have a material adverse impact on shareholders, when
compared to the Retail Operations Stock Purchase, Petrie will resolicit
approval from its shareholders.
The Toys Acquisition Agreement provides that Petrie is not required to
effect the Disposition other than on terms that Petrie's Board of Directors
finds acceptable. Additionally, as a condition to Milton Petrie's execution of
the Toys Voting Agreement, by act of his attorneys-in-fact, Mr. Petrie's
attorneys-in-fact required of Petrie's Board of Directors, and Petrie's Board
of Directors agreed, that the Disposition would not be effected other than in
a form that such attorneys-in-fact found acceptable. Mr. Petrie's attorneys-
in-fact have determined that the Retail Operations Stock Purchase is an
acceptable form of the Disposition. See footnotes Nos. 2 and 3 of "SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS, DIRECTORS AND MANAGEMENT OF PETRIE."
SALE OF RETAIL HOLDING COMPANY
On June 17, 1994, Petrie entered into a letter agreement (the "Letter of
Intent") with the Investor Group with respect to the acquisition by such group
of the Retail Operations. The Investor Group presently includes Allan
Laufgraben, Vice Chairman, President, Chief Executive Officer and a director
of Petrie, Peter A. Left, Vice Chairman, Chief Operating Officer, Chief
Financial Officer, Secretary and a director of Petrie and Verna Gibson, former
President of The Limited Stores, a division of The Limited, Inc. Additional
members of senior management of Petrie may be invited, in the future, to join
the Investor Group. See "--Interests of Certain Persons in the Retail
Operations Stock Purchase." Pursuant to the Letter of Intent, Petrie paid an
affiliate of the Investor Group a nonrefundable amount equal to $375,000 in
respect of certain expenses (primarily legal and accounting fees) previously
paid or incurred by the Investor Group on or prior to June 17, 1994.
On August 23, 1994, Petrie entered into the Retail Operations Stock Purchase
Agreement with WP Investors, an affiliate of the Investor Group, which
provides for the acquisition by WP Investors and its
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designee or designees of the Retail Operations for $190 million in cash plus
the transfer to Retail Holding Company and the assumption thereby of certain
liabilities associated with the Retail Operations. On November 3, 1994, Petrie
and WP Investors entered into the Amendment No. 1 to the Retail Operations
Stock Purchase Agreement to provide, among other things, for the waiver of
certain conditions to the respective obligations of each of Petrie and WP
Investors to consummate the Retail Operations Stock Purchase. See "THE RETAIL
OPERATIONS STOCK PURCHASE AGREEMENT."
RIGHTS OFFERING
In the event that the sale to the WP Investors or to another third party is
not consummated, Petrie's Board of Directors may consider the possibility of
disposing of the stock of Retail Holding Company by effecting a rights
offering, pursuant to which Petrie would distribute to each of its
shareholders rights to purchase a specified number of shares of Retail Holding
Company. Petrie did not give serious consideration to an exchange of Petrie
Common Stock for Retail Holding Company common stock because such an exchange
would create uncertainties as to whether the Transaction constituted a tax-
free reorganization for federal income tax purposes. Petrie's Board of
Directors believes that the sale of the Retail Operations to WP Investors or
another third party would provide shareholders with more value than a rights
offering. In addition, because a rights offering would also raise tax issues
with respect to the complete liquidation of Petrie and its subsidiaries, a
rights offering will only be used in the event that the sale to WP Investors
or another third party is not consummated.
REASONS FOR THE DISPOSITION AND THE RETAIL OPERATIONS STOCK PURCHASE
At a meeting held on April 20, 1994, Petrie's Board of Directors, other than
Milton Petrie who was absent, approved the Transaction and all parts thereof,
including, without limitation, the Disposition. See "THE TRANSACTION--Reasons
for the Transaction." At a meeting held on August 23, 1994, Petrie's Board of
Directors, other than Milton Petrie, who was absent, and Jay Galin and Alan C.
Greenberg, who abstained, determined that the Retail Operations Stock Purchase
is fair to and in the best interest of Petrie and its shareholders, and
approved the Retail Operations Stock Purchase. Jay Galin and Alan C. Greenberg
abstained because each believed that he had a potential conflict of interest
with respect to the Retail Operations Stock Purchase. Mr. Greenberg informed
Petrie's Board of Directors that, although he was abstaining because his firm,
Bear Stearns, is advising Petrie's Board of Directors on the Disposition and
the Retail Operations Stock Purchase, and is providing a fairness opinion with
respect to the Retail Operations Stock Purchase, he strongly supported Petrie
entering into the Retail Operations Stock Purchase Agreement. See "--Opinion
of Petrie Financial Advisor" and "CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS."
In arriving at its determination to approve the Disposition, Petrie's Board
of Directors considered numerous factors, including, without limitation, the
following: (i) information relating to the business, assets, competitive
position, management and prospects of Petrie and the retail industry in
general; (ii) the relative operating performance of the Retail Operations when
compared to data for publicly-traded specialty retail companies; and (iii) the
fact that Milton Petrie is no longer active in the management of Petrie.
In arriving at its determination to approve the Retail Operations Stock
Purchase, Petrie's Board of Directors considered numerous factors, including,
without limitation, the following: (i) Bear Stearns' opinion to the effect
that the Retail Operations Stock Purchase is fair, from a financial point of
view, to Petrie shareholders; (ii) the fact that out of the fifteen parties
that had expressed interest in Petrie's retail store operations, the bid
presented by WP Investors was the highest and most attractive; and (iii) the
terms of the Retail Operations Stock Purchase Agreement, including the cash
price to be paid and the amount of liabilities to be transferred to and
assumed by Retail Holding Company.
On balance, each of the foregoing material factors supported the Petrie
Board's determination to approve the Disposition and the Retail Operations
Stock Purchase. However, Petrie's Board of Directors found it
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impracticable to, and, therefore, did not, quantify or otherwise assign
specific or relative weights to the above factors in its consideration of the
Disposition and the Retail Operations Stock Purchase, and, instead, considered
the various above factors in their totality.
OPINION OF PETRIE FINANCIAL ADVISOR
In connection with the Disposition, Bear Stearns was retained by Petrie's
Board of Directors to serve as its financial advisor. Bear Stearns was selected
by Petrie's Board of Directors based upon Bear Stearns' qualifications,
expertise and reputation.
Bear Stearns has delivered to Petrie's Board of Directors a written opinion,
dated August 23, 1994 and updated as of November 3, 1994 (the "Bear Stearns
Opinion"), to the effect that the Retail Operations Stock Purchase is fair,
from a financial point of view, to Petrie shareholders. In the course of
rendering the Bear Stearns Opinion, Bear Stearns, among other things, (i)
reviewed Petrie's annual reports to its shareholders on Form 10-K for the
fiscal years ended on or about January 31, 1990 through 1994, and Petrie's
quarterly reports on Form 10-Q for the quarters ended April 30, 1994 and July
30, 1994; (ii) reviewed projected income statements of the Retail Operations,
prepared by management for the fiscal years ending on or about January 31, 1995
through 1998; (iii) reviewed operating and financial information related to the
business, financial condition, management and prospects of Petrie, provided to
Bear Stearns by Petrie's management; (iv) met with Petrie's management to
discuss the operations, historical financial statements and future prospects of
the Retail Operations; (v) initiated and managed a sale process commencing on
the date of the announcement of the Transaction, where all qualified interested
parties were provided with access to lease and financial information and to
Petrie's management and were given the opportunity to submit a bid for the
Retail Operations; (vi) reviewed this Proxy Statement/Prospectus; (vii) met
with Petrie and its counsel to discuss Petrie's contingent liabilities, the
Transaction, the proposed liquidation of Petrie and other matters; (viii)
reviewed publicly available financial data and stock market performance data of
public companies which Bear Stearns deemed generally comparable to the Retail
Operations; (ix) reviewed historical stock prices and trading volume of Petrie
Common Stock and Toys Common Stock; and (x) conducted such other studies,
analyses, inquiries and investigations as Bear Stearns deemed appropriate. As
described in the Bear Stearns Opinion, Bear Stearns assumed and relied upon,
without independent investigation, the accuracy and completeness of the
financial and other information with respect to Petrie and the Retail
Operations provided to it by Petrie's management or counsel. In arriving at the
Bear Stearns Opinion, Bear Stearns neither obtained nor performed any
independent appraisal of the assets of the Retail Operations.
THE FULL TEXT OF THE BEAR STEARNS OPINION SETTING FORTH THE MATTERS REVIEWED,
ASSUMPTIONS MADE, FACTORS CONSIDERED AND RELIANCE UPON OTHERS AS TO THE REVIEW
UNDERTAKEN BY IT, IS ATTACHED TO THIS PROXY STATEMENT/PROSPECTUS AS ANNEX F.
SHAREHOLDERS ARE URGED TO READ CAREFULLY THE BEAR STEARNS OPINION IN ITS
ENTIRETY.
Petrie entered into an engagement letter with Bear Stearns, dated as of
January 25, 1994, pursuant to which Petrie agreed to pay Bear Stearns a
transaction fee (the "Transaction Fee") based upon the aggregate value of the
Retail Operations Stock Purchase, which fee will be approximately $2.4 million.
In addition, Petrie has agreed to pay Bear Stearns a fee in the amount of
$500,000 for delivering the Bear Stearns Opinion; such amount will be credited
against the Transaction Fee. Petrie has also agreed to reimburse Bear Stearns
for its out-of-pocket expenses, including reasonable fees and disbursements for
counsel. Petrie has also agreed to indemnify Bear Stearns and its affiliates,
their respective directors, officers, agents and employees and each person, if
any, controlling Bear Stearns or any of its affiliates against certain
liabilities, including liabilities under the federal securities laws related to
Bear Stearns' engagement by Petrie.
Bear Stearns is a nationally recognized investment banking firm and is
regularly engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings and private
placements. Petrie's Board of Directors selected Bear Stearns as its financial
advisor on the basis of
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such qualifications and expertise and Bear Stearns' reputation. Alan C.
Greenberg, a director of Petrie and a member of Petrie's Audit and Compensation
Committees, is Chairman of the Board of The Bear Stearns Companies, Inc., the
parent company of Bear Stearns. See "CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS."
The following is a summary of the analyses and report presented by Bear
Stearns to Petrie's Board of Directors on August 23, 1994 (the "Bear Stearns
Report") on which Bear Stearns based the Bear Stearns Opinion. A copy of the
Bear Stearns Opinion is attached as Annex F of this Proxy Statement/Prospectus.
The following summary is qualified in its entirety by reference to the full
text of the Bear Stearns Opinion.
In connection with the Bear Stearns Opinion, Bear Stearns performed and set
forth in its written presentation to Petrie's Board of Directors the valuation
analyses of the Retail Operations summarized below on the basis of (i) the
sales process, (ii) the stock price market value of the Retail Operations and
(iii) the going concern value of the Retail Operations, in comparison with
comparable public companies.
SALE PROCESS
Bear Stearns initiated and managed a sale process which commenced when Petrie
announced its intent to sell the Retail Operations as part of the Transaction.
The announcement received widespread attention in the retail and financial
press and was carried by all major wire service news organizations.
Bear Stearns responded to all parties that expressed an interest in
purchasing the Retail Operations. Prior to entering into discussions with
interested parties, Bear Stearns ensured that the interested parties had the
financial wherewithal necessary to consummate a transaction of this size. Each
such qualified party was provided with confidential information concerning
Petrie and the Retail Operations and was given the opportunity to meet with
Petrie's management. A substantial number of qualified parties considered the
purchase of the Retail Operations. Of the bids received for the Retail
Operations, the bid by WP Investors was the highest and most attractive. Bear
Stearns concluded that the sale process supported its opinion that the Retail
Operations Stock Purchase is fair, from a financial point of view, to Petrie
shareholders.
STOCK PRICE MARKET VALUE
Bear Stearns reviewed the trading prices of Petrie Common Stock and Toys
Common Stock to determine the range of values the market ascribes to the Retail
Operations. Bear Stearns' analysis was based on the following:
. Petrie's enterprise value is $1,251 million (based on Petrie's August 12,
1994 closing stock price of $23 7/8 and assuming conversion of all of the
outstanding Convertible Debentures).
. The market is aware of the tax-free value ($1,350 million) (based on Toys
"R" Us' August 12, 1994 closing stock price of $33 7/8 and 39.9 million Toys
Shares) and the fully taxed value ($835 million) (assumes tax rate on
capital gains of 39 percent) of the Toys Shares.
. The Transaction is contingent upon the receipt of the IRS Ruling. As a
result, there is uncertainty associated with the after-tax value of the Toys
Shares which affects the value investors place on Petrie Common Stock.
By analyzing the different valuation results based on the market's assessment
of the likelihood of consummating the Transaction, and thus a tax-free
liquidation, Bear Stearns estimated the value the market ascribes to the Retail
Operations based on each assumption. For example, if the market assesses a 75
percent probability to the consummation of the Transaction, then the expected
after-tax value ascribed to the Toys Shares by the market is $1,125 million
(pre-tax market value of the Toys Shares less 25 percent of taxes due on the
taxable disposition of the Toys Shares, less 75 percent of the value of the 3.3
million Toys Shares, less estimated Transaction expenses of $10 million), and
the value the market ascribes to the Retail Operations is $126 million.
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It is reasonable to assume that the market believes the probability of
receiving the IRS Ruling is materially higher than 50 percent, based on (i)
the information available to the market regarding the Transaction, (ii) the
time and resources expended by Petrie, Toys "R" Us, their advisors, and WP
Investors in pursuing the various components of the Transaction, and (iii) the
fact that the Transaction is contingent upon the receipt of the IRS Ruling.
Bear Stearns concluded that the stock price market value supported its
opinion that the Retail Operations Stock Purchase is fair, from a financial
point of view, to Petrie shareholders.
GOING CONCERN VALUE
Bear Stearns reviewed and compared the financial and market performance of
the Retail Operations to six publicly traded specialty retail companies that
are in its view comparable to the Retail Operations. Bear Stearns used this
information to draw conclusions as to the relative operating performance of
the Retail Operations and to estimate public market valuation ranges for the
Retail Operations. Charming Shoppes, Catherines Stores, Dress Barn, Edison
Brothers, The Limited, Inc., and United Retail Group were the selected
companies that Bear Stearns believed were comparable in some respects to the
Retail Operations based upon consideration of several parameters, including
markets served, merchandising strategy, number of stores and store revenue,
and store format and location.
For each comparable company, Bear Stearns examined certain financial data
that was publicly available as of August 10, 1994, including net sales,
operating cash flow, operating income and net income (data through the first
quarter of the current fiscal year). Bear Stearns also calculated various
valuation multiples which it deemed appropriate for the comparable companies
as hereafter described. The multiples were calculated based on (i) share
prices as of August 9, 1994 and (ii) earnings estimates based on equity
analysts' consensus forecast. Bear Stearns noted that the harmonic mean of the
ratios of enterprise value (total number of shares outstanding multiplied by
the market price per share plus the amount of debt and preferred stock and
minority interest and less the amount of cash) to the applicable latest twelve
months' (LTM) operating cash flow of the comparable companies was 5.6x with a
range of 4.3x to 7.4x. The Retail Operations' ratio of the consideration
provided by WP Investors to LTM operating cash flow was 5.7x. (This is based
on estimated consideration provided by WP Investors of $240 million. Such
consideration consists of $190 million cash plus assumption of liabilities
estimated to be approximately $50 million. Such liabilities assumed by WP
Investors are inherently not susceptible to precise quantification. Based on
reviews performed by Petrie and its advisors and the nature of the
negotiations with WP Investors, Bear Stearns has estimated that these
liabilities are approximately $50 million. The ultimate amount of the
liabilities may vary substantially therefrom.) Bear Stearns also noted that
the harmonic mean of the ratios of enterprise value to the applicable LTM
operating income for the comparable companies was 9.4x with a range of 6.3x to
17.5x. With respect to the ratios of the market share price to LTM earnings
per share ("EPS"), the harmonic mean of the comparable companies was 15.8x
ranging from 10.4x to 35.3x. It was not possible to compute ratios for the
Retail Operations related to LTM operating income or EPS as the Retail
Operations generated an operating loss.
The harmonic mean is calculated by averaging reciprocals of the respective
ratios. It gives equal weight to an equal investment in each entity. Bear
Stearns utilizes the harmonic mean in averaging ratios in which price is the
numerator.
Bear Stearns also noted that the Retail Operations have under-performed the
comparable public companies in each of the four operating categories listed
(net sales, operating cash flow, operating income and EPS). In addition,
Petrie was the only company to incur an operating loss for the last twelve
month period through April 1994.
Petrie generated $42.4 million of operating cash flow through the period
ended April 30, 1994. Based on the harmonic mean of the enterprise value to
LTM operating cash flow multiples of Petrie's comparable public companies, the
imputed enterprise value of the Retail Operations is $237 million. The imputed
value
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range of the Retail Operations based on the high and low enterprise value
operating cash flow multiples of Petrie's comparable companies is $182 to $314
million. (Due to the operating losses generated by Petrie it is not possible to
compute imputed values on an earnings basis other than operating cash flow.)
Bear Stearns also considered Petrie's operating projections for the Retail
Operations in relation to the Retail Operations Purchase Price. However, the
Retail Operations have significantly under-performed all recent financial
projections and the business has experienced continued earnings deterioration.
As a result, Bear Stearns gave little weight to operating projections that
assume a significant operational and financial turnaround.
Bear Stearns concluded that the performance of the Retail Operations in
comparison to the comparable companies supported its opinion that the Retail
Operations Stock Purchase is fair, from a financial point of view, to Petrie
shareholders.
INTERESTS OF CERTAIN PERSONS IN THE RETAIL OPERATIONS STOCK PURCHASE
In considering the recommendation of the Petrie Board to approve the
Disposition, Petrie shareholders should be aware that members of Petrie's
management and the Petrie Board have interests in the Retail Operations Stock
Purchase that are in addition to the interests of Petrie shareholders
generally. The Petrie Board was aware of these interests and considered them,
among other matters, in approving the Retail Operations Stock Purchase.
PARTICIPATION IN THE INVESTOR GROUP
The Investor Group presently includes Allan Laufgraben, Vice Chairman,
President, Chief Executive Officer and a director of Petrie, Peter A. Left,
Vice Chairman, Chief Operating Officer, Chief Financial Officer, Secretary and
a director of Petrie and Verna Gibson, former President of The Limited Stores,
a division of The Limited, Inc. Additional members of Petrie's senior
management may be invited, in the future, to join the Investor Group. It is
anticipated that Messrs. Laufgraben, Left, any such other members of Petrie's
senior management and Verna Gibson will be afforded the opportunity to purchase
shares of the capital stock of Retail Holding Company on the same terms and
conditions as other investors.
INDEMNIFICATION
The Retail Operations Stock Purchase Agreement provides that, from and after
the closing date of the Retail Operations Stock Purchase, Retail Holding
Company will indemnify each Petrie nonemployee director and each other director
in his capacity as such from liabilities relating to the business of Retail
Holding Company other than the Excluded Liabilities (as hereinafter defined).
EMPLOYMENT AGREEMENTS AND OTHER ARRANGEMENTS
The Retail Operations Stock Purchase Agreement provides that immediately
following the closing of the Retail Operations Stock Purchase, employees of
Retail Holding Company shall be employed on substantially the same terms and
conditions as, and shall be covered by benefit plans or arrangements which, in
the aggregate, provide substantially equivalent benefits as were provided to
employees of Retail Holding Company prior to, such closing. Additionally,
employees of Retail Holding Company will receive credit for past service with
Retail Holding Company, Petrie or its subsidiaries for purposes of eligibility,
participation, vesting, benefit accrual or entitlement under any such benefit
plans or arrangements. Notwithstanding the foregoing, following the Disposition
Closing Date (as defined below), none of WP Investors or Retail Holding Company
or its subsidiaries will be required to maintain any plan or arrangement in
effect, to continue to provide any level of benefits or to maintain the
employment of any employee of Retail Holding Company.
It is anticipated that Messrs. Laufgraben, Left, any such other members of
Petrie's senior management and Verna Gibson will enter into employment
agreements with Retail Holding Company which will become effective upon the
consummation of the Retail Operations Stock Purchase.
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INVESTMENT COMPANY CONSIDERATIONS
If the Disposition is consummated, and the Exchange and the Liquidation are
not consummated, Petrie's shareholders would then own shares in a company whose
sole assets would consist of cash or cash equivalents and Toys Common Stock. As
a result, Petrie may be required to register as a closed-end investment company
under the 1940 Act if it does not promptly invest a sufficient amount of its
assets such that it is primarily engaged in businesses other than investing,
reinvesting and trading in, or owning or holding, investment securities.
Although it is not possible to quantify the per share value of Petrie Common
Stock were Petrie to become an investment company, it is expected that such
common stock, like the common stock of closed-end investment companies
generally, could trade at a discount from the value of its underlying assets,
which initially would consist primarily of Toys Common Stock.
If Petrie registers as an investment company, it will become subject to a
comprehensive regulatory framework that is substantially different from that
which Petrie is presently subject to. Presently, Petrie is generally not
subject to any restrictions on the types of businesses it engages in, its
capital structure, the composition of its board of directors, its compensation
policies, its transactions with officers, directors, significant shareholders
and subsidiaries and its dividend policies. The 1940 Act provides that
registered investment companies (i) must disclose the types of investments they
propose to make and articulate any fundamental policies (which can only be
changed with shareholder approval) in particular areas such as leverage,
concentration in particular industries, real estate, oil and gas programs,
commodities, investing for control, underwriting and so forth; (ii) may not
incur indebtedness unless after giving effect to such borrowing the value of
the registered investment company's assets is at least 300% of its total
indebtedness, may not issue preferred stock unless after giving effect to such
issuance the value of the registered investment company's assets is at least
200% of its total preferred stock and indebtedness, and must include certain
covenants in any such indebtedness that would permit debtholders to elect a
majority of the registered investment company's directors if such indebtedness
has asset coverage of less than 100% for more than twelve consecutive months;
(iii) may not issue warrants or options other than in connection with a pro
rata rights offering, may not sell common stock at less than net asset value
except in connection with a rights offering or with shareholder approval and
may not repurchase securities other than by tender offer or in the open market;
(iv) must have a board of directors of which no more than 60% of the members
are interested persons and at least two-thirds of which have been elected by
the registered investment company's shareholders; (v) may not provide incentive
compensation, profit sharing or stock option plans for management; (vi) may not
buy or sell property to or from affiliates and other related persons on a
principal basis, may not engage in business ventures with these persons or use
them as agents in connection with buying or selling property (other than
securities) and may not loan money to such persons; (vii) must value all of its
assets at market value or (if not permitted) at fair value and may pay
dividends out of capital gains only once per year; and (viii) may cease
investment company status only with shareholder approval.
CERTAIN LITIGATION
Two putative class action complaints were filed by persons claiming to be
Petrie shareholders in New York County Supreme Court against Petrie and certain
members of its management and Board of Directors. A third putative class action
complaint was filed by other alleged Petrie shareholders against the same
parties in the Superior Court of New Jersey. A stipulation among all parties
which would stay the New Jersey action is awaiting judicial approval. Also, a
joint stipulation is pending in New York County Supreme Court which would
consolidate the two New York actions under the caption In re Petrie Stores
Corporation Securities Litigation, Master Index No. 117896/94, and require the
service of a consolidated amended complaint within sixty days from the date the
stipulation is approved. At present, no consolidated amended complaint has been
served.
The complaints in each of the above actions generally contend that Petrie's
alleged management-dominated directors have violated their fiduciary duties of
loyalty and fair dealing by, among other things, exclusively negotiating with
WP Investors, whose investors include certain of Petrie's current management,
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for the sale of the Retail Operations at an inadequate price. The complaints
further contend that Petrie's Board of Directors failed to explore third-party
interest, and thus did not ensure the maximization of shareholder value. It is
alleged that WP Investors are in possession of non-public information which
allowed them to purchase the Retail Operations at an inadequate price.
Among other things, the plaintiffs, on behalf of the class members, seek: (i)
to preliminarily and permanently enjoin the sale of the Retail Operations to WP
Investors; (ii) to require Petrie's Board of Directors to maximize shareholder
value by exploring third-party interest; (iii) to rescind the sale to WP
Investors, in the event it is consummated; (iv) a declaratory judgment that the
individual defendants breached their fiduciary duties; and/or (v) to recover
unspecified damages.
The defendants believe that the claims asserted in these complaints are
without merit and intend to defend them vigorously.
THE PETRIE BOARD OF DIRECTORS RECOMMENDS THAT PETRIE SHAREHOLDERS VOTE FOR
APPROVAL OF THE DISPOSITION.
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THE RETAIL OPERATIONS STOCK PURCHASE AGREEMENT
The following is a summary of the material provisions of the Retail
Operations Stock Purchase Agreement and the Amendment No. 1 to the Retail
Operations Stock Purchase Agreement which are attached as Annex A to this Proxy
Statement/Prospectus and are incorporated herein by reference. Such summary
does not purport to be complete and is qualified in its entirety by reference
to the Retail Operations Stock Purchase Agreement.
THE RETAIL OPERATIONS STOCK PURCHASE
The Retail Operations Stock Purchase Agreement provides that, following the
approval of the Retail Operations Stock Purchase Agreement by Petrie
shareholders and the satisfaction or waiver of the other conditions set forth
therein, WP Investors will acquire 79 percent and one or more of its
nonaffiliated designees (collectively, the "Buyer") will acquire 21 percent of
the equity (the "Retail Shares") of Retail Holding Company.
Concurrently with the execution and delivery of the Retail Operations Stock
Purchase Agreement, Milton Petrie, who beneficially owns 28,111,274 shares of
Petrie Common Stock (approximately 60 percent of the outstanding shares of
Petrie Common Stock), by act of his attorneys-in-fact, executed and delivered
to WP Investors the WP Investors Voting Agreement pursuant to which he has
agreed to vote or execute a consent with respect to such shares in favor of the
Retail Operations Stock Purchase and has granted WP Investors an irrevocable
proxy to exercise all voting, consent and other rights to approve the Retail
Operations Stock Purchase. The WP Investors Voting Agreement, which has been
consented and agreed to by Toys "R" Us, provides that as long as the Toys
Voting Agreement remains in effect and Toys "R" Us has not received notice that
the Retail Operations Stock Purchase Agreement has been terminated, Toys "R" Us
will exercise, and refrain from exercising, its powers pursuant to the Toys
Voting Agreement so that Mr. Petrie's shares of Petrie Common Stock will be
voted in favor of the Retail Operations Stock Purchase Agreement.
RETAIL OPERATIONS PURCHASE PRICE; ASSUMPTION OF LIABILITIES
The purchase price for the Retail Shares will be $190 million in cash (the
"Retail Operations Purchase Price"). The Retail Operations Purchase Price was
determined through arm's length negotiations between Petrie's representatives
and the Investor Group's representatives. As of the closing of the Retail
Operations Stock Purchase (the "Disposition Closing Date"), other than certain
actual, contingent or potential liabilities, such as fees and expenses related
to the Transaction, the principal amount and interest on the Convertible
Debentures, gifts by Petrie or any of its subsidiaries on behalf of Milton
Petrie (See "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS"), dividends paid
or declared after July 25, 1994, liabilities (if any) under the Investment
Company Act of 1940, liabilities (if any) in connection with the Exchange,
certain tax liabilities (if any), as described in the last sentence of this
paragraph and liabilities in connection with claims by Petrie shareholders
(collectively, the "Excluded Liabilities"), Buyer will assume all of Petrie's
liabilities relating to the business, properties and assets of the Retail
Operations. Additionally, the first $10 million of payments which might become
due in satisfaction of potential withdrawal liabilities under the UAW District
65 Multiemployer Security Plan Pension Fund (the "Multiemployer Plan") will be
Buyer's responsibility and the next $50 million of such withdrawal liability
will be allocated 75 percent to Petrie or the Liquidating Trust ($37.5 million)
and 25 percent to Buyer ($12.5 million). The remaining withdrawal liability
under the Multiemployer Plan will be Buyer's sole responsibility. Petrie's
obligation for any withdrawal liability under the Multiemployer Plan will
generally terminate after five years if no claims are brought by then. Finally,
other than for certain potential tax liabilities relating to (i) the Exchange,
which liabilities would be obviated by the IRS Ruling, (ii) the reorganization
of Petrie, as contemplated by the Retail Operations Stock Purchase Agreement,
(iii) the sale or other disposition by Petrie of any Toys Shares or stock or
assets of Petrie or its subsidiaries subsequent to the Disposition Closing
Date, (iv) any federal examination of the disposition, during March and July of
1988, by Petrie or certain of its subsidiaries of shares of Toys
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Common Stock in connection with the conversion or redemption of certain
debentures, and (v) the failure to be true in any material respect of any
representations and statements of fact included in the request for the IRS
Ruling, Buyer and Retail Holding Company will generally be solely responsible
for any taxes imposed on Petrie, Retail Holding Company, or any subsidiaries of
Retail Holding Company.
REPRESENTATIONS AND WARRANTIES
The Retail Operations Stock Purchase Agreement contains various customary
representations and warranties of Petrie and Buyer as to (i) due organization,
(ii) authority relative to the Retail Operations Stock Purchase Agreement,
(iii) consents and approvals, (iv) compliance with applicable laws, and (v) no
brokers being entitled to fees in connection with the Retail Operations Stock
Purchase other than as disclosed.
Petrie has also made representations and warranties as to (i) the
capitalization of Retail Holding Company, (ii) the accuracy of information
included and to be included in filings with the Commission,
(iii) no undisclosed liabilities, (iv) the absence of certain changes, (v) no
defaults, (vi) no undisclosed threatened or pending litigation, (vii) certain
tax matters, (viii) employee benefit plans, (ix) certain store names used by
Petrie, (x) compliance with applicable environmental laws, (xi) labor
relations, (xii) the transfer by Petrie to Retail Holding Company of all of the
assets and rights held by Petrie and its subsidiaries as of immediately prior
to such transfer, subject to all of the liabilities and obligations of Petrie
and its subsidiaries, other than the Retail Shares and the Toys Shares, and
other than the Excluded Liabilities, (xiii) the transfer by Petrie to Retail
Holding Company of the employees of Petrie, (xiv) the assumption by Retail
Holding Company of certain employment agreements, (xv) the transfer by Petrie
to Retail Holding Company of certain employee benefit plans, (xvi) the accuracy
of the representations and warranties made in the Toys Acquisition Agreement,
(xvii) the accuracy of the representations and statements of fact made in the
request for the IRS Ruling, and (xviii) certain real property and leases.
CERTAIN COVENANTS
Pursuant to the Retail Operations Stock Purchase Agreement, as amended, each
of Petrie and Buyer have agreed to certain provisions that require them to
perform certain actions or inactions, prohibit them from taking certain other
actions, and indemnify the other against the consequences of certain actions.
Among other things, Petrie and Buyer have agreed that (I) during the period
from August 23, 1994 until the Disposition Closing Date, except as expressly
permitted by the Retail Operations Stock Purchase Agreement or as otherwise
consented to in writing by Buyer, Petrie and its subsidiaries shall not take
any action, other than in the ordinary course of business, including, but not
limited to (a) declaring, setting aside or paying any dividend or distribution
on any Petrie Common Stock, other than regular quarterly cash dividends not in
excess of $.05 per share, or on any shares of common stock of any subsidiaries
of Petrie which are not wholly-owned subsidiaries; (b) redeeming, purchasing or
otherwise acquiring any outstanding Retail Shares; (c) amending their charters
or by-laws (or other comparable charter or governing documents); (d) incurring
any indebtedness for borrowed money or issuing any long-term debt securities or
assuming, guaranteeing or endorsing the obligations of any other persons or
entities, except for indebtedness incurred in the ordinary course of business
consistent with past practice, and except that Petrie, subject to certain
limitations, may borrow funds and pledge Toys Shares for the purpose of
financing its working capital and capital expenditures in the ordinary course
of business ("Working Capital Pledge"); (e) (1) increasing in any manner the
rate or terms of compensation of any of its directors, officers or other
employees, except as are contractually required or which have been agreed to or
granted prior to August 23, 1994, (2) paying or agreeing to pay any pension,
retirement, allowance or other employee benefit not required or permitted by
any existing Petrie pension plan, benefit arrangement or other agreement or
arrangement to any such director, officer or employee, whether past or present
or (3) terminating, amending or modifying any Petrie employee benefit plan,
program or arrangement or entering into any employee benefit plan, program or
arrangement or any employment, severance, consulting or similar agreement,
arrangement or plan; provided, however, that Petrie and its subsidiaries may,
after consulting with Buyer (but without any requirement to obtain Buyer's
consent), at their discretion, amend such contracts or agreements prior to the
Disposition Closing Date to increase the
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contribution rate to the Multiemployer Plan to 7 percent of the compensation of
all employees covered by such contracts or agreements, such amendments to be
effective as of July 1, 1994; (f) except in the ordinary course of business
consistent with past practice, (1) selling, transferring or otherwise disposing
of, any of their material property or assets, (2) mortgaging or encumbering any
of their material property or assets, except pursuant to the Working Capital
Pledge, or (3) acquiring or purchasing any material securities or assets of any
person or entity or entering into any material joint venture or partnership;
(g) entering into other material agreements, commitments or contracts, except
agreements, commitments or contracts made in the ordinary course of business
consistent with past practice or, except as expressly permitted by the Retail
Operations Stock Purchase Agreement, entering into any new lease, or amending,
modifying, terminating or exercising or waiving any renewal option under, or
otherwise waiving any material right under, any existing lease; (h) changing in
any material respect any of the accounting principles or practices used by it
(except as required by GAAP) or any of their cash management practices or
inventory management or purchasing practices; (i) selling, transferring or
otherwise disposing of any of their property or assets to Toys "R" Us or any
affiliate thereof other than the Toys Shares or selling, transferring or
disposing of any Toys Shares, other than as permitted by the Retail Operations
Stock Purchase Agreement; or (j) agreeing to take any of the foregoing actions;
(II) from August 23, 1994 to the Disposition Closing Date and subject to the
terms and conditions of the letter agreement dated November 17, 1993 (the
"Confidentiality Agreement") between E.M. Warburg, Pincus & Co., Inc. and
Petrie, Petrie will (a) give Buyer and its authorized representatives
reasonable access to all books, records, stores, offices and other facilities
and properties of Petrie and its subsidiaries, (b) permit Buyer to make such
inspections thereof as Buyer may reasonably request and (c) cause its officers
to furnish Buyer with such financial and operating data and other information
with respect to the business and properties of Petrie and its subsidiaries as
Buyer may from time to time reasonably request; provided, however, that any
such access shall be conducted at a reasonable time and in such a manner as is
consistent with the past behavior of the parties and will not interfere
unreasonably with the operation of the business of Petrie or its subsidiaries;
(III) none of Petrie, any of its affiliates, any of its officers or directors,
any of the officers or directors of any of its affiliates or any of the
employees, agents or representatives (including, without limitation, any
investment banker, attorney or accountant) of Petrie or any of such affiliates,
officers or directors, shall continue, initiate, solicit or encourage, directly
or indirectly, any inquiries or the making or implementation of any proposal or
offer with respect to a merger, acquisition, consolidation or similar
transaction involving, or any sale, lease or other disposition of, all or any
significant portion of the Retail Operations, or the assets or any equity
securities of Petrie or any of its affiliates or engage in any negotiations
concerning, or provide any confidential information or data to, or have any
discussions with, any person relating to any of the foregoing; (IV) Petrie will
use all reasonable efforts to consummate the Retail Operations Stock Purchase;
(V) at the closing of the Retail Operations Stock Purchase, if Toys "R" Us
shall execute and deliver the indemnification agreement called for by the Toys
Acquisition Agreement, Petrie and Buyer shall execute and deliver to Toys "R"
Us an indemnification agreement substantially in the form called for by the
Toys Acquisition Agreement; (VI) from and after the Disposition Closing Date,
each of Buyer and Retail Holding Company and its subsidiaries will release,
indemnify and hold harmless Petrie and the Liquidating Trust and any
nonemployee director, other director in his capacity as such, or trustee
thereof harmless from all obligations or liabilities whatsoever relating to the
business, properties, assets, liabilities or obligations of Retail Holding
Company and its subsidiaries including pursuant to the Retail Leases; (VII)
from and after the Disposition Closing Date, Petrie or the Liquidating Trust,
as the case may be, will release, indemnify and hold harmless each of Buyer and
Retail Holding Company and its subsidiaries and each of its respective
nonemployee directors and each other director in his capacity as such from all
Excluded Liabilities; (VIII) at the Disposition Closing Date and for a period
of one year thereafter, (a) Buyer will or will cause Retail Holding Company and
its subsidiaries, or a subsidiary of Buyer which agrees to be bound by the
terms of the Retail Operations Stock Purchase Agreement (the "Guarantor"), as
applicable, to maintain, on a consolidated basis, a minimum net worth of not
less than $150,000,000 (as determined in accordance with GAAP, but excluding
goodwill), and (b) Buyer will not take any actions that would have the effect
of reducing the net worth of Retail Holding Company and its subsidiaries, or if
applicable, the Guarantor, below $150,000,000, except, in the case of either
(a) or (b), to the extent a reduction of such minimum net worth results from
losses incurred from continuing operations during such one year period; (IX)
each party will consult with
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the other prior to issuing any public announcement relating to the Retail
Operations Stock Purchase, except as may be required by law or by obligations
pursuant to any listing agreement with any national securities exchange; (X)
immediately following the Disposition Closing Date, the employees of Retail
Holding Company as of the Disposition Closing Date will be employed on
substantially the same terms and conditions as, and will be covered by benefit
plans or arrangements which, in the aggregate, provide substantially
equivalent benefits as were provided to the employees of Retail Holding
Company immediately prior to the Disposition Closing Date, but notwithstanding
the foregoing, following the Disposition Closing Date, none of Buyer or Retail
Holding Company or its subsidiaries will be required to maintain any plan or
arrangement in effect, to continue to provide any level of benefits or to
maintain the employment of any employee of Retail Holding Company; (XI) any
financing procured by Buyer to purchase the Retail Shares pursuant to the
Retail Operations Stock Purchase Agreement and to consummate the transactions
contemplated thereby will, if necessary, include an equity contribution by
E.M. Warburg, Pincus & Co., Inc. and/or one or more of its affiliates in the
amount of not less than $100 million; (XII) Petrie will agree not to terminate
the Toys Acquisition Agreement or otherwise act or fail to take any action
thereunder if the purpose for such termination, action or failure to act is
the avoidance of its obligations under the Retail Operations Stock Purchase
Agreement; (XIII) on the Disposition Closing Date, Buyer will cause Retail
Holding Company to repay such of Retail Holding Company's indebtedness as of
the Disposition Closing Date that is secured by Toys Shares; (XIV) on the
Disposition Closing Date, Petrie shall either, at its option (a) pay to Retail
Holding Company an amount equal to the amount of any Excluded Liabilities
paid, incurred or assumed by Retail Holding Company or any of its subsidiaries
or paid by Petrie on or prior to the Disposition Closing Date or (b) decrease
the Purchase Price by such amount; (XV) prior to the Disposition Closing Date,
Petrie will use good faith and reasonable efforts (a) to transfer each of the
Retail Leases to Retail Holding Company by assignment or stock transfer, (b)
to obtain any consents from landlords that may be required to transfer the
Retail Leases and (c) to obtain sufficient releases of any liabilities under
the Retail Leases so as not to give rise to a right of Petrie to terminate the
Toys Acquisition Agreement if Petrie's and its subsidiaries' contingent
liabilities have not been reduced below $200,000,000; (XVI) Buyer acknowledges
that Petrie, in agreeing to Buyer's conditions to consummation of the Retail
Operations Stock Purchase with respect to Buyer having available for draw a
working capital facility, has relied upon the existence and terms of that
certain commitment letter and the Summary of Terms and Conditions, a copy of
which has been provided to Petrie (collectively, the "Commitment Letter"),
dated as of November 3, 1994, by and among Buyer, WP Investors, Inc., Warburg
Pincus Investors, L.P., Chemical Bank and The Chase Manhattan Bank, N.A.
(collectively, the "Managing Agents"), and Chemical Securities Inc. and Chase
Securities, Inc. (collectively, the "Arrangers"); (XVII) for the benefit of
Buyer and Petrie, prior to the closing of the Retail Operations Stock
Purchase, Buyer covenants and agrees that Buyer will comply fully with all of
the terms, provisions and conditions set forth in the Commitment Letter, the
Facility (as defined in the Commitment Letter), the definitive documentation
for the Facility described therein or any transaction contemplated thereby
(collectively, the "Financing") and any related fee letters; (XVIII) for the
benefit of Petrie, Buyer further covenants and agrees that Buyer will not
amend, modify or waive any term or provision of the Commitment Letter or waive
any of its rights thereunder, in any event so as to make it less likely that
Buyer's condition with respect to Buyer having available for draw a working
capital facility will be satisfied; and (XIX) on or prior to the Disposition
Closing Date, Petrie shall provide in a manner reasonably satisfactory to
Buyer for the payment in full by Petrie and the Liquidating Trust to Buyer,
Retail Holding Company and its subsidiaries of the Excluded Liabilities (to
the extent not previously paid) in a manner adequate to provide for the
collection of the Excluded Liabilities, taking into account the assets and
other liabilities of the Liquidating Trust (which in the case of the Excluded
Liabilities arising pursuant to the Multiemployer Plan and in connection with
any federal examination of the disposition by Petrie or certain of its
subsidiaries of shares of Toys Common Stock in connection with the conversion
or redemption of certain debentures shall include the provision for the
payment thereof by means of an irrevocable letter of credit, a holdback of a
portion of the Retail Operations Stock Purchase Price, a first priority,
perfected lien in collateral with adequate assurances as to value or
comparable security or other comparable arrangements reasonably acceptable to
Buyer; provided, however, that (a) such provision in the case of liabilities
arising pursuant to the Multiemployer Plan shall provide for the payment
thereof in full, (b) such provision shall neither limit the liability of
Petrie and the Liquidating Trust not otherwise limited by
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this Agreement nor shall such provision enlarge any liability of Petrie and the
Liquidating Trust otherwise limited by the Retail Operations Stock Purchase
Agreement or otherwise and (c) such provision shall be $67.5 million).
CERTAIN CONDITIONS
The respective obligations of Petrie and Buyer to consummate the Retail
Operations Stock Purchase are subject to the following conditions, among
others: (i) any waiting period applicable to the Retail Operations Stock
Purchase under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 shall
have terminated or expired; (ii) no statute, rule, regulation, executive order,
decree or injunction shall have been enacted, entered, promulgated or enforced
by any governmental body which would prohibit or restrict the consummation of
the Retail Operations Stock Purchase; and (iii) each party shall have performed
in all material respects its obligations prior to the Disposition Closing Date,
and, unless waived pursuant to Amendment No. 1 to the Retail Operations Stock
Purchase Agreement or otherwise, the representations and warranties of each
party shall be true and correct in all material respects as of the Disposition
Closing Date.
The obligation of Petrie to consummate the Retail Operations Stock Purchase
is subject to the following additional conditions, among others: (i) Retail
Holding Company and its subsidiaries or the Guarantor, as applicable, shall
have, and immediately following the Disposition Closing Date shall continue to
have, on a consolidated basis, a minimum net worth of not less than
$150,000,000 as determined in accordance with GAAP, but excluding goodwill; and
(ii) Petrie's shareholders shall have approved the disposition of the Retail
Operations by the affirmative vote of two-thirds of all outstanding shares of
Petrie Common Stock entitled to vote thereon.
The obligation of Buyer to consummate the Retail Operations Stock Purchase is
subject to the following additional conditions, among others: (i) either (a)
Petrie shall have received the IRS Ruling, in a form reasonably satisfactory to
Buyer, to the effect that the Exchange will not give rise to the recognition by
Petrie or its shareholders of a material amount of taxable income (an
"Acceptable Ruling"), and the representations made by Petrie and Toys "R" Us in
the request for such private letter ruling (and any supplements or amendments
thereto) shall be true and correct in all material respects or (b) in the event
that the IRS Ruling has not been received by the Disposition Closing Date,
Petrie shall have covenanted pursuant to an agreement reasonably satisfactory
to Buyer that it will not consummate the Exchange, the other transactions
contemplated by the Toys Acquisition Agreement or any other transaction
involving the direct or indirect disposition of all or any portion of the Toys
Shares (whether or not intended to be a tax-free reorganization with respect to
Petrie) within the taxable year of Petrie in which the closing of the Retail
Operations Stock Purchase occurs except with the consent of Buyer, such consent
not to be unreasonably withheld, or pursuant to an Acceptable Ruling; (ii)
Buyer shall have available to it for draw the financing contemplated by the
Commitment Letter and all conditions to the obligations of the lenders
thereunder shall have been satisfied or waived, substantially on the terms
contemplated thereby; provided, however, that Buyer shall not be entitled to
rely on this condition as grounds for not consummating the Retail Operations
Stock Purchase if Buyer shall not have satisfied the covenants with respect to
the Commitment Letter described above; and (iii) Buyer shall be reasonably
satisfied that Petrie shall have made or shall make adequate provision for its
remaining liabilities and obligations, including the amount to be held in
escrow and trust in connection with Petrie's liquidation.
TERMINATION
The Retail Operations Stock Purchase Agreement and the transactions
contemplated thereby may be terminated, by written notice promptly given to the
other party, at any time prior to the Disposition Closing Date: (i) by mutual
written consent of Petrie and Buyer; (ii) by Petrie or Buyer at any time after
January 31, 1995; or (iii) by either party if a governmental body shall have
taken any action restricting or prohibiting the transactions contemplated by
the Retail Operations Stock Purchase Agreement and such action shall have
become final and nonappealable.
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EXPENSES
Whether or not the Retail Operations Stock Purchase Agreement and the
transactions contemplated thereby are consummated, all costs and expenses
(including legal fees and expenses) incurred in connection with the Retail
Operations Stock Purchase Agreement and the transactions contemplated thereby
shall be paid by the party incurring such expenses. Notwithstanding the
foregoing, if the Retail Operations Stock Purchase Agreement is terminated
following: (i) a material breach by Petrie; (ii) the failure of those
representations and warranties not waived pursuant to Amendment No. 1 to the
Retail Operations Stock Purchase Agreement, including as to the transfer of the
assets and rights to Retail Holding Company and its subsidiaries as
contemplated by the Retail Operations Stock Purchase Agreement, of Petrie to be
true and correct in all material respects as of August 23, 1994 and as of the
Disposition Closing Date; (iii) the failure of Petrie to have performed and
complied in all material respects with all agreements, obligations, covenants
and conditions required by the Retail Operations Stock Purchase Agreement to be
performed or complied with by it prior to the Disposition Closing Date; (iv) in
the event that the IRS Ruling has not been received, the failure of Petrie to
covenant pursuant to an agreement reasonably satisfactory to Buyer that it will
not consummate the Exchange or any similar transaction within the taxable year
of Petrie in which the Disposition Closing Date occurs except with the consent
of Buyer, such consent not to be unreasonably withheld or pursuant to an
Acceptable Ruling; or (v) the failure of Petrie's shareholders to approve the
Disposition by the affirmative vote of two-thirds of all outstanding shares of
Petrie Common Stock entitled to vote thereon by December 14, 1994, then, so
long as Buyer is not in material breach of its obligations thereunder, Petrie
shall, promptly following such termination, reimburse Buyer for its reasonable,
documented out-of-pocket expenses, paid, incurred or assumed, by or on behalf
of Buyer or its affiliates (including, without limitation, fees and expenses of
its advisors, financing sources, counsel and accountants) in connection with or
relating to the transactions contemplated by the Retail Operations Stock
Purchase Agreement, provided, however, that Buyer has not been previously
reimbursed for such expenses and that the amount so payable shall not exceed
$5.625 million.
AMENDMENT; WAIVER
The Retail Operations Stock Purchase Agreement may not be amended or modified
except by an instrument in writing signed on behalf of each of the parties
thereto.
At any time prior to the Disposition Closing Date, the party entitled to the
benefit of any respective term or provision of the Retail Operations Stock
Purchase Agreement may (i) extend the time for the performance of any of the
obligations or other acts of the other party thereto, (ii) waive any
inaccuracies in the representations and warranties contained therein or in any
document, certificate or writing delivered pursuant thereto or (iii) waive
compliance with any obligation, covenant, agreement or condition contained
therein. Any agreement on the part of either party to any such extension or
waiver shall be valid only if set forth in an instrument in writing signed on
behalf of the party entitled to the benefits of such extended or waived term or
provision.
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THE EXCHANGE
After the consummation of the Disposition, and pursuant to the terms of the
Toys Acquisition Agreement, Petrie intends to exchange with Toys "R" Us all of
the shares of Toys Common Stock presently held by certain subsidiaries of
Petrie (currently, approximately 39.9 million shares) and cash (presently
estimated to be approximately $180 million) for a number of shares of Toys
Common Stock equal to (i) the number of shares of Toys Common Stock, held by
Petrie, less approximately 3.3 million shares of Toys Common Stock, plus (ii)
such amount of cash divided by the market value of a share of Toys Common
Stock.
THE PETRIE BOARD OF DIRECTORS RECOMMENDS THAT PETRIE SHAREHOLDERS VOTE FOR
APPROVAL OF THE EXCHANGE.
THE TOYS ACQUISITION AGREEMENT
The following is a summary of the material provisions of the Toys Acquisition
Agreement, which is attached as Annex B to this Proxy Statement/Prospectus and
is incorporated herein by reference. Such summary does not purport to be
complete and is qualified in its entirety by reference to the Toys Acquisition
Agreement.
THE ACQUISITION
The Toys Acquisition Agreement provides that, following the approval of the
Transaction by Petrie shareholders and the satisfaction or waiver of the other
conditions set forth in the Toys Acquisition Agreement, Petrie and Toys "R" Us
will effect a tax-free reorganization under Section 368(a)(1)(C) of the Code.
Such reorganization consists of the transfer of the Exchange Assets by Petrie
to Toys "R" Us, free and clear of all liabilities. In exchange therefor, Toys
"R" Us will transfer to Petrie approximately 3.3 million fewer shares of Toys
Common Stock than will be transferred to Toys "R" Us plus Toys Common Stock in
exchange for Petrie's cash (presently estimated to be approximately $180
million). After the Exchange and the Disposition, Petrie will be liquidated and
all of the Toys Common Stock and cash, if any, will be distributed to Petrie's
shareholders, except for cash and Toys Common Stock to be held in a liquidating
trust to provide for all of the liabilities of Petrie and its subsidiaries,
including their contingent liabilities, at the time of the consummation of the
Transaction, including but not limited to, those related to the Lease
Guarantees.
Prior to the Exchange, Petrie will cause all of its subsidiaries holding any
Toys Shares to transfer such Toys Shares to Petrie in a manner that will not
give rise to the recognition of taxable income or gain to Petrie or any of its
subsidiaries under the Code (the "Petrie Stock Transfer"). In addition, the
Toys Acquisition Agreement requires Petrie to consummate the Disposition
through one or more asset or stock sale transactions, of all of the assets of
Petrie and its subsidiaries, other than the Toys Shares and such cash as Petrie
desires to retain in accordance with the Toys Acquisition Agreement. The
Disposition will be subject to the liabilities of Petrie and its subsidiaries,
other than those liabilities expressly retained by Petrie and its subsidiaries.
The consummation of the Disposition in a manner permitted by the Ruling Request
and the IRS Ruling is one of the conditions to the Exchange.
Concurrently with the execution and delivery of the Toys Acquisition
Agreement, Milton Petrie, who beneficially owns 28,111,274 shares of Petrie
Common Stock (approximately 60 percent of the outstanding shares of Petrie
Common Stock), delivered to Toys "R" Us the Voting Agreement and proxy pursuant
to which he has agreed to vote or exercise a consent with respect to such
shares in favor of the Transaction and has granted Toys "R" Us an irrevocable
proxy to exercise all voting, consent and other rights to approve the
Transaction.
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PURCHASE CONSIDERATION
The consideration (the "Purchase Consideration") for the Exchange Assets will
be composed of the number of shares of Toys Common Stock equal in number to the
Exchange Shares plus the Cash Shares. "Exchange Shares" means a number equal
to: (i)(A) the product of the number of Toys Shares on the closing date of the
Exchange (the "Exchange Closing Date") and $34.5688 (the average of the Market
Value Per Share of Toys Common Stock on the ten trading days next preceding the
trading day immediately prior to the date of the Toys Acquisition Agreement)
minus (B) $115 million (the "Designated Amount"), divided by (ii) $34.5688;
provided, however, that the number of Toys Shares on the Exchange Closing Date
and the Market Value Per Share will be adjusted appropriately if prior to the
Exchange Closing Date there is a change in the number of shares of Toys Common
Stock held by Petrie or a change in the class of shares of Toys Common Stock
held by Petrie, in each case, to the extent attributable to the declaration of
any stock dividend, stock split, recapitalization, reclassification,
combination or similar event. Such formula provides that Toys "R" Us will
transfer to Petrie, as Exchange Shares, 3,326,699 fewer shares of Toys Common
Stock than Petrie will transfer to Toys "R" Us. "Cash Shares" means a number
equal to (x) the Cash Amount, divided by (y) the average of the Market Value
Per Share of Toys Common Stock on the ten trading days next preceding the
second trading day prior to the Exchange Closing Date.
NO ASSUMPTION OF LIABILITIES; INDEMNIFICATION
The Toys Acquisition Agreement provides that Toys "R" Us is not assuming and
will not in any way be liable or responsible for, any liabilities or
obligations of Petrie whatsoever. Without limiting the generality of the
foregoing, Toys "R" Us shall not assume (i) any liability or obligation of
Petrie arising out of or in connection with the negotiation and preparation of
the Toys Acquisition Agreement or the consummation and performance of the
transactions contemplated thereby, including, without limitation, any liability
relating to Taxes so arising; (ii) any liability or obligation under contracts
and other agreements to which Petrie is a party or by or to which it or its
assets, properties or rights are bound or subject; (iii) any liability or
obligation to trade creditors or other creditors or customers of Petrie; (iv)
any liability or obligation of Petrie or any shareholder of Petrie for any
Taxes; or (v) any liability or obligation of Petrie with respect to any
violation by Petrie or any of its subsidiaries of its charter, by-laws or
Requirements of Law (as defined in the Toys Acquisition Agreement).
At the Exchange Closing Date, each of Petrie and its subsidiaries shall, and
Petrie shall use its reasonable best efforts to cause certain transferees of
Petrie's assets (the "Petrie Business Indemnitor") to, execute and deliver to
Toys "R" Us an indemnification agreement (the "Petrie Indemnification
Agreement") relating to Petrie's liabilities, liabilities arising from the
Transaction or the other transactions contemplated in the Toys Acquisition
Agreement or liabilities of the Petrie Business Indemnitor.
At the Exchange Closing Date, Toys "R" Us will execute and deliver to Petrie
and each Petrie Business Indemnitor that executes and delivers the Petrie
Indemnification Agreement, an indemnification agreement relating to Toys "R"
Us' representations, warranties and agreements in the Ruling Request.
REPRESENTATIONS AND WARRANTIES
The Toys Acquisition Agreement contains various customary representations and
warranties of Petrie and Toys "R" Us relating to, among other things, (i) each
party's organization and similar corporate matters; (ii) authorization,
execution, delivery, performance and enforceability of the Toys Acquisition
Agreement, the Indemnification Agreements and related matters; (iii) the
absence of conflicts with charters, by-laws, or any agreements or instruments
to which either is a party; (iv) the receipt of required consents or approvals;
(v) compliance with applicable law; (vi) accuracy of information supplied by
each of Petrie and Toys "R" Us in connection with the Ruling Request; and (vii)
the absence of any broker, finder or investment banker fees or commissions
other than as previously disclosed.
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Additional representations and warranties of Petrie include that (i) the
Board of Directors of Petrie has approved the Toys Acquisition Agreement, the
Seller Indemnification Agreement, the Transaction and the transactions
contemplated by the Toys Acquisition Agreement and has recommended to the
shareholders of Petrie that they approve the Toys Acquisition Agreement, the
Seller Indemnification Agreement, the Transaction and the transactions
contemplated by the Toys Acquisition Agreement; (ii) Petrie and its
subsidiaries have the power and authority to convey on the Exchange Closing
Date good and valid title to the Toys Shares, free and clear of any Lien; (iii)
the financial statements of Petrie are accurate in all material respects; (iv)
there are no undisclosed liabilities with respect to Petrie or its
subsidiaries; (v) there is no undisclosed litigation with respect to Petrie or
its subsidiaries; (vi) Petrie and its subsidiaries are in compliance with
applicable Requirements of Law and (vii) the written information contemplated
by the Toys Acquisition Agreement to be furnished by Petrie to Toys "R" Us is
true and correct.
Additional representations and warranties of Toys "R" Us include that the
shares of Toys Common Stock constituting the Purchase Consideration, when
issued and delivered, will be validly issued and outstanding, fully paid and
non-assessable, and the issuance of such shares is not and will not be subject
to the preemptive rights of any securityholder of Toys "R" Us.
CERTAIN COVENANTS
Pursuant to the Toys Acquisition Agreement, each of Petrie and Toys "R" Us
have agreed to certain provisions that require them to perform certain actions,
prohibit them from taking certain other actions, and indemnify the other
against the consequences of certain actions. Among other things, Petrie and
Toys "R" Us have agreed that (i) during the period from the date of the Toys
Acquisition Agreement until the Exchange Closing Date, except as expressly
permitted by the Toys Acquisition Agreement or as otherwise consented to in
writing by Toys "R" Us, Petrie and its subsidiaries shall not take any action,
other than in the ordinary course of business, that (a) would make any
representation or warranty contained in the Toys Acquisition Agreement
materially incorrect, (b) materially impairs the ability of Petrie to satisfy
any of its conditions, (c) diminishes the number of shares of Toys Common Stock
held by Petrie or its subsidiaries as of the date of the Toys Acquisition
Agreement by an amount greater than the number of shares of Toys Common Stock
equal to the lesser of (x) 4,000,000 shares and (y) the number of shares of
Toys Common Stock in excess of which would interfere with the ability of the
parties hereto to consummate the transactions contemplated by the Toys
Acquisition Agreement in a manner such that the consummation of the Petrie
Stock Transfer, the Exchange and the Dissolution will not give rise to the
recognition of taxable income or gain to Toys "R" Us, Petrie or any of its
subsidiaries for Federal income tax purposes ("Permitted Shares"), or (d) could
reasonably result in preventing the consummation of the Transaction or the
other transactions contemplated by the Toys Acquisition Agreement; (ii) prior
to the Exchange Closing Date, Petrie will (a) consummate the Petrie Stock
Transfer, (b) use all commercially reasonable efforts to consummate the
Disposition in the manner set forth in the Ruling Request or any supplement
thereto and the IRS Ruling except to the extent Toys "R" Us concludes in good
faith that the manner set forth in such supplement may result in Toys "R" Us
incurring liabilities or obligations, (c) cause to be paid or satisfied any of
its or its subsidiaries' liabilities that become due on or prior to the
Exchange Closing Date, (d) establish an escrow and trust containing cash (or to
the extent cash shall be insufficient, shares of Toys Common Stock received as
Purchase Consideration) in an amount (the "Escrow Amount") reasonably believed
by the Board of Directors of Petrie to adequately provide for any known, actual
or contingent liabilities of Petrie or its subsidiaries, and (e) deliver a
notice to Toys "R" Us at least 45 days prior to the Exchange Closing Date of a
preliminary, good faith estimate of the Escrow Amount; (iii) subsequent to the
Acquisition, Petrie will dissolve and distribute the shares of Toys Common
Stock received as Purchase Consideration (other than shares subject to escrow
and other arrangements that adequately provide for the payment of all
liabilities of Petrie and its subsidiaries) to holders of Petrie Common Stock;
(iv) prior to the Exchange Closing Date, Petrie shall call for the redemption
of all outstanding Convertible Debentures; (v) Petrie shall not sell or
otherwise dispose of the Toys Shares, provided, that Petrie may sell or
otherwise dispose of a number of Toys Shares equal to the number of Permitted
Shares, so long as notice is given to Toys "R" Us and such sale or disposition
is not made during the ten trading
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days immediately preceding the commencement of, or during, the ten trading days
next preceding the second trading day prior to the Exchange Closing Date; and
Petrie may pledge Toys Shares for the purposes of financing its working capital
and capital expenditures in the ordinary course of business so long as the
aggregate outstanding amount secured by such pledges does not, at any time,
exceed $175 million; Petrie will also not purchase any additional shares of
Toys Common Stock; (vi) Petrie will prepare and file a Proxy Statement; (vii)
Petrie shall duly call, give notice of, convene and hold the Annual Meeting as
promptly as practicable to consider and vote upon the approval of the Toys
Acquisition Agreement and the transactions contemplated thereby; (viii) Toys
"R" Us shall prepare and file a Registration Statement; (ix) subject to certain
restrictions, if the Toys Acquisition Agreement is terminated for any reason,
other than due to a material breach by Toys "R" Us, Petrie shall promptly
reimburse Toys "R" Us for all reasonable out-of-pocket expenses related to the
Toys Acquisition Agreement and the transactions contemplated thereby which are
incurred after October 31, 1993; (x) each party will use its reasonable best
efforts to take all actions necessary to consummate the transactions
contemplated by the Toys Acquisition Agreement; (xi) Toys "R" Us shall be
entitled to such data and information from Petrie as Toys "R" Us shall
reasonably request and Toys "R" Us shall hold such information in confidence;
Petrie shall be entitled to participate in a due diligence meeting with senior
management of Toys "R" Us to the extent reasonably necessary to fulfill its due
diligence obligations in connection with the Proxy Statement; (xii) each party
shall consult with the other before issuing any press release; (xiii) each
party shall give the other prompt notice of any event the occurrence or failure
of which would be likely to cause any of the representations or warranties of
such party to be inaccurate in any material respect; (xiv) any broker, finder
or other fees or commissions in connection with the Transaction will be paid
for by the party making such arrangements; and (xv) Petrie will indemnify and
hold harmless Toys "R" Us from any Losses relating to any liability under any
applicable Bulk Sales Act. Notwithstanding the foregoing, neither party shall
be prohibited from making any disclosure to its own shareholders that is
required to be made under any applicable law or from taking any action which is
necessary for such party's Board of Directors to comply with its fiduciary
obligations; provided, that the party making such disclosure or taking any such
action shall consult with the other party before making such disclosure or
taking any such action; and provided, further, that such party shall not
exercise the right to take any action unless such party shall determine in good
faith to enter into a transaction not solicited or initiated by such party that
its Board of Directors determines such party is required to enter into in
accordance with such Board's fiduciary obligations.
CERTAIN CONDITIONS
The respective obligations of Petrie and Toys "R" Us to consummate the
Acquisition are subject to the following conditions, among others: (i) the
Transaction shall have been approved by the shareholders of Petrie; (ii) any
waiting period applicable to the Acquisition under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976 shall have expired; (iii) no preliminary or
permanent injunction or other order, decree or ruling shall be in effect which
would make the acquisition by Toys "R" Us of the Toys Shares illegal or which
would otherwise prevent the consummation of the Acquisition and the
transactions contemplated by the Toys Acquisition Agreement; (iv) the
Registration Statement shall be effective under the Securities Act and no "stop
order" shall have been issued; (v) the Petrie Stock Transfer and the
Disposition shall have been completed in a manner permitted by the Ruling
Request and the IRS Ruling; and (vi) such licenses, permits, consents,
approvals, waivers, authorizations, qualifications and orders of domestic
governmental authorities and parties to contracts and leases with Petrie and/or
its subsidiaries as are necessary in connection with the consummation of the
transactions contemplated by the Toys Acquisition Agreement shall have been
obtained.
Additionally, the obligations of each of Petrie and Toys "R" Us to consummate
the Acquisition are subject to the following conditions, among others: (i) the
other party shall have in all material respects performed its obligations under
the Toys Acquisition Agreement on or prior to the Exchange Closing Date; (ii)
the representations and warranties of the other party as set forth in the Toys
Acquisition Agreement shall
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be true and correct in all material respects at and as of the Exchange Closing
Date; and (iii) such party shall have received the IRS Ruling in form and
substance reasonably satisfactory to such party.
The obligation of Toys "R" Us to consummate the Acquisition is subject to the
following additional conditions, among others: (i) prior to the Exchange
Closing Date, Petrie shall have taken all steps necessary to consummate the
Liquidation and Dissolution in a manner provided by the Ruling Request and the
IRS Ruling; (ii) prior to the Exchange Closing Date, Petrie shall have paid or
satisfied all of its liabilities and indebtedness or its Board of Directors
shall have made adequate provision therefor in escrow and trust, in an amount,
and with terms and conditions reasonably satisfactory to Toys "R" Us, in
relation to the Designated Amount; (iii) Toys "R" Us shall not have reasonably
determined, after taking into account the escrow and trust, that the
consummation of the transactions contemplated by the Toys Acquisition Agreement
could result in any liability to Toys "R" Us or Toys "R" Us receiving less than
the Designated Amount; (iv) no action shall have been commenced and be pending
against Petrie or Toys "R" Us which is reasonably likely to be material to Toys
"R" Us in relation to the Designated Amount; and (v) the holders of no more
than 9.5 percent of the shares of Petrie Common Stock outstanding on the
Exchange Closing Date shall have perfected dissenters' rights with respect to
the Transaction or the other transactions contemplated by the Toys Acquisition
Agreement.
TERMINATION
The Toys Acquisition Agreement and the transactions contemplated thereby may
be terminated, by written notice promptly given to the other party, at any time
prior to the Exchange Closing Date, whether prior to or after the approval by
Petrie shareholders: (i) by mutual written consent of the Boards of Directors
of Petrie and Toys "R" Us; (ii) by either Petrie or Toys "R" Us, if a
governmental body shall have issued an order, decree or ruling or enacted any
statue or rule permanently restraining or otherwise prohibiting the
transactions contemplated by the Toys Acquisition Agreement; provided, however,
that any such order, decree or ruling shall have become final and
nonappealable; (iii) by either Petrie or Toys "R" Us if the closing of the
Exchange shall not have occurred on or before the January 28, 1995 (unless the
absence of such occurrence shall be due to the failure of the party seeking to
terminate the Toys Acquisition Agreement to perform in all material respects
each of its obligations under the Toys Acquisition Agreement) or, if the IRS
Ruling has not been obtained by November 15, 1994, or Petrie has not
irrevocably waived its termination right, as set forth in clause (ix) below, by
November 15, 1994, then on or after November 15, 1994 (the "Termination Date");
(iv) by either Petrie or Toys "R" Us, if the shareholders of Petrie fail to
approve the Transaction and/or any other transaction contemplated by the Toys
Acquisition Agreement; (v) by either Petrie or Toys "R" Us, if such party
receives an IRS ruling that is not favorable or reasonably satisfactory to it;
(vi) by Toys "R" Us, if it shall have reasonably determined, after taking into
account any applicable terms and provisions of the escrow and trust required by
the Toys Acquisition Agreement, that the consummation of the Transaction and
the transactions contemplated thereby could result in liability to Toys "R" Us
or could result in Toys "R" Us receiving less than the Designated Amount; (vii)
by Toys "R" Us, if Petrie shall have withdrawn its approval or recommendation
of the Acquisition or the transactions contemplated thereby (other than any
particular form of the Disposition), failed to include in the Proxy Statement
such recommendation or taken a public position inconsistent with such
recommendation, or if the Board of Directors of Petrie shall have resolved to
do any of the foregoing; (viii) by either party, if the other party fails to
perform in all material respects its obligations under the Toys Acquisition
Agreement; provided that the other party shall have ten days from the date it
receives notice of such failure to cure any failure to perform any such
obligations; or (ix) by Petrie, if the Board of Directors of Petrie shall
reasonably determine and notify Toys "R" Us in writing that the contingent
liabilities of Petrie and its subsidiaries have not been reduced below $200
million.
AMENDMENT; WAIVER
The Toys Acquisition Agreement may not be amended except by an instrument in
writing signed on behalf of each of the parties thereto.
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At any time prior to the Exchange Closing Date, whether before or after the
Annual Meeting, either party to the Toys Acquisition Agreement, by action taken
by its Board of Directors, may extend the time for the performance of any of
the obligations or other acts of the other party to the Toys Acquisition
Agreement or waive compliance with any of the agreements of the other party or
with any conditions to its own obligations. Any agreement on the part of a
party to the Toys Acquisition Agreement to any such extension or waiver shall
be valid only if set forth in an instrument in writing signed on behalf of such
party by a duly authorized officer.
THE LIQUIDATION AND DISSOLUTION
As promptly as practicable following the consummation of the Exchange and the
Disposition, Petrie's Board of Directors will determine the amount of Petrie's
assets, then to consist solely of Toys Common Stock and cash (the "Retained
Assets"), that it reasonably believes will be sufficient to provide for
Petrie's remaining liabilities and obligations, which are expected to consist
primarily of contingent liabilities under the Lease Guarantees, related to
Petrie's Multiemployer Plan and certain potential taxes (the "Final
Liabilities"). The remainder of Petrie's assets will be distributed pro rata to
Petrie shareholders in an initial liquidating distribution (the "Initial
Distribution"). The Retained Assets will be transferred, subject to one or more
Escrow Agreements, to the Liquidating Trust to provide for the payment of the
Final Liabilities. The liquidation and dissolution of Petrie will be effected
pursuant to a plan of liquidation and dissolution (the "Plan of Liquidation and
Dissolution"), the material terms of which are described below, which Plan of
Liquidation and Dissolution will be adopted upon the approval of the
Liquidation and Dissolution by the affirmative vote of two-thirds of all
outstanding shares entitled to vote thereon at the Annual Meeting. Petrie will,
however, only be liquidated and dissolved upon the consummation of the Exchange
and the Disposition. If the Exchange and the Disposition are not consummated,
Petrie's Board of Directors may, without further action by the shareholders,
abandon all or part of the Plan of Liquidation and Dissolution. The terms of
the Plan of Liquidation and Dissolution, the Escrow Agreements and the
Liquidating Trust Agreement are subject to such modifications as are deemed
necessary by Petrie's Board of Directors to receive, and thereafter comply
with, the IRS Ruling. See "THE PLAN OF LIQUIDATION AND DISSOLUTION."
Upon the consummation of the Exchange, the Disposition and the Initial
Distribution, Petrie will file a certificate of dissolution with the Secretary
of State of the State of New York in accordance with Section 1003 of the NYBCL.
After the filing of the certificate of dissolution, Petrie will no longer be
authorized to undertake corporate actions other than those necessary for the
winding up of Petrie's affairs. After the Retained Assets are transferred to
the Liquidating Trust, Petrie shareholders will become the owners of beneficial
interests (the "Beneficial Interests") in the Liquidating Trust. Certificates
representing shares of Petrie Common Stock will, following Petrie's dissolution
and the establishment of the Liquidating Trust, be deemed to represent
Beneficial Interests. It is anticipated that the Beneficial Interests will be
registered under the Exchange Act, at Petrie's expense, and will be
transferable. See "THE PLAN OF LIQUIDATION AND DISSOLUTION."
Various laws for the protection of creditors may apply to the Liquidation. In
this regard, it should be noted that if a court were to find that Petrie failed
to fund sufficiently the Liquidating Trust to provide for the payment of
Petrie's obligations and potential, contingent and known liabilities, or that
the liquidating distribution to Petrie shareholders rendered Petrie insolvent,
the liquidating distributions to Petrie shareholders, including, without
limitation, the Beneficial Interests, may be deemed to be "fraudulent
conveyances" or impermissible dividends or distributions under applicable law,
and therefore may be subject to claims of certain creditors of Petrie or the
Liquidating Trust, if such creditors have not been paid by either of such
entities. In the event that such a claim is asserted after the liquidation and
dissolution of Petrie, there is a risk that persons who were shareholders of
Petrie on the Distribution Record Date will be ordered by a court to turn over
to Petrie's or the Liquidating Trust's creditors all or a portion of the
liquidating distributions, including, without limitation, the Beneficial
Interests, they received.
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Petrie's Board of Directors intends to place a sufficient amount in the
Liquidating Trust to provide for Petrie's obligations and liabilities,
including contingent liabilities and obligations. If the Retail Operations
Stock Purchase is consummated, these obligations would include guarantees of
leases and a portion of the liabilities associated with Petrie's multiemployer
pension plan, for which Retail Holding Company would be the primary obligor.
If, however, Retail Holding Company were not able to meet its obligations in
this regard, the Liquidating Trust could be liable for such obligations. There
can be no assurance as to the standard or methodology a court would apply in
determining whether the amounts placed in the Liquidating Trust were, as of the
date of Petrie's liquidation and dissolution, sufficient to adequately provide
for Petrie's potential, contingent and known liabilities or that, regardless of
the standard or methodology used by a court, that the amounts placed in the
Liquidating Trust prior to Petrie's liquidation and dissolution will be
sufficient to provide for all potential, contingent and known liabilities of
Petrie.
Based on the assumptions that, as of the Record Date, (i) Petrie will have
52.416 million shares of Petrie Common Stock outstanding (if all of Petrie's
convertible debentures are converted) and (ii) Petrie will have reduced its
contingent liabilities to $200 million and determined to retain $125 million in
the Liquidating Trust, the Liquidating Trust will initially be funded with Toys
Common Stock having a value of $2.38 for each share of Petrie Common Stock
owned. Depending upon the amount of Petrie's and its subsidiaries' contingent
liabilities which become actual liabilities, the interests of Petrie
shareholders in the Liquidating Trust may be worth $2.38 for each share of
Petrie Common Stock owned or have little or no value. THERE CAN BE NO
ASSURANCES AS TO THE AMOUNT OF PETRIE'S CONTINGENT LIABILITIES, THE SIZE OF THE
LIQUIDATING TRUST, OR THE VALUES SET FORTH ABOVE, WHICH ARE PRESENTED FOR
ILLUSTRATIVE PURPOSES ONLY. ACTUAL VALUES MAY VARY SUBSTANTIALLY. See
"COMPARATIVE PER SHARE DATA."
Other than as provided in the Liquidating Trust Agreement, a Beneficiary will
have no title to, right to, possession of, management of, or control of, the
Liquidating Trust or the assets in the Liquidating Trust. The whole title to
all the assets of the Liquidating Trust shall be vested in the Trustees, and
the sole interest of the Beneficiaries in the Liquidating Trust shall be the
right to receive Trust Distributions. No Beneficiary will be subject to any
personal liability whatsoever, in tort, contract or otherwise, to any person or
entity in connection with any claim arising out of the management of the
affairs of the Liquidating Trust.
Assuming that the Liquidating Trust is deemed to be an investment company
under the 1940 Act, it is presently anticipated that the Liquidating Trust
would be exempt from registering as an investment company under Section 8 of
the 1940 Act pursuant to Section 7(b) thereof, which provides an exemption for
transactions of an investment company which are merely incidental to its
dissolution.
THE PETRIE BOARD OF DIRECTORS RECOMMENDS THAT PETRIE SHAREHOLDERS VOTE FOR
APPROVAL OF THE LIQUIDATION AND DISSOLUTION.
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THE PLAN OF LIQUIDATION AND DISSOLUTION
The following is a summary of the material provisions of the Plan of
Liquidation and Dissolution, a form of which is attached hereto as Annex C, the
Liquidating Trust Agreement, a form of which is attached hereto as Annex D, and
the Escrow Agreements, a form of which is attached hereto as Annex E. Such
summary does not purport to be complete and is qualified in its entirety by
reference to such documents.
DISTRIBUTIONS FROM THE LIQUIDATING TRUST
The Plan of Liquidation and Dissolution provides that, as promptly as
practical following the consummation of the Exchange and the Disposition,
Petrie shall distribute to each of its shareholders of record as of a date to
be set by Petrie's Board of Directors (the "Distribution Record Date"), such
shareholder's pro rata share of Petrie's assets as of such date other than the
Retained Assets (the "Initial Distribution"). After the Initial Distribution,
the Liquidating Trust will make subsequent distributions to those persons who
are then Beneficiaries of the Liquidating Trust at such time or times and in
such amounts as the trustees of the Liquidating Trust determine to be
appropriate (the "Trust Distributions").
DELISTING OF PETRIE COMMON STOCK FOLLOWING DISTRIBUTION RECORD DATE
Petrie Common Stock is presently listed and traded on the NYSE, and on the
Boston, Chicago, and Pacific Stock Exchanges, under the symbol PST. Trading in
Petrie Common Stock on such exchanges will cease not later than the
Distribution Record Date. Petrie Common Stock will be delisted from the NYSE as
of the Distribution Record Date, or such earlier date as the NYSE determines
that Petrie has ceased to be an operating entity by reason of the sale or
disposition of substantially all of its assets.
LIQUIDATING TRUST
THE SUCCESSION
As soon as practicable following the Initial Distribution, and on such date
as is determined by Petrie's Board of Directors (the "Succession Date"), Petrie
will execute one or more escrow agreements (the "Escrow Agreements") with one
or more escrow agents, and an agreement and declaration of trust (the
"Liquidating Trust Agreement") with a trustee or trustees (the "Trustees"),
each of whom will be selected by Petrie's Board of Directors. The Trustees, who
have not yet been selected, may include insiders or affiliates of Petrie or
unrelated third parties. Pursuant to the Escrow Agreements, the Retained Assets
will be held by the Escrow Agents to provide for any contingent liabilities of
Petrie, and to ensure that Toys "R" Us will not be held responsible for any
such liabilities. Pursuant to the Liquidating Trust Agreement, Petrie will
transfer the Retained Assets, subject to the provisions of the Escrow
Agreements, to the Liquidating Trust (the "Succession"). The Liquidating Trust
Agreement and Escrow Agreements must be in form and substance reasonably
acceptable to Toys "R" Us.
The Succession will be treated for federal income tax purposes as if Petrie
had distributed the Retained Assets directly to its shareholders in
cancellation of their stock in Petrie, the Liquidating Trust will be treated as
a "liquidating trust" under Treasury Regulation Section 301.7701-4(d), the
Beneficiaries will be treated as the owners of their respective shares of the
Liquidating Trust pursuant to Sections 671 through 679 of the Code, and the
Beneficiaries will be taxed on their respective share of the Liquidating
Trust's taxable income (including both ordinary income and capital gains)
pursuant to Section 671 of the Code. The Trustees will be responsible for
filing all tax returns required to be filed by the Liquidating Trust with any
governmental agency, and for providing to the Beneficiaries such reports as are
required under applicable law. See "THE TRANSACTION--Certain Federal Income Tax
Consequences."
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FILING OF CERTIFICATE OF DISSOLUTION
Upon the consummation of the Exchange, the Disposition and the Succession,
and the making of the Initial Distribution, Petrie will file a certificate of
dissolution with the Secretary of State of the State of New York in accordance
with Section 1003 of the NYBCL.
BENEFICIAL INTERESTS
As of the Distribution Record Date, Petrie shareholders will become the
owners of beneficial interests in the Liquidating Trust (the "Beneficial
Interests"). Certificates representing shares of Petrie Common Stock shall,
following the Distribution Record Date, be deemed to represent the Beneficial
Interests. It is anticipated that the Beneficial Interests will be registered
under the Exchange Act, effective as of the Succession Date, and, as of such
date, the Liquidating Trust will be subject to the informational requirements
of the Exchange Act and, in accordance, therewith, will file periodic reports
and other information with the SEC. While the Beneficial Interests will not be
listed on a national securities exchange, it is anticipated that the Beneficial
Interests will be traded in the over-the-counter market. If the IRS determines
that transferability of the Beneficial Interests adversely affects the
Liquidating Trust's qualification as a "liquidating trust," the Beneficial
Interests will only be assignable or transferrable by will, intestate
succession, or operation of law; the executor or administrator of the estate of
a Beneficiary may, however, pledge or otherwise encumber the Beneficial
Interest held by the estate of such Beneficiary if necessary to borrow money to
pay estate, succession or inheritance taxes or the expenses of administering
the estate of the Beneficiary, upon written notice to the Trustees.
Prior to the Succession Date, there will have been no public market for the
Beneficial Interests and no assurances can be given that an active trading
market will develop or be sustained after the Succession Date.
The Registrar and Transfer Agent for the Beneficial Interests will be
American Stock Transfer and Trust Company, 40 Wall Street, New York, New York
10005, telephone: (718) 921-8200.
NOTICE TO CREDITORS AND PAYMENT OF LIABILITIES
After the dissolution of Petrie, Petrie (which will continue to exist for the
purpose of winding up its affairs) may give notice pursuant to Section 1007 of
the NYBCL, requiring all creditors and claimants and any persons with whom
Petrie has unfulfilled contracts to present their claims in writing and in
detail at a specified place and by a specified day, which will not be less than
six months after the first publication of such notice. On or before the first
publication of such notice, Petrie will mail a copy thereof to each person
believed to be a creditor or a claimant against Petrie and whose name and
address are known to, or can with due diligence be ascertained by, Petrie. The
giving of such notice will not constitute a recognition by Petrie that any
person is a proper creditor or claimant, and will not revive or make valid, or
operate as a recognition by Petrie of the validity of, or a waiver of any
defense or counterclaim in respect of any claim against Petrie, its assets,
directors, officers or shareholders, which has been barred by any statute of
limitations, or become invalid, by any cause, or in respect of which Petrie,
its directors, officers or shareholders, has any defense or counterclaim. The
claim of any such person and other claims that are not timely filed as provided
in such notice (except claims which are the subject of litigation on the date
of the first publication of such notice), and all claims which are so filed but
are disallowed by the New York State Supreme Court pursuant to Section 1008 of
the NYBCL, shall be forever barred as against Petrie, except to such extent, if
any, that the New York State Supreme Court may allow them against either Petrie
or the assets of the Liquidating Trust in the case of a creditor who shows
satisfactory reason for his failure to file his claim as so provided. Tax
claims and other claims of the State of New York and the United States are not
required to be filed in accordance with Section 1007 of the NYBCL and are not
barred when not so filed.
The Trustees shall pay from the assets of the Liquidating Trust (the "Trust
Estate") all obligations and liabilities of the Liquidating Trust and all
liabilities and obligations which the Trustees specifically assume and agree to
pay pursuant to the Liquidating Trust Agreement, including, but not limited to,
those relating
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to the Lease Guarantees, any liability to dissenting shareholders and fees and
expenses incurred by Petrie relating to the Transaction and the other
transactions contemplated by the Toys Acquisition Agreement, and such
transferee liabilities which the Trustees may be obligated to pay as
transferees of the Trust Estate and such other payments as are provided in the
Liquidating Trust Agreement or which may be determined to be a proper charge
against the Trust Estate by the Trustees.
REPORTS TO BENEFICIARIES
If the Beneficial Interests are registered under the Exchange Act, the
Trustees will file and distribute to the Beneficiaries such reports as are
required to be filed and distributed under the Exchange Act. In any event, the
Trustees shall submit a written report and account to the Beneficiaries
showing: (i) the assets and liabilities of the Liquidating Trust at the end of
such fiscal year or upon termination, and the receipts and disbursements of the
Trustees for each fiscal year or period, certified by an independent certified
public accountant; (ii) any changes in the Trust Estate that they have not
previously reported; and (iii) any action taken by the Trustees in the
performance of their duties under the Liquidating Trust Agreement that the
Trustees have not previously reported and that, in their opinion, materially
affects the Trust Estate. The Liquidating Trust will also supply the
Beneficiaries with such information as may be required under the information
reporting requirements of applicable tax law.
APPOINTMENT OF TRUSTEES; SUCCESSOR TRUSTEES
The Liquidating Trust Agreement provides that the Liquidating Trust shall
always have three Trustees. The original three Trustees are to be appointed by
Petrie's Board of Directors. Thereafter, if a Trustee shall resign, die, be
removed or become incapable of action (as determined by a majority of the
remaining Trustees in their sole discretion), a successor shall be appointed by
the remaining Trustees. If such a vacancy is not filled by the remaining
Trustees within 30 days, the Beneficiaries may call a meeting to appoint a
successor Trustee. A person shall be deemed appointed a successor Trustee upon
receiving the affirmative vote of Beneficiaries owning a majority of the
Beneficial Interests represented at such meeting.
DURATION OF THE ESCROW AND THE LIQUIDATING TRUST
The existence of the Escrows, subject to certain exceptions, will terminate
upon the earliest of (i) five years from the Succession Date; (ii) the
demonstration to the reasonable satisfaction of Toys "R" Us that all
liabilities of Petrie have been satisfied or paid or (iii) the distribution of
all the escrowed property. The existence of the Liquidating Trust will
terminate upon the earliest of (i) a termination required by the applicable
laws of the State of New York; (ii) a termination by action of the
Beneficiaries having an aggregate Beneficial Interest of at least two-thirds of
the total Beneficial Interests, provided, that such termination would not
result in a breach of any obligation of the Liquidating Trust, or (iii) the
distribution of all of the Trust Estate.
In accordance with Section 1005 of the NYBCL, upon termination of the
Liquidating Trust, any assets distributable to a creditor or a shareholder who
is unknown or cannot be found, or who is under disability and for whom there is
no legal representative, shall be paid to the New York State Comptroller as
abandoned property within six months from the date fixed for the payment of the
final liquidating distribution, and be subject to the provisions of New York
State's abandoned property law.
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DESCRIPTION OF PETRIE CAPITAL STOCK
The following description of the Petrie Common Stock does not purport to be
complete and is qualified in its entirety by reference to Petrie's Restated
Certificate of Incorporation and By-laws, and the NYBCL. For information as to
how to obtain Petrie's Restated Certificate of Incorporation and By-laws, see
"AVAILABLE INFORMATION."
The authorized capital stock of Petrie consists of 80,000,000 shares of
Petrie Common Stock, par value $1.00 per share. As of October 31, 1994,
approximately 46.8 million shares of Petrie Common Stock were outstanding
(approximately 52.4 million shares if all of the Convertible Debentures were
converted).
On all matters as to which the shareholders of Petrie are entitled to vote,
each holder of Petrie Common Stock is entitled to one vote for each share held,
including the election of directors. The holders of Petrie Common Stock have no
cumulative voting or preemptive rights and the Petrie Common Stock is subject
to no redemption, conversion or sinking fund provisions. All outstanding shares
of Petrie Common Stock are fully paid and nonassessable.
Dividends may be paid to the holders of Petrie Common Stock when and if
declared by the Board of Directors out of funds legally available therefor.
Upon liquidation, dissolution or winding up of the affairs of Petrie, the
assets remaining after provision for payment of creditors are distributable pro
rata among holders of Petrie Common Stock.
The outstanding shares of Petrie Common Stock are listed and traded on the
NYSE under the symbol "PST." The Registrar and Transfer Agent for Petrie Common
Stock is American Stock Transfer and Trust Company, 40 Wall Street, New York,
New York 10005, telephone: (718) 921-8200.
COMPARISON OF SHAREHOLDER RIGHTS
If the Transaction is consummated, holders of Petrie Common Stock will become
holders of Toys Common Stock, and their rights as holders of Toys Common Stock
will be governed by the laws of the State of Delaware and the Restated
Certificate of Incorporation and By-laws of Toys "R" Us. The following is a
summary of certain of the material differences between the rights of holders of
Petrie Common Stock and the rights of holders of Toys Common Stock. As Petrie
is organized under the laws of the State of New York, and Toys "R" Us is
organized under the laws of the State of Delaware, these differences arise from
differences in various provisions of the corporate laws of such states as well
as from differences in various provisions of the Restated Certificate of
Incorporation and By-laws of Petrie and the Restated Certificate of
Incorporation and By-laws of Toys "R" Us.
The following summary does not purport to be a complete statement of the
rights of holders of Petrie Common Stock and Toys Common Stock under, and is
qualified in its entirety by reference to, New York and Delaware law,
respectively, and the respective Restated Certificates of Incorporation and By-
laws of Petrie and Toys "R" Us. For information as to how to obtain the
respective Certificates of Incorporation and By-laws of Petrie and Toys "R" Us,
see "AVAILABLE INFORMATION."
CAPITAL STOCK
The Petrie Common Stock is the only class of stock authorized and issued by
Petrie. The holders of Petrie Common Stock are entitled to one vote per share
on all matters. The Petrie Restated Certificate of Incorporation does not
provide for cumulative voting in the election of directors. Petrie's by-laws
(the "Petrie By-laws") provide that corporate action to be taken by shareholder
vote, other than the election of directors, shall be authorized by a majority
of the votes cast at a meeting of shareholders at which a quorum is present,
except for certain actions as described below and under applicable law.
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Under the NYBCL, except as otherwise provided in the certificate of
incorporation, the holder of equity shares of any class, in the case of a
proposed issuance by the corporation of rights or options to purchase its
equity shares of any class or any shares or other securities convertible into,
or carrying rights or options to purchase, the equity shares of any class,
shall, if the issuance of the equity shares proposed to be issued or issuable
upon exercise of such rights or options or upon conversion of such other
securities would adversely affect the unlimited dividend rights of such holder,
have the preemptive right during a reasonable time and on reasonable
conditions, both to be fixed by the board, to purchase such shares or other
securities in such proportions as shall be determined as provided in the NYBCL.
The Petrie Restated Certificate of Incorporation provides that shareholders
will not have any such preemptive rights.
The Toys Common Stock is the only class of stock authorized and issued by
Toys "R" Us. The holders of Toys Common Stock are entitled to one vote per
share. However, the Toys "R" Us Restated Certificate of Incorporation provides
for cumulative voting in the election of directors. Corporate action to be
taken by Toys "R" Us stockholder vote, other than the election of directors,
shall be authorized by a majority of the votes cast at a meeting of
stockholders at which a quorum is present, except for certain actions as
described below and under applicable law.
Under the Delaware General Corporation Law ("DGCL"), unless, and only to the
extent that, a corporation's certificate of incorporation provides otherwise, a
stockholder does not have any preemptive right to subscribe to any additional
issues of stock of the corporation of any class or series thereof, or to any
securities of the corporation convertible into such stock. The Toys "R" Us
Restated Certificate of Incorporation does not provide for any such preemptive
rights.
AMENDMENTS OF CERTIFICATE OF INCORPORATION
Under the NYBCL, to amend a certificate of incorporation, except for certain
minor matters which may be authorized by or pursuant to the authorization of
the board of directors, a vote of the corporation's board of directors followed
by a vote of the holders of a majority of all outstanding shares entitled to
vote thereon at a meeting of shareholders is required. Under the DGCL, to amend
a certificate of incorporation, the affirmative recommendation of the board of
directors and the approval of the holders of a majority of the outstanding
stock entitled to vote thereon are required.
AMENDMENTS OF BY-LAWS
Under the NYBCL, except as otherwise provided in the certificate of
incorporation, by-laws may be amended, repealed or adopted by a vote of the
holders of the shares at the time entitled to vote in the election of any
directors. When so provided in the certificate of incorporation or a by-law
adopted by the shareholders, by-laws also may be amended, repealed or adopted
by the board of directors by such vote as may be therein specified, which may
be greater than the vote otherwise prescribed by the NYBCL, but any by-laws
adopted by the board of directors may be amended or repealed by the
shareholders entitled to vote thereon as provided by the NYBCL.
The Petrie By-laws provide that the Petrie By-laws may be amended, repealed
or adopted by the shareholders or by a majority of the entire Board of
Directors, but any Petrie By-law adopted by the Board of Directors may be
amended or repealed by the shareholders. If a Petrie By-law regulating
elections of directors is adopted, amended or repealed by the Board of
Directors, the notice of the next meeting of shareholders shall set forth the
Petrie By-laws so amended, repealed or adopted, together with a concise
statement of the changes made thereto.
Under the DGCL, the power to adopt, amend and repeal the by-laws is vested in
the stockholders, provided, however, that the certificate of incorporation may
vest it in the board of directors. The fact that such power has been so
conferred upon the board of directors shall not be deemed to divest the
stockholders of the power, nor limit their power, to adopt, amend or repeal the
by-laws.
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Toys "R" Us' by-laws (the "Toys By-laws") provide that the holders of shares
entitled at the time to vote for the election of directors shall have power to
adopt, alter, amend or repeal the Toys By-laws by a vote of not less than a
majority of such shares, and the Board of Directors shall have power equal in
all respects to that of the stockholders to adopt, amend or repeal the Toys By-
laws by a vote of not less than a majority of the entire Board of Directors.
However, any Toys By-law adopted by the Board of Directors may be amended or
repealed by vote of the holders of a majority of the shares entitled at the
time to vote for the election of directors.
NUMBER AND ELECTION OF DIRECTORS
Subject to certain limitations, the NYBCL permits the number of directors of
a corporation to be fixed by the corporation's by-laws, by action of the
shareholders or by action of the board of directors pursuant to a specific
provision of a by-law adopted by the shareholders. At each annual meeting of
the shareholders, directors are to be elected to hold office until the next
annual meeting, except as described below for corporations with classified
boards. The Petrie By-laws provide that the number of directors may be
increased or decreased by amendment of the By-laws or by resolution adopted by
a majority of the entire Board of Directors or by the shareholders. The Petrie
By-laws currently set the number of directors at ten but such number may be
increased or decreased by resolution adopted by a majority of the entire Board
of Directors or the shareholders. On April 20, 1994, Petrie's Board of
Directors passed a resolution increasing the number of directors to thirteen.
Subsequently, on September 27, 1994, Petrie's Board of Directors passed a
resolution reducing the number of directors to twelve. Directors are elected at
each annual meeting of the shareholders by a plurality of the votes cast and
hold office until the next annual meeting of shareholders.
The NYBCL permits the certificate of incorporation or the specific provisions
of a by-law adopted by the shareholders to provide for the classification of
the Board of Directors into either two, three or four classes or the non-
classification of the Board of Directors into one class. In a classified Board
of Directors, all classes must be as nearly equal as possible, and no class may
include less than three directors. The term of office of one class of directors
must expire each year, with the terms of office of no two classes expiring the
same year. Petrie's Restated Certificate of Incorporation does not provide for
its Board of Directors to be classified.
The DGCL permits the certificate of incorporation or the by-laws of a
corporation to contain provisions governing the number and terms of directors.
The Toys By-laws provide that the number of directors may be increased or
decreased only by a resolution adopted by a vote of a majority of the then
authorized number of directors. The number of directors is presently set at
ten. Directors are elected at each annual meeting by a plurality of the votes
cast and hold office until the next annual meeting of stockholders.
The DGCL permits the certificate of incorporation of a corporation or a by-
law adopted by the stockholders to provide that directors be divided into one,
two or three classes. The term of office of one class of directors shall expire
each year with the terms of office of no two classes expiring the same year.
Toys "R" Us' Restated Certificate of Incorporation does not provide for its
Board of Directors to be classified.
CUMULATIVE VOTING IN THE ELECTION OF DIRECTORS
Under both the NYBCL and the DGCL, the certificate of incorporation of any
corporation may provide that in all elections of directors of such corporation
each shareholder shall be entitled to as many votes as shall equal the number
of votes which, except for such provisions as to cumulative voting, he would be
entitled to cast in the election of directors with respect to his shares
multiplied by the number of directors to be elected and that he may cast all of
such votes for a single director or may distribute them among the number to be
voted for, or any two or more of them, as he may see fit, which right when
exercised, shall be termed cumulative voting.
The Restated Certificate of Incorporation of Petrie does not provide for
cumulative voting.
The Restated Certificate of Incorporation of Toys "R" Us provides for
cumulative voting.
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Cumulative voting has the potential of providing minority stockholders with
greater representation of their interests on a board of directors. A
shareholder of Petrie who previously had only one vote to cast, for each share
of Petrie Common Stock owned, for each nominee to the Petrie Board of Directors
in annual elections, as a stockholder of Toys "R" Us would be able to cast as
many as ten votes, for each share of Toys Common Stock owned, for a nominee to
the Toys "R" Us Board of Directors in annual elections, assuming such
stockholder voted cumulatively.
REMOVAL OF DIRECTORS
The NYBCL provides that any or all of the directors may be removed for cause
by vote of the shareholders and, if the certificate of incorporation or the
specific provisions of a by-law adopted by the shareholders provide, directors
may also be removed by action of the board of directors. If the certificate of
incorporation or the by-laws so provide, any or all of the directors may be
removed without cause by vote of the shareholders. The removal of directors,
with or without cause, is subject to the following: (i) in the case of a
corporation having cumulative voting, no director may be removed when the votes
cast against such director's removal would be sufficient to elect the director
if voted cumulatively, and (ii) if a director is elected by the holders of
shares of any class or series, such director may be removed only by the
applicable vote of the holders of the shares of that class or series voting as
a class. An action to procure a judgment removing a director for cause may be
brought by the attorney general or by the holders of 10 percent of the
outstanding shares, whether or not entitled to vote.
The Petrie By-laws provide that any or all of the directors may be removed at
any time, either with or without cause, by vote of the shareholders, and any of
the directors may be removed for cause by the Board of Directors.
The DGCL provides that a director or directors may be removed with or without
cause by the holders of a majority of the shares then entitled to vote in an
election of directors, except that (i) members of a classified board of
directors may be removed only for cause, unless the certificate of
incorporation provides otherwise, and (ii) in the case of a corporation having
cumulative voting, if less than the entire board of directors is to be removed,
no director may be removed without cause if the votes cast against such
director's removal would be sufficient to elect such director if then voted
cumulatively in an election of the entire board of directors or of the class of
directors of which such director is a part. This provision protects holders of
cumulative voting rights against their designees being removed by the holders
of a majority of the shares entitled to vote thereon.
The Toys By-laws provide that the holders of a majority of the shares
entitled to vote at an election of directors may remove any director with or
without cause, provided, however, that if less than the entire Board of
Directors is to be removed, no director may be removed without cause if the
votes cast against his removal would be sufficient to elect him if voted
cumulatively at an election of the entire Board of Directors.
NEWLY-CREATED DIRECTORSHIPS AND VACANCIES
Under both the NYBCL and the DGCL, unless the certificate of incorporation or
by-laws provide otherwise, newly-created directorships resulting from an
increase in the number of directors may be filled by a vote of a majority of
the directors then in office, even if the number of directors then in office is
less than a quorum. Under the NYBCL, unless the provisions of a by-law adopted
by the shareholders provide otherwise, vacancies occurring in the board of
directors by reason of the removal of directors without cause must be filled by
a vote of shareholders. The DGCL provides, however, that, unless the
certificate of incorporation or by-laws provide otherwise, vacancies occurring
by reason of the removal of directors with or without cause may be filled by a
vote of a majority of the directors then in office. In addition, under the DGCL
if, at the time of filling any vacancy or newly-created directorship, the
directors then in office constitute less than a majority of the entire board of
directors (as constituted immediately prior to any such increase), the Delaware
Court of Chancery may, upon application of any stockholder or stockholders
holding at least 10 percent of
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the total number of shares at the time outstanding and having the right to vote
for such directors, summarily order an election to be held to fill any such
vacancies or newly-created directorships, or to replace the directors chosen by
the directors then in office, such election to be conducted in accordance with
the procedures provided by the DGCL for holding stockholder meetings. The DGCL
also provides that, unless otherwise provided in the certificate of
incorporation or the by-laws, when one or more directors shall resign from the
board of directors, effective at a future date, a majority of the directors
then in office, including those who have so resigned, shall have power to fill
such vacancy or vacancies, the vote thereon to take effect when such
resignation or resignations shall become effective.
The Petrie By-laws provide that any vacancy in the Board of Directors,
including one created by an increase in the number of directors, may be filled
for the unexpired term by a majority vote of the directors then in office,
though less than a quorum.
The Toys By-laws provide that any vacancy in the office of a director through
death, resignation, removal, disqualification or other cause, and any
additional directorship resulting from an increase in the number of directors,
may be filled at any time by a majority of the directors then in office, though
less than a quorum, or by the stockholders, and, the person so chosen shall
hold office until his successor shall have been chosen and shall have been
qualified; or if the person so chosen is a director elected to fill a vacancy,
he shall hold office for the unexpired term of his predecessor.
VOTE REQUIRED FOR MERGERS
The NYBCL generally requires the affirmative vote of two-thirds of a
corporation's outstanding shares entitled to vote to authorize a merger,
consolidation, share exchange, dissolution or disposition of all or
substantially all of a corporation's assets, if not made in the usual or the
regular course of the business actually conducted by the corporation. The DGCL
requires the affirmative vote of a majority of the outstanding shares to
authorize any such fundamental transaction, except that, unless required by a
corporation's certificate of incorporation, no authorizing stockholder vote is
required of a corporation surviving a merger if (i) such corporation's
certificate of incorporation is not amended by the merger; (ii) each share of
stock of such corporation will be an identical share of the surviving
corporation after the merger; and (iii) the number of shares to be issued in
the merger does not exceed 20 percent of such corporation's outstanding common
stock immediately prior to the effective date of the merger. Because only a
majority vote is required to approve the above-mentioned fundamental
transactions, minority stockholders would no longer be able to veto fundamental
transactions approved by holders of a majority of the outstanding shares
entitled to vote thereon. Neither Petrie's nor Toys "R" Us' Restated
Certificate of Incorporation contains any provisions relating to shareholder
approval of business combinations.
DISSENTERS' RIGHTS
Under the NYBCL and the DGCL holders of shares have the right, in certain
circumstances, to dissent from certain corporate reorganizations by demanding
payment in cash for their shares equal to the fair value (excluding any
appreciation or depreciation as a consequence or in expectation of the
transaction) of such shares, as determined by agreement with the corporation or
by an independent appraiser appointed by a court in an action timely brought by
the corporation or the dissenters.
The DGCL grants dissenters' appraisal rights only in the case of certain
mergers and not in the case of a sale or transfer of assets or a purchase of
assets for stock regardless of the number of shares being issued. The DGCL does
not extend appraisal rights in a merger to holders of shares listed on a
national securities exchange or held of record by more than 2,000 stockholders
unless the plan of merger converts such shares into anything other than stock
of the surviving corporation or stock of another corporation which is either
listed on a national securities exchange, designated as a national market
system security on an inter-dealer quotation system by the National Association
of Securities Dealers, Inc., or held of record by more than 2,000 stockholders
(or cash in lieu of fractional shares or some combination of the foregoing).
The NYBCL
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provides for dissenters' rights of appraisal upon certain mergers,
consolidations, sales and other dispositions of all or substantially all of a
corporation's assets requiring shareholder approval and share exchanges. The
NYBCL contains no exceptions to such rights comparable to those provided by the
DGCL. See "THE TRANSACTION--Rights of Dissenting Shareholders."
BUSINESS COMBINATIONS
Section 912 of the NYBCL prohibits any business combination (defined to
include a variety of transactions, including mergers, sales or dispositions of
assets, issuances of stock, liquidations, reclassifications and the receipt of
certain benefits from the corporation, including loans or guarantees) with,
involving or proposed by any interested shareholder (defined generally as any
person who, directly or indirectly, beneficially owns 20 percent or more of the
outstanding voting stock of a resident domestic New York corporation) for a
period of five years after the date on which the interested shareholder became
an interested shareholder. After such five-year period, a business combination
between a resident domestic corporation and such interested shareholder is
prohibited unless either certain "fair price" provisions are complied with or
the business combination is approved by a majority of the outstanding voting
stock not beneficially owned by such interested shareholder or its affiliates.
Section 912 exempts from its prohibitions any business combination with an
interested shareholder if such business combination, or the purchase of stock
that caused such interested shareholder to become such, is approved by the
board of directors of the resident domestic New York corporation prior to the
date on which the interested shareholder becomes such. Petrie is considered a
resident domestic New York corporation as long as at least 10 percent of its
voting stock is owned beneficially by residents of (or organizations having
their principal offices in) the State of New York.
A resident domestic New York corporation can elect not to be governed by
Section 912 by adopting an amendment to its by-laws approved by the affirmative
vote of the holders, other than interested shareholders and their affiliates
and associates, of a majority of the outstanding voting stock, excluding the
voting stock of interested shareholders and their affiliates and associates,
expressly electing not to be governed by Section 912. However, such amendment
will not be effective until eighteen months after such shareholder vote and
will not apply to any business combination with an interested shareholder who
was such on or prior to the effective date of such amendment. The Petrie By-
laws have not been amended to elect not to be governed by Section 912.
Section 203 of the DGCL prohibits certain transactions between a Delaware
corporation and an "interested stockholder," which is defined therein as a
person who, together with any affiliates and/or associates of such person,
beneficially owns, directly or indirectly, 15 percent or more of the
outstanding voting shares of a Delaware corporation. This provision prohibits
certain business combinations (defined broadly to include mergers,
consolidations, sales or other dispositions of assets having an aggregate value
in excess of 10 percent of the consolidated assets of the corporation, and
certain transactions that would increase the interested stockholder's
proportionate share ownership in the corporation) between an interested
stockholder and a corporation for a period of three years after the date the
interested stockholder acquired its stock unless: (i) the business combination
is approved by the corporation's board of directors prior to the date the
interested stockholder acquired shares, (ii) the interested stockholder
acquired at least 85 percent of the voting stock of the corporation in the
transaction in which it became an interested stockholder, or (iii) the business
combination is approved by a majority of the board of directors and by the
affirmative vote of two-thirds of the votes entitled to be cast by
disinterested stockholders at an annual or special meeting.
The DGCL permits a corporation to elect not to be governed by Section 203 if
(i) such election is made in the corporation's original certificate of
incorporation; (ii) the corporation, by action of its board of directors,
adopts an amendment to its by-laws within ninety days of the effective date of
Section 203, expressly electing not to be governed by Section 203, which
amendment cannot be further amended by the board of directors; or (iii) the
corporation, by action of its stockholders, adopts an amendment to its
certificate of incorporation or by-laws, expressly electing not to be governed
by Section 203, provided that, in addition to
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any other vote required by law, such amendment to the certificate of
incorporation or by-laws (a) must be approved by the affirmative vote of a
majority of the shares entitled to vote, (b) will not be effective until twelve
months after its adoption, and (c) will not apply to any business combination
between such corporation and any person who became an interested stockholder of
such corporation on or prior to such adoption. Neither the Toys "R" Us Restated
Certificate of Incorporation nor the Toys By-laws contains any provision
excluding Toys "R" Us from the restrictions imposed under Section 203.
LIMITATIONS ON DIRECTORS' LIABILITY
The NYBCL provides that a corporation's certificate of incorporation may
contain a provision eliminating or limiting the personal liability of directors
to the corporation or its shareholders for damages for any breach of duty in
such capacity. However, no such provision can eliminate or limit the liability
of any director (i) if a judgment or other final adjudication adverse to such
director establishes that such director's acts or omissions were in bad faith,
or involved intentional misconduct or a knowing violation of law, or that the
director personally gained a financial profit or other advantage to which such
director was not legally entitled or that the director's acts violated certain
provisions of the NYBCL, or (ii) for any act or omission prior to the adoption
of such a provision in the certificate of incorporation. Petrie's Restated
Certificate of Incorporation contains no provision limiting a director's
liability.
The DGCL provides that a corporation's certificate of incorporation may
include a provision limiting the personal liability of a director to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director. However, no such provision can eliminate or limit the
liability of a director for (i) any breach of the director's duty of loyalty to
the corporation or its stockholders, (ii) acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of the law,
(iii) violation of certain provisions of the DGCL, (iv) any transaction from
which the director derived an improper personal benefit, or (v) any act or
omission prior to the adoption of such a provision in the certificate of
incorporation. Toys "R" Us' Restated Certificate of Incorporation contains a
provision eliminating the personal liability for monetary damages of its
directors to the full extent permitted under the DGCL.
DIRECTOR AND OFFICER INDEMNIFICATION
Both the NYBCL and the DGCL contain provisions setting forth conditions under
which a corporation may indemnify its directors and officers. These provisions
are generally referred to as "statutory indemnification" provisions. Both also
permit corporations to adopt by-laws which provide for additional
indemnification of directors and officers. These non-exclusive provisions are
generally referred to as "non-statutory indemnification" provisions. Non-
statutory indemnification provisions are generally adopted to expand the
circumstances and liberalize the conditions under which indemnification will
occur. The NYBCL contains specific restrictions on the kind of matters for
which non-statutory indemnification will be permitted; the DGCL does not
contain any specific restrictions.
The Petrie By-laws indemnify any of Petrie's directors and officers who are
made, or threatened to be made, a party to any action or proceeding, except for
shareholder derivative suits, if such director or officer acted in good faith,
for a purpose which he reasonably believed to be in, or in the case of service
to another corporation or enterprise, not opposed to, the best interests of
Petrie, and, in criminal proceedings, had no reasonable cause to believe his
conduct was unlawful. In the case of shareholder derivative suits, the Petrie
By-laws indemnify a director or officer except in relation to matters as to
which a director or officer is adjudged to have breached his duty to Petrie
under the NYBCL. The latter indemnification shall in no case include: (i)
amounts paid in settling or otherwise disposing of a threatened action, or a
pending action, with or without court approval, or (ii) expenses incurred in
defending a threatened action, or pending action which is settled or otherwise
disposed of without court approval.
The Petrie By-laws provide that any person who has been successful on the
merits or otherwise in the defense of a civil or criminal action or proceeding
(of the character described in the above paragraph) will be
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entitled to indemnification. Except as provided in the preceding sentence and
unless ordered by a court pursuant to New York law, any indemnification under
the NYBCL (pursuant to the above paragraph) may be made only if authorized in
the specific case and after a finding that the director or officer met the
requisite standard of conduct by: (i) the disinterested directors if a quorum
is available, (ii) the Board of Directors upon the written opinion of
independent legal counsel, or (iii) the shareholders. The Petrie By-laws
provide that it is the policy of Petrie to indemnify officers and directors to
the fullest extent permitted by the NYBCL.
Toys "R" Us' Restated Certificate of Incorporation provides that a director
or officer who is a party to any action, suit or proceeding shall be entitled
to be indemnified by Toys "R" Us to the extent permitted by the DGCL against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement incurred by such director or officer in connection with such action,
suit or proceeding. Toys "R" Us has entered into indemnification agreements
with each of its directors and intends to enter into indemnification agreements
with each of its future directors. Pursuant to such indemnification agreements,
Toys "R" Us has agreed to indemnify its directors against certain liabilities,
including any liabilities arising out of the Exchange.
LOANS TO DIRECTORS AND OFFICERS
Under the DGCL, a corporation may make loans to, guarantee the obligations
of, or otherwise assist, its officers or other employees and those of its
subsidiaries, including any officer or employee who is a director of the
corporation or any of its subsidiaries, when such action, in the judgment of
the board of directors, may reasonably be expected to benefit the corporation.
Under the NYBCL, a corporation may make such a loan or guaranty to directors
only if such loan or guaranty is approved by such corporation's shareholders.
SPECIAL MEETINGS
Under the NYBCL and DGCL, special meetings of shareholders may be called by
the board of directors and by such person or persons as are authorized by the
certificate of incorporation or the by-laws. In addition, the NYBCL provides
that if, for a period of one month after the date fixed by or under the by-laws
for the annual meeting of shareholders, or if no date has been fixed, for a
period of thirteen months after the last annual meeting, there is a failure to
elect a sufficient number of directors to conduct the business of the
corporation and the Board of Directors fails to call a special meeting for the
election of directors, holders of 10 percent of the shares entitled to vote in
an election of directors may demand the call of a special meeting for the
election of directors. Under the DGCL, if an annual meeting is not held within
thirty days of the date designated for such meeting, or if not held for a
period of thirteen months after the last annual meeting, the Delaware Court of
Chancery may summarily order an annual meeting to be held upon the application
of any stockholder or director.
The Petrie By-laws provide that a special meeting of the shareholders may be
called by resolution of the Board of Directors or by the Chairman of the Board
of Directors or the Chief Executive Officer, and shall be called by the Chief
Executive Officer or Secretary upon the written request of a majority of the
Board of Directors. Only business related to the purposes set forth in the
notice of the meeting may be transacted at a special meeting.
The Toys By-laws provide that a special meeting of the stockholders, for any
purpose or purposes, may be held at any time upon call of the Chairman of the
Board of Directors, the President, or a majority of the Board of Directors, and
shall be called by the President upon the written request of stockholders who
together own of record a majority of the outstanding stock entitled to vote at
such meeting. Majority stockholders of Toys "R" Us are able to call a special
meeting of stockholders, whereas Petrie shareholders, except in the
circumstances described in the first paragraph of this section, are not
entitled to call a special meeting of shareholders.
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NOTICE OF MEETINGS
The Petrie By-laws provide that written notice of each meeting of
shareholders shall be given to each shareholder entitled to vote at the
meeting, and no notice of an adjourned meeting need be given except when
required by law. Under the NYBCL, if after the adjournment, the Board of
Directors fixes a new record date for the adjourned meeting, a notice of the
adjourned meeting shall be given to each shareholder of record on the new
record date entitled to notice. The Petrie By-laws provide that written notice
shall state the time and place of the meeting, and unless it is the annual
meeting, shall state at whose direction the meeting is called and the purposes
for which it is called. Notice must be given not less than ten nor more than
fifty days before the meeting.
The Toys By-laws provide that, if after an adjournment the Board of Directors
fixes a new record date for the adjourned meeting or the adjournment is for
more than thirty days, notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting. The Toys By-laws provide
that in the case of a special meeting, besides stating the place, date and hour
of the meeting, the purpose or purposes for which the meeting is called must
also be given in the notice. Notice must be given not less than ten but not
more than sixty days before the date of the meeting.
SHAREHOLDER ACTION BY WRITTEN CONSENT
Under the NYBCL, any shareholder action required or permitted to be taken by
shareholder vote may be taken with the unanimous written consent of the holders
of all outstanding shares. The certificate of incorporation may provide, to the
extent not inconsistent with the NYBCL, that such shareholder action may be
taken upon the written consent of the holders of less than all outstanding
shares. Petrie's Restated Certificate of Incorporation does not provide for
written consent by less than the holders of all the outstanding Petrie Common
Stock.
Neither the Toys "R" Us Restated Certificate of Incorporation nor the Toys
By-laws contains a provision concerning stockholder action by written consent.
Under the DGCL, any action required to be taken, or which may be taken, at an
annual or special meeting of stockholders, may be taken without a vote upon the
written consent of not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted. This provision has the effect
of permitting Toys "R" Us to avoid holding stockholders' meetings.
PAYMENT OF DIVIDENDS
Under both the NYBCL and the DGCL, a corporation may generally pay dividends
out of surplus. In addition, the DGCL permits a corporation to pay dividends,
if there is no surplus, out of its net profits for the fiscal year in which the
dividend is declared and/or the preceding fiscal year, unless the capital of
the corporation has been diminished by depreciation in the value of its
property, losses or otherwise, to an amount less than the aggregate amount of
the capital represented by the issued and outstanding stock of all classes
having a preference upon the distribution of assets.
WARRANTS OR OPTIONS
The NYBCL requires the approval of the holders of a majority of the
outstanding shares entitled to vote for the issuance of any rights or options
to directors, officers and employees as an incentive to service or continued
service with the corporation, a subsidiary or affiliate, or for a plan to issue
such rights or options. Under the DGCL, rights or options to purchase shares of
any class of stock may be authorized by a corporation's board of directors.
COMPROMISES OR ARRANGEMENTS
Toys "R" Us' Restated Certificate of Incorporation provides that whenever a
compromise or arrangement is proposed between Toys "R" Us and its creditors or
between Toys "R" Us and its
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stockholders, any court of equitable jurisdiction within the State of
Delaware, on the application of Toys "R" Us or any creditor or stockholder,
can order a meeting of the creditors or of the stockholders. If a majority in
number representing 75 percent in value of the creditors and/or of the
stockholders agrees to any compromise or arrangement and to any reorganization
of Toys "R" Us, the said compromise or arrangement and reorganization shall,
if sanctioned by the court, be binding on all the creditors or stockholders of
Toys "R" Us and also on Toys "R" Us.
Neither Petrie's Restated Certificate of Incorporation nor the Petrie By-
laws contains any such provision.
SHAREHOLDER RIGHTS PLAN
Neither Petrie nor Toys "R" Us has a shareholder rights plan.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS, DIRECTORS AND MANAGEMENT OF PETRIE
The following table sets forth, as of September 30, 1994, certain
information with respect to (i) the only persons who, to the best knowledge of
Petrie, were the beneficial owners of more than five percent of the
outstanding shares of Petrie Common Stock, its only class of voting security,
and (ii) the number of shares of common stock beneficially owned by each
director of Petrie.
<TABLE>
<CAPTION>
TOTAL NUMBER
NAME OF OF SHARES BENEFICIALLY PERCENT OF
BENEFICIAL OWNER OWNED CLASS
---------------- ---------------------- ----------
<S> <C> <C>
Milton Petrie............................. 28,165,246(1)(2) 60.2%
Joseph H. Flom............................ 0(2)(3) --
Jay Galin................................. 60,932 *
Hilda Kirschbaum Gerstein................. 293,878 *
Alan C. Greenberg......................... 1,000 *
Allan Laufgraben.......................... 10,191(4) *
Peter A. Left............................. 20,306 *
Daniel G. Maresca......................... 10,630 *
Carroll Petrie............................ 28,165,246(5) 60.2
Jean Roberts.............................. 61,370 *
Dorothy Fink Stern........................ 182,091 *
Laurence A. Tisch......................... 1,000 *
Raymond S. Troubh......................... 0 --
</TABLE>
- - --------
* Less than 1 percent of the outstanding Petrie Common Stock.
(1) Includes 47,592 shares owned by a trust of which Mr. Milton Petrie is the
trustee and 6,380 shares owned by Mr. Petrie's wife. Mr. Petrie has sole
voting and dispositive power over 28,111,274 shares and no voting or
dispositive power over shares owned by his wife and disclaims beneficial
ownership of the shares owned by his wife.
(2) Concurrently with the execution and delivery of the Toys Acquisition
Agreement, Mr. Petrie, by act of his attorneys-in-fact, entered into the
Toys Voting Agreement, pursuant to which Mr. Petrie has agreed to vote, or
execute a consent with respect to, the shares held by him in favor of each
part of the Transaction and has granted Toys "R" Us an irrevocable proxy
to exercise all voting, consent and other rights to approve each part of
the Transaction. Additionally, concurrently with the execution and
delivery of the Retail Operations Stock Purchase Agreement, Mr. Petrie, by
act of his attorneys-in-fact, entered into the WP Investors Voting
Agreement, pursuant to which Mr. Petrie has agreed to vote, or execute a
consent with respect to, the shares held by him in favor of the Retail
Operations Stock Purchase and has granted WP Investors an irrevocable
proxy to exercise all voting, consent and other rights to approve the
Retail Operations Stock Purchase. The WP Investors Voting Agreement, which
has been consented and
77
<PAGE>
agreed to by Toys "R" Us, provides that as long as the Toys Voting
Agreement remains in effect and Toys "R" Us has not received notice that
the Retail Operations Stock Purchase Agreement has been terminated, Toys
"R" Us will exercise, and refrain from exercising, its rights pursuant to
the Toys Voting Agreement so that Mr. Petrie's shares will be voted in
favor of the Retail Operations Stock Purchase.
(3) Mr. Flom, Bernard Petrie (the son of Mr. Petrie), Jerome A. Manning and
Albert Ratner have a general power of attorney from Mr. Petrie to act on
his behalf (pursuant to majority vote), including the ability to direct
the voting or the disposition of Mr. Petrie's shares. Mr. Flom disclaims
beneficial ownership of Mr. Petrie's shares.
(4) Includes 10,000 restricted shares granted to Mr. Laufgraben pursuant to
his employment agreement.
(5) Carroll Petrie is the spouse of Mr. Petrie. Her shares include 47,592
shares owned by a trust of which Mr. Petrie is the trustee, and 28,111,274
shares owned by Mr. Petrie. Mrs. Petrie has sole voting and dispositive
power over 6,380 shares and no voting or dispositive power over the shares
owned by such trust or Mr. Petrie.
As of September 30, 1994, all executive officers and directors of Petrie and
its affiliates, as a group (22 persons), owned beneficially 28,831,000 shares
of Petrie Common Stock (including shares beneficially owned by the family
members of certain executive officers and directors as to which shares such
executive officers and directors disclaim beneficial ownership) which
constituted approximately 61.6 percent of the shares deemed outstanding on
that date. Except for (i) shares beneficially owned by such family members,
(ii) community property laws where applicable, and (iii) as otherwise noted in
the footnotes to the above table, each person listed in the above table has
sole voting power and sole investment power with respect to such shares.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS, DIRECTORS AND MANAGEMENT OF TOYS "R" US
The following table sets forth, as of September 30, 1994, certain
information with respect to (i) the only person who was a beneficial owner of
more than five percent of the outstanding shares of the Toys Common Stock, the
only class of voting security of Toys "R" Us, and (ii) the number of shares of
Toys Common Stock owned by each director of Toys "R" Us.
<TABLE>
<CAPTION>
TOTAL NUMBER
OF SHARES
BENEFICIALLY PERCENT OF
NAME OWNED CLASS
---- ------------ ----------
<S> <C> <C>
Petrie Stores Corporation...................... 39,853,403 14.1%
Robert A. Bernhard............................. 40,041(1)(2) *
Michael Goldstein.............................. 648,660(3) *
Milton S. Gould................................ 32,776(2) *
Shirley Strum Kenny............................ 7,736(2) *
Charles Lazarus................................ 1,411,491(4) *
Reuben Mark.................................... 8,200(2) *
Howard W. Moore................................ 152,950(5) *
Robert C. Nakasone............................. 748,385(6) *
Norman M. Schneider............................ 10,322(2) *
Harold M. Wit.................................. 12,927(2) *
</TABLE>
- - --------
* Less than 1 percent of the outstanding Toys Common Stock.
(1) Includes shares owned by a profit sharing plan of which Mr. Bernhard is
the sole beneficiary and shares owned by his wife as to which shares Mr.
Bernhard disclaims beneficial ownership.
(2) Includes 5,200 shares with respect to which such person has the right to
acquire beneficial ownership upon exercise of currently exercisable
options and the percentage (less than 1 percent of outstanding Toys Common
Stock) is calculated on the basis that such shares are deemed outstanding.
78
<PAGE>
(3) Includes 612,500 shares with respect to which Mr. Goldstein has the right
to acquire beneficial ownership upon exercise of currently exercisable
options, and the percentage is calculated on the basis that such shares are
deemed outstanding.
(4) Includes 1,125,000 shares with respect to which Mr. Lazarus has the right
to acquire beneficial ownership upon exercise of currently exercisable
options, and the percentage is calculated on the basis that such shares are
deemed outstanding.
(5) Includes 109,950 shares with respect to which Mr. Moore has the right to
acquire beneficial ownership upon exercise of currently exercisable
options, and the percentage is calculated on the basis that such shares are
deemed outstanding.
(6) Includes 680,102 shares with respect to which Mr. Nakasone has the right to
acquire beneficial ownership upon exercise of currently exercisable
options, and the percentage is calculated on the basis that such shares are
deemed outstanding. Also includes shares beneficially owned by his minor
children as to which shares Mr. Nakasone disclaims beneficial ownership.
As of September 30, 1994, all executive officers and directors of Toys "R" Us
as a group (15 persons) owned beneficially 3,229,151 shares of Toys Common
Stock (including 2,744,622 shares with respect to which such persons had the
right to acquire beneficial ownership as of such date and shares beneficially
owned by the family members of certain executive officers and directors as to
which shares such executive officers and directors disclaim beneficial
ownership), which constituted approximately 1.1 percent of the shares deemed
outstanding on that date. Except for shares beneficially owned by such family
members, such executive officers and directors have sole voting power and sole
investment power with respect to such shares.
NOMINEES FOR ELECTION AS DIRECTORS OF PETRIE
Twelve directors (constituting the entire Petrie Board of Directors) are to
be elected to serve until the next annual meeting of Petrie shareholders and
until their respective successors are elected. However, if each of the
Disposition, the Exchange and the Liquidation is approved by Petrie
shareholders, the Petrie directors elected at the Annual Meeting will serve in
such capacity only until the consummation of the Liquidation. It is intended
that shares represented at the meeting by the enclosed proxy card will be voted
for election as directors of the persons named below except to the extent
otherwise instructed in the enclosed proxy card. If any of these nominees
should not be a candidate, shares so represented will be voted in favor of the
remainder of those named, and may be voted for substitute nominees in place of
those who are not candidates. Management has no reason to expect that any of
these nominees will fail to be a candidate at the meeting and therefore has not
chosen a substitute for any nominees. The information indicated below has been
furnished to Petrie by the respective nominees.
While Milton Petrie will not be standing for re-election as a director of
Petrie, upon the election of the Petrie directors at the Annual Meeting, Mr.
Petrie will serve as Chairman Emeritus of Petrie.
79
<PAGE>
<TABLE>
<CAPTION>
YEAR
PRINCIPAL OCCUPATION FOR FIRST
THE PAST FIVE YEARS; ELECTED A
NAME OTHER DIRECTORSHIPS HELD AGE DIRECTOR
---- ------------------------ --- ---------
<C> <S> <C> <C>
Joseph H. Flom.............. Partner--Skadden, Arps, 70 1982
Slate, Meagher & Flom (law
firm) (counsel to Petrie);
Director--Revlon Group In-
corporated (manufacturer and
seller of cosmetics and fra-
grances)
Jay Galin................... Executive Vice President of 58 1981
Petrie and President of G&G
Shops, Inc., a wholly-owned
subsidiary of Petrie; Direc-
tor--Ark Restaurants Corp.
(operator of restaurants)
Hilda Kirschbaum Gerstein... Vice Chairman of Petrie 83 1956
Alan C. Greenberg........... Chairman of the Board of The 66 1993
Bear Stearns Companies, Inc.
(financial advisors to
Petrie) (investment banking
firm)
Allan Laufgraben............ Vice Chairman, President and 55 1990
Chief Executive Officer of
Petrie
Peter A. Left............... Vice Chairman, Chief Operat- 44 1990
ing Officer, Chief Financial
Officer and Secretary of
Petrie
Daniel G. Maresca........... Executive Vice President of 41 1992
Petrie and President of Win-
kelman Stores, Inc., a whol-
ly-owned subsidiary of
Petrie
Carroll Petrie.............. Private Investor; Trustee-- 66 1991
The Metropolitan Museum of
Art, The Metropolitan Opera
Association, The New York
Hospital--Cornell Medical
Center and Memorial Sloan-
Kettering Cancer Center
Jean Roberts................ Former Executive Vice Presi- 77 1963
dent of Petrie
Dorothy Fink Stern.......... Former Executive Vice Presi- 75 1956
dent of Petrie
Laurence A. Tisch........... Chairman of the Board and Co- 71 1983
Chief Executive Officer of
Loews Corporation (diversi-
fied holding company);
Chairman of the Board, Pres-
ident and Chief Executive
Officer of CBS Inc. (televi-
sion network and broadcast-
er); Chief Executive Officer
and a Director of CNA Finan-
cial Corp. (insurance and
financial services company
and a publicly-held subsidi-
ary of Loews Corporation);
Director--Automatic Data
Processing Inc. (provider of
data and payroll processing
services), Bulova Corpora-
tion (watch manufacturer and
a publicly-held subsidiary
of Loews Corporation) and
R.H. Macy & Co. Inc. (opera-
tor of department stores);
Trustee--New York University
(Chairman of the Board), The
Metropolitan Museum of Art,
The New York Public Library
and the Carnegie Corpora-
tion; Member--Council on
Foreign Relations
</TABLE>
80
<PAGE>
<TABLE>
<CAPTION>
YEAR
PRINCIPAL OCCUPATION FOR FIRST
THE PAST FIVE YEARS; ELECTED A
NAME OTHER DIRECTORSHIPS HELD AGE DIRECTOR
---- ------------------------ --- ---------
<C> <S> <C> <C>
Raymond S. Troubh........... Financial Consultant; Director-- 68 1994
ADT Limited (security systems
company); American Maize-Prod-
ucts Company (corn products
manufacturer); Applied Power
Inc. (hydraulic and mechanical
equipment manufacturer); ARIAD
Pharmaceuticals, Inc. (pharma-
ceutical company); Becton,
Dickinson and Company
(healthcare products manufac-
turer); Benson Eyecare Corpora-
tion (eyecare and eyewear com-
pany); Foundation Health Corpo-
ration (healthcare company);
General American Investors Com-
pany (investment and advisory
company); Manville Corporation
(mining, fiberglass and forest
products company); Olsten Cor-
poration (temporary personnel
and healthcare services compa-
ny); Riverwood International
Corporation (wood derivative
products company); Time Warner
Inc. (media and entertainment
company); Wheeling-Pittsburgh
Corporation (diversified hold-
ing company); America West Air-
lines, Inc. (airline); and
Triarc Companies, Inc. (diver-
sified holding company)
</TABLE>
MEETINGS AND STANDING COMMITTEES OF PETRIE'S BOARD OF DIRECTORS
Petrie's Board of Directors met ten times during the fiscal year ended
January 29, 1994. The Board of Directors has Executive, Audit, and Compensation
Committees but has no nominating committee. Directors do not receive meeting
attendance fees or any other compensation, other than Raymond S. Troubh who
receives $45,000 per annum. All directors attended at least 75 percent of the
aggregate of the meetings of the Board of Directors and of the Committees of
the Board of Directors on which they served during the fiscal year ended
January 29, 1994, except for Milton Petrie and Jean Roberts.
The Executive Committee acts on behalf of the Petrie Board of Directors
between meetings of the Petrie Board of Directors. The current members of the
Executive Committee are Mr. Petrie, Dorothy Fink Stern and Hilda Kirschbaum
Gerstein. Both Mrs. Stern and Mrs. Gerstein have served on the Executive
Committee since March 1975. Mr. Petrie has served on the Executive Committee
since September 1982. During the fiscal year ended January 29, 1994, the
Executive Committee did not meet.
The Audit Committee is responsible for (i) recommending the selection,
retention or termination of Petrie's independent auditors, (ii) reviewing with
such auditors the overall scope of the audit, (iii) reviewing Petrie's
financial statements and audit results, including communications from the
independent auditors relating to Petrie's accounting practices, procedures and
internal accounting controls, (iv) reviewing the adequacy of internal control
systems, including internal audit activities and the security of electronic
data processing, (v) reviewing such other matters regarding Petrie's financial
and accounting practices as it or the Petrie Board of Directors may deem
advisable and (vi) monitoring Petrie's code of corporate conduct. The current
members of the Audit Committee are Joseph H. Flom, Alan C. Greenberg, and
Raymond S. Troubh who have served on the Audit Committee since September 1992,
March 1993 and August 1994, respectively. During the fiscal year ended January
29, 1994, the Audit Committee met once.
The Compensation Committee was established in April 1994. The Compensation
Committee reviews and approves the salaries and bonuses of the executive
officers of Petrie and all grants of options to purchase shares under Petrie's
1992 Stock Option Plan. The current members of the Compensation Committee are
Mr. Flom and Raymond S. Troubh, who have both served on the Compensation
Committee since its inception.
81
<PAGE>
MANAGEMENT OF PETRIE
The following table shows the executive officers and directors of Petrie,
their respective ages, the date each director was first elected and all
positions currently held with Petrie by each such person:
<TABLE>
<CAPTION>
YEAR FIRST
ELECTED A
NAME AGE DIRECTOR POSITION WITH PETRIE
---- --- ---------- --------------------
<S> <C> <C> <C>
Milton Petrie................. 91 1932 Chairman of the Board; Director
Hilda Kirschbaum Gerstein..... 83 1956 Vice Chairman; Director
Jay Galin..................... 58 1981 Executive Vice President;
President of G&G Shops, Inc.;
Director
Allan Laufgraben.............. 55 1990 Vice Chairman, President and
Chief Executive Officer;
Director
Peter A. Left................. 44 1990 Vice Chairman, Chief Operating
Officer, Chief Financial
Officer and Secretary;
Director
Daniel G. Maresca............. 41 1992 Executive Vice President;
President of Winkelman Stores,
Inc.; Director
Stephen A. Birk............... 46 -- Senior Vice President
Scott Galin................... 36 -- Senior Vice President
Umberto Gallo................. 50 -- Senior Vice President
Barton Heminover.............. 40 -- Vice President/Treasurer
Senior Vice
Michael J. Jackson............ 45 -- President/Controller
Richard J. Pesce.............. 44 -- Senior Vice President
Samuel David Polese........... 37 -- Senior Vice President
Jeffrey M. Zelenko............ 38 -- Senior Vice President
Joseph H. Flom................ 70 1982 Director
Alan C. Greenberg............. 66 1993 Director
Carroll Petrie................ 66 1991 Director
Jean Roberts.................. 77 1963 Director
Dorothy Fink Stern............ 75 1956 Director
Laurence A. Tisch............. 71 1983 Director
Raymond S. Troubh............. 68 1994 Director
</TABLE>
The term of office of each executive officer expires upon the election of his
respective successor at the meeting of the Board of Directors directly
following each annual meeting of shareholders of Petrie. The term of office of
each director expires at the election of his respective successor at each
annual meeting of shareholders of Petrie.
Milton Petrie has been Chairman of the Board of Petrie since Petrie's
organization in 1932 and was President and Chief Executive Officer of Petrie up
to July 16, 1993, except that Michael J. Boyle was President and Chief
Executive Officer of Petrie from November 1, 1982 to January 13, 1983 and Hilda
Kirschbaum Gerstein was President of Petrie from September 1972 to November
1982.
82
<PAGE>
Hilda Kirschbaum Gerstein became Vice Chairman of Petrie in November 1982.
Prior to that, she was President of Petrie from September 1972 to November 1982
and Treasurer of Petrie from January 1982 to September 1982. She was Senior
Vice President of Petrie from 1971 to 1972 and Vice President of Petrie from
1956 to 1971. She has been employed with Petrie since 1932.
Jay Galin became Executive Vice President of Petrie in March 1990, prior to
which he was Senior Vice President of Petrie since July 1980. He has been
President of G&G Shops, Inc., a wholly-owned subsidiary of Petrie, since 1972.
Mr. Galin is a director of Ark Restaurants Corp., an operator of restaurants.
Allan Laufgraben became Vice Chairman of Petrie in May 1993 and President and
Chief Executive Officer of Petrie in July 1993, prior to which he was Executive
Vice President of Petrie since March 1990, prior to which he was Senior Vice
President of Petrie also since May 1986, and prior to which he was Vice
President of Petrie since April 1985. Until July 1993, Mr. Laufgraben had also
been President of "Plus" Size Stores, a division of Petrie, since 1984. He has
been employed with Petrie since 1984.
Peter A. Left became Vice Chairman of Petrie in May 1993 and Chief Operating
Officer of Petrie in July 1993, prior to which he was Executive Vice President
of Petrie since March 1990, and prior to which he was Senior Vice President of
Petrie since 1983. He has been Secretary of Petrie since January 1983, and has
been Chief Financial Officer of Petrie since February 1985. Previously, he had
been Controller of Petrie since June 1982 and Vice President of Petrie since
May 1982. He has been employed with Petrie since 1974.
Daniel G. Maresca became Executive Vice President of Petrie in March 1992,
prior to which he was Senior Vice President of Petrie since March 1984, and
prior to which he was Vice President of Petrie since May 1981. He has also been
President of Winkelman Stores, Inc., a wholly-owned subsidiary of Petrie, since
1989. He has been employed with Petrie since 1972.
Stephen A. Birk became Senior Vice President of Petrie in May 1989, prior to
which he was Vice President of Petrie since May 1988. He has been General
Merchandise Manager of "Plus" Size Stores, a division of Petrie, since the
commencement of his employment with Petrie in March 1988.
Scott Galin became Senior Vice President of Petrie in April 1987. He has also
been Executive Vice President of G&G Shops, Inc., a wholly-owned subsidiary of
Petrie, since 1991 and prior thereto, was Senior Vice President of G&G Shops,
Inc. since August 1985. He has been employed with Petrie since 1974. He is the
son of Jay Galin, who is Executive Vice President of Petrie and President of
G&G Shops, Inc.
Umberto Gallo became Senior Vice President of Petrie in March 1983, prior to
which he was elected Vice President of Petrie in May 1982. He has been employed
with Petrie since 1970.
Barton Heminover has been Vice President/Treasurer of Petrie since May 1989,
prior to which he was an Assistant Controller of Petrie. He has been employed
with Petrie since 1983.
Michael J. Jackson became Senior Vice President of Petrie in December 1988,
prior to which he was Vice President and Controller of Petrie since January
1985. He has been employed with Petrie since 1983.
Richard J. Pesce became Senior Vice President of Petrie, Director of Store
Operations in November 1993 and has been employed with Petrie since October
1993. Prior to joining Petrie, Mr. Pesce spent 20 years at the retail chain of
Herman's Sporting Goods, Inc. and served as its Senior Vice President--Store
Operations from 1990 to 1993. On March 15, 1993, Herman's Sporting Goods, Inc.
commenced a case seeking reorganization under federal bankruptcy laws.
Samuel David Polese has been Senior Vice President of Petrie since April
1984. He was elected Vice President in August 1983 and has been employed with
Petrie since 1978.
Jeffrey M. Zelenko became Senior Vice President of Petrie, General
Merchandise Manager--Juniors in July 1993 upon employment. Prior to joining
Petrie, Mr. Zelenko spent 20 years at the retail specialty chain
83
<PAGE>
of Charming Shoppes, Inc. where his last position was Vice President, General
Merchandise Manager--Juniors from 1990 to 1992. From 1992 to 1993 he was
President and owner of MJZ Inc., a knit manufacturing company.
Joseph H. Flom has been a partner in Skadden, Arps, Slate, Meagher & Flom, a
law firm and counsel to Petrie, for more than the past five years. Mr. Flom is
a Director of Revlon Group Incorporated, a manufacturer and seller of cosmetics
and fragrances.
Alan C. Greenberg has been Chairman of the Board of The Bear Stearns
Companies, Inc., an investment banking firm and financial advisors to Petrie,
for more than the past five years.
Carroll Petrie is a private investor and a Trustee of The Metropolitan Museum
of Art, The Metropolitan Opera Association, The New York Hospital--Cornell
Medical Center and Memorial Sloan-Kettering Cancer Center. Mrs. Petrie is the
wife of Mr. Petrie.
Jean Roberts was employed by Petrie from 1937 until December 1993 when she
resigned as Executive Vice President and is now available to Petrie on a
consulting basis.
Dorothy Fink Stern was employed by Petrie from 1935 until July 1993 when she
resigned as Executive Vice President and is now available to Petrie on a
consulting basis.
Laurence A. Tisch has been Chairman of the Board of Directors and Co-Chief
Executive Officer of Loews Corporation, a diversified holding company, for more
than the past five years. He is also Chairman of the Board, President and Chief
Executive Officer of CBS Inc., a television network and broadcaster since
December 1990, having served as President and Chief Executive Officer of CBS
Inc. since January 1987 and prior thereto as acting Chief Executive Officer
since September 1986. Mr. Tisch has been a Director of CBS Inc. since 1985. He
is also Chief Executive Officer of CNA Financial Corp., an insurance and
financial services company and a publicly-held subsidiary of Loews Corporation;
a Director of Bulova Corporation, a watch manufacturer and a publicly-held
subsidiary of Loews Corporation; a Director of Automatic Data Processing, Inc.,
a provider of payroll and data processing services; and a Director of R.H. Macy
and Co., Inc., an operator of department stores. Mr. Tisch is also Chairman of
the Board of Trustees of New York University; a Trustee of The Metropolitan
Museum of Art, The New York Public Library and the Carnegie Corporation; and a
member of the Council on Foreign Relations.
Raymond S. Troubh was elected a Director in April 1994. He is a financial
consultant in New York City, a former governor of the American Stock Exchange
and a former general partner of Lazard Freres & Co., an investment banking
firm. Mr. Troubh is a Director of ADT Limited, a security systems company;
American Maize-Products Company, a corn products manufacturer; Applied Power
Inc., a hydraulic and mechanical equipment manufacturer; ARIAD Pharmaceuticals,
Inc., a pharmaceutical company; Becton, Dickinson and Company, a healthcare
products manufacturer; Benson Eyecare Corporation, an eyecare and eyewear
company; Foundation Health Corporation, a healthcare company; General American
Investors Company, an investment and advisory company; Manville Corporation, a
mining, fiberglass and forest products company; Olsten Corporation, a temporary
personnel and healthcare services company; Riverwood International Corporation,
a wood derivative products company; Time Warner Inc., a media and entertainment
company; Wheeling-Pittsburgh Corporation, a diversified holding company;
America West Airlines, Inc., an airline; and Triarc Companies, Inc., a
diversified holding company.
84
<PAGE>
EXECUTIVE COMPENSATION OF PETRIE
GENERAL
The following table sets forth the total annual compensation paid or accrued
by Petrie to or for the account of the chief executive officer, each of the
four most highly compensated executive officers of Petrie whose total cash
compensation for the fiscal year ended January 29, 1994 exceeded $100,000 and
one former executive officer for whom disclosure would have been required if
that individual had been serving as an executive officer at January 29, 1994.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION(1) LONG-TERM COMPENSATION AWARDS
------------------------ -----------------------------------------
RESTRICTED
NAME AND FISCAL STOCK OPTIONS/SARS ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS AWARDS (NO. OF SHARES) COMPENSATION
------------------ ------ -------- -------- ---------- --------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Allan Laufgraben........ 1994 $400,000 $135,000 $69,063(2) $ 1,300(5)
Vice Chairman, 1993 375,000 373,000 61,563(2) 600(5)
President and 1992 350,000 233,000 53,467(2) 600(5)
Chief Executive
Officer of Petrie
Peter A. Left........... 1994 350,000 1,225(5)
Vice Chairman, Chief 1993 325,000 110,940(2) 600(5)
Operating 1992 275,000 600(5)
Officer, Chief
Financial Officer and
Secretary of Petrie
Hilda Kirschbaum
Gerstein .............. 1994 575,000 150,494(3)
Vice Chairman of 1993 550,000
Petrie 1992 550,000
Jay Galin .............. 1994 925,000 5,319(5)
Executive Vice 1993 700,000 200,000(2) 5,849(5)
President of Petrie 1992 875,000 14,389(5)
and President of G&G
Shops, Inc., a wholly-
owned subsidiary of
Petrie
Daniel G. Maresca ...... 1994 400,000 600(5)
Executive Vice 1993 375,000 600(5)
President of Petrie 1992 325,000 123,125(2) 600(5)
and President of
Winkelman Stores,
Inc., a wholly-owned
subsidiary of Petrie
Dorothy Fink Stern(4) .. 1994 525,000 150,494(3)
Executive Vice 1993 500,000
President of Petrie 1992 440,000
</TABLE>
- - -------
(1) While each of the named individuals received perquisites or other personal
benefits in the years shown, in accordance with the Commission's
regulations, the value of these benefits are not indicated since they did
not exceed in the aggregate the lesser of $50,000 or 10 percent of the
individual's salary and bonus in any fiscal year.
(2) Represents the fair market value on the day prior to the grant of
restricted shares of Petrie Common Stock pursuant to employment
agreements. The aggregate number and fair market value as of January 29,
1994 of restricted shares of Petrie Common Stock awarded since the
beginning of fiscal year 1992 are as follows: Mr. Galin: 9,014 shares
($249,012), Mr. Laufgraben: 7,500 shares ($207,188), Mr. Maresca: 5,000
shares ($138,125) and Mr. Left: 5,000 shares ($138,125). The restricted
shares vest upon award and are entitled to dividends at the same rate as
dividends paid on unrestricted shares of Petrie Common Stock. See "--
Employment Agreements" below.
(3) Options to acquire 150,494 shares of Petrie Common Stock with stock
appreciation rights, granted pursuant to Petrie's 1992 Stock Option Plan,
were exercised in April 1993. See "--Options" below.
(4) Mrs. Stern resigned as Executive Vice President in July 1993.
(5) The amounts shown include (a) for Mr. Galin, Petrie's contribution to his
Profit Sharing Plan account in the amount of $4,719 in 1994, $5,249 in
1993 and $13,789 in 1992, (b) contributions to Petrie's 401(K) accounts in
the following amounts: $700 for Mr. Laufgraben in 1994 and $625 for Mr.
Left in 1994, (c) premiums paid by Petrie with respect to term life
insurance in the following amounts: $600 for each of Mr. Laufgraben, Mr.
Left, Mr. Galin and Mr. Maresca in 1994, 1993 and 1992.
85
<PAGE>
OPTIONS
No options were granted in fiscal year 1994 nor were any options outstanding
at January 29, 1994. The following table sets forth the details of options and
stock appreciation rights ("SARs") exercised by the individuals listed in the
Summary Compensation Table during fiscal year 1994.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
PETRIE COMMON
STOCK VALUE OF
UNDERLYING UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY
SHARES OF OPTIONS/SARS OPTIONS/SARS
PETRIE COMMON AT FISCAL YEAR- AT FISCAL YEAR-
STOCK END END
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE REALIZED UNEXERCISABLE UNEXERCISABLE
---- ------------- ------------- --------------- ---------------
<S> <C> <C> <C> <C>
Hilda Kirschbaum
Gerstein............... 150,494(1) $1,862,363.25 0 $ 0
Dorothy Fink Stern...... 150,494(1) 1,862,363.25 0 0
</TABLE>
- - --------
(1) In lieu of receiving shares of Petrie Common Stock, in accordance with the
determination of the Stock Option Committee, Mrs. Gerstein and Mrs. Stern
each received $1,862,363.25.
DEFINED BENEFIT PLANS
Petrie makes annual contributions to the Petrie Stores Pension Plan (the
"Plan"), which is a defined benefit pension plan for the benefit of full-time
employees of Petrie Stores Corporation and its wholly-owned subsidiaries (other
than G&G Shops, Inc. and Winkelman Stores, Inc.). The actuarial cost method
used to determine annual Petrie contributions under the Plan is known as the
projected unit credit cost method. Under this method, Petrie contributions are
determined for all participants as a group and individual participant
contributions are not readily available. Aggregate Petrie contributions to the
Plan are approximately 3 percent of total covered compensation of Plan
participants. Benefits earned under the Plan depend on W-2 compensation
received for services rendered to Petrie and are not subject to deduction for
Social Security benefits or offset amounts.
The following table sets forth the estimated annual retirement benefits for
various combinations of pre-retirement remuneration and years of credited
service:
PENSION PLAN TABLE
<TABLE>
<CAPTION>
FINAL AVERAGE YEARS OF CREDITED SERVICE AT RETIREMENT
ANNUAL --------------------------------------------
COMPENSATION* 15 20 25 30 35
------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$125,000........................... $ 25,602 $ 34,136 $ 42,670 $ 42,670 $ 42,670
150,000........................... 30,852 41,136 51,420 51,420 51,420
175,000........................... 36,102 48,136 60,170 60,170 60,170
200,000........................... 41,352 55,136 68,920 68,920 68,920
225,000........................... 46,602 62,136 77,670 77,670 77,670
250,000........................... 51,852 69,136 86,420 86,420 86,420
300,000........................... 62,352 83,136 103,920 103,920 103,920
400,000........................... 83,352 111,136 138,920 138,920 138,920
450,000........................... 93,852 125,136 156,420 156,420 156,420
500,000........................... 104,352 139,136 173,920 173,920 173,920
</TABLE>
- - --------
* Highest five consecutive out of final ten years of employment before
retirement date.
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The compensation covered by the Plan is the W-2 compensation, up to $150,000,
for services rendered to Petrie.
As of January 29, 1994, Hilda Kirschbaum Gerstein and Dorothy Fink Stern each
had more than 25 years of credited service under the Plan. Daniel G. Maresca
had twenty-one years, Peter A. Left had twenty years, and Allan Laufgraben had
ten years. The benefits listed in the Pension Plan Table are based upon a
straight life annuity form of payment and are not subject to any deduction for
social security or other offset amounts.
DIRECTORS' COMPENSATION
Directors receive no compensation for serving on the Board of Directors of
Petrie or any committee of the Board, other than Raymond S. Troubh who receives
$45,000 per annum.
EMPLOYMENT AGREEMENTS
As of July 1, 1992, Petrie entered into employment agreements with certain of
its executive officers, including Allan Laufgraben, Hilda Kirschbaum Gerstein,
Daniel G. Maresca, Peter A. Left, and Dorothy Fink Stern. Each employment
agreement has a term expiring on June 30, 1997. The employment agreements for
each of Mr. Laufgraben, Mrs. Gerstein, Mr. Maresca, Mr. Left and Mrs. Stern
provide for each to receive annual salaries at the rates set forth in the
executive compensation chart above, with annual increases of $25,000. In
addition, pursuant to his agreement, Mr. Laufgraben receives (i) an annual
payment equal to a fixed percentage of the annual pre-tax net operating profits
of the "Plus" Size Stores, subject to certain adjustments, and (ii) 2,500
shares of Petrie Common Stock annually. The agreements for Messrs. Laufgraben,
Maresca and Left also provide for (i) the maintenance of a $500,000 insurance
policy on their respective lives, (ii) for each to receive death benefits equal
to one year's salary plus, in Mr. Laufgraben's case, the remaining Petrie
Common Stock payments, and (iii) for each to receive disability benefits equal
to salary at the then current annual rate for up to one year and his salary at
one-half the then current annual rate for a further period of six months plus,
in Mr. Laufgraben's case, the remaining Petrie Common Stock payments. The
agreements for Mrs. Gerstein and Mrs. Stern also provide for each to receive
death benefits equal to one year's salary and disability benefits equal to
salary at the then current annual rate for up to one year and salary at one-
half the then current annual rate for a further period of six months. In
connection with Petrie's Restructuring, in July 1993, Mrs. Stern resigned as
Executive Vice President and is now available to Petrie on a consulting basis.
As part of her consulting duties, Mrs. Stern routinely tours Petrie's retail
store operations to interview store management, to inspect store physical
plant, merchandising, product placement and customer service and then to report
back to Petrie management regarding the foregoing. Mrs. Stern's employment
agreement remains in effect. In addition, the Board of Directors of Petrie has
authorized Petrie to pay to each of Mrs. Stern and Mrs. Gerstein $50,000 per
year commencing upon expiration of their respective employment agreements in
1997 until their deaths. In the event that Mr. Laufgraben, Mrs. Gerstein, Mr.
Maresca, Mr. Left, or Mrs. Stern terminate employment due to a material breach
on the part of Petrie, the executive shall be entitled to an amount equal to
all of the compensation the executive would have been entitled to receive
pursuant to the agreement had the executive served throughout the full
remaining term of employment.
In August 1985, Petrie entered into an employment agreement with Jay Galin
through January 31, 1991 at a salary commencing at $350,000 and increasing
$25,000 per year. The agreement was amended in December 1988, April 1992 and
August 1992. Mr. Galin's agreement, as amended, provides for a term through
June 30, 1997 and for Mr. Galin to receive (i) annual salary at the rate set
forth in the executive compensation chart above, with annual increases of
$25,000; (ii) $50,000 per quarter in cash through 1996 and quarterly payments
of $20,833 in January and April 1997; (iii) $200,000 on each of July 31, 1993
and 1995 and $83,333 on June 30, 1997; and (iv) $200,000 in Petrie Common Stock
on each of July 31, 1992, 1994 and 1996. The agreement, as amended, also
provides for the maintenance of a $500,000 insurance policy on Mr. Galin's life
and for disability and death benefits equal to one year's salary and the
remaining Petrie
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<PAGE>
Common Stock payments and, in the case of disability, an additional six months'
salary. In addition, Petrie shall pay a lump sum of $5,000 to Mr. Galin's
widow. In the event that Mr. Galin terminates his employment due to a material
breach on the part of Petrie, he shall be entitled to an amount equal to all of
the compensation which he would have been entitled to receive pursuant to the
agreement had he served throughout the full remaining term of his employment.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No executive officer of Petrie serves: (i) as a member of the compensation
committee, another board committee performing equivalent functions or the board
of directors of another entity, one of whose executive officers serves on the
board of directors of Petrie; (ii) as a director of another entity, one of
whose executive officers serves on the board of directors of Petrie; or (iii)
as a member of the compensation committee (or other board committee performing
equivalent functions or, in the absence of any such committee, the entire board
of directors) of another entity, one of whose executive officers serves as a
director of Petrie.
PETRIE BOARD OF DIRECTORS' REPORT ON EXECUTIVE COMPENSATION
Petrie's Board of Directors determines Petrie's executive compensation policy
and sets compensation for the Chief Executive Officer and the other executive
officers. The policy of Petrie's Board of Directors is to maintain executive
compensation at competitive levels that will permit Petrie to attract, motivate
and retain individuals with superior managerial abilities. The levels of
compensation are intended to reward individual initiative and achievement and
to motivate executives to increase shareholder value by improving corporate
performance and profitability.
Each of the officers of Petrie named in the Summary Compensation Table is a
party to an employment agreement with Petrie that terminates on June 30, 1997.
These agreements (as described above in "Employment Agreements") generally
provide cash compensation at a base rate that increases each year by a fixed
amount and do not provide bonus or performance payments or stock awards. An
exception has been made for Jay Galin, who receives a portion of his
compensation in stock. Allan Laufgraben's compensation consists of a base
salary, an annual payment equal to a fixed percentage of profits of Plus "Size"
Stores and 2,500 shares of Petrie Common Stock annually. Each of these
employment agreements permits Petrie to increase the executive's compensation
over the base amount.
The Petrie Board of Directors reviews the base salary of Mr. Laufgraben (as
well as the other executive officers including the executive officers named in
the Summary Compensation Table) periodically, considering factors such as
individual and corporate performance (without reference to any specific
performance-related targets) and individual experience and expertise. In
determining Mr. Laufgraben's overall compensation as well as the compensation
of the other executive officers, the Petrie Board of Directors also reviews
certain compensation levels at other companies including selected peer
companies. Such other companies are not necessarily the same as the companies
in the peer group index in the performance graph section of this Proxy
Statement/Prospectus because the Petrie Board of Directors believes that Petrie
competes for executive talent with companies in addition to those in its peer
group. The Petrie Board of Directors does not attempt to set base salaries at
any particular level based on such surveys, but rather uses such surveys to
obtain an overview of compensation levels in general. Additional factors
reviewed by the Petrie Board of Directors in determining appropriate
compensation levels for executives including Mr. Laufgraben include subjective
factors related to corporate and the executive's individual performance that
are not necessarily linked to any specific performance-related targets. In
addition, the Petrie Board of Directors considers Mr. Laufgraben's overall
compensation relative to compensation levels of Chief Executives of other
comparable companies. No particular weight is given by the Petrie Board of
Directors to any of the foregoing factors, and decisions as to adjustments in
base salaries are primarily subjective.
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The Petrie Board of Directors does not believe that the compensation paid to
Petrie's executive officers will exceed the limits on deductibility set forth
in Section 162(m) of the Code.
BY THE PETRIE BOARD OF DIRECTORS:
<TABLE>
<S> <C>
Milton Petrie, Chairman Alan C. Greenberg
Hilda Kirschbaum Gerstein Carroll Petrie
Jay Galin Jean Roberts
Allan Laufgraben Dorothy Fink Stern
Peter A. Left Laurence A. Tisch
Daniel G. Maresca Raymond S. Troubh
Joseph H. Flom
</TABLE>
PERFORMANCE GRAPH
The following graph indicates Petrie's total return to its shareholders from
February 1, 1989 through January 29, 1994, as compared to the total returns for
the Standard & Poor's 500 Index and the Value Line Retail Special Lines
Industry Index (the "Peer Group"). The information contained in this graph is
not necessarily indicative of Petrie's future performance.
(ART)
- - --------
* Assumes $100 invested at the close of trading on the last trading day
preceding the first day of the fifth preceding fiscal year in Petrie Common
Stock, S&P 500, and Peer Group. The cumulative total return assumes
reinvestment of dividends.
Source: Frank Russell Company
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Milton Petrie maintains an account with Petrie from which from time to time
he regularly makes gifts, including to former employees of Petrie, and other
payments. In the ordinary course, Mr. Petrie reimburses Petrie on a monthly
basis. Although Mr. Petrie has ordinarily prefunded such account, during a
recent illness he became indebted to Petrie in such account for as much as
$1,091,000, substantially all of which was repaid by Mr. Petrie in January 1994
with interest at 5 percent per annum. Additionally, if the Disposition is
effected other than pursuant to the Retail Operations Stock Purchase Agreement,
it is possible that Milton Petrie or members of his family would have an
interest in Retail Holding Company or any other successor to the Retail
Operations.
Bear, Stearns & Co. Inc., an investment banking firm, has provided services
to Petrie in the ordinary course of business. Alan C. Greenberg, a director of
Petrie and a member of Petrie's Audit and Compensation Committees, is Chairman
of the Board of The Bear Stearns Companies, Inc., the parent company of Bear,
Stearns & Co. Inc. Petrie has agreed to indemnify Bear, Stearns & Co. Inc. and
certain affiliates thereof against certain liabilities. See "THE DISPOSITION--
Opinion of Petrie Financial Advisor."
Skadden, Arps, Slate, Meagher & Flom, a law firm, is counsel to Petrie and to
Milton Petrie and has provided services to each. Joseph H. Flom, a director of
Petrie, a member of Petrie's Audit and Compensation Committees and an attorney-
in-fact for Milton Petrie, is a partner in Skadden, Arps, Slate, Meagher &
Flom.
See "THE DISPOSITION--Interests of Certain Persons in the Retail Operations
Stock Purchase."
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT OF 1934
Section 16(a) of the Exchange Act requires Petrie's directors and executive
officers, and persons who own more than ten percent of a registered class of
Petrie's equity securities, to file with the Commission initial reports of
ownership and reports of changes in ownership of Petrie Common Stock and other
equity securities of Petrie. Executive officers, directors, and greater than
ten percent shareholders are required by Commission regulation to furnish
Petrie with copies of all Section 16(a) forms they file. To Petrie's knowledge,
based solely on review of the copies of such reports furnished to Petrie and
written representations that no other reports were required, for the fiscal
year ended January 29, 1994, all Section 16(a) filing requirements applicable
to its executive officers, directors and greater than ten percent shareholders
were complied with, except that Jay Galin filed late one Form 4 (Statement of
Changes of Beneficial Ownership of Securities) relating to a gift of 100 shares
of Petrie Common Stock.
RATIFICATION OF SELECTION OF PETRIE'S INDEPENDENT AUDITORS
The Petrie Board of Directors has selected David Berdon & Co., to act as
independent auditors for Petrie and its consolidated subsidiaries for the year
ending January 28, 1995. David Berdon & Co., has been Petrie's independent
auditors for over 20 years and has advised Petrie that the firm does not have
any direct or indirect financial interest in Petrie or any of its subsidiaries,
nor has such firm had any such interest in connection with Petrie during the
past five years other than its capacity as Petrie's independent auditors. A
representative of David Berdon & Co. is expected to be present at the Annual
Meeting and will have an opportunity to make a statement if he desires to do so
and will be available to answer appropriate questions from Petrie shareholders.
THE PETRIE BOARD OF DIRECTORS RECOMMENDS THAT PETRIE SHAREHOLDERS VOTE FOR
RATIFICATION OF THE SELECTION OF DAVID BERDON & CO. TO SERVE AS PETRIE'S
INDEPENDENT AUDITORS FOR THE FISCAL YEAR ENDING JANUARY 28, 1995.
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OTHER MATTERS
The management of Petrie is not aware of any other business that may come
before the Annual Meeting. However, if additional matters properly come before
the meeting, proxies will be voted at the discretion of the proxy holders.
SHAREHOLDER PROPOSALS
Petrie will hold its 1995 annual meeting of shareholders only if the
Transaction is not consummated before the time for such meeting. In the event
that there is a 1995 annual meeting of Petrie shareholders, shareholder
proposals intended to be presented at such annual meeting must be received by
Petrie at its principal executive offices in a timely manner in order to be
considered for inclusion in the proxy statement and proxy card relating to the
1995 annual meeting of shareholders.
LEGAL MATTERS
The validity of the Toys Common Stock to be issued in connection with the
Exchange will be passed upon for Toys "R" Us by Schulte Roth & Zabel, 900 Third
Avenue, New York, New York 10022. Andre Weiss, Esq., a member of Schulte Roth &
Zabel, is the Secretary of Toys "R" Us.
EXPERTS
The consolidated financial statements of Petrie and its subsidiaries at
January 29, 1994 and for each of the three years in the period then ended,
incorporated by reference in this Proxy Statement/Prospectus, and financial
statement schedules included in Petrie's Annual Report (Form 10-K) for the year
ended January 29, 1994, have been audited by David Berdon & Co., independent
auditors, as set forth in its report incorporated by reference in this Proxy
Statement/Prospectus. Such consolidated financial statements and financial
statement schedules 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 of Toys "R" Us and its subsidiaries at
January 29, 1994 and for each of the two years then ended, incorporated by
reference in this Proxy Statement/Prospectus, and related financial statement
schedules included in Toys "R" Us' Annual Report (Form 10-K) for the year ended
January 29, 1994, have been audited by Ernst & Young LLP, independent auditors,
as set forth in their report incorporated by reference in this Proxy
Statement/Prospectus. Such consolidated financial statements and related
financial statement schedules 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 of Toys "R" Us and its subsidiaries for
the year ended February 1, 1992 and the related financial statement schedules
included in Toys "R" Us' Annual Report (Form 10-K) for the year ended January
29, 1994, have been audited by Deloitte & Touche LLP, independent auditors, as
set forth in their report included therein. Such consolidated financial
statements and related financial statement schedules are incorporated by
reference in this Proxy Statement/Prospectus in reliance upon such reports
given upon the authority of such firm as experts in accounting and auditing.
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GLOSSARY
THE FOLLOWING ARE BRIEF DEFINITIONS OF CERTAIN TERMS USED IN THIS PROXY
STATEMENT/PROSPECTUS. THE DEFINITIONS OF TERMS THAT ARE ALSO USED IN ANY OF THE
ANNEXES HERETO OR THE EXHIBITS THERETO ARE QUALIFIED IN THEIR ENTIRETY BY THE
DEFINITIONS ASCRIBED TO SUCH TERMS THEREIN.
"Adjusted Store Sales" means aggregate net sales for Petrie's 1993 fiscal
year.
"Adjusted Store Contributions" means store operating income adjusted for
overhead allocations, depreciation and amortization for Petrie's 1993 fiscal
year.
"Amendment No. 1 to the Retail Operations Stock Purchase Agreement" means the
Amendment No. 1 to the Retail Operations Stock Purchase Agreement, entered into
as of November 3, 1994.
"Bear Stearns Opinion" means the opinion from Bear Stearns, dated August 23,
1994, to the effect that the Retail Operations Stock Purchase is fair, from a
financial point of view, to Petrie shareholders.
"Bear Stearns Report" means the analyses and report presented by Bear Stearns
to Petrie's Board of Directors on August 23, 1994 on which Bear Stearns based
the Bear Stearns Opinion.
"Beneficial Interests" means the beneficial interests in the Liquidating
Trust which Petrie shareholders will own after the Retained Assets are
transferred to the Liquidating Trust.
"Buyer" means, collectively, WP Investors and one or more of its
nonaffiliated designees.
"Cash Amount" means the amount of cash (presently estimated to be $180
million) transferred by Petrie to Toys "R" Us pursuant to the Exchange.
"Cash Shares" means a number equal to (x) the Cash Amount, divided by (y) the
average of the Market Value Per Share of Toys Common Stock on the ten trading
days next preceding the second trading day prior to the Exchange Closing Date.
"Commitment Letter" means that certain Commitment Letter and the Summary of
Terms and Conditions, a copy of which has been previously provided to Petrie,
dated as of November 3, 1994, by and among Buyer, WP Investors, Inc., Warburg
Pincus Investors, L.P., Chemical Bank, The Chase Manhattan Bank, N.A., Chemical
Securities Inc. and Chase Securities, Inc.
"Confidentiality Agreement" means the letter agreement, dated November 17,
1993, between E.M. Warburg, Pincus & Co., Inc. and Petrie.
"Convertible Debentures" means Petrie's 8% Convertible Subordinated
Debentures due December 15, 2010.
"Designated Amount" means $115 million.
"Disposition" means the disposition of the Retail Operations.
"Disposition Closing Date" means the date on which the Retail Operations
Stock Purchase closes.
"Distribution Record Date" means the date set by Petrie's Board of Directors
as of which, following the consummation of the Exchange and the Disposition,
Petrie shall distribute to each of its shareholders of record, such
shareholder's pro rata share of Petrie's assets as of such date other than the
Retained Assets.
"Escrow Amount" means cash (or to the extent cash shall be insufficient,
shares of Toys Common Stock received as Purchase Consideration), placed in an
escrow and trust, in an amount reasonably determined by the Board of Directors
of Petrie to adequately provide for any known, actual or contingent liabilities
of Petrie or its subsidiaries.
"Exchange" means the exchange with Toys "R" Us of all of the Toys Shares and
cash (presently estimated to be $180 million) for a number of shares of Toys
Common Stock equal to (i) the Toys Shares,
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less approximately 3.3 million shares of Toys Common Stock, plus (ii) such
amount of cash divided by the market value of a share of Toys Common Stock.
"Exchange Assets" means the Toys Shares and such cash (presently estimated to
be $180 million) exchanged for a number of shares of Toys Common Stock equal to
(i) the Toys Shares, less approximately 3.3 million shares of Toys Common
Stock, plus (ii) such amount of cash divided by the market value of a share of
Toys Common Stock.
"Exchange Closing Date" means the date on which the Exchange closes.
"Exchange Shares" means a number equal to: (i)(A) the product of the number
of Toys Shares on the Exchange Closing Date and $34.5688 (the average of the
Market Value Per Share of Toys Common Stock on the ten trading days next
preceding the trading day immediately prior to the date of the Toys Acquisition
Agreement) minus (B) $115 million, divided by (ii) $34.5688; provided, however,
that the number of Toys Shares on the Exchange Closing Date and the Market
Value Per Share will be adjusted appropriately if prior to the Exchange Closing
Date there is a change in the number of shares of Toys Common Stock held by
Petrie or a change in the class of shares of Toys Common Stock held by Petrie,
in each case, to the extent attributable to the declaration of any stock
dividend, stock split, recapitalization, reclassification, combination or
similar event.
"Excluded Liabilities" means the liabilities of Petrie not assumed by the
Buyer pursuant to the Retail Operations Stock Purchase Agreement, including,
without limitation, fees and expenses related to the Transaction, the principal
amount and interest on the Convertible Debentures, gifts made by or on behalf
of Milton Petrie, dividends paid or declared, liabilities under the Investment
Company Act of 1940, liabilities in connection with the Exchange, and
shareholder litigation.
"Final Liabilities" means Petrie's remaining liabilities and obligations that
are contingent obligations under the Lease Guarantees.
"Guarantor" means a subsidiary of Buyer which agrees to be bound by the terms
of the Retail Operations Stock Purchase Agreement.
"Initial Distribution" means the pro rata distribution to Petrie's
shareholders of all of Petrie's assets other than the Retained Assets.
"Investor Group" means the investor group led by E.M. Warburg, Pincus & Co.,
Inc. which negotiated the Letter of Intent with Petrie.
"IRS Ruling" means the private letter ruling from the IRS to the effect that
the Exchange and the Liquidation will together qualify as a tax-free
reorganization under Section 368(a)(1)(C) of the Code and specifically that
Petrie shareholders will generally not recognize gain or loss upon the receipt
of shares of Toys Common Stock in exchange for shares of Petrie Common Stock.
"Lease Guarantees" means the Retail Leases which Petrie has guaranteed and is
therefore contingently liable for.
"Letter of Intent" means the letter agreement between Petrie and the Investor
Group, entered into on June 17, 1994, which provides that Petrie shall
negotiate exclusively with the Investor Group with respect to the acquisition
by such group of the Retail Operations.
"Liquidating Trust" means the liquidating trust that will be established
after the complete liquidation and dissolution of Petrie in order to provide
for the payment of all liabilities of Petrie and its subsidiaries.
"Liquidation" means the complete liquidation and dissolution of Petrie and
the distribution to Petrie shareholders of the shares of Toys Common Stock
received by Petrie in the Exchange other than such shares
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as are set aside in escrow to provide for the payment of all liabilities of
Petrie and its subsidiaries, and the establishment of the Liquidating Trust and
the distribution to Petrie shareholders of pro rata interests in the
Liquidating Trust pursuant to the Plan of Liquidation and Dissolution, an
Escrow Agreement and a Liquidating Trust Agreement.
"Market Value Per Share" means, for any trading day, the average of the high
and low reported consolidated trading sales prices (regular way) on the New
York Stock Exchange.
"Permitted Shares" means a number of Toys Shares equal to the lesser of (x)
4,000,000 shares and (y) the number of shares of Toys Shares in excess of which
would interfere with the ability of the parties hereto to consummate the
transactions contemplated by the Toys Acquisition Agreement in a manner such
that the consummation of the Petrie Stock Transfer, the Exchange and the
Liquidation will not give rise to the recognition of taxable income or gain to
Toys "R" Us (or any subsidiary thereof) or Petrie (or any subsidiary thereof)
for federal income tax purposes.
"Petrie Business Indemnitors" means certain transferees of Petrie's assets
that each of Petrie and its subsidiaries shall use its reasonable best efforts
to cause to, execute and deliver to Toys "R" Us the Petrie Indemnification
Agreement at the Closing.
"Petrie Indemnification Agreement" means an indemnification agreement
executed and delivered to Toys "R" Us by a Petrie Business Indemnitor, relating
to Petrie's liabilities, liabilities arising from the Transaction or other
transactions contemplated in the Toys Acquisition Agreement or liabilities of
the Petrie Business Indemnitor.
"Petrie Stock Transfer" means the transfer of all Toys "R" Us Shares held by
any of Petrie's subsidiaries to Petrie, prior to the Exchange, in a manner that
will not give rise to the recognition of taxable income or gain to Petrie or
any of its subsidiaries under the Internal Revenue Code of 1986, as amended.
"Plan of Liquidation and Dissolution" means the plan pursuant to which the
liquidation and dissolution of Petrie will be effected.
"Purchase Consideration" means the consideration for the Exchange Assets.
"Record Date" means the date selected by the Board of Directors of Petrie for
determination of the shareholders of Petrie entitled to become Beneficiaries.
"Retail Holding Company" means such Petrie subsidiary that currently conducts
retail activities but is not a Shareholding Subsidiary, to which Petrie will
transfer all of the Retail Operations that it holds directly, and the stock of
all of its subsidiaries that are not Shareholding Subsidiaries.
"Retail Leases" means the approximately 1,674 leases relating to the Retail
Operations to which Petrie or its subsidiaries are parties.
"Retail Operations" means (i) all the assets, other than the Toys Shares and
such cash as Petrie desires to retain, subject to the terms and provisions of
the Toys Acquisition Agreement, and (ii) all of the liabilities, other than
pursuant to the Lease Guarantees, of Petrie and its subsidiaries which shall be
transferred to the Retail Holding Company.
"Retail Operations Purchase Price" means the $190 million in cash to be paid
by WP Investors to Petrie as the purchase price for the Retail Shares.
"Retail Operations Stock Purchase" means the transactions contemplated by the
Retail Operations Stock Purchase Agreement.
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"Retail Operations Stock Purchase Agreement" means the stock purchase
agreement, dated as of August 23, 1994, between WP Investors and Petrie.
"Retail Shares" means the shares of Retail Holding Company.
"Retained Assets" means the amount of Petrie's assets, consisting of Toys
Common Stock and cash that, following the consummation of the Exchange and the
Disposition, Petrie's Board of Directors reasonably determines to be sufficient
to provide for Petrie's remaining liabilities and obligations.
"Shareholding Subsidiaries" means such subsidiaries of Petrie that currently
hold an aggregate of approximately 39.9 million shares of Toys Common Stock.
"Succession" means the process by which, pursuant to the Liquidating Trust
Agreement, Petrie will transfer the Retained Assets, subject to the provisions
of the Escrow Agreement, to the Liquidating Trust.
"Succession Date" means the date determined by Petrie's Board of Directors on
which, following the Initial Distribution, Petrie will execute the Escrow
Agreement with an escrow agent and the Liquidating Trust Agreement with a
trustee or trustees, each of whom will be selected by Petrie's Board of
Directors.
"Toys Acquisition Agreement" means the acquisition agreement, dated as of
April 20, 1994, between Toys "R" Us and Petrie, as amended on May 10, 1994.
"Toys Shares" means the shares of Toys Common Stock held by certain
subsidiaries of Petrie.
"Toys Voting Agreement" means the Voting Agreement and Proxy pursuant to
which Milton Petrie has agreed to vote or exercise a consent with respect to
his shares of Petrie Common Stock in favor of each part of the Transaction and
has granted Toys "R" Us an irrevocable proxy to exercise all voting, consent
and other rights to approve each part of the Transaction.
"Transaction" means, collectively, the Exchange, the Disposition and the
Liquidation.
"Transaction Fee" means the fee payable to Bear Stearns in connection with
Bear Stearns' retention by Petrie's Board of Directors to serve as its
financial advisor in connection with the Disposition.
"Trust Distributions" means the distributions from the Liquidating Trust to
the beneficiaries of the Liquidating Trust at such time or times and in such
amounts as the trustees of the Liquidating Trust determine to be appropriate.
"Trust Estate" means the assets of the Liquidating Trust.
"Working Capital Pledge" means the Toys Shares pledged by Petrie for the
purpose of financing its working capital expenditures in the ordinary course of
business.
"WP Investors Voting Agreement" means the Voting Agreement and Proxy pursuant
to which Milton Petrie has agreed to vote or exercise a consent with respect to
his shares of Petrie Common Stock in favor of the Retail Operations Stock
Purchase Agreement and has granted WP Investors an irrevocable proxy to
exercise all voting, consent and other rights to approve the Retail Operations
Stock Purchase Agreement.
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ANNEX A
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
STOCK PURCHASE AGREEMENT
BETWEEN
PETRIE STORES CORPORATION
AND
WP INVESTORS, INC.
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TABLE OF CONTENTS
ARTICLE I
Sale of Stock
1.1. The Sale.............................................................. 1
ARTICLE II
The Closing
2.1. Time and Place of Closing............................................. 1
2.2. Deliveries by Seller.................................................. 2
2.3. Deliveries by Buyer................................................... 2
ARTICLE III
Representations and Warranties of Seller
3.1. Corporate Organization; Etc........................................... 2
3.2. Capitalization........................................................ 2
3.3. Authority Relative to this Agreement.................................. 3
3.4. Consents and Approvals; No Violations................................. 3
3.5. Reports............................................................... 4
3.6. No Undisclosed Liabilities............................................ 4
3.7. Absence of Certain Changes............................................ 4
3.8. No Default............................................................ 4
3.9. Litigation............................................................ 4
3.10. Taxes................................................................. 5
3.11. Employee Benefit Plans; ERISA......................................... 5
3.12. Store Names........................................................... 7
3.13. Environmental Matters................................................. 7
3.14. Labor Relations....................................................... 8
3.15. Brokers and Finders................................................... 8
3.16. Transfer of Assets and Liabilities.................................... 8
3.17. Transfer of Employee Benefit Plans and Arrangements................... 9
3.18. Toys Acquisition Agreement............................................ 9
3.19. Ruling Request........................................................ 9
3.20. Real Property......................................................... 9
ARTICLE IV
Representations and Warranties of Buyer
4.1. Organization; Etc..................................................... 10
4.2. Authority Relative to this Agreement.................................. 10
4.3. Consents and Approvals; No Violations................................. 11
4.4. Acquisition of Stock for Investment................................... 11
4.5. Brokers and Finders................................................... 11
ARTICLE V
Covenants of the Parties
5.1. Conduct of Business of the Company.................................... 11
5.2. No Solicitation....................................................... 13
5.3. Access to Information................................................. 13
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5.4. Reasonable Efforts.................................................... 13
5.5. Limitation of Seller's Liabilities.................................... 14
5.6. Minimum Net Worth..................................................... 14
5.7. Public Announcements.................................................. 14
5.8. Employee Matters...................................................... 14
5.9. Financing Participation............................................... 15
5.10. Toys Agreement........................................................ 15
5.11. Buyer's Designee...................................................... 15
5.12. Working Capital Pledge; Excluded Liabilities.......................... 15
5.13. Inventory Audit....................................................... 15
5.14. Collective Bargaining Agreements; Withdrawal Liability................ 16
5.15. Store Lease Transfers................................................. 17
5.16. Additional Covenants Regarding Leases................................. 18
5.17. Excluded Liabilities.................................................. 18
5.18. Additional Covenant Regarding Employee Benefit Plans.................. 19
ARTICLE VI
Tax Matters
6.1. Tax Returns, Payments of Taxes, Transfer Taxes, Refunds and Withhold-
ing.................................................................. 19
6.2. Control of Contest................................................... 20
6.3. Access to Information and Retention of Records....................... 21
ARTICLE VII
Conditions to Consummation of the Stock Purchase
7.1. Conditions to Each Party's Obligations to Consummate the Stock Pur-
chase................................................................ 21
7.2. Further Conditions to Seller's Obligations........................... 21
7.3. Further Conditions to Buyer's Obligations............................ 22
ARTICLE VIII
Termination and Abandonment
8.1. Termination........................................................... 23
8.2. Procedure and Effect of Termination................................... 23
ARTICLE IX
Miscellaneous Provisions
9.1. Non-Survival of Representations and Warranties........................ 24
9.2. Amendment and Modification............................................ 24
9.3. Extension; Waiver..................................................... 24
9.4. Entire Agreement; Assignment; Alternate Structure..................... 24
9.5. Validity.............................................................. 24
9.6. Notices............................................................... 24
9.7. Governing Law......................................................... 25
9.8. Descriptive Headings.................................................. 25
9.9. Counterparts.......................................................... 25
9.10. Expenses.............................................................. 25
9.11. Parties in Interest................................................... 26
9.12. No Waivers............................................................ 26
9.13. Specific Performance.................................................. 26
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STOCK PURCHASE AGREEMENT
Stock Purchase Agreement, dated as of August 23, 1994 (this "Agreement"), by
and between Petrie Stores Corporation, a New York corporation ("Seller"), and
WP Investors, Inc., a Delaware corporation ("Buyer").
Whereas, Seller and Toys "R" Us, Inc., a Delaware corporation ("Toys"), are
parties to an Acquisition Agreement, dated April 20, 1994 (the "Toys
Agreement"), which contemplates (i) the disposition of all of the Seller's
retail stores and operations (the "Retail Operations"), (ii) the exchange with
Toys of cash and all the shares of common stock, par value $.10 per share (the
"Toys Shares"), held by Seller and its subsidiaries for Toys Shares (the
"Exchange") and (iii) the establishment of a liquidating trust and escrow (the
"Liquidating Trust") and the complete liquidation and dissolution of Seller
(collectively, the "Toys Transaction");
Whereas, Seller owns all of the issued and outstanding shares of common stock
(the "Shares") of a Delaware subsidiary of Seller to which Seller intends to
transfer the Retail Operations (the "Company");
Whereas, Seller desires to sell to Buyer, and Buyer desires to purchase from
Seller, all of the Shares, upon the terms and subject to the conditions set
forth herein;
Whereas, simultaneously with the execution and delivery hereof, a shareholder
of Seller is executing and delivering to Buyer a voting agreement and proxy
(the "Shareholder Proxy"); and
Now, Therefore, in consideration of the foregoing and the mutual
representations, warranties, covenants and agreements contained herein, the
parties hereto agree as follows:
ARTICLE I
Sale of Stock
1.1. The Sale. Subject to adjustment as provided in Section 5.11 hereof, upon
the terms and subject to the conditions of this Agreement, at the Closing (as
hereinafter defined), Seller will sell, convey, assign, transfer and deliver to
Buyer and its Designee (as defined in Section 5.11 hereof), and Buyer and its
Designee will purchase, acquire and accept from Seller, 79% of the Shares and
21% of the Shares, respectively, in consideration for which, at the Closing,
Buyer and the Designee will pay to Seller $150.1 million and $39.9 million,
respectively (by wire transfer of immediately available funds to an account or
accounts designated by Seller prior to the Closing) (the "Purchase Price"). The
transactions contemplated by this Section 1.1 are sometimes herein referred to
as the "Stock Purchase."
ARTICLE II
The Closing
2.1. Time and Place of Closing. Upon the terms and subject to the conditions
of this Agreement, the closing of the transactions contemplated by this
Agreement (the "Closing") will take place at the offices of Skadden, Arps,
Slate, Meagher & Flom, 919 Third Avenue, New York, New York 10022 at 9:30 a.m.
on the business day following the date on which all of the conditions to each
party's obligations hereunder have been satisfied or waived (which, at Buyer's
reasonable request, need not be prior to October 31, 1994), or at such other
place or time as the parties may agree. The date on which the Closing actually
occurs and the transactions contemplated hereby become effective is referred to
herein as the "Closing Date."
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2.2. Deliveries by Seller. At the Closing, Seller will deliver the following
to Buyer:
(a) Stock certificates representing the Shares, accompanied by stock
powers duly endorsed in blank or accompanied by duly executed instruments
of transfer;
(b) The resignations of all members of the Board of Directors of the
Company and each of its subsidiaries as requested by Buyer;
(c) The stock book, stock ledger, minute book and corporate seal of the
Company; and
(d) All other documents, instruments and writings required to be
delivered by Seller at or prior to the Closing Date pursuant to this
Agreement.
2.3. Deliveries by Buyer. At the Closing, Buyer will deliver the following to
Seller:
(a) The Purchase Price in accordance with Section 1.1 hereof; and
(b) All other documents, instruments and writings required to be
delivered by Buyer at or prior to the Closing Date pursuant to this
Agreement.
ARTICLE III
Representations and Warranties of Seller
Seller hereby represents and warrants to Buyer as follows:
3.1. Corporate Organization; Etc. Each of the Seller and its subsidiaries is
a corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation and has all requisite power and
authority to own, lease and operate its properties and to carry on its business
as now being conducted, except where the failure to have such power or
authority would not individually or in the aggregate have a material adverse
effect on the assets, properties, liabilities, businesses, operations or
financial condition of Seller and its subsidiaries taken as a whole, without
taking into account the Toys Shares (a "Material Adverse Effect"). Each of the
Seller and its subsidiaries is duly qualified or licensed and in good standing
to do business in each jurisdiction in which the property owned, leased or
operated by it or the nature of the business conducted by it makes such
qualification or licensing necessary, except in such jurisdictions where the
failure to be so duly qualified or licensed and in good standing would not in
the aggregate have a Material Adverse Effect. Seller has made or will make
available to Buyer accurate and complete copies of the charter and by-laws, as
currently in effect, of Seller and each of its subsidiaries. The Company is a
wholly owned subsidiary of Seller.
3.2. Capitalization.
(a) All of the outstanding shares of capital stock of the Company are and at
all times on or prior to the Closing will be, directly or indirectly owned by
Seller. All the issued and outstanding Shares are validly issued, fully paid
and nonassessable and free of preemptive rights or any other Encumbrances (as
defined below) whatsoever. Except as set forth above, there are not, and at the
Closing there will not be, any shares of capital stock of the Company issued or
outstanding or any subscriptions, options, warrants, calls, rights, convertible
securities or other agreements or commitments of any character obligating the
Company or any other person or entity to issue, transfer or sell any of its
securities.
(b) Except as disclosed in Section 3.2 of the disclosure schedule delivered
by Seller to Buyer (the "Disclosure Schedule"), Seller does not own, directly
or indirectly, any capital stock or other equity securities of any corporation
or have any direct or indirect equity or ownership interest in any business.
All of the outstanding shares of capital stock of each of Seller's subsidiaries
have been validly issued and are fully paid and nonassessable and are owned by
either Seller or another of its subsidiaries free and clear of all
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Encumbrances. Except as set forth in Schedule 3.2 of the Disclosure Schedule
there are not now, and at the Closing there will not be, any outstanding
subscriptions, options, warrants, puts, calls, rights, convertible securities
or other agreements, commitments (including pursuant to any employee benefit
plan or arrangement) of any character relating to the issued or unissued
capital stock or other securities of Seller or any of Seller's subsidiaries, or
otherwise obligating Seller, any such subsidiary or any other person or entity
to issue, transfer, sell, purchase, redeem, convert, exchange, register or vote
any such securities. There are not now, and at the Closing there will not be,
any voting trusts or other agreements or understandings to which Seller or any
of its subsidiaries is a party or is bound with respect to the voting of the
capital stock of Seller or any of its subsidiaries. Except as set forth above
or in Section 3.2 of the Disclosure Schedule, there are no persons or entities
(other than its subsidiaries) in which Seller or any of its subsidiaries has
any voting rights or equity interests.
(c) The consummation of the Stock Purchase will convey to Buyer good title to
the Shares, free and clear of all Encumbrances of any nature whatsoever, except
for those created by Buyer. For purposes of this Agreement, the term
"Encumbrances" means any lien, claim, charge, proxy, security interest,
mortgage, pledge, easement, conditional sale or other title retention
agreement, defect in title, preemptive or subscriptive right, restriction on
transfer, covenant or other encumbrance or restriction of any kind.
3.3. Authority Relative to this Agreement. The Seller has full corporate
power and authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly and
validly authorized by all requisite corporate action and no other corporate
proceedings on the part of Seller are necessary to authorize this Agreement or
to consummate the transactions so contemplated. The consummation of the Stock
Purchase does not require any approval by the shareholders of Seller. This
Agreement has been duly and validly executed and delivered by Seller and,
assuming this Agreement has been duly authorized, executed and delivered by
Buyer, constitutes a valid and binding agreement of Seller, enforceable against
Seller in accordance with its terms. The Board of Directors of Seller has
approved this Agreement and the transactions contemplated hereby (including the
execution and delivery of the Shareholder Proxy) for purposes of Section 912 of
the New York Business Corporation Law.
3.4. Consents and Approvals; No Violations. Except for applicable
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended
(the "HSR Act") no declaration, registration, qualification or filing with or
notice to, no permit, authorization, consent or approval of, and no waiver or
order from, any domestic or foreign Governmental Body, is necessary for the
consummation by Seller of the transactions contemplated by this Agreement. For
purposes of this Agreement, the term "Governmental Body" shall mean any court,
government (federal, state, local or foreign) (for all purposes of this
Agreement, "foreign" shall include the Commonwealth of Puerto Rico and the U.S.
Virgin Islands), department, commission, board, bureau, agency, official or
other regulatory, administrative or governmental authority. Neither the
execution and delivery of this Agreement by Seller nor the consummation by the
Seller of the transactions contemplated hereby nor compliance by Seller with
any of the provisions hereof will (a) conflict with or result in any breach of
any provision of the charter or by-laws of Seller, the Company or any of their
respective subsidiaries, (b) except as set forth in Section 3.4 of the
Disclosure Schedule (with or without due notice or lapse of time or both),
result in a violation or breach of, or constitute a default (or give rise to
any right of termination, amendment, renegotiation, cancellation or
acceleration) under, or require any approval or consent under, or result in any
increase in any payment required by, or the loss, revocation, impairment,
suspension or forfeiture of any rights, privileges or benefits under, or result
in the creation or imposition of any Encumbrance upon any of the respective
properties, assets or businesses of Seller or any of its subsidiaries under,
any of the terms, conditions or provisions of any note, bond, mortgage,
indenture, deed of trust, license, contract, agreement or other instrument or
obligation to which Seller or any of its subsidiaries is a party or by which
any of them or any of their properties or assets may be bound or (c) assuming
that the filings referred to in the first sentence of this Section 3.4 are duly
and timely made, violate any order, writ, injunction, decree, statute,
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treaty, rule or regulation applicable to Seller, any of its subsidiaries or any
of their properties or assets, except (x) that Seller makes no representations
in this Section 3.4 as to the leases relating to the Retail Operations and (y)
in the case of (b) or (c) for violations, breaches or defaults which, in the
aggregate, are not reasonably likely to have a Material Adverse Effect or
prevent or delay the consummation of the transactions contemplated hereby.
3.5. Reports. The Seller has filed all required forms, reports and documents
with the Securities and Exchange Commission (the "SEC") since February 2, 1991
(collectively, the "SEC Reports"), all of which (as they may have been amended
prior to the date hereof) have complied in all material respects with all
applicable requirements of the Securities Act of 1933, as amended (the
"Securities Act") and the Exchange Act. None of such forms, reports or
documents (as they may have been amended prior to the date hereof), including,
without limitation, any financial statements or schedules included therein,
taken together with the related notes, 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 not misleading. Each of
the balance sheets (including the related notes and schedules) included in the
SEC Reports fairly presents the consolidated financial position of the Seller
and its consolidated subsidiaries as of the respective dates thereof, and the
other related statements (including the related notes and schedules) included
therein fairly present the results of operations, changes in shareholders'
equity and the changes in cash flows of the Seller and its consolidated
subsidiaries for the respective fiscal years, except, in the case of interim
financial statements, for normal year-end audit adjustments. Each of the
financial statements (including the related notes and schedules) included in
the SEC Reports has been prepared in accordance with generally accepted
accounting principles ("GAAP") consistently applied during the periods
involved, except as otherwise noted therein.
3.6. No Undisclosed Liabilities. Except as set forth in Section 3.6 of the
Disclosure Schedule and except with respect to the excluded liabilities set
forth in Section 3.16 of the Disclosure Schedule, neither Seller nor any of its
subsidiaries has any obligation or liabilities that would be required by GAAP
to be reflected or reserved against in the balance sheet of Seller and its
consolidated subsidiaries (and the related notes thereto) as if materiality
with respect to such balance sheet was determined without reference to the Toys
Shares except (a) liabilities reflected or reserved against in the balance
sheet (and the related notes thereto) of Seller and its consolidated
subsidiaries as of January 29, 1994, and (b) liabilities (absolute, accrued,
contingent or otherwise) which were incurred since January 29, 1994 in the
ordinary course of business and which, in the aggregate, are not reasonably
likely to have a Material Adverse Effect.
3.7. Absence of Certain Changes. Except as set forth in the SEC Reports filed
prior to the date hereof or on Section 3.7 of the Disclosure Schedule, since
January 29, 1994, neither Seller nor any of its subsidiaries has (a) suffered
any Material Adverse Effect, except such (x) which occurred prior to the date
hereof and generally affect the industry in which Seller operates or (y) which
relate to the Toys Shares, or (b) conducted its business in any material
respect not in the ordinary course of business consistent with past practice,
except in connection with the transactions contemplated hereby and by the Toys
Transaction, or (c) taken any action that, if taken after the date hereof,
would constitute a breach of Section 5.1 hereof.
3.8. No Default. Neither Seller nor any of its subsidiaries is in default or
violation (and no event has occurred which with notice or the lapse of time or
both would constitute a default or violation) of any term, condition or
provision of (a) its charter or its by-laws, (b) except as set forth in Section
3.8 of the Disclosure Schedule, any note, bond, mortgage, deed of trust,
indenture, license, agreement or other instrument or obligation to which Seller
or any of its subsidiaries is now a party or by which they or any of their
properties or assets may be bound or (c) any order, writ, injunction, decree,
statute, rule or regulation applicable to Seller or any of its subsidiaries,
which defaults or violations, in the case of clause (b) or (c), would, in the
aggregate, have a Material Adverse Effect or which would prevent or delay the
consummation of the transactions contemplated hereby.
3.9. Litigation. Except as disclosed in the SEC Reports filed prior to the
date hereof, there is no action, suit, proceeding or, to the best knowledge of
the Seller, investigation, pending or, to the best knowledge of
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the Seller, threatened involving Seller or any of its subsidiaries, at law or
in equity, or before any Governmental Body, which in the aggregate would
reasonably be expected to have a Material Adverse Effect. Except as set forth
in Section 3.9 of the Disclosure Schedule, the businesses of Seller and its
subsidiaries are not being conducted in violation of any applicable law,
ordinance, rule, regulation, decree or order of any domestic or foreign court
or governmental entity, except for violations which in the aggregate do not and
would not have a Material Adverse Effect.
3.10. Taxes. Except as set forth in the Section 3.10 of the Disclosure
Schedule:
(a) Seller or its subsidiaries have (i) within the time and manner
prescribed by law, filed all material returns, declarations, reports,
estimates, information returns and statements (collectively, "Tax Returns")
required to be filed by Seller or its subsidiaries, other than those Tax
Returns the failure of which to be filed would not have a Material Adverse
Effect, and all such Tax Returns were true, complete and accurate in all
material respects, and (ii) timely paid in full all Taxes that were shown
as due and payable on such Tax Returns. There is no audit or other
examination with respect to Taxes of Seller or its subsidiaries the adverse
outcome of which would have a Material Adverse Effect, except as reserved
against on Seller's consolidated balance sheet as of January 29, 1994.
(b) Neither of Seller nor any of its subsidiaries has received any
written notice of deficiency or proposed assessment from any governmental
authority responsible for the collection or administration of Taxes (a
"Taxing Authority") with respect to liabilities for Taxes which has not
been fully paid or finally settled other than a notice of deficiency or
proposed assessment for an amount of Taxes that would not have a Material
Adverse Effect.
(c) All Taxes that Seller or any of its subsidiaries is required by law
to withhold or to collect for payment have been duly withheld and
collected, and all such Taxes that are required to be paid or remitted to
any Taxing Authority have been paid or remitted to the proper Taxing
Authority, other than those Taxes, the failure of which to be so withheld,
collected or remitted would not have a Material Adverse Effect.
(d) There are no liens with respect to Taxes upon any of the assets of
Seller or any of its subsidiaries other than for Taxes not yet due and
payable.
(e) Neither Seller nor any of its subsidiaries has made any payments, or
will be obligated to make any payments as a result of the transactions
described herein, that would not be deductible under Section 280G of the
Internal Revenue Code of 1986, as amended (the "Code").
(f) For purposes of this Agreement, "Taxes" shall mean all taxes,
charges, fees, levies or other assessments, including, without limitation,
all net income, gross income, gross receipts, sales, use, ad valorem,
transfer, franchise, profits, license, withholding, payroll, employment,
excise, estimated, stamp, property or other taxes or charges, together with
any interest and penalties, additions to tax or additional amounts imposed
by any Taxing Authority.
3.11. Employee Benefit Plans; ERISA.
(a) Except as disclosed in Section 3.11 of the Disclosure Schedule, there is
no accumulated funding deficiency, whether or not waived, within the meaning of
Section 302 of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), and Section 412 of the Code, with respect to any Controlled Group
Plan (as hereinafter defined) that is subject to such Sections. Except as
disclosed in Section 3.11 of the Disclosure Schedule each Controlled Group Plan
(as hereinafter defined) is and has been operated in material compliance with
the presently applicable provisions of ERISA and the Code. Neither Seller, nor
the Company nor any Controlled Group (as hereinafter defined) member has
incurred any liability under Title IV of ERISA to the Pension Benefit Guaranty
Corporation in connection with any Controlled Group Plan which is subject to
Title IV of ERISA which has not been fully paid prior to the date hereof, other
than liability for premiums
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due the Pension Benefit Guaranty Corporation (the "PBGC"), which premiums have
been or will be paid when due. Except as set forth in Section 3.11 of the
Disclosure Schedule, as of the most recent valuation date, the assets of each
Seller Plan subject to Title IV of ERISA equal or exceed the current
liabilities thereunder based on actuarial assumptions used in the last
valuation of such assets and liabilities, and with respect to all Controlled
Group Plans, Seller, the Company and Controlled Group members have timely made
all contributions, premiums, or payments required, by law or by the terms of
the Controlled Group Plan or any agreement. Except as set forth in Section 3.11
of the Disclosure Schedule, the Internal Revenue Service (the "IRS") has
issued, with respect to each Seller Plan intended to be tax qualified under
Sections 401(a) and 501(a) or Section 501(c)(9) of the Code, a letter
determining that such Plan is qualified and its related trust is exempt from
United States Federal Income Tax under Sections 401(a) and 501(a) of the Code
or Section 501(c)(9), respectively, and there has been no occurrence since the
date of any such determination letter which has adversely affected such
qualification and each Seller Plan which is intended to be qualified under
Puerto Rico law or the Code is so qualified. Except as set forth in Section
3.11 of the Disclosure Schedule, no Controlled Group Plan is a "multiemployer
plan" (as defined in Section 3(37) of ERISA). No withdrawal has occurred and no
withdrawal liability has been incurred by or asserted against Seller, the
Company or any member of the Controlled Group with respect to any Controlled
Group Plan which is a multiemployer plan. Attached to Section 3.11 of the
Disclosure Schedule are copies of the most recent correspondence from all
Controlled Group Plans that are multiemployer plans regarding the potential
withdrawal liability under Part 1 of Subtitle E of Title IV of ERISA with
respect to such plans. As of the date of this Agreement, neither Seller nor any
member of its Controlled Group has increased, or agreed to increase, its
contributions to the District 65 Plan (as defined in Section 5.14(a) hereof)
above the amount currently stated in the applicable collective bargaining
agreement with respect to the District 65 Plan.
(b) Section 3.11 of the Disclosure Schedule lists all Controlled Group Plans.
With respect to all Seller Plans, accurate and complete copies of the Seller
Plans and the summary descriptions, the most recent determination letters,
annual reports on IRS Form 5500 and actuarial reports for the last 3 years, if
applicable, collective bargaining agreements or other such contracts, and
current ruling letter with respect to the tax-exempt status of any voluntary
employees' beneficiary association ("VEBA") which is implementing such plan,
have been made available to the Buyer.
(c) Each Controlled Group Plan that is a "group health plan" (as defined in
Section 4980B of the Code) has been operated in material compliance with
Section 4980B of the Code at all times. Except as provided in Section 3.11 of
the Disclosure Schedule and except as required by Section 4980B of the Code,
the Seller, the Company and their respective subsidiaries do not maintain any
plan that provides medical benefits or life insurance benefits in respect of
any employees or former employees of Seller beyond their retirement. Except as
set forth in Section 3.11 of the Disclosure Schedule, no Seller Plan provides
for severance pay, unemployment compensation or any similar payment with
respect to any current or former employee, officer, director, or agent of
Seller. The consummation of the transactions contemplated by this Agreement
will not: (i) entitle any such individual to severance pay, unemployment
compensation or other similar payment; (ii) accelerate the time of payment or
vesting of any amount; (iii) increase the amount of compensation due to any
such individual; or (iv) constitute a "prohibited transaction" (as defined in
Section 406 of ERISA or Section 4975 of the Code). Except as set forth in
Section 3.11 of the Disclosure Schedule, each Seller Plan to which ERISA
section 4044 applies either permits distribution of residual amounts to the
employer in accordance with ERISA section 4044(d) or may be amended to permit
such distribution.
(d) For purposes of this Agreement, "Controlled Group Plans" shall mean,
collectively, all employee plans, practices and arrangements, including without
limitation, all employee benefit plans (within the meaning of Section 3(3) of
ERISA), employee pension benefit plans, programs, arrangements or agreements,
all health, medical, welfare, disability, life insurance, bonus, severance pay
and other employee benefit or fringe benefit plans sponsored, maintained or to
which contributions are made by (i) Seller or the Company or (ii) any other
organization which is a member of a controlled group of organizations (within
the meaning of Sections 414(b), (c), (m) or (o) of the Internal Revenue Code of
1986, as amended (the "Code"), of which
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the Seller or the Company is a member (the "Controlled Group"). Each Controlled
Group Plan sponsored, maintained by or to which Seller or the Company or its
subsidiaries has at any time contributed is referred to individually as a
"Seller Plan" or collectively as "Seller Plans."
(e) None of the Seller, the Company or, to the knowledge of Seller, any other
party, has engaged in a transaction with respect to a Seller Plan in connection
with which Seller, the Company, Buyer, or any trustee or administrator of any
Seller Plan or any such trust could be subject to either a material liability
or civil penalty assessed pursuant to Section 409, 502(i) or 502(l) of ERISA or
a material tax imposed pursuant to Section 4975 or 4976 of the Code which has
not been satisfied in full. Except as set forth in Section 3.11 of the
Disclosure Schedule, no event has occurred that would subject Seller, the
Company or Buyer to any material liability with respect to a Seller Plan for
any penalty or tax arising under Section 4971, 4972, 4977, 4979, 4980, 4980B or
6652 of the Code or any liability under Section 502 of ERISA. Except as set
forth in Section 3.11 of the Disclosure Schedule, no reportable event (within
the meaning of Section 4043 of ERISA) has occurred or is expected to occur with
respect to any Seller Plan subject to Title IV of ERISA. Except as disclosed in
Section 3.11 of the Disclosure Schedule, there are no actions, suits or claims
(other than routine claims for benefits in the ordinary course) with respect to
Seller Plans pending, or to the knowledge of Seller or the Company, threatened,
and Seller and the Company have no knowledge of any facts which could give rise
to any such actions, suits or claims (other than routine claims for benefits in
the ordinary course with respect to Seller Plans).
(f) The Seller and each subsidiary is in compliance in all material respects
with the requirements of the Workers Adjustment and Retraining Notification Act
("WARN") and have no liabilities pursuant to WARN.
(g) Each Seller Plan which is intended to meet the requirements of Section
501(c)(9) of the Code provides no disqualified benefit (as such term is defined
in Code Section 4976(b)). Each Seller Plan which is a welfare benefit plan (as
defined in ERISA Section 3(1)) may be amended or terminated at any time.
3.12. Store Names. Section 3.12 of the Disclosure Schedule sets forth a list
of all material trade marks used by Seller and its subsidiaries in connection
with the Retail Operations (the "Store Names"). As of the Closing, the Company
and its subsidiaries will own or possess adequate licenses or other rights to
use all Store Names. No claim is pending or, to the best knowledge of Seller,
threatened to the effect that the rights of the Seller or any of its
subsidiaries in or to any Store Name is invalid or unenforceable, except for
such claims as would not reasonably be expected to, in the aggregate, have a
Material Adverse Effect. No contract, agreement or understanding between the
Seller or any of its subsidiaries and any party exists which would impede or
prevent the use by the Company, its subsidiaries and their successors of the
entire right, title and interest of the Seller and its subsidiaries in and to
any of the Store Names, except for such contracts, agreements or understandings
which would not, in the aggregate, have a Material Adverse Effect.
3.13. Environmental Matters. Except as set forth in Section 3.13 of the
Disclosure Schedule:
(a) Seller and its subsidiaries hold, and are in substantial compliance
with, all material permits, licenses and government authorizations required
for Seller and its subsidiaries to conduct their respective businesses
under local, state, federal and foreign laws and regulations relating to
pollution and the discharge of materials into the environment
("Environmental Law"), and Seller and its subsidiaries are otherwise in
compliance with all applicable Environmental Law, except where the failure
to be in compliance would not have a Material Adverse Effect.
(b) Neither Seller nor any of its subsidiaries has received any written
request for information, or has been notified that it is a potentially
responsible party, under the federal Comprehensive Environmental Response,
Compensation, and Liability Act or any similar local, state or foreign law
with respect to any on-site or off-site location. There is no Environmental
Claim pending or, to the knowledge of Seller, threatened, against Seller or
any of its subsidiaries or against any person or entity whose liability for
such Environmental Claim Seller or any of its subsidiaries has assumed by
contract or operation of law or for which any of Seller or its subsidiaries
may otherwise be liable.
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(c) Neither Seller nor any of its subsidiaries is subject to any
judgment, decree or order relating to substantial compliance with, or the
cleanup of regulated substances under, any applicable Environmental Law.
None of Seller or any of its subsidiaries has Treated, Stored or, to
Seller's knowledge, Disposed of significant amounts of any Hazardous Waste
(as such capitalized terms are respectively defined in the Resource
Conservation and Recovery Act, 42 U.S.C. (S) 6901 et seq.) on the subject
properties.
(d) For purposes of this Agreement, "Environmental Claim" means any
claim, action or cause of action, of any person alleging potential
liability (including, without limitation, potential liability for any
investigatory costs, cleanup costs, governmental response costs, natural
resources damages, property damages, personal injuries or penalties)
arising out of, based on or resulting from (i) the presence, or release
into the environment, of any Material of Environmental Concern at any
location, whether or not owned or operated by Seller or any of its
subsidiaries or (ii) any violation or alleged violation of any
Environmental Law.
(e) For purposes of this Agreement, "Materials of Environmental Concern"
means chemicals, pollutants, contaminants, wastes, toxic substances,
petroleum and petroleum products.
3.14. Labor Relations. Section 3.14 of the Disclosure Schedule sets forth all
collective bargaining agreements and amendments thereto, including by contract,
memorandum or side letter, to which the Seller or any of its subsidiaries is a
party, and any arbitration or court decision that materially affects the terms
of any such agreement or amendment. All payments and contributions required
under such collective bargaining agreements and the amendments thereto,
including but not limited to, wages, vacation, sick leave and holiday pay, and
for employee benefits, including but not limited to, health and retirement
benefits, have been made in all material respects in accordance with such
collective bargaining agreements as amended. Except as set forth in Section
3.14 of the Disclosure Schedule, there is no unfair labor practice complaint or
other proceeding against Seller or any of its subsidiaries pending before the
National Labor Relations Board or any other federal, state or local
administrative agency that deals with employment or employee safety-related
matters which, if adversely decided, is reasonably likely to have a Material
Adverse Effect. There is no labor strike, work stoppage or arbitration or any
other proceeding pending or involving or, to the knowledge of Seller,
threatened against Seller or any of its subsidiaries which is reasonably likely
to have a Material Adverse Effect. To Seller's knowledge, there are no
organizing efforts by any union or other group seeking to represent any
employees of Seller or any of its subsidiaries.
3.15. Brokers and Finders. Neither Seller nor any of its subsidiaries has
employed any broker or finder or incurred any liability for any investment
banking fees, brokerage fees, commissions or finders' fees in connection with
the transactions contemplated by this Agreement, except for the fees and
expenses payable to Bear Stearns & Co. Inc. for investment banking services,
which will be paid by Seller.
3.16. Transfer of Assets and Liabilities. By the Closing, Seller will, in a
manner reasonably acceptable to Buyer and in a manner which does not result in
a material step-down in the basis of such assets or properties, have
transferred to the Company or its subsidiaries all of the assets and rights
held by the Seller and its subsidiaries as of immediately prior to such
transfer, subject to all of the liabilities and obligations of Seller and its
subsidiaries, other than the Shares and the Toys Shares and other than the
liabilities and obligations set forth on Schedule 3.16 (the "Excluded
Liabilities"). As a result of such transfer, the Company and its subsidiaries
will hold all of the assets and rights held by Seller and its subsidiaries
immediately prior to such transfer, other than the Shares and the Toys Shares
(the "Excluded Assets") and will hold all of the liabilities and obligations of
Seller and its subsidiaries, other than as set forth in Schedule 3.16. The
parties hereto acknowledge that the receipt of a favorable private letter
ruling from the IRS (the "IRS Ruling") is a condition to the consummation of
the Toys Transaction. The parties hereby covenant and agree that they will take
such steps as are necessary, including but not limited to amending this
Agreement to provide that certain of the assets to be conveyed to the Company
as contemplated herein will be so conveyed immediately after the Closing, to
ensure that the IRS Ruling will be issued; provided, however, that any such
steps will be effected in a manner that will not adversely affect Buyer or the
Company in a material respect and otherwise
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reasonably satisfactory to Buyer. Notwithstanding the foregoing, Seller makes
no representation as to the transfer of the Leases.
3.17. Transfer of Employee Benefit Plans and Arrangements. By the Closing,
(a) the Seller will have transferred to the Company or its subsidiaries all the
employees of the Seller, (b) the Seller will have caused the Company to assume
all of the employment agreements between the Seller and any employee employed
as of the Closing Date, (c) the Seller will have amended all of the Seller
Plans so that (i) the Company shall be the "sponsor" or the "employer" with
respect to all such Plans and, to the extent permitted by the applicable law,
the Seller will cease to be the "sponsor" or the "employer" with respect to
such Plans, and (ii) the Seller will have transferred to the Company or its
subsidiaries all of the assets and rights of the Seller and its subsidiaries,
subject to all of the obligations of the Seller and its subsidiaries, with
respect to such Plans and (d) the Seller shall cause the Company or its
subsidiaries to assume all of the obligations of the Seller and its
subsidiaries, including but not limited to the obligation to make
contributions, with respect to any multiemployer plans with respect to which
the Seller or its subsidiaries has such obligations.
3.18. Toys Acquisition Agreement. Each representation and warranty of Seller
in the Toys Agreement was true and correct in all material respects when made.
3.19. Ruling Request. All representations and statements of fact included in
the request for the IRS Ruling (and any supplements or amendments thereto) (the
"Ruling Request"), to the extent that they relate to the Seller or its
subsidiaries, are true, complete and accurate in all material respects.
3.20. Real Property.
(a) Section 3.20 of the Disclosure Schedule sets forth (i) the location,
parties, term, renewal options and certain other information for those leases
or subleases of real property entered into for use in connection with the
Retail Operations to which Seller or any of its subsidiaries is a party,
whether as lessee, lessor, sublessee or sublessor (such leases and subleases,
as so amended, modified, or supplemented are hereinafter collectively referred
to as the "Leases", and the properties demised under the Leases are hereinafter
collectively referred to as the "Leased Properties"), and (ii) those Leased
Properties whereby the Seller or any of its subsidiaries has entered into an
agreement permitting concessions or subtenants to operate thereon. Such Section
of the Disclosure Schedule accurately sets forth in all material respects the
information contained therein. True, complete and correct copies of the Leases
(as amended, modified or supplemented to the date hereof) have been made
available to Buyer. Seller or (if indicated on the Disclosure Schedule) one of
its subsidiaries, as the case may be, holds its leasehold interest in each of
the Leased Properties substantially in accordance with the provisions of the
applicable Lease and free of all Encumbrances on such leasehold interest,
except for Permitted Encumbrances (as defined in clause (e) below). Except as
set forth in the Disclosure Schedule, to the knowledge of Seller, (i) all of
the Leases are valid, binding and enforceable agreements, and are in full force
and effect and grant in all material respects the leasehold estates or rights
of occupancy or use they purport to grant, subject to the Permitted
Encumbrances; (ii) the current use and occupancy of the Leased Properties
conform in all material respects to, and Seller has received no written notice
of any material violation of, any applicable laws, statutes, rules, regulations
and ordinances that might reasonably be expected to materially detract from or
interfere with the present use, occupancy, or operation of the applicable
Leased Property to the extent the same is an obligation of Seller pursuant to
the applicable Lease; and (iii) there are no pending or threatened condemnation
proceedings with respect to any of the Leased Properties. Except as identified
in Section 3.20 of the Disclosure Schedule, Seller has received no notice of
any material existing defaults (either on the part of the Seller or any of its
subsidiaries, or to the knowledge of the Seller, any other party thereto) under
any Lease, and no event has occurred (either on the part of the Seller or its
subsidiaries, or to the knowledge of Seller, any other person or entity) which
could reasonably be expected to result (other than in the ordinary course of
business) in the modification, amendment or termination of any Lease or a
material increase in the rent payable thereunder, except for any of the
foregoing which could not reasonably be expected, individually or in the
aggregate, to have a material adverse effect on the applicable Lease or on any
Leased Property.
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(b) Section 3.20 of the Disclosure Schedule sets forth all real property used
in connection with the Retail Operations of which Seller or any of its
subsidiaries is the record or beneficial owner, and such real property is
hereinafter referred to as the "Owned Real Property". Except as disclosed in
the Disclosure Schedule, (i) to the best of Seller's knowledge, Seller or one
of its subsidiaries, as the case may be, holds fee title to the Owned Real
Property, free of all Encumbrances other than Permitted Encumbrances; (ii) to
the best of Seller's knowledge, all improvements on the Owned Real Property,
and the current use and occupancy thereof, conform in all material respects to,
and Seller has received no written notice of any material violation of, any
applicable zoning and other land use ordinances, and building codes or other
applicable laws, statutes, rules, regulations and ordinances that might
reasonably be expected to materially detract from or interfere with the present
use, occupancy or operation of the applicable Owned Real Property; and (iii) no
condemnation or eminent domain proceeding against any of the Owned Real
Property is pending or, to Seller's knowledge, threatened.
(c) Except as set forth in Section 3.20 of the Disclosure Schedule, none of
the Owned Real Property or the Leased Properties is subject to any material
lease, sublease, license or other agreement in which Seller grants to any other
person any right to the use, occupancy or enjoyment of the Owned Real Property
or the Leased Property or any part thereof. The Owned Real Property and the
Leased Properties together constitute all interests in real property necessary
to operate Seller's retail business substantially in the manner that it has
been operated by Seller prior to the Closing.
(d) Section 3.20 of the Disclosure Schedule sets forth (i) all of the Leases
that require a Landlord Consent (as defined in Section 5.15(a) hereof) to the
direct or indirect transfer of such Leases to the Company and/or the change of
control of the Company upon the Closing of the Stock Purchase on the Closing
Date or otherwise in connection with the Toys Transaction (hereinafter, the
Stock Purchase and the Toys Transaction are collectively referred to as the
"Purchase Transaction"), and (ii) all of the Leases that are Guaranteed Leases
(as defined in Section 5.15(a) hereof).
(e) As used herein, "Permitted Encumbrances" shall mean, collectively, (i)
all statutory or other liens for taxes or assessments which are not yet due or
the validity of which is being contested in good faith by appropriate
proceedings; (ii) all mechanics', materialmen's, carriers', workers' and
repairers' liens, and other similar liens imposed by law, incurred in the
ordinary course of business, which allege unpaid amounts that are less than 30
days delinquent or which are being contested in good faith by appropriate
proceedings; and (iii) all other defects in title or Encumbrances which do not
materially detract from or materially interfere with the present use, occupancy
or operation of the asset subject thereto or affected thereby.
(f) For all purposes under this Agreement, Section 3.20 of the Disclosure
Schedule shall be deemed to be amended to delete any Leases that expire in
accordance with their terms (or otherwise terminate, with Buyer's prior written
consent) between the date hereof and the Closing Date, provided that nothing in
this subparagraph (f) is intended to modify any of Seller's obligations under
Section 5.1(g) hereof.
ARTICLE IV
Representations and Warranties of Buyer
Buyer hereby represents and warrants to Seller as follows:
4.1. Organization; Etc. Buyer is duly organized, validly existing and in good
standing under the laws of the jurisdiction of its organization and has all
requisite power and authority to own, lease and operate its properties and to
carry on its business as now being conducted, except where the failure to have
such power or authority is not, in the aggregate, reasonably likely to have a
Material Adverse Effect.
4.2. Authority Relative to this Agreement. Buyer has all requisite authority
and power to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery
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of this Agreement and the consummation of the transactions contemplated hereby
by Buyer have been duly and validly authorized by all required action on the
part of Buyer and no other proceedings on the part of Buyer are necessary to
authorize this Agreement or to consummate the transactions contemplated hereby.
This Agreement has been duly and validly executed and delivered by Buyer and,
assuming this Agreement has been duly authorized, executed and delivered by
Seller, constitutes a valid and binding agreement of Buyer, enforceable against
Buyer in accordance with its terms.
4.3. Consents and Approvals; No Violations. Except for applicable
requirements of the HSR Act, no declaration, registration, qualification or
filing with or notice to, and no permit, authorization, consent or approval of,
and no waiver or order from, any public body or authority is necessary for the
consummation by Buyer of the transactions contemplated by this Agreement.
Neither the execution and delivery of this Agreement by Buyer nor the
consummation by Buyer of the transactions contemplated hereby nor compliance by
Buyer with any of the provisions hereof will (a) conflict with or result in any
breach of any provision of the charter, by-laws or similar organizational
documents of Buyer, (ii) 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, amendment, renegotiation, cancellation or
acceleration) under, or require any approval or consent under, or result in any
increase in any payment required by, or the loss, revocation, impairment,
suspension or forfeiture of any rights, privileges or benefits under, or result
in the creation or imposition of any Encumbrance upon any of the respective
properties, assets or businesses of Buyer or any of its subsidiaries under, any
of the terms, conditions or provisions of any note, bond, mortgage, indenture,
deed of trust, license, contract, agreement or other instrument or obligation
to which Buyer or any of its subsidiaries is a party or by which any of them or
any of their properties or assets may be bound or (c) assuming that the filing
referred to in the first sentence of this Section 4.3 is duly and timely made,
violate any order, writ, injunction, decree, statute, rule or regulation
applicable to Parent, any of its subsidiaries or any of their properties or
assets, except in the case of (b) and (c) for violations, breaches or defaults
which are not in the aggregate reasonably likely to have a Material Adverse
Effect or prevent or delay the consummation of the transactions contemplated
hereby.
4.4. Acquisition of Stock for Investment. Buyer is acquiring the Shares for
investment and not with a view toward, or for sale in connection with, any
distribution thereof, nor with any present intention of distributing or selling
such Shares except for any of the foregoing that would not require registration
under the Act. Buyer agrees that the Shares may not be sold, transferred,
offered for sale, pledged, hypothecated or otherwise disposed of without
registration under the Securities Act and/or any applicable state securities
laws, except pursuant to an exemption from such registration under such Act and
such laws.
4.5. Brokers and Finders. Neither Buyer nor any of its subsidiaries has
employed any investment banker, broker or finder or incurred any liability for
any investment banking fees, brokerage fees, commissions or finders' fees in
connection with the transactions contemplated by this Agreement, except for
fees and expenses payable to Financo, Inc. and Merrill Lynch & Co. for
investment banking services, which will be paid by Buyer.
ARTICLE V
Covenants of the Parties
5.1. Conduct of Business of the Company. Except as contemplated by this
Agreement, in connection with the Toys Transaction and the transactions
contemplated thereby, as set forth in Section 5.1 of the Disclosure Schedule or
with the prior consent of Buyer, during the period from the date of this
Agreement to the Closing Date, each of Seller and its subsidiaries will use all
reasonable efforts (a) to conduct its business and operations in the ordinary
course of business consistent with past practice and (b) to preserve intact its
properties, assets and business organizations, to keep available the services
of its officers and employees and to maintain satisfactory relationships with
customers, suppliers, distributors and others having commercially
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beneficial business relationships with it, in each case in the ordinary course
of business consistent with past practice. Without limiting the generality of
the foregoing, Seller will and will cause its subsidiaries to, during the
period from the date of this Agreement to the Closing Date, consult and
cooperate with Buyer with respect to any pending union contracts or collective
bargaining agreements, and Seller will not, and will cause its subsidiaries not
to, modify or enter into any collective bargaining agreements or amendments
thereto, which would contain any greater restrictions than are contained in the
collective bargaining agreements and amendments thereof listed on Schedule 3.14
to the Disclosure Schedule on the employer's right to close, remove or
consolidate its operations or to subcontract or outsource bargaining unit work,
or to lay off employees or to enhance the provisions regarding severance pay in
such agreements or amendments. Without limiting the generality of the
foregoing, and except as otherwise provided in this Agreement or the
transactions contemplated hereby or as required pursuant to the Toys Agreement
or as set forth in Section 5.1 of the Disclosure Schedule, Seller will not, and
will cause its subsidiaries not to, prior to the Closing, without the prior
consent of Buyer:
(a) declare, set aside or pay any dividend or distribution on any shares
of common stock of the Seller, other than regular quarterly cash dividends
not in excess of $.05 per share, or on any shares of common stock of any
subsidiaries of Seller which are not wholly-owned subsidiaries;
(b) redeem, purchase or otherwise acquire any outstanding Shares;
(c) amend its charter or by-laws (or other comparable charter or
governing documents);
(d) incur any indebtedness for borrowed money or issue any long-term debt
securities or assume, guarantee or endorse the obligations of any other
Persons, except for indebtedness incurred in the ordinary course of
business consistent with past practice, and except that Seller may borrow
funds and pledge Toys Shares for the purpose of financing its working
capital and capital expenditures in the ordinary course of business so long
as the aggregate outstanding amount secured by such pledges does not, at
any time, exceed during any period the amounts set forth in Section 5.1 of
the Disclosure Schedule for such period (the "Working Capital Pledge");
(e) (i) increase in any manner the rate or terms of compensation of any
of its directors, officers or other employees, except as are contractually
required or which have been agreed to or granted prior to the date hereof,
(ii) pay or agree to pay any pension, retirement, allowance or other
employee benefit not required or permitted by any existing Plan, Benefit
Arrangement or other agreement or arrangement to any such director, officer
or employee, whether past or present or (iii) terminate, amend or modify
any Seller Plan or enter into any employee benefit plan, program or
arrangement or any employment, severance, consulting or similar agreement,
arrangement or plan; provided, however, that Seller and its subsidiaries
may, after consulting with Buyer (but without any requirement to obtain
Buyer's consent), in their discretion, amend such contracts or agreements
prior to the Closing Date to increase the contribution rate to the District
65 Plan to 7% of the compensation of all employees covered by such
contracts or agreements, such amendments to be effective as of July 1,
1994;
(f) except in the ordinary course of business consistent with past
practice, (i) sell, transfer or otherwise dispose of, any of its material
property or assets, (ii) mortgage or encumber any of its material property
or assets, except for the Working Capital Pledge, or (iii) acquire or
purchase any material securities or assets of any person or entity or enter
into any material joint venture or partnership;
(g) enter into other material agreements, commitments or contracts,
except agreements, commitments or contracts made in the ordinary course of
business consistent with past practice or, except as expressly permitted by
Section 5.15(a) hereof, enter into any new Lease, or amend, modify,
terminate or exercise or waive any renewal option under, or otherwise waive
any material right under, any existing Lease;
(h) change in any material respect any of the accounting principles or
practices used by it (except as required by GAAP) or any of its cash
management practices or inventory management or purchasing practices;
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(i) sell, transfer or otherwise dispose of any of its property or assets
to Toys or any affiliate thereof other than the Excluded Assets or sell,
transfer or dispose of any Toys Shares, other than as permitted by Section
(d), above; or
(j) agree to take any of the foregoing actions.
5.2. No Solicitation. Seller agrees that none of it, any of its affiliates,
any of its officers or directors, any of the officers or directors of any of
its affiliates or any of the employees, agents or representatives (including,
without limitation, any investment banker, attorney or accountant) of Seller or
any of such affiliates, officers or directors, shall continue, initiate,
solicit or encourage, directly or indirectly, any inquiries or the making or
implementation of any proposal or offer with respect to a merger, acquisition,
consolidation or similar transaction involving, or any sale, lease or other
disposition of, all or any significant portion of the Retail Operations, or the
assets or any equity securities of Seller or any of its affiliates (any such
proposal or offer being hereinafter referred to as an "Acquisition Proposal")
or engage in any negotiations concerning, or provide any confidential
information or data to, or have any discussions with, any person relating to an
Acquisition Proposal.
5.3. Access to Information.
(a) From the date of this Agreement to the Closing, Seller will (i) give
Buyer and its authorized representatives reasonable access to all books,
records, stores, offices and other facilities and properties of Seller and its
subsidiaries, (ii) permit Buyer to make such inspections thereof as Buyer may
reasonably request and (iii) cause its officers to furnish Buyer with such
financial and operating data and other information with respect to the business
and properties of Seller and its subsidiaries as Buyer may from time to time
reasonably request; provided, however, that any such access shall be conducted
at a reasonable time and in such a manner as is consistent with the past
behavior of the parties and will not interfere unreasonably with the operation
of the business of Seller or its subsidiaries. Seller will consult with Buyer
as to Seller's proxy statement to be distributed to Seller's stockholders in
connection with a stockholders meeting to be convened to consider the approval
of the Toys Transaction (the "Stockholders Meeting"). Seller will cooperate
with Buyer with respect to Buyer's efforts to seek financing for the
transactions contemplated hereby.
(b) All such information and access shall be subject to the terms and
conditions of the letter agreement dated November 17, 1993 (the
"Confidentiality Agreement"), between Buyer and Seller.
5.4. Reasonable Efforts. Subject to the terms and conditions herein provided,
each of the parties hereto agrees to use all reasonable efforts to take, or
cause to be taken, all action, and to do, or cause to be done, all things
necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this Agreement,
including, without limitation, making all required filings and applications,
complying with or responding to any requests by governmental agencies and, in
the case of Seller, promptly calling the Stockholders Meeting. If at any time
after the Closing Date any further action is necessary or desirable to carry
out the purposes of this Agreement, the parties hereto shall take or cause to
be taken all such necessary action, including, without limitation, the
execution and delivery of such further instruments and documents as may be
reasonably requested by the other party for such purposes or otherwise to
consummate and make effective the transactions contemplated hereby. At the
Closing, if Toys shall simultaneously therewith execute and deliver the
indemnification agreement attached as Exhibit B to the Toys Agreement, Seller
and Buyer shall execute and deliver to Toys an indemnification agreement
substantially in the form set forth as Exhibit A to the Toys Agreement, with
such changes therein as the parties and Toys shall agree, and subject to the
execution by Seller and Buyer of a mutually acceptable cross indemnity
agreement to reflect the intent of the provisions of Section 5.5 hereof.
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5.5. Limitation of Seller's Liabilities.
Except as otherwise provided in Sections 5.12(c), 5.14, 5.18 and Article VI:
(a) From and after the Closing Date, each of the Company and its
subsidiaries shall, and hereby does, release, indemnify and hold Seller and
the Liquidating Trust and each nonemployee director, other director in his
capacity as such, and trustee thereof harmless from all obligations or
liabilities whatsoever relating to the business, properties, assets,
liabilities or obligations of the Company and its subsidiaries, including,
but not limited to, obligations or liabilities relating to the Leases, but
not including the Excluded Liabilities (including the costs of defense
thereof and reasonable attorneys' fees and expenses) that are alleged or
asserted against or might otherwise be imposed on Seller or the Liquidating
Trust or any of such persons. The Company and its subsidiaries will execute
such additional agreements or instruments as may be requested by Seller,
the Liquidating Trust or any of such persons in order to further evidence
or implement the Company's and its subsidiaries' obligations under this
Section 5.5. The Company and its subsidiaries will cooperate in good faith
and will take such actions as Seller, the Liquidating Trust or any such
persons reasonably request in connection with the foregoing, so long as
none of the Company and its subsidiaries is obligated to spend any funds in
connection therewith and such actions will not have an adverse effect on
the business of the Company and its subsidiaries .
(b) From and after the Closing Date, the Seller or the Liquidating Trust,
as the case may be, hereby does release, indemnify and hold harmless each
of Buyer and the Company and its subsidiaries and each of its respective
nonemployee directors and each other director in his capacity as such from
all Excluded Liabilities (including the costs of defense thereof and
reasonable attorneys' fees and expenses) that are alleged or asserted
against or might otherwise be imposed on Buyer or any such persons. Seller
or the Liquidating Trust, as the case may be, will execute such additional
agreements or instruments as may be requested by Buyer in order to further
evidence or implement Seller's and the Liquidating Trust's obligations
under this Section 5.5. Seller or the Liquidating Trust, as the case may
be, will cooperate in good faith and will take such actions as Buyer
reasonably requests in connection with the foregoing, so long as neither
Seller nor the Liquidating Trust is obligated to spend any funds in
connection therewith and such actions will not have an adverse effect on
Seller or the Liquidating Trust, as the case may be.
5.6. Minimum Net Worth. At the Closing and for a period of one year following
the Closing, (a) Buyer will or will cause the Company and its subsidiaries, or
a subsidiary of Buyer which agrees to be bound (on terms reasonably acceptable
to Seller) by this Agreement (as applicable, the "Guarantor"), to maintain, on
a consolidated basis, a minimum net worth of not less than $150,000,000 (as
determined in accordance with GAAP, but excluding goodwill), and (b) Buyer will
not take, or cause to be taken, any actions that would have the effect of
reducing the net worth of the Company and its subsidiaries below or, if
applicable, the Guarantor below $150,000,000, including, without limitation,
declaring dividends, except, in the case of either clause (a) or (b), to the
extent a reduction of such minimum net worth results from losses incurred from
continuing operations during such one year period.
5.7. Public Announcements. Seller and Buyer will consult with each other
before issuing any press release or otherwise making any public statements with
respect to the transactions contemplated by this Agreement, and shall not issue
any such press release or make any such public statement prior to such
consultation, except as may be required by law or by obligations pursuant to
any listing agreement with any national securities exchange.
5.8. Employee Matters. Immediately following the Closing Date, the employees
of the Company as of the Closing Date ("Employees") shall be employed on
substantially the same terms and conditions as, and shall be covered by benefit
plans or arrangements which, in the aggregate, provide substantially equivalent
benefits as were provided to the Employees immediately prior to the Closing
Date. Such Employees shall receive credit for past service with the Company,
the Seller or its subsidiaries for purposes of eligibility, participation,
vesting, benefit accrual or entitlement under any such benefit plans and
arrangements, including, but not limited to, satisfaction of any pre-existing
condition exclusion under any such plan providing health care coverage. Nothing
in this Section 5.8 will require the Buyer, the Company or any of its
subsidiaries to maintain any plan or arrangement in effect, to continue to
provide any level of benefits after the Closing or to maintain the employment
of any Employee after the Closing.
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5.9. Financing Participation. Any financing procured by the Buyer to purchase
the Shares pursuant to this Agreement and to consummate the transactions
contemplated hereby shall include an equity contribution by E.M. Warburg,
Pincus & Co., Inc. and/or one or more of its affiliates in the amount of not
less than $100 million; provided, however, such equity contribution may be
reduced to the extent not necessary for the satisfaction of the condition set
forth in Section 7.3(d).
5.10. Toys Agreement. Seller agrees that it will not terminate the Toys
Agreement or otherwise act or fail to take any action thereunder if the purpose
for such termination, action or failure to act is the avoidance of its
obligations hereunder.
5.11. Buyer's Designee. (a) Buyer shall designate one or more third parties
not affiliated with E.M. Warburg, Pincus & Co., Inc. (the "Designee") which
will purchase an aggregate of 21% of the Shares at the Closing for $39.9
million, such that the aggregate price paid by such parties and Buyer will be
$190 million. Such Designee will purchase such Shares on the same terms and
conditions as Buyer, as if such party had also been Buyer, and all references
herein to Buyer shall be deemed references to Buyer and such Designee. Each
such Designee will enter into an agreement reasonably satisfactory to the
Seller to effect the foregoing.
(b) Under no circumstances shall any person or entity be named as a Designee
if the result would be to cause E.M. Warburg, Pincus & Co., Inc. or any of its
affiliates to be treated as a single employer with the Company or any of its
subsidiaries within the meaning of Section 4001(b)(1) of ERISA.
(c) The number of Shares to be purchased by Buyer (including any assignee of
Buyer pursuant to Section 9.4 hereof, but not including any Designee) shall be
decreased and the number of Shares to be purchased by the Designees shall be
increased to the extent Buyer, in its sole discretion, deems necessary to
prevent E.M. Warburg, Pincus & Co., Inc. or any of its affiliates from being
treated as a single employer, within the meaning of Section 4001(b)(1) of
ERISA, with the Company or any of its subsidiaries.
5.12. Working Capital Pledge; Excluded Liabilities.
(a) At, or substantially simultaneously with, the Closing, Buyer will or will
cause the Company to repay the Company's Working Capital Pledge as of the
Closing Date. Buyer and Seller will cooperate in connection therewith,
including, without limitation by providing that to the extent that there is
indebtedness owed to the Seller by the Company or any of its subsidiaries such
indebtedness shall be contributed by Seller to the capital of the Company or
such respective subsidiary immediately prior to the Closing.
(b) At the Closing, Seller shall either, at its option (i) pay to the Company
an amount equal to the amount of any Excluded Liabilities paid, incurred or
assumed by the Company or any of its subsidiaries or paid by the Seller or any
of its other subsidiaries on or prior to the Closing Date or (ii) decrease the
Purchase Price by such amount.
(c) Notwithstanding anything in Section 5.1(d) to the contrary, Seller may
incur indebtedness to redeem or repurchase the Convertible Subordinated
Debentures (the "Special Indebtedness"); provided however that all obligations
(including all interest, costs, fees and expenses in connection therewith)
shall be treated as Excluded Liabilities for all purposes hereof and shall be
the sole responsibility of Seller and provided further that Buyer shall be
satisfied that such incurrence of the Special Indebtedness and redemption or
repurchase of the Convertible Subordinated Debentures shall not adversely
affect Buyer, the Company or the subsidiaries or interfere with the
transactions contemplated hereby.
5.13. Inventory Audit. The Company shall have an audit of its inventory at
August 27, 1994. Such inventory audit shall be performed by David Berdon & Co.,
certified public accountants ("Seller's Accountants"), in accordance with
generally accepted auditing standards. Inventory shall be valued at that date
in accordance with GAAP applied on a basis consistent with past GAAP practices
used in the Company's year-end financial statements. A full and complete
physical inventory shall be conducted as a
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part of this inventory audit at August 27, 1994, except that layaway inventory
shall not be counted nor shall it be included in the value of inventory at
August 27, 1994. Ernst & Young, independent public accountants ("Buyer's
Accountants") and representatives of Buyer's financing sources shall be
entitled to observe such physical inventory taking and meet with Seller's
Accountants regarding the scope of their work and shall have access to all
workpapers of Seller's Accountants in connection with the inventory audit at
August 27, 1994. Seller shall deliver a report indicating the value of the
inventory and the results of the physical inventory by no later than October 7,
1994 and Seller's Accountants shall make available their workpapers on such
audit to Buyer as promptly as practical, but in any event by no later than
October 9, 1994. Such audit is being done solely for the information of Buyer
and the results of such audit shall have no consequences under this Agreement,
other than a determination by Buyer as to the satisfaction of the conditions
set forth in Article VII.
5.14. Collective Bargaining Agreements; Withdrawal Liability.
(a) As of the Closing Date, the Company shall assume all collective
bargaining agreements to which Seller is a party (the "Collective Bargaining
Agreements") and all of the rights, duties, responsibilities and obligations of
Seller thereunder, including, without limitation, Seller's obligation to make
continuing contributions to the District 65 Security Plan Pension Fund and any
successors thereto (the "District 65 Plan") and to pay any District 65
Liabilities (as defined below).
(b) If, at any time (whether or not prior to the date hereof or the Closing
Date) on or before the Cutoff Date (as defined below), (i) the Company or any
of its subsidiaries withdraws from the District 65 Plan in a "partial
withdrawal" or "complete withdrawal" (as those terms are defined in Title IV of
ERISA and the regulations thereunder (collectively, "Title IV")), (ii) there is
a "mass withdrawal" from or a "termination" of the District 65 Plan (as those
terms are defined in Title IV), (iii) there is a failure to meet the minimum
funding standard under Section 412 of the Code with respect to the District 65
Plan for any plan year that begins before the Closing Date, which failure is
not waived by the IRS, or (iv) the District 65 Plan is in "reorganization" or
is "insolvent" during a plan year or any portion of a plan year (as those terms
are defined in Title IV), then there shall be an adjustment to the Purchase
Price as set forth in subsection (c) below, based upon the extent to which
payments are made by the Company or any of its subsidiaries or, after the
Closing Date, any member of its Controlled Group (as defined in Section 3.11)
with respect to the following amounts (the "District 65 Liabilities"): (A) any
liability with respect to the District 65 Plan under Title IV with respect to
an event described in clause (i) or clause (ii) above, which event occurs on or
before the Cutoff Date; provided, however, that if an event described in clause
(i) occurs on or before the Cutoff Date and an event described in clause (ii)
occurs after the Cutoff Date, then such liability shall be determined without
regard to such event described in clause (ii); (B) any excise tax pursuant to
Section 4971 of the Code with respect to an event described in clause (iii)
above, which tax is imposed on or before the Cutoff Date; (C) any contributions
or other payments that are required to be made with respect to any plan year
that ends on or before the Cutoff Date as a result of an event described in
clause (iv) above, to the extent such contributions or payments exceed the
amount that would have been required to be contributed or paid had no event
described in clause (iv) above occurred; (D) any amounts paid to the District
65 Plan or the Pension Benefit Guaranty Corporation in settlement of any claim
for payments described in clause (A) or clause (C) or in consideration for an
agreement permitting the complete or partial withdrawal of the Company or any
of its subsidiaries from the District 65 Plan; or (E) any amounts paid to the
Internal Revenue Service in settlement of any claim for payments described in
clause (B). The "Cutoff Date" means the end of the fifth full plan year of the
District 65 Plan (as in effect as of the date of this Agreement) following the
Closing Date (the "Original Cutoff Date") or such later date to which it is
extended pursuant to the next sentence. The Cutoff Date shall be extended by
the length of any period beginning on or before the Original Cutoff Date during
which the District 65 Plan is insolvent or in reorganization, but in no event
shall the Cutoff Date, as extended, be later than 12 months from the Original
Cutoff Date.
(c) Purchase Price Adjustment. (i) To the extent of the first $10 million of
payments made with respect to the District 65 Liabilities, there shall be no
adjustment to the Purchase Price pursuant to this Section 5.14.
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(ii) After the first $10 million of payments have been made with respect
to the District 65 Liabilities, Seller shall pay to Buyer (including the
Designees), as an adjustment to the Purchase Price, $0.75 for each $1.00 of
payments made with respect to District 65 Liabilities in excess of $10
million and less than or equal to $60 million. Such adjustment to the
Purchase Price shall be paid to the Designees and the other Buyers in
proportion to their respective shares of the Purchase Price, and shall be
payable as and when payments with respect to the District 65 Liabilities
are made, except to the extent that Seller makes arrangements satisfactory
to Buyer for prepayment of such adjustment (including without limitation by
the defeasance of such adjustment to the Purchase Price with obligations of
the U.S. government). The adjustment to the Purchase Price shall be payable
regardless of whether any District 65 Liability is incurred as a result of
any action (or inaction) by the Company, the Buyer or any of their
respective subsidiaries and Controlled Group members; provided, that Buyer
shall consult with Seller before Buyer, the Company or any of their
respective Controlled Group members voluntarily withdraws from the District
65 Plan (but without any requirement to obtain Seller's consent).
(iii) After $60 million of payments have been made with respect to the
District 65 Liabilities, there shall be no further adjustment to the
Purchase Price pursuant to this Section 5.14.
(d) If this Agreement shall be terminated without the consummation of the
Closing, Seller shall indemnify Buyer, the Designees, all members of their
respective Controlled Group, and all of their respective affiliates and hold
them harmless from and against any liabilities arising out of or relating to
the District 65 Plan, including, without limitation, any liabilities that would
have been District 65 Liabilities if the Closing had been consummated.
(e) Except to the extent of the Seller's obligation to pay the adjustment to
the Purchase Price provided for above, after the Closing, the Company and its
subsidiaries shall indemnify Seller and hold it harmless from and against any
liability assumed by the Company pursuant to Section 5.14(a) above, as well as
for reasonable costs and expenses incurred by Seller in connection therewith.
5.15. Store Lease Transfers.
(a) Prior to the Closing, Seller shall use good faith and reasonable efforts
(i) to transfer, directly or indirectly, each of the Leases to the Company by
assignment or stock transfer, (ii) to obtain any fully executed, written
consents and approvals from the Landlords under the Leases (each, a "Landlord")
that may be required with respect to such direct or indirect transfer of the
Leases to the Company and otherwise in connection with the consummation of the
Purchase Transaction (each, a "Landlord Consent"), and (iii) to obtain
sufficient Guaranty Releases (hereinafter defined) so as not to give rise to a
right of Seller to terminate the Toys Agreement pursuant to Section 10.1.10
thereof. A "Guaranty Release" shall mean an instrument that releases Seller and
any subsidiary of Seller that will be merged into Seller in connection with the
Toys Transaction from their respective liabilities under any Lease (each, a
"Guaranteed Lease") in which Seller or any such subsidiary is the tenant and/or
has delivered a guaranty, surety agreement or similar instrument to the
Landlord under such Lease. Seller shall promptly provide Buyer with (i) copies
of all fully executed and delivered Landlord Consents and Guaranty Releases
after the same shall have been received by Seller, and (ii) any additional
information as may be reasonably requested by Buyer with respect to the status
of Seller's efforts to obtain such Landlord Consents and Guaranty Releases
prior to or following the Closing Date, including, without limitation, copies
of any written status reports prepared by Jones Lang Wootton Realty Advisors.
In no event shall Seller, without Buyer's prior written consent, enter into any
Landlord Consent or Guaranty Release that results in or effects a new real
estate transaction or a Lease amendment, modification or supplement or a waiver
of any provisions of a Lease (each, a "Lease Change"), other than any Lease
Change relating to the tenant's ability to transfer a Lease or be released from
liability that is no less favorable to the tenant than the original Lease
provision regarding Lease transfers or releases.
(b) Both before and after the Closing, Buyer and Seller shall cooperate with
each other in attempting to obtain additional Landlord Consents and Guaranty
Releases, however, neither party shall be obligated to expend any sums or incur
any additional obligations in connection therewith.
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(c) If Seller anticipates that it may not obtain certain Landlord Consents
prior to the Closing Date, Seller shall so notify Buyer, and Seller and Buyer
shall endeavor in good faith to reach agreement as to how to proceed with
respect to each such Lease for which a Landlord Consent has not been obtained
by the Closing Date (each, a "Non-Consented Lease"). Seller agrees that, upon
Buyer's request, Seller or the Liquidating Trust shall retain (or cause an
appropriate subsidiary to retain), for a period of time requested by Buyer
after the Closing, any tenant's interest in a Non-Consented Lease in order to
prevent an immediate default under such Non-Consented Lease, if and only to the
extent that such action is consistent with the consummation of the Toys
Transaction. In such event, Seller shall enter into an interim management,
license, occupancy or use agreement with the Company (or a subsidiary thereof)
that would entitle the Company (or a subsidiary thereof), to the greatest
extent possible, to exercise and enjoy all of the substantive rights and
privileges of the lessee under the Non-Consented Leases (or certain of them)
and to receive the income therefrom during the period that Seller, the
Liquidating Trust or an appropriate subsidiary is holding the Non-Consented
Leases in question. At the end of the term of such management or other
agreement, or at such earlier time as the Company (or its subsidiary) shall
elect by written notice to Seller, Seller shall cause the Non-Consented Lease
or Non-Consented Leases in question to be transferred to the Company or one of
its subsidiaries.
5.16. Additional Covenants Regarding Leases.
(a) In furtherance and not in limitation of Section 5.5 hereof, Buyer will
cause Guarantor or the Company and its subsidiaries, as applicable, to:
(i) to the extent required to obtain a Landlord Consent and/or a Guaranty
Release either before or after the Closing, execute (A) an assignment and
assumption of lease agreement pursuant to which the Company or one of its
subsidiaries assumes the obligations of the Tenant under any Lease and is
otherwise in form and substance reasonably acceptable to Buyer, the Company
and its subsidiaries, and (B) a guaranty agreement with respect to each of
the Guaranteed Leases in existence on the date hereof or which are entered
into with Buyer's consent between the date hereof and the Closing, such
guaranty to be executed by a Guarantor meeting the requirements of Section
5.6 hereof and to be substantially in the standard form approved by Buyer
prior to the date hereof, or in the form of the existing guaranty of such
Lease except to the extent such existing guaranty contains representations,
covenants or other terms or provisions either (A) with which the Company or
its applicable subsidiary would be reasonably unable to comply, or (B)
which would be reasonably expected to be breached upon consummation of the
Purchase Transaction; and
(ii) refrain from exercising a renewal option or otherwise extending the
term of a Guaranteed Lease without first obtaining a Guaranty Release
therefor; provided, however, in the event a Guaranty Release is not
obtained and Buyer, the Company or its applicable subsidiary wishes to
exercise a renewal option or otherwise extend the term of the Guaranteed
Lease, then Buyer, the Company or its applicable subsidiary shall have the
option of providing as security to Seller prior to any renewal of a
Guaranteed Lease an irrevocable letter of credit in an amount and in such
form as is reasonably satisfactory to Seller or such other form of security
as is reasonably satisfactory to Seller and for which Buyer evidences to
Seller's reasonable satisfaction that such form of security (whether it is
a letter of credit or otherwise) can in no way be affected by the
bankruptcy, reorganization or insolvency of Buyer, the Company, or its
subsidiaries or otherwise be attached by creditors of the same.
(b) Seller agrees that, from and after the Closing Date, and upon the request
and at the sole cost and expense of the Company or the applicable subsidiary,
Seller shall take such reasonable actions as may be necessary to prevent a
default under a Non-Consented Lease to the extent such actions are not
susceptible of being taken by the Company, provided that such actions shall not
otherwise materially adversely affect Seller or have an adverse effect on the
Toys Transaction.
5.17. Excluded Liabilities. On or prior to the Closing Date, Seller shall
provide in a manner reasonably satisfactory to Buyer for the payment in full by
Seller and the Liquidating Trust to Buyer, the Company and its subsidiaries of
the Excluded Liabilities (to the extent not previously paid) in a manner
adequate to provide
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for the collection of the Excluded Liabilities, taking into account the assets
and other liabilities of the Liquidating Trust (which in the case of the
Excluded Liabilities arising pursuant to Section 5.14 shall include the
provision for the payment in full by means of an irrevocable letter of credit,
a holdback of a portion of the Purchase Price, a first priority, perfected lien
in collateral with adequate assurances as to value or comparable security or
other comparable arrangements reasonably acceptable to Buyer).
5.18. Additional Covenant Regarding Employee Benefit Plans. The Seller will
reimburse the Company for any costs and expenses (including, without
limitation, contributions to the Petrie Stores Corporation 401(k) Savings Plan
("Savings Plan") and attorneys' fees) incurred by the Company which are
reasonably necessary, in accordance with a written opinion of Company's legal
counsel, to ensure that the facts set forth in Section 3.11 of the Disclosure
Schedule with respect to the exclusion of employees based in Puerto Rico from
coverage under the Savings Plan do not result in disqualification of the
Savings Plan; provided, however, that in no case will the amount paid by the
Seller pursuant to this Section 5.18 exceed a total of $250,000.
ARTICLE VI
Tax Matters
6.1. Tax Returns, Payments of Taxes, Transfer Taxes, Refunds and Withholding.
(a) Seller shall prepare and file, or cause to be prepared and filed, on a
timely basis, all Tax Returns of or which include the Company or any
subsidiaries of the Company (including any amendment thereto), that are due to
be filed (giving effect to any extension of time to file) on or prior to the
Closing Date and shall pay all Taxes shown as due on such Tax Returns. Except
as otherwise provided in subsection (b) hereof, without relieving Seller of its
obligation to file any Tax Return under the Code subsequent to the Closing,
Buyer shall prepare and file or shall cause to be prepared and filed on a
timely basis, all Tax Returns of the Company or any subsidiaries of the Company
that are due to be filed after the Closing Date and shall pay, or shall cause
to be paid, all Taxes shown as due on such Tax Returns.
(b) Seller and the Liquidating Trust shall, and hereby do, indemnify and hold
Buyer, the Company and the Company's subsidiaries harmless against (x) the
failure to be true in any material respect of any representations and
statements of fact included in the Ruling Request, to the extent that they
relate to the Seller or its subsidiaries, and (y) (i) Taxes of Seller or its
subsidiaries or any reduction in losses, deductions, credits or similar items
of tax benefit but excluding any reduction in the tax basis of assets ("Tax
Benefits") of the Company or any of its subsidiaries arising from the transfer,
as contemplated by Section 3.16 hereof, to the Company and its subsidiaries of
assets and liabilities of Seller and certain of its subsidiaries and the stock
of other subsidiaries of Seller and (ii) any Taxes of Seller or its
subsidiaries or any reduction in Tax Benefits of the Company or its
subsidiaries arising out of or relating to (A) the Toys Shares or the Toys
Transaction, and (B) the sale or other disposition by Seller of any Toys Common
Stock or stock or assets of the Seller or its subsidiaries subsequent to the
Closing not acquired or owned subsequent to the Closing by Buyer, Company or
Company's subsidiaries. Buyer and the Company shall, and hereby do, indemnify
and hold Seller and the Liquidating Trust harmless against any and all other
Taxes imposed on the Seller, the Company, or any subsidiaries of the Company,
whether or not such Taxes arose prior or subsequent to the Closing, except
Taxes imposed upon Seller or subsidiaries of Seller subsequent to Closing that
are attributable to any taxable period after the Closing Date. For purposes of
the preceding sentence, the taxable period to which any Tax is deemed to be
attributable will be determined by treating the period ending on the Closing
Date as a separate taxable period for purposes of all Taxes.
(c) All transfer Taxes (including, but not limited to, all stamp duties in
respect of the transfer or sale of all the stock of the Company or its
subsidiaries) incurred in connection with the transactions contemplated by this
Agreement, other than those Taxes described in subsection (b) hereof, will be
borne equally by Buyer and Seller. The party required by law to do so will, at
its own expense, file all necessary Tax Returns and
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other documentation with respect to any such transfer Taxes, and, if required
by applicable law, the other party will join in the execution of any such Tax
Return or other documentation.
(d) Any refund of Taxes that is received by Buyer, the Company, or any of the
Company's subsidiaries with respect to a Tax for which Seller is liable
pursuant to subsection (b) hereof shall be for the account of Seller, and to
the extent that Buyer, the Company or any of the Company's subsidiaries receive
any such refund after the Closing Date with respect to any such Tax, the
recipient shall pay Seller the amount of such refund within 30 calendar days
after the receipt thereof. Any refund of Taxes of the Company or any of its
subsidiaries for which Seller is not liable pursuant to subsection (b) hereof
or any reduction in the tax liability of Seller attributable to any adjustment
of tax liability or tax attributes (including basis adjustments of assets) of
the Company or its subsidiaries for taxable periods for which Buyer has
indemnified Seller that is received by Seller, Toys or the Liquidating Trust
shall be for the account of Buyer, and Seller shall pay to Buyer the Company or
to the appropriate subsidiary of the Company the amount of such refund or
reduction in tax liability within 30 calendar days after the receipt thereof.
(e) Seller shall not make an election under Treasury Reg. (S) 1.1502-20(g) to
reattribute losses of the Company or its subsidiaries to Seller as a result of
the disposition of the Company and its subsidiaries to Buyer pursuant to this
Agreement.
(f) Seller and Buyer agree that for tax purposes the Purchase Price plus any
relevant liabilities assumed or taken subject to shall be allocated among the
stock or any assets transferred to the Company pursuant to Section 3.16 in
accordance with the allocation schedule ("Allocation Schedule") proposed by
Buyer prior to Closing which in the event that the Allocation Schedule gives
rise to an indemnity obligation of Seller to Buyer pursuant to Section
6.1(b)(y)(i), is reasonably acceptable to Seller. Buyer, Company and Seller
shall each report the transactions contemplated hereby for federal income tax
and all other tax purposes (including, without limitation, for purposes of
Section 1060 of the Code) and on a timely filed Form 8594 in a manner
consistent with the Allocation Schedule.
6.2. Control of Contest.
(a) Buyer shall have the right, at its own expense, to control any audit or
examination by any Taxing Authority, to initiate any claim for refund or file
any amended Tax Return, and to contest, resolve and defend against any
assessment, notice of deficiency, or other adjustment or proposed adjustment of
Taxes for all taxable periods of the Company and its subsidiaries; provided,
however, that Seller (or the Liquidating Trust or any agent or successor
thereof) shall have the exclusive right to contest, resolve or defend against
any assessment, notice of deficiency, or other proposed adjustment of Taxes
with respect to any liability for Tax for which Seller is liable pursuant to
subsection 6.1(b) hereof. No party shall have the right to agree to any
assessment, deficiency, settlement, or other adjustment of Taxes that would
adversely affect the interest of another party without such other party's
written consent, which consent shall not be unreasonably withheld.
(b) Buyer shall forward promptly, and shall cause the Company and all of its
subsidiaries to forward promptly, to Seller (or the Liquidating Trust) all
written notifications and other communications received by Buyer, the Company,
or any of its subsidiaries, relating to any liability for Taxes for which
Seller is liable pursuant to subsection 6.1(b) hereof. Seller (or the
Liquidating Trust) shall promptly forward to Buyer or to the Company all
written notifications and other communications received by the Seller (or the
Liquidating Trust) relating to any other liability for Taxes. The failure by
either party to provide, or to cause any other party to provide, any such
written notice or other communication to the other party (the "Indemnifying
Party") shall relieve the Indemnifying Party from its obligation for
indemnification with respect to the subject matter of any such communication or
notification not forwarded if and only to the extent that the Indemnifying
Party incurs additional expenses or Tax liabilities or is otherwise damaged by
such failure be provided with such communication or notice.
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6.3. Access to Information and Retention of Records.
(a) Buyer, the Company, and the Company's subsidiaries shall provide Seller
with the right, at reasonable times and upon reasonable notice, to have access
to, and to copy and use, any records or information and personnel which may be
relevant for the preparation of any Tax Returns, any audit or other examination
by any Taxing Authority, the filing of any claim for a refund of Tax or for the
allowance of any Tax Credit, or any judicial or administrative proceedings
relating to a liability for Taxes for which Seller is responsible pursuant to
subsection 6.1(b) hereof.
(b) For a period of seven years from the Closing Date, the Buyer, the
Company, and the Company's subsidiaries shall not dispose of or destroy any of
the business books or records of the Company and the Company's subsidiaries
relating to Taxes for which Seller is responsible pursuant to subsection 6.1(b)
hereof, and thereafter shall not dispose of or destroy any such books or
records without first offering by written notice to turn over possession
thereof to Seller (or to the Liquidating Trust or any agent or successor
thereof) at least thirty (30) days prior to the proposed date of such
disposition or destruction.
ARTICLE VII
Conditions to Consummation of the Stock Purchase
7.1. Conditions to Each Party's Obligations to Consummate the Stock
Purchase. The respective obligations of each party to consummate the Stock
Purchase is subject to the satisfaction of the following conditions:
(a) No statute, rule, regulation, executive order, decree, or injunction
shall have been enacted, entered, promulgated or enforced by any court or
governmental entity which remains in effect and prohibits or restricts the
consummation of the Stock Purchase; and
(b) Any waiting period applicable to the Stock Purchase under the HSR Act
shall have terminated or expired.
7.2. Further Conditions to Seller's Obligations. The obligations of Seller to
consummate the Stock Purchase are further subject to satisfaction or waiver of
the following conditions:
(a) The Company and its subsidiaries or the Guarantor, as applicable,
shall have, and immediately following the Closing shall continue to have,
on a consolidated basis, a minimum net worth of not less than $150,000,000
as determined in accordance with GAAP, but excluding goodwill;
(b) The representations and warranties of Buyer contained herein shall be
true and correct in all material respects as of the date hereof and at and
as of the Closing Date as though such representations and warranties were
made at and as of such date (except as otherwise provided in this
Agreement);
(c) Buyer shall have performed and complied in all material respects with
all agreements, obligations, covenants and conditions required by this
Agreement to be performed or complied with by it on or prior to the
Closing;
(d) Seller shall have received a private letter ruling from the Internal
Revenue Service in a form reasonably satisfactory to Seller, to the effect
that the Toys Transaction will not give rise to the recognition by Seller
or its shareholders of a material amount of taxable income and the
representations made by Toys in the request for such ruling shall be true
and correct in all material respects;
(e) All conditions to the consummation of the Toys Agreement shall have
been, or shall substantially simultaneously be, satisfied or waived; and
(f) The shareholders of Seller shall have approved the disposition of the
Retail Operations by the affirmative vote of two-thirds of all outstanding
shares of Seller entitled to vote thereon.
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7.3. Further Conditions to Buyer's Obligations. The obligation of Buyer to
effect the transactions contemplated hereby are further subject to the
satisfaction or waiver of the following conditions:
(a) Seller shall have obtained sufficient Landlord Consents to enable
Seller to cause or have caused the following number of Leases to be
directly or indirectly transferred to the Company and the Shares of the
Company to be transferred to Buyer without causing a default under such
transferred Leases (either because Landlord Consents were obtained or
consent of the Landlords to such transactions were not required):
(i) Leases for Winkelman's Stores (hereinafter defined) that
generated, in the aggregate, at least 80% of the total Adjusted Store
Sales (hereinafter defined) for all Winkleman's Stores and at least 80%
of the total Adjusted Store Contributions (hereinafter defined) for all
Winkelman's Stores (in each case excluding revenues from the sale of
shoes);
(ii) Leases for G&G Stores (hereinafter defined) that generated, in
the aggregate, at least 80% of the total Adjusted Store Sales for all
G&G Stores and at least 80% of the total Adjusted Store Contributions
for all G&G Stores; and
(iii) Leases for Petrie Core Stores (hereinafter defined) that
generated, in the aggregate, at least 80% of the total Adjusted Store
Sales for all Petrie Core Stores and at least 80% of the total Adjusted
Store Contributions for all Petrie Core Stores.
"G&G Stores" and "Winkleman's Stores" as used herein shall mean the Stores
designated as such on Section 3.20 of the Disclosure Schedule, and "Petrie
Core Stores" shall mean all other stores in said Section of the Disclosure
Schedule. "Adjusted Store Sales" means net sales for each Store for the
fiscal year ended January 30, 1993 as determined in accordance with GAAP
and reported on Seller's store profit and loss statements all as shown on
Section 3.20 of the Disclosure Schedule. For each Store that opened during
or after fiscal year 1993, Adjusted Store Sales will be the net sales
generated by such Store during the last four fiscal quarters of operation
through July 30, 1994. If such Store has not been open for four quarters as
of July 30, 1994, then Adjusted Stores Sales for such Store will be the net
sales generated for such shorter stub period through July 30, 1994.
"Adjusted Store Contribution" means operating income for each Store for the
fiscal year ended January 30, 1993 as determined in accordance with GAAP
and reported on Seller's store profit and loss statements, and as adjusted
for the addback of all corporate overhead allocations charged to the Store
and the addback of all depreciation and amortization expenses incurred by
the Store, all as shown on Section 3.20 of the Disclosure Schedule. For
Stores which opened during or after fiscal year 1993, Adjusted Store
Contribution will be computed through the last four fiscal quarters of
operation ended July 30, 1994. If such Store has not been open for four
quarters as of July 30, 1994, then Adjusted Store Contribution for such
Store will be for such shorter stub period through July 30, 1994. The total
Adjusted Store Sales and the total Adjusted Store Contributions for a
particular division shall be deemed to be the aggregate Adjusted Store
Sales or Adjusted Store Contributions, as the case may be, for all Stores
in the division in question that were open as of July 30, 1994, and
Adjusted Store Sales and Adjusted Store Contribution of any Store not
remaining open through July 30, 1994 shall be disregarded for purposes of
this Section 7.3(a).
In addition to meeting the condition set forth above in this Section
7.3(a), Seller shall have obtained any consents which may be required to
transfer all of the Owned Real Property and Leased Properties other than
the Stores (e.g., warehouses, distribution centers and offices), excluding
the office lease for space in the building commonly known as the Eastern
Columbia Building located in Los Angeles, California in the event Seller
fails to obtain a Landlord Consent therefor, despite having acted in good
faith and used reasonable efforts to obtain such Landlord Consent.
(b) The representations and warranties, including as to the transfer of
assets and rights to the Company and its subsidiaries as contemplated by
Section 3.16 hereof, of Seller contained herein shall be true and correct
in all material respects as of the date hereof and at and as of the Closing
Date as though such representations and warranties were made at and as of
such date (except as otherwise provided in this Agreement);
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(c) Seller shall have performed and complied in all material respects
with all agreements, obligations, covenants and conditions required by this
Agreement to be performed or complied with by it on or prior to the
Closing;
(d) Buyer shall have obtained equity financing to purchase the Shares, to
provide for liabilities and otherwise to consummate the transactions
contemplated by this Agreement on terms and from investors acceptable to
Buyer in its sole discretion. Buyer shall have obtained a working capital
facility for the Company and any other debt financing necessary to
consummate the transactions contemplated hereby in an amount and on terms
and from financial institutions satisfactory to Buyer in its sole
discretion;
(e) Either (i) Seller shall have received a private letter ruling from
the Internal Revenue Service in a form reasonably satisfactory to Buyer, to
the effect that the Toys Transaction will not give rise to the recognition
by Seller or its shareholders of a material amount of taxable income, and
the representations made by Seller and Toys in the request for such private
letter ruling (and any supplements or amendments thereto) shall be true and
correct in all material respects or (ii) in the event that such ruling has
not been received and Seller has waived the condition set forth in Section
7.2(d) hereof, Seller shall have covenanted pursuant to an agreement
reasonably satisfactory to Buyer that it will not consummate the Toys
Transaction or any other transaction involving the direct or indirect
disposition of all or any portion of the Toys Shares (whether or not
intended to be a tax-free reorganization with respect to Seller) within the
taxable year of Seller in which the Closing occurs except with the consent
of Buyer, such consent not to be unreasonably withheld; and
(f) Buyer shall be reasonably satisfied that Seller shall have made or
will make adequate provision for its remaining liabilities and obligations,
including the Excluded Liabilities and the amount to be held in escrow and
trust in connection with Seller's liquidation; Buyer shall be reasonably
satisfied with all determinations made pursuant to Sections 8.2.1 and 8.2.2
of the Toys Agreement.
ARTICLE VIII
Termination and Abandonment
8.1. Termination. This Agreement may be terminated at any time prior to the
Closing Date:
(a) by mutual written consent of Seller and Buyer;
(b) by Seller or Buyer at any time after January 31, 1995 (or such later
date to which the Toys Agreement (or another substantially equivalent
agreement with Toys) shall have been extended if Buyer notifies Seller
within five business days of notice after January 1, 1995 of such extension
that this Agreement shall be so extended, unless Seller, within five
business days of Buyer's notice reasonably determines that there is a
substantial likelihood that Buyer will not be able to satisfy the condition
set forth in Section 7.3(d) hereof) if the Closing shall not have occurred
by such date;
(c) by Seller within 10 days of the termination of the Toys Agreement,
provided that if Seller does not so terminate following the termination of
the Toys Agreement, the conditions set forth in Sections 7.2(d) and (e)
hereof shall thereupon be deemed waived by Seller; or
(d) by Seller or by Buyer, if any governmental entity of competent
jurisdiction shall have issued an order, decree or ruling or taken other
action restraining, enjoining or otherwise prohibiting the transactions
contemplated hereby and such order, decree, ruling or other action shall
have become final and nonappealable.
8.2. Procedure and Effect of Termination. In the event of termination of this
Agreement and abandonment of the transactions contemplated hereby by the
parties hereto pursuant to Section 8.1 hereof, this Agreement shall forthwith
become null and void and of no further effect, without any liability on the
part of any party or its directors, officers, employees, agents or
stockholders, other than the provisions of
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Section 5.3(b), 5.14(d) and 9.10. Nothing in this Section 8.2 shall relieve any
party from any liability for any willful breach of this Agreement.
ARTICLE IX
Miscellaneous Provisions
9.1. Non-Survival of Representations and Warranties. Each and every
representation and warranty contained in this Agreement shall expire with, and
be terminated and extinguished by, the Closing or the termination of this
Agreement pursuant to Section 8.1 hereof, and thereafter neither Seller nor
Buyer nor any officer, director, employee, shareholder or representative
thereof shall be under any liability whatsoever with respect to any such
representation or warranty. This Section 9.1 shall have no effect upon any
other obligation of the parties hereto, whether to be performed before or after
the Closing.
9.2. Amendment and Modification. This Agreement may be amended or modified at
any time by the parties hereto, pursuant to an instrument in writing signed by
both parties.
9.3. Extension; Waiver. At any time prior to the Closing Date, the party
entitled to the benefit of any respective term or provision hereof may (a)
extend the time for the performance of any of the obligations or other acts of
the other party hereto, (b) waive any inaccuracies in the representations and
warranties contained herein or in any document, certificate or writing
delivered pursuant hereto or (c) waive compliance with any obligation,
covenant, agreement or condition contained herein. Any agreement on the part of
either party to any such extension or waiver shall be valid only if set forth
in an instrument in writing signed on behalf of the party entitled to the
benefits of such extended or waived term or provision.
9.4. Entire Agreement; Assignment; Alternate Structure. This Agreement (a)
constitutes the entire agreement between the parties hereto with respect to the
subject matter hereof and supersedes all other prior agreements and
understandings, both written and oral, between the parties hereto with respect
to the subject matter hereof (other than the Confidentiality Agreement) and (b)
shall not be assigned by operation of law or otherwise by either party hereto
without the prior written consent of the other party; provided, however, that
Seller may assign its rights and obligations hereunder to the Liquidating Trust
provided further that Buyer may assign its rights and obligations hereunder so
long as such assignment does not cause a default under any Leases or have an
adverse effect on the condition set forth in Section 7.3(a) hereof, and subject
to the limitation set forth in Section 5.11, provided that no such assignment
shall relieve Buyer of its obligations hereunder. In addition, the parties
shall cooperate in considering alternative structures for the transactions
contemplated hereby, including by way of example, structuring the Stock
Purchase as a merger or similar transaction or structuring the Stock Purchase
as the purchase of shares of common stock and preferred stock, provided that
any such alternative structure is reasonably acceptable to such parties. In the
event of such a modification of the structure, the parties shall execute an
appropriate amendment to this Agreement (including representations, warranties,
covenants and other pertinent provisions to the extent appropriate in light of
such other structure) providing for such alternative structure and for other
provisions consistent with the foregoing.
9.5. Validity. The invalidity or unenforceability of any term or provision of
this Agreement in any situation or jurisdiction shall not affect the validity
or enforceability of the other terms or provisions hereof or the validity or
enforceability of the offending term or provision in any other situation or in
any other jurisdiction.
9.6. Notices. Unless otherwise provided herein, all notices and other
communications hereunder shall be in writing and shall be deemed given upon
receipt by the other parties at the following addresses or telecopy numbers:
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(a) if to Seller, to
Petrie Stores Corporation
70 Enterprise Avenue
Secaucus, NJ 07094
Telecopy: (201) 866-2355
Attention: Peter A. Left
with a copy to
Skadden, Arps, Slate, Meagher & Flom
919 Third Avenue
New York, New York 10022
Telecopy: (212) 735-2001
Attention: Alan C. Myers
(b) if to Buyer, to
WP Investors, Inc.
c/o E.M. Warburg, Pincus & Co.
466 Lexington Avenue
New York, NY 10017
Telecopy: (212) 878-9351
Attention: Errol M. Cook
with a copy to
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, NY 10019
Telecopy: (212) 403-2000
Attention: Stephanie J. Seligman
9.7. Governing Law. This Agreement shall be governed by, enforced under and
construed in accordance with the laws of the State of New York, without giving
effect to any choice or conflict of law provision or rule thereof.
9.8. Descriptive Headings. The descriptive headings herein are inserted for
convenience of reference only and shall in no way be construed to define,
limit, describe, explain, modify, amplify, or add to the interpretation,
construction or meaning of any provision of, or scope or intent of, this
Agreement nor in any way affect this Agreement.
9.9. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
9.10. Expenses. Whether or not this Agreement and the transactions
contemplated hereby are consummated, all costs and expenses (including legal
fees and expenses) incurred in connection with this Agreement and the
transactions contemplated hereby shall be paid by the party incurring such
expenses. Notwithstanding the foregoing, if this Agreement is terminated
pursuant to Sections 8.1 following the occurrence of one of the following: (i)
a material breach by Seller, (ii) Seller's failure to obtain the lease consents
contemplated by Section 7.3(a), (iii) the IRS not having issued the private
letter ruling contemplated by Section 7.2(d), (iv) the failure to be satisfied
of any of the conditions set forth in Section 7.3(b), (c) or (e)(ii), (v) the
failure to be satisfied of the condition set forth in Section 7.2(f) (unless
waived by Seller), (vi) the failure to be satisfied of any of the conditions
set forth in Section 7.2(e) unless such condition shall not be satisfied due to
the Disposition (as defined in the Toys Agreement) not being consummated as
contemplated by Section 9.1.5 of the Toys Agreement, (vii) the failure to be
satisfied of the condition set forth in Section 7.3(d), unless the termination
of this Agreement is at least 45 days following the later of (A) the receipt of
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the private letter ruling contemplated by Section 7.2(d) (or the waiver by
Seller of such condition) and (B) the time Seller notifies the Buyer that it
has waived the termination right set forth in Section 10.1.10 of the Toys
Agreement or (viii) the termination of the Toys Agreement, unless (x) the
termination of this Agreement is at least 45 days following the later of (A)
the receipt of the private letter ruling contemplated by Section 7.2(d) (or the
waiver by Seller of such condition) and (B) the time Seller notifies the Buyer
that it has waived the termination right set forth in Section 10.1.10 of the
Toys Agreement, (y) provided that the preceding clause (x) shall not apply if
prior to the termination of this Agreement, Buyer shall have waived the
condition set forth in Section 7.3(d) upon at least three business days notice
(delivered following the termination of such 45 day period) that Seller will
terminate this Agreement, then, so long as Buyer is not in material breach of
its obligations hereunder, Seller shall, promptly following such termination,
reimburse Buyer for its reasonable, documented out-of-pocket expenses, paid,
incurred or assumed, by or on behalf of Buyer or its affiliates (including,
without limitation, fees and expenses of its advisors, financing sources,
counsel and accountants) in connection with or relating to the transactions
contemplated hereby; provided, however, that Buyer has not been previously
reimbursed for such expenses and that the amount payable under this Section
9.10 shall not exceed $5 million, provided, that if Seller so consents in
connection with commitment or similar fees paid to Buyer's financing sources,
the aggregate amount payable under this Section 9.10 may be up to, but shall
not exceed, $6 million.
9.11. Parties in Interest. This Agreement shall be binding upon and inure
solely to the benefit of each party hereto and nothing in this Agreement,
express or implied, is intended by or shall confer upon any other person (other
than the Liquidating Trust) any rights, benefits or remedies of any nature
whatsoever under or by reason of this Agreement, provided that the persons
named in Section 5.5 may enforce the provisions of such section against Buyer
and Seller and the Liquidating Trust, as the case may be.
9.12. No Waivers. Except as otherwise expressly provided herein, no failure
to exercise, delay in exercising, or single or partial exercise of any right,
power or remedy by any party, and no course of dealing between the parties,
shall constitute a waiver of any such right, power or remedy. No waiver by
either party of any default, misrepresentation, or breach of warranty or
covenant hereunder, whether intentional or not, shall be deemed to extend to
any prior or subsequent default, misrepresentation, or breach of warranty or
covenant hereunder or affect in any way any rights arising by virtue of any
prior or subsequent such occurrence. No waiver shall be valid unless in writing
and signed by the party against whom such waiver is sought to be enforced.
9.13. Specific Performance. The parties hereto agree that if any of the
provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached, irreparable damage would occur, no
adequate remedy at law would exist and damages would be difficult to determine,
and that the parties shall be entitled to specific performance of the terms
hereof and immediate injunctive relief, in addition to any other remedy at law
or equity.
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In Witness Whereof, each of the undersigned has caused this Agreement to be
signed by its duly authorized officer as of the date first above written.
Petrie Stores Corporation
/s/ Allan Laufgraben
By: _________________________________
Name:Allan Laufgraben
Title:President--CEO
WP Investors, Inc.
/s/ Reuben S. Leibowitz
By: _________________________________
Name:Reuben S. Leibowitz
Title:Vice President
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AMENDMENT NO. 1 TO THE STOCK PURCHASE AGREEMENT
This AMENDMENT NO. 1 (the "Amendment") to the Stock Purchase Agreement (the
"Stock Purchase Agreement"), dated as of August 23, 1994, by and between Petrie
Stores Corporation, a New York corporation ("Seller") and WP Investors, Inc., a
Delaware corporation ("Buyer") is being entered into as of November 3, 1994.
Whereas, Seller and Buyer desire to amend the Stock Purchase Agreement to
provide that Seller shall provide for the payment by Seller and/or the
Liquidating Trust of certain tax liabilities arising out of or related to
certain past sales or other dispositions by Seller or its subsidiaries of
shares of Toys Common Stock; and
Whereas, Seller and Buyer desire to amend the Stock Purchase Agreement to
waive certain conditions to each party's respective obligations to consummate
the Stock Purchase.
Now, Therefore, in consideration of the foregoing and the mutual covenants
and agreements contained herein, and intending to be legally bound hereby, the
parties hereto agree as follows:
Section 1. Definitions; References. Unless otherwise specifically defined
herein, each term used herein shall have the meaning assigned to such term in
the Stock Purchase Agreement. Each reference to "hereof", "herein",
"hereunder", "hereby" and "this Agreement" shall from and after the date hereof
refer to the Stock Purchase Agreement as amended by this Amendment.
Section 2. Amendment to Introduction. The Introduction to the Stock Purchase
Agreement is amended to be and read in its entirety as follows:
"STOCK PURCHASE AGREEMENT, dated as of August 23, 1994, and amended as
of November 3, 1994 (this "Agreement"), by and between Petrie Stores
Corporation, a New York corporation ("Seller") and WP Investors, Inc.,
a Delaware corporation ("Buyer")."
Section 3. Amendment to Time and Place of Closing.
Section 2.1 of the Stock Purchase Agreement is amended to delete the
reference therein to October 31, 1994 and to insert in its place December 9,
1994.
Section 4. Amendment to Covenants of the Parties.
A. Section 5.9 of the Stock Purchase Agreement is amended to be and read in
its entirety as follows:
"Financing. (a) Any financing procured by the Buyer to purchase the
Shares pursuant to this Agreement and to consummate the transactions
contemplated hereby shall include an equity contribution by E.M.
Warburg, Pincus & Co., Inc. and/or one or more of its affiliates in the
amount of not less than $100 million; provided, however, that such
equity contribution may be reduced to the extent not necessary for the
Buyer to perform the covenant set forth in Section 5.6.
(b) Buyer hereby expressly acknowledges that Seller, in agreeing to
Buyer's conditions to consummation of the Stock Purchase as set forth
in Section 7.3(d) hereof, has relied upon the existence and terms of
that certain commitment letter and the Summary of Terms and Conditions,
a copy of which has been provided to Seller (collectively, the
"Commitment Letter"), dated as of November 3, 1994, by and among Buyer,
WP Investors, Inc., Warburg Pincus Investors, L.P., Chemical Bank and
The Chase Manhattan Bank, N.A. (collectively, the "Managing Agents"),
and Chemical Securities Inc. and Chase Securities, Inc. (collectively,
the "Arrangers"). For the benefit of Buyer and Seller, Buyer hereby
covenants and agrees that prior to the Closing Buyer will comply fully
with all of the terms, provisions and conditions set forth in the
Commitment Letter, the
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Facility (as defined in the Commitment Letter), the definitive
documentation for the Facility described therein or any transaction
contemplated thereby (collectively, the "Financing") and any related
fee letters. For the benefit of Seller, Buyer hereby further covenants
and agrees that Buyer will not amend, modify or waive any term or
provision of the Commitment Letter or waive any of its rights
thereunder, in any event so as to make it less likely that the
condition set forth in Section 7.3(d) hereof will be satisfied."
B. Section 5.17 of the Stock Purchase Agreement is amended to be and read in
its entirety as follows:
"On or prior to the Closing Date, Seller shall provide in a manner
reasonably satisfactory to Buyer for the payment by Seller and the
Liquidating Trust to Buyer, the Company and its subsidiaries of the
Excluded Liabilities (to the extent not previously paid) in a manner
adequate to provide for the collection of the Excluded Liabilities,
taking into account the assets and other liabilities of the Liquidating
Trust (which in the case of the Excluded Liabilities arising pursuant
to Section 5.14 and Section 6.1(b)(y)(ii)(B) shall include the
provision for the payment thereof by means of an irrevocable letter of
credit, a holdback of a portion of the Purchase Price, a first
priority, perfected lien in collateral with adequate assurances as to
value or comparable security or other comparable arrangements
reasonably acceptable to Buyer; provided, however, that (i) such
provision in the case of liabilities arising pursuant to Section 5.14
shall provide for the payment thereof in full, (ii) such provision
shall neither limit the liability of Seller and the Liquidating Trust
not otherwise limited by this Agreement nor shall such provision
enlarge any liability of Seller and the Liquidating Trust otherwise
limited by this Agreement or otherwise, and (iii) such provision shall
be $67.5 million)."
Section 5. Amendment to Tax Matters.
A. Section 6.1(b) of the Stock Purchase Agreement is amended to be and read
in its entirety as follows:
"Seller and the Liquidating Trust shall, and hereby do, indemnify and
hold Buyer, the Company and the Company's subsidiaries harmless against
(x) the failure to be true in any material respect of any
representations and statements of fact included in the Ruling Request,
to the extent that they relate to the Seller or its subsidiaries, and
(y) (i) Taxes of Seller or its subsidiaries or any reduction in losses,
deductions, credits or similar items of tax benefit but excluding any
reduction in the tax basis of assets ("Tax Benefits") of the Company or
any of its subsidiaries arising from the transfer, as contemplated by
Section 3.16 hereof, to the Company and its subsidiaries of assets and
liabilities of Seller and certain of its subsidiaries and the stock of
other subsidiaries of Seller and (ii) any Taxes of Seller or its
subsidiaries or any reduction in Tax Benefits of the Company or its
subsidiaries arising out of or relating to (A) the Toys Shares or the
Toys Transaction, (B) the federal examination of the disposition during
March and July of 1988 by Seller or certain of its subsidiaries of
shares of Toys Common Stock in connection with the conversion or
redemption of certain debentures, and (C) the sale or other disposition
by Seller of any Toys Common Stock or stock or assets of the Seller or
its subsidiaries subsequent to the Closing not acquired or owned
subsequent to the Closing by Buyer, Company or Company's subsidiaries.
Buyer and the Company shall, and hereby do, indemnify Seller and the
Liquidating Trust harmless against any and all other Taxes imposed on
the Seller, the Company, or any subsidiaries of the Company, whether or
not such Taxes arose prior or subsequent to the Closing, except Taxes
imposed upon Seller or subsidiaries of Seller subsequent to Closing
that are attributable to any taxable period after the Closing Date. For
purposes of this subsection, (x) the amount of any Tax indemnified
pursuant hereto shall be equal to the excess of (A) the liability for
Taxes of the entity (or group) liable for such Tax for any taxable
period or periods affected by the relevant item, over (B) the liability
for Taxes of such entity (or group) for such taxable period or periods
calculated without regard to the item with respect to which the
indemnification is made, and (y) the taxable period to which any Tax is
deemed to be attributable will be determined by treating the period
ending on the Closing Date as a separate taxable period for purposes of
all Taxes."
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B. Section 6.1 of the Stock Purchase Agreement is amended to add a new
subsection (g) which shall be and read in its entirety as follows:
"(g) Seller agrees that if as the result of any audit adjustment made
by any taxing authority with respect to any Taxes against which Buyer
and the Company have indemnified Seller and the Liquidating Trust,
Seller receives a Tax Benefit, then Seller or the Liquidating Trust
shall pay to Buyer the amount of such Tax Benefit within 15 days of (i)
the filing of a return in which such Tax Benefit is actually utilized
to reduce any liability for Taxes, or (ii) the receipt of any refund of
Taxes arising out of the application of such Tax Benefit."
C. Section 6.2(a) of the Stock Purchase Agreement is amended to be and read
in its entirety as follows:
"Buyer shall have the right, at its own expense, to control any audit
or examination by any Taxing Authority, to initiate any claim for
refund or file any amended Tax Return, and to contest, resolve and
defend against any assessment, notice of deficiency, or other
adjustment or proposed adjustment of Taxes for all taxable periods of
the Company and its subsidiaries; provided, however, that Seller (or
the Liquidating Trust or any agent or successor thereof) shall have the
exclusive right to contest, resolve or defend against any assessment,
notice of deficiency, or other proposed adjustment of Taxes with
respect to any liability for Tax for which Seller is liable pursuant to
subsection 6.1(b) hereof, including the right to pay any such Tax to
the relevant taxing authority and thereafter to pursue appropriate
administrative or judicial action for a refund. No party shall have the
right to agree to any assessment, deficiency, settlement, or other
adjustment of Taxes that would adversely affect the interest of another
party without such other party's written consent, which consent shall
not be unreasonably withheld."
Section 6. Amendment to Conditions to Consummation of the Stock Purchase.
A. Section 7.2 of the Stock Purchase Agreement is amended as follows:
(i) Seller hereby waives the condition set forth in Section 7.2(b),
insofar as it relates to the representation and warranty set forth in
Section 4.3.
(ii) Seller hereby waives the condition set forth in Section 7.2(d).
(iii) Seller hereby waives the condition set forth in Section 7.2(e).
B. Section 7.3 of the Stock Purchase Agreement is amended as follows:
(i) Buyer hereby waives the condition set forth in Section 7.3(a).
(ii) Buyer hereby waives the condition set forth in Section 7.3(b),
except insofar as it relates to the representations and warranties set
forth in Sections 3.1, 3.2, 3.3, 3.15, 3.16, 3.17 and 3.19.
(iii) Section 7.3(d) is amended to be and read as follows:
"Buyer shall have available to it for draw the financing contemplated
by the Commitment Letter, a copy of which has previously been provided
to Seller, and all conditions to the obligations of the lenders
thereunder shall have been satisfied or waived, substantially on the
terms contemplated thereby; provided, however, that Buyer shall not be
entitled to rely on this condition as grounds for not consummating the
Stock Purchase if Buyer shall not have complied with Section 5.9(b) of
the Stock Purchase Agreement."
(iv) Section 7.3(e) is amended to be and read as follows:
"Either (i) Seller shall have received the IRS Ruling in a form
reasonably satisfactory to Buyer, to the effect that the Toys
Transaction will not give rise to the recognition by Seller or its
shareholders of a material amount of taxable income (an "Acceptable
Ruling"), and the representations made by Seller and Toys in the
request for such private letter ruling (and any supplements or
amendments thereto) shall be true and correct in all material respects
or (ii) in the event that the IRS Ruling has not been received by the
Closing Date, Seller shall have covenanted pursuant to an agreement
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reasonably satisfactory to Buyer that it will not consummate the Toys
Transaction or any other transaction involving the direct or indirect
disposition of all or any portion of the Toys Shares (whether or not
intended to be a tax-free reorganization with respect to Seller) within
the taxable year of Seller in which the Closing occurs except with the
consent of Buyer, or pursuant to an Acceptable Ruling; and"
(v) Section 7.3(f) is amended to delete the text following the semicolon
therein and to insert a period in place of such semicolon.
Section 7. Amendment to Termination and Abandonment.
A. Section 8.1(b) of the Stock Purchase Agreement is amended by deleting all
text that follows "by Seller or Buyer at any time after January 31, 1995" and
nothing shall be added in lieu thereof.
B. Section 8.1(c) of the Stock Purchase Agreement is amended by deleting the
entire text of Section 8.1(c) and nothing shall be added in lieu thereof.
Section 8. Amendment to Entire Agreement; Assignment; Alternate Structure.
Section 9.4 of the Stock Purchase Agreement is amended by adding the
following at the end thereof:
"Subject to the foregoing, as of the Closing, Buyer and any Designees
may assign all of their respective rights and obligations under this
Agreement to a newly formed entity ("Holding Company") owned by Buyer
and other persons or entities in such manner and proportions that
neither E.M. Warburg, Pincus & Co., Inc. nor any of its affiliates
shall be treated as a single employer, within the meaning of Section
4001(b)(1) of ERISA, with Holding Company. Thereafter, all references
in this Agreement to Buyer and the Designees, other than such
references in Section 5.11 or this Section 9.4 shall be deemed to refer
to Holding Company."
Section 9. Amendment to Expenses.
Section 9.10 of the Stock Purchase Agreement is amended to be and read in its
entirety as follows:
"Whether or not this Agreement and the transactions contemplated hereby
are consummated, all costs and expenses (including legal fees and
expenses) incurred in connection with this Agreement and the
transactions contemplated hereby shall be paid by the party incurring
such expenses. Notwithstanding the foregoing, if this Agreement is
terminated pursuant to Section 8.1 following the occurrence of one of
the following: (i) a material breach by Seller; (ii) the failure to be
satisfied of any of the conditions which are set forth in Sections
7.3(b), (c) or (e)(ii); or (iii) the failure to be satisfied of the
condition set forth in Section 7.2(f) by December 14, 1994, then, so
long as Buyer is not in material breach of its obligations hereunder,
Seller shall, promptly following such termination, reimburse Buyer for
its reasonable, documented out-of-pocket expenses, paid, incurred or
assumed, by or on behalf of Buyer or its affiliates (including, without
limitation, fees and expenses of its advisors, financing sources,
counsel and accountants) in connection with or relating to the
transactions contemplated hereby, provided, however, that Buyer has not
been previously reimbursed for such expenses and that the amount
payable under this Section 9.10 shall not exceed $5.625 million.
Section 10. No Further Amendment. Except as otherwise provided herein, the
Stock Purchase Agreement shall remain unchanged and in full force and effect.
Section 11. Effect of Amendment. From and after the execution of this
Amendment by the parties hereto, any references to the Stock Purchase Agreement
shall be deemed a reference to the Stock Purchase Agreement as amended hereby.
A-31
<PAGE>
Section 12. Governing Law. This Amendment shall be governed by, enforced
under and construed in accordance with the laws of the State of New York,
without giving effect to any choice or conflict of law provision or rule
thereof.
Section 13. Counterparts. This Amendment may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
Section 14. Descriptive Headings. The descriptive headings herein are
inserted for convenience of reference only and shall in no way be construed to
define, limit, describe, explain, modify, amplify, or add to the
interpretation, construction or meaning of any provision of, or scope or intent
of, this Amendment or the Stock Purchase Agreement nor in any way affect this
Amendment or the Stock Purchase Agreement.
In Witness Whereof, each of the undersigned has caused this Amendment to be
signed by its duly authorized officer as of the date first above written.
Petrie Stores Corporation
By: _________________________________
Name:
Title:
WP Investors, Inc.
By: _________________________________
Name:
Title:
A-32
<PAGE>
ANNEX B
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
ACQUISITION AGREEMENT
BETWEEN
TOYS "R" US, INC.
AND
PETRIE STORES CORPORATION
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<C> <C> <S> <C>
1. Certain Definitions.................................................. 1
2. Sale of Assets....................................................... 4
3. Purchase Consideration............................................... 4
4. No Assumption of Liabilities; Indemnification........................ 5
5. Closing.............................................................. 5
6. Representations and Warranties of the Seller......................... 5
6.1 Organization................................................... 5
6.2 Authority Relative to the Agreements........................... 5
6.3 Board Recommendation........................................... 6
6.4 Title to Petrie Block Shares................................... 6
6.5 Commission Filings; Financial Statements....................... 6
6.6 No Undisclosed Liabilities..................................... 7
6.7 Litigation..................................................... 7
6.8 Regulatory and Environmental Compliance........................ 7
6.9 Brokers........................................................ 8
6.10 Ruling Request................................................. 8
6.11 Disclosure..................................................... 8
7. Representations and Warranties of the Buyer.......................... 9
7.1 Organization................................................... 9
7.2 Authority Relative to this Agreement........................... 9
7.3 Buyer Common Stock............................................. 9
7.4 Brokers........................................................ 9
7.5 Ruling Request................................................. 9
8. Covenants and Agreements............................................. 9
8.1 Conduct of Business............................................ 9
8.2 The Petrie Stock Transfer; the Disposition; the Dissolution.... 10
8.3 Call of Convertible Debentures................................. 11
8.4 Ruling Request................................................. 11
8.5 Agreement Not to Sell Petrie Block Shares...................... 11
8.6 Proxy Statement; Other Seller Filings.......................... 11
8.7 Meeting of Shareholders........................................ 12
8.8 Registration Statement; Other Buyer Filings.................... 12
8.9 Fees and Expenses.............................................. 13
8.10 Additional Agreements.......................................... 13
8.11 Access to Information; Confidentiality......................... 13
8.12 Public Announcements........................................... 14
8.13 Notification of Certain Matters................................ 14
8.14 Brokers........................................................ 14
8.15 Bulk Sales..................................................... 14
8.16 Fiduciary Duty................................................. 15
9. Conditions........................................................... 15
9.1 Conditions to the Obligations of Each Party to Effect the
Acquisition................................................... 15
9.2 Additional Conditions to the Obligations of the Seller......... 16
9.3 Additional Conditions to the Obligations of the Buyer.......... 16
</TABLE>
B-i
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<C> <C> <S> <C>
10. Termination, Amendment and Waiver..................................... 17
10.1 Termination..................................................... 17
10.2 Effect of Termination........................................... 18
10.3 Amendment....................................................... 18
10.4 Waiver.......................................................... 18
11. General Provisions.................................................... 18
11.1 Notices......................................................... 18
11.2 Representations and Warranties; Etc............................. 19
11.3 Validity........................................................ 19
11.4 Descriptive Headings............................................ 19
11.5 Parties in Interest............................................. 19
11.6 Miscellaneous................................................... 19
</TABLE>
B-ii
<PAGE>
ACQUISITION AGREEMENT
ACQUISITION AGREEMENT, dated as of April 20, 1994, between TOYS "R" US, INC.,
a Delaware corporation (the "Buyer"), and PETRIE STORES CORPORATION, a New York
corporation (the "Seller").
The Seller and its Subsidiaries currently hold, among other assets, an
aggregate of 40,402,488 shares (the "Petrie Block Shares") of Common Stock, par
value $.10 per share, of the Buyer ("Buyer Common Stock"). The Seller intends
to cause all such Subsidiaries holding any Petrie Block Shares to transfer such
Petrie Block Shares to the Seller (the "Petrie Stock Transfer") in a manner
that will not give rise to the recognition of taxable income or gain to the
Seller or any of its Subsidiaries under the Internal Revenue Code of 1986, as
amended (the "Code"). In advance of the Acquisition (as defined below), the
Seller intends to engage in the sale or other disposition (the "Disposition"),
in the manner permitted by the Ruling Request and the Private Letter Ruling (as
defined herein), through one or more asset or stock sale transactions, of all
of the assets of the Seller and its Subsidiaries, other than the Petrie Block
Shares and such cash or cash equivalents as the Seller desires to retain, first
to an existing Subsidiary of the Seller ("PSC Holdings") and then to one or
more other Persons (each, a "Petrie Business Acquiror"). The Disposition shall
be subject to the liabilities of the Seller and its Subsidiaries, other than
those liabilities expressly retained by the Seller and its Subsidiaries.
Thereafter, pursuant to this Agreement, the Buyer and the Seller propose to
effect a tax-free reorganization under Section 368(a)(1)(C) of the Code whereby
the Seller will transfer to the Buyer, free and clear of all of the liabilities
of the Seller and its Subsidiaries (the "Acquisition"), the following (the
"Purchased Assets"): all of the Petrie Block Shares (or such lesser number as
shall be permitted to be held by the Seller on the Closing Date pursuant to
Section 8.5 below (the "Closing Date Petrie Block Shares")) and a portion of
its cash, excluding amounts deposited in escrow. In consideration therefor, the
Buyer will issue to the Seller a number of shares of Buyer Common Stock, to be
determined as set forth in Section 3 below. The Seller will then dissolve (the
"Dissolution") and, pursuant to the Dissolution, will distribute such shares of
Buyer Common Stock to the holders of Common Stock, par value $1.00 per share,
of the Seller ("Seller Common Stock"), subject to an escrow and other
arrangements that adequately provide for the payment of all liabilities of the
Seller and its Subsidiaries, as provided in Section 8.2 below.
This Agreement is intended to constitute the plan of reorganization pursuant
to which the reorganization under Section 368(a)(1)(C) of the Code will be
effected.
Concurrently with the execution and delivery of this Agreement, the
individual named in the Disclosure Schedule (the "Named Party") owning
beneficially 28,111,274 shares of Seller Common Stock, representing
approximately 60% of the outstanding Seller Common Stock (approximately 54% on
a fully diluted basis), has delivered to the Buyer a voting agreement and proxy
(the "Voting Agreement and Proxy") pursuant to which he has agreed to vote such
shares in favor of this Agreement and the transactions contemplated hereby.
Accordingly, in consideration of the premises and the mutual covenants herein
contained and intending to be legally bound hereby, the Buyer and the Seller
hereby agree as follows:
1. Certain Definitions. As used in this Agreement, the following terms shall
have the meanings indicated below:
"Action" means any action, suit, claim or legal, administrative or arbitral
proceeding or investigation by or before any Governmental Body.
"Affiliate" means, with respect to any Person, any other Person controlling,
controlled by or under common control with such Person.
"BCL" means the Business Corporation Law of the State of New York, as
amended.
<PAGE>
"Cash Cap Amount" means the lesser of (x) (A) the cash proceeds of the
Disposition received or receivable by the Seller on or prior to the Closing
Date less any Taxes paid or payable as a result of the Disposition and any out-
of-pocket costs or expenses associated with planning, negotiating, preparing
for and consummating the Transactions, including without limitation, legal,
accounting, real estate advisory, financial advisory and investment banking
fees and commissions, less (B) the cash proceeds of any sale of common stock of
the Buyer (net of transaction fees and costs and Taxes payable with respect
thereto) consummated by the Seller or any of its Subsidiaries on or after April
13, 1994 (the "Stock Sale Proceeds") to the extent the Stock Sale Proceeds
exceeds $19,233,000 and (y) $250,000,000; provided, that if the amount referred
to in clause (x) above shall be zero or less, then the Cash Cap Amount shall be
zero.
"Commission" means the Securities and Exchange Commission or any successor
agency.
"Condition of the Seller" means the business, assets, properties, results of
operations or financial condition of the Seller and its Subsidiaries, taken as
a whole.
"Convertible Debentures" means the Seller's $124,942,000 in principal amount
of Convertible Subordinated Debentures outstanding and due December 2010, which
are convertible at any time prior to maturity into shares of Seller Common
Stock at a conversion price of $22.125 per share and which may be redeemed at
any time at the option of the Seller at scheduled redemption prices.
"Designated Amount" means $115,000,000.
"Disclosure Schedule" means the disclosure schedule setting forth certain
information concerning the Seller delivered by the Seller to the Buyer on the
date hereof.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Governmental Body" means any government or political subdivision thereof,
whether federal, state or local, domestic or foreign, or any agency or
instrumentality of any such government or political subdivision, or any court,
tribunal or arbitrator.
"H-S-R Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended, and the rules and regulations promulgated thereunder.
"IRS" means the Internal Revenue Service or any successor agency.
"Lien" means any lien, pledge, mortgage, security interest, claim, lease,
charge, option, right of first refusal, easement, servitude, encumbrance or
other restriction or limitation.
"Losses" means losses, liabilities, obligations, damages, deficiencies,
demands, claims, actions, causes of action, judgments, Taxes, assessments,
settlement costs, court costs or other costs or expenses (including, without
limitation, interest, penalties, reasonable costs of investigation, discovery,
case preparation, defense or appeal, expert witness fees and expenses and
reasonable attorneys and paralegal fees and disbursements).
"Market Value Per Share" means, for any trading day, the average of the high
and low reported Consolidated Trading sales prices (regular way) on the New
York Stock Exchange.
"Permitted Shares" means a number of Petrie Block Shares equal to the lesser
of (x) 4,000,000 shares and (y) the number of Petrie Block Shares in excess of
which would interfere with the ability of the parties hereto to consummate the
transactions contemplated hereby in a manner such that the consummation of the
Petrie Stock Transfer, the Acquisition and the Dissolution will not give rise
to the recognition of taxable income or gain to the Buyer, the Seller or any
Subsidiary for Federal income tax purposes.
"Person" means any individual, corporation, partnership, firm, joint venture,
association, joint-stock company, trust, unincorporated organization,
Governmental Body or other entity.
B-2
<PAGE>
"Petrie Business Indemnitors" means (a) PSC Holdings; (b) any Person to which
assets of the Seller or its Subsidiaries are transferred by the Seller, or by
PSC Holdings or their respective Subsidiaries, in the Dispo- sition by way of
asset sale, merger or otherwise; and (c) any Person holding assets of the
Seller or its Subsidiaries or PSC Holdings or its Subsidiaries whose stock is
sold in the Disposition by way of stock sale, merger or otherwise.
"Registration Statement" means the registration statement of the Buyer on
Form S-4 and the prospectus included therein for the registration under the
Securities Act of shares of Buyer Common Stock constituting the Purchase
Consideration.
"Securities Act" means the Securities Act of 1933, as amended.
"Subsidiary" means, with respect to any Person, any corporation at least a
majority of whose outstanding voting securities, or any other Person at least a
majority of whose total equity interest, is owned by such Person.
"Tax" or "Taxes" means, with respect to any Person, a net income, gross
income, gross receipts, sales, use, ad valorem, value added, franchise,
profits, license, withholding, payroll, employment, environmental, excise,
severance, stamp, transfer, occupation, premium, property or windfall profit
tax, custom duty or other tax, governmental fee or other similar assessment or
charge, together with any interest and any penalty, addition to tax or
additional amount imposed by any jurisdiction or taxing authority (domestic or
foreign) on such Person.
"Termination Date" means January 28, 1995, unless (a) a Private Letter Ruling
satisfying the conditions of Sections 9.2.3 and 9.3.3 shall not have been
issued by the IRS on or before November 15, 1994 or (b) the Seller shall not
have irrevocably waived, on or before November 15, 1994, any right to terminate
this Agreement pursuant to Section 10.1.10 below, in either which event, the
Termination Date shall be November 15, 1994.
The following terms are defined in the corresponding Sections listed below:
<TABLE>
<CAPTION>
TERM SECTION
---- --------
<S> <C>
Acquisition............................................................ Recitals
Balance Sheet.......................................................... 6.5
Balance Sheet Date..................................................... 6.5
Buyer.................................................................. Recitals
Buyer Common Stock..................................................... Recitals
Buyer Indemnification Agreement........................................ 4(c)
Cash Amount............................................................ 2
Cash Shares............................................................ 3(a)
CERCLA................................................................. 6.8.4
CERCLIS................................................................ 6.8.4
Closing................................................................ 2
Closing Date........................................................... 5
Closing Date Petrie Block Shares....................................... Recitals
Code................................................................... Recitals
Disposition............................................................ Recitals
Dissolution............................................................ Recitals
Escrow Amount.......................................................... 8.2.1
Exchange Shares........................................................ 3(a)
Form 10-Qs............................................................. 6.5
Hazardous Substance.................................................... 6.8.2
Named Party............................................................ Recitals
</TABLE>
B-3
<PAGE>
<TABLE>
<CAPTION>
TERM SECTION
---- --------
<S> <C>
NPL.................................................................... 6.8.4
Other Buyer Filings.................................................... 8.8
Other Seller Filings................................................... 8.6
Petrie Block Shares.................................................... Recitals
Petrie Business Acquiror............................................... Recitals
Petrie Stock Transfer.................................................. Recitals
Private Letter Ruling.................................................. 9.2.3
Proxy Statement........................................................ 8.6
PSC Holdings........................................................... Recitals
Purchase Consideration................................................. 3(a)
Purchased Assets....................................................... Recitals
Release................................................................ 6.8.2
Requirements of Law.................................................... 6.8.1
Ruling Request......................................................... 8.4
Seller................................................................. Recitals
Seller Common Stock.................................................... Recitals
Seller Financial Statements............................................ 6.5
Seller Indemnification Agreement....................................... 4(b)
Shareholders Meeting................................................... 8.7
Transactions........................................................... 6.2.1
Unaudited 1994 Financial Statements.................................... 6.5
Valuation Period....................................................... 3(a)
Voting Agreement and Proxy............................................. Recitals
</TABLE>
2. Sale of Assets. At the closing provided for in Section 5 below (the
"Closing"), the Seller shall sell, assign, transfer and deliver to the Buyer
the Purchased Assets, constituting all or substantially all of the assets of
the Seller on the Closing Date, by (i) delivery of stock certificates
representing the Closing Date Petrie Block Shares, duly endorsed in blank or
accompanied by stock powers duly executed in blank, in proper form for transfer
and with all appropriate stock transfer stamps affixed, if any such stamps are
required under applicable law, and (ii) wire transfer of immediately available
funds to an account designated by the Buyer of an amount of cash not to exceed
the Cash Cap Amount, such amount to be designated by the Seller, after
provision for all liabilities of the Seller and its Subsidiaries as described
in Section 8.2 below, in a notice to the Buyer delivered at least 7 business
days prior to the Closing Date (the "Cash Amount").
3. Purchase Consideration. (a) The aggregate consideration for the Purchased
Assets (the "Purchase Consideration") shall be composed of shares of Buyer
Common Stock equal in number to the "Exchange Shares" plus the "Cash Shares."
"Exchange Shares" means a number equal to: (i)(A) the product of Closing Date
Petrie Block Shares and the average of the Market Value Per Share of Buyer
Common Stock on the ten trading days next preceding the trading day immediately
prior to the date hereof minus (B) the Designated Amount, divided by (ii) such
Market Value Per Share; provided, however, that the number of Closing Date
Petrie Block Shares and the Market Value Per Share shall be adjusted
appropriately if prior to the Closing Date there is a change in the number of
shares of Buyer Common Stock held by the Seller or a change in the class of
shares of Buyer Common Stock held by the Seller, in each case, to the extent
attributable to the declaration of any stock dividend, stock split,
recapitalization, reclassification, combination or similar event. "Cash Shares"
means a number equal to (x) the Cash Amount, divided by (y) the average of the
Market Value Per Share of Buyer Common Stock on the ten trading days next
preceding the second trading day prior to the Closing Date (the "Valuation
Period").
(b) At the Closing, the Buyer shall deliver to the Seller, subject to Section
8.2 below, stock certificates representing the Purchase Consideration, duly
registered in the name of the Seller (or its designees). All shares of Buyer
Common Stock delivered as Purchase Consideration shall be duly authorized,
fully paid and non-assessable and free of preemptive rights.
B-4
<PAGE>
4. No Assumption of Liabilities; Indemnification. (a) Anything in this
Agreement to the contrary notwithstanding, the Buyer shall not assume, or in
any way be liable or responsible for, any liabilities or obligations of the
Seller whatsoever. Without limiting the generality of the foregoing, the Buyer
shall not assume (i) any liability or obligation of the Seller arising out of
or in connection with the negotiation and preparation of this Agreement or the
consummation and performance of the transactions contemplated hereby,
including, without limitation, any liability relating to Taxes so arising; (ii)
any liability or obligation under contracts and other agreements to which the
Seller is a party or by or to which it or its assets, properties or rights are
bound or subject; (iii) any liability or obligation to trade or other creditors
or customers of the Seller; (iv) any liability or obligation of the Seller or
any shareholder of the Seller for any Taxes; or (v) any liability or obligation
of the Seller with respect to any violation by the Seller or any of its
Subsidiaries of any Requirements of Law.
(b) At the Closing, each of the Seller and its Subsidiaries shall, and the
Seller shall use its reasonable best efforts to cause each Petrie Business
Indemnitor to, execute and deliver to the Buyer an indemnification agreement
(the "Seller Indemnification Agreement") substantially in the form of Exhibit A
hereto.
(c) At the Closing, the Buyer shall execute and deliver to the Seller and
each Petrie Business Indemnitor that executes and delivers the Seller
Indemnification Agreement an indemnification agreement (the "Buyer
Indemnification Agreement") substantially in the form of Exhibit B hereto.
5. Closing. The Closing of the sale and purchase of the Purchased Assets
shall take place at the offices of Schulte Roth & Zabel, 900 Third Avenue, New
York, New York 10022, at 10:00 A.M., local time, on a business day within 10
business days after satisfaction or waiver of each of the conditions set forth
in Section 9 below, such business day to be mutually agreed by the Buyer and
the Seller (subject to reasonable delay of the closing date by either party,
but not to a date later than the Termination Date), or at such other place, at
such other time or on such other date as the Buyer and the Seller mutually
agree in writing. The date upon which the Closing occurs is herein called the
"Closing Date."
6. Representations and Warranties of the Seller. The Seller represents and
warrants to the Buyer as follows:
6.1 Organization. The Seller is a corporation organized, existing and in good
standing under the laws of the State of New York and has the requisite
corporate power to own its properties and carry on its business as now
conducted.
6.2 Authority Relative to the Agreements.
6.2.1 The Seller has the requisite corporate power and authority to enter
into this Agreement and the Seller Indemnification Agreement and to engage in
the Acquisition, the Petrie Stock Transfer, the Disposition and the Dissolution
(collectively, the "Transactions") and otherwise perform its obligations
hereunder and thereunder. The execution and delivery of this Agreement and the
Seller Indemnification Agreement by the Seller and the consummation by the
Seller of the transactions contemplated hereby have been duly authorized by the
Board of Directors of the Seller and, except for the approval of its
shareholders as set forth in Section 8.7 below, no other corporate proceedings
on the part of the Seller are necessary to authorize this Agreement, the Seller
Indemnification Agreement, the Transactions or the other transactions
contemplated hereby or thereby; provided, that the Seller's Board of Directors
has not approved any particular form or terms of the Disposition or the
Dissolution. This Agreement has been duly executed and delivered by the Seller.
This Agreement constitutes, and the Seller Indemnification Agreement will, upon
its execution, constitute, a valid and binding obligation of the Seller
enforceable against it in accordance with its terms.
6.2.2 Except as set forth in the Disclosure Schedule, neither the execution
and delivery of this Agreement or the Seller Indemnification Agreement by the
Seller, nor the consummation of the transactions contemplated hereby or thereby
nor compliance by the Seller with any of the provisions hereof or thereof
B-5
<PAGE>
will (i) violate, conflict with, or result in a breach of any provision of, or
constitute a default (or an event which, with notice or lapse of time or both,
would constitute a default) under, or result in the termination of, or
accelerate the performance required by, or result in a right of termination or
acceleration under, or result in the creation of any Lien upon any of the
properties or assets of the Seller or any of its Subsidiaries under, any of the
terms, conditions or provisions of (x) its charter or by-laws or (y) any note,
bond, mortgage, indenture, deed of trust, license, lease, agreement or other
instrument or obligation to which it is a party or to which it or any of its
properties or assets may be subject, except for violations, conflicts,
breaches, defaults or similar matters under agreements providing for the lease
by the Seller or any of its Subsidiaries of real or personal property or (ii)
subject to compliance with the statutes and regulations referred to in Section
6.2.3 below, violate any judgment, ruling, order, writ, injunction, decree,
statute, rule or regulation applicable to the Seller or its Subsidiaries or any
of their respective properties or assets, except in the case of clauses (i)(y)
and (ii) above for violations, breaches and defaults which would not,
individually or in the aggregate, have a material adverse effect on the ability
of the Seller to consummate the Transactions or the other transactions
contemplated hereby or on the Buyer; provided, however, that the foregoing
exception shall not limit the rights of the Buyer and its Affiliates under the
Seller Indemnification Agreement.
6.2.3 Except as set forth in the Disclosure Schedule, other than compliance
with (i) the Exchange Act, (ii) the Securities Act, (iii) applicable bulk
transfer laws, (iv) the H-S-R Act, and (v) Article 10 of the BCL, no notice to,
filing with, or authorization, consent or approval of, any Governmental Body is
necessary for the consummation by the Seller of the Transactions or the other
transactions contemplated by this Agreement or the Seller Indemnification
Agreement.
6.3 Board Recommendation. The Board of Directors of the Seller has, by
resolutions duly adopted by a vote at a meeting of such Board duly held on
April 20, 1994, approved and adopted this Agreement, the Seller Indemnification
Agreement, the Transactions and the other transactions contemplated herein and
therein on the terms and conditions set forth herein, and has recommended that
holders of shares of Seller Common Stock approve this Agreement, the Seller
Indemnification Agreement, the Transactions and the other transactions
contemplated hereby and thereby; provided, that the Seller's Board of Directors
has not approved any particular form or terms of the Disposition or the
Dissolution.
6.4 Title to Petrie Block Shares. The Seller and its Subsidiaries own in the
aggregate beneficially and of record, and have the power and authority to
convey, free and clear of any Lien, the Petrie Block Shares, and, upon delivery
of and payment on the Closing Date for the Closing Date Petrie Block Shares as
herein provided, the Seller will convey to the Buyer good and valid title to
such Closing Date Petrie Block Shares, free and clear of any Lien.
6.5 Commission Filings; Financial Statements. The Seller has heretofore
delivered to the Buyer its (i) Annual Report on Form 10-K for the fiscal years
ended January 30, 1993, February 1, 1992 and February 2, 1991, as filed with
the Commission, (ii) Quarterly Reports on Form 10-Q for the quarters ended
October 30, 1993, July 31, 1993 (as amended) and May 1, 1993 (as amended)
(collectively, the "Form 10-Qs"), and (iii) proxy statements relating to all
meetings of the Seller's shareholders (whether annual or special) since
December 31, 1992, (iv) all other reports (including any Form 8-K's) or
registration statements filed by the Seller with the Commission since December
31, 1992, and (v) the unaudited consolidated balance sheet and related
unaudited consolidated statements of income and cash flows of the Seller and
its Subsidiaries at January 29, 1994 and for year then ended (the "Unaudited
1994 Financial Statements"). As of their respective dates, such reports and
registration statements (including all exhibits and schedules thereto and
documents incorporated by reference therein) complied in all material respects
with all applicable requirements of the Exchange Act or the Securities Act, as
applicable, and did not contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The audited consolidated financial statements and unaudited
consolidated interim financial statements of the Seller and its Subsidiaries
included or incorporated by reference in the Form 10-Qs, such other reports and
the Unaudited 1994 Financial
B-6
<PAGE>
Statements (collectively, the "Seller Financial Statements") have been prepared
in accordance with generally accepted accounting principles applied on a
consistent basis during the periods involved (except as may be indicated in the
notes thereto), and fairly present the consolidated financial position of the
Seller and its Subsidiaries as of the dates thereof and the results of their
operations and changes in their financial position for the periods then ended,
except as otherwise noted therein and subject, in the case of the unaudited
interim financial statements (other than the Unaudited 1994 Financial
Statements), to normal year-end adjustments and any other adjustments described
therein. The consolidated balance sheet of the Seller and its Subsidiaries as
at January 29, 1994, is referred to as the "Balance Sheet," and January 29,
1994, is referred to as the "Balance Sheet Date."
6.6 No Undisclosed Liabilities. At the Balance Sheet Date, the Seller and its
Subsidiaries taken as a whole did not have any direct or indirect liabilities
or obligations, secured or unsecured, known or unknown, fixed or unfixed,
choate or inchoate, liquidated or unliquidated, accrued, absolute, contingent
or otherwise, not reflected, reserved against or disclosed in the Balance Sheet
or in the footnotes thereto which were required to be reflected, reserved
against or disclosed therein in accordance with generally accepted accounting
principles. Since the Balance Sheet Date, except as disclosed in the Unaudited
1994 Financial Statements or the Disclosure Schedule, neither the Seller nor
any of its Subsidiaries has incurred any liabilities or obligations other than
(i) in the ordinary course of business, (ii) those contained in the agreements
entered into or to be entered into in connection with the Transactions or
incurred in connection with consummating the Transactions or (iii) in amounts
that, individually or in the aggregate, are not material to the Condition of
the Seller or its ability to consummate the Transactions or the other
transactions contemplated hereby or to the Buyer, in relation to the Designated
Amount; provided, however, that the foregoing exceptions shall not limit the
rights of the Buyer and its Affiliates under the Seller Indemnification
Agreement.
6.7 Litigation. Except as set forth in the Disclosure Schedule, there is no
Action pending or, to the Seller's knowledge, threatened against or involving
the Seller or any of its Subsidiaries, or any of its properties or rights, and
neither the Seller nor any of its Subsidiaries is subject to any order, writ,
injunction or decree, which, in each case, is reasonably likely (i) to have a
material adverse effect on the Condition of the Seller or its ability to
consummate the Transactions or the other transactions contemplated hereby or
(ii) to be material to the Buyer, in relation to the Designated Amount.
6.8 Regulatory and Environmental Compliance.
6.8.1 The Seller and each of its Subsidiaries have conducted their respective
businesses so as to comply with all applicable Requirements of Law relating to
the operations, conduct or ownership of the property or business of the Seller
or any Subsidiary, the failure to comply with which would, individually or in
the aggregate, have a material adverse effect on the Condition of the Seller.
"Requirements of Law" means (i) the charter or by-laws or other organizational
or governing documents of the Seller, or (ii) any statute, law (including
common law), treaty, rule, regulation or ordinance (including, without
limitation, environmental, pollution control, occupational health and safety
and food and drug regulations) or permit or any judgment, decree, injunction,
order or legally binding determination of any Governmental Body applicable to
the Seller or any of its Subsidiaries existing as of the date hereof.
6.8.2 No notice, written notification (and, to the Seller's knowledge, no
oral notification or notice), demand, request for information, citation,
summons or order has been received, no complaint has been filed, no penalty has
been assessed which has not been paid, and no written notice (and, to the
Seller's knowledge, no oral notification or notice) has been received by the
Seller or any of its Subsidiaries that any investigation or review is pending
or threatened by any Governmental Body or other Person, with respect to any
alleged violation by the Seller or any of its Subsidiaries of any Requirements
of Law, with respect to any generation, treatment, storage, recycling,
transportation or disposal or release, as defined in 42 USC (S) 9601(22),
including into an indoor environment ("Release"), of any toxic, caustic or
otherwise hazardous substance including asbestos, petroleum, its derivatives,
by-products and other hydrocarbons, regulated under federal, state or local
environmental statutes, ordinances, rules, regulations or orders ("Hazardous
Substance").
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6.8.3 No Hazardous Substance is present in violation of any Requirements of
Law at any property now owned or leased by the Seller or any of its
Subsidiaries, and no Hazardous Substance resulting from the Seller's or any of
its Subsidiaries' operations is present in violation of any Requirements of Law
at any property formerly owned or leased by the Seller or any of its
Subsidiaries. There are no underground storage tanks for Hazardous Substances
present in violation of any Requirements of Law at any property now owned or
leased by the Seller or any of its Subsidiaries or, on any property previously
owned or leased by the Seller or any of its Subsidiaries, with respect to which
the Seller or any such Subsidiary may have liability. There has been no Release
of any Hazardous Substance, and no Hazardous Substance is present, in a
reportable or threshold quantity, where such a quantity has been established by
statute, ordinance, rule, regulation or order, at, on or under any property now
or previously owned by the Seller or any of its Subsidiaries, except for
Releases in such quantities that have been reported and for which all
Requirements of Law have been satisfied.
6.8.4 To the Seller's knowledge, neither the Seller nor any of its
Subsidiaries has transported or arranged for the transportation, directly or
indirectly, of any hazardous waste (as defined under applicable Federal or
state law) to any location which is listed or proposed for listing on the
National Priorities List ("NPL") under the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended ("CERCLA"), or on
the Comprehensive Environmental Response, Compensation and Liability
Information System ("CERCLIS"), or on any similar state list, which is the
subject of federal, state or local enforcement actions or other investigations
which may reasonably be expected to lead to claims against the Seller or any of
its Subsidiaries for cleanup costs, remedial work, damages to natural resources
or for personal injury claims, including, but not limited to, claims under
CERCLA.
6.8.5 Except as set forth in the Disclosure Schedule, no oral or written
notification of a Release of a Hazardous Substance has been filed by or on
behalf of the Seller or any of its Subsidiaries and no property now or, to the
Seller's knowledge, previously owned or leased by the Seller or any of its
Subsidiaries is listed or, to the Seller's knowledge, proposed for listing, on
the NPL, on CERCLIS or any similar state list of sites requiring investigation
or clean-up.
6.8.6 There are no environmental Liens on any of the real property or other
properties owned or leased by the Seller or any of its Subsidiaries, and
neither the Seller nor any of its Subsidiaries has been notified of any
governmental actions that have been taken or are in process which could subject
any of such properties to such Liens and neither the Seller nor any of its
Subsidiaries are required to place any notice or restriction relating to the
presence of Hazardous Substances at any property owned by any of them in any
deed to such property.
6.8.7 To the Seller's knowledge, except as set forth in the Disclosure
Schedule, there is no fact, circumstance or condition of or concerning any
property now or previously owned or leased by the Seller or any of its
Subsidiaries that is reasonably likely to result in any material liability to
the Seller, any of its Subsidiaries or the Buyer (in relation to the Designated
Amount) under or based on any Requirements of Law.
6.9 Brokers. Other than as previously disclosed to the Buyer, no broker,
finder or investment banker is entitled to any brokerage, finder's or other fee
or commission in connection with the Acquisition or the transactions
contemplated hereby based upon arrangements made by or on behalf of the Seller.
6.10 Ruling Request. All representations and statements of fact included in
the Ruling Request (and any supplements, additions or exhibits thereto), to the
extent that they relate to the Seller or its Subsidiaries, any Petrie Business
Acquiror or the Named Party are true, complete and accurate in all material
respects.
6.11 Disclosure. No written statement, certificate, schedule, list or other
written information furnished by or on behalf of the Seller to the Buyer
contemplated by this Agreement contains or will contain any untrue statement of
a material fact or omits or will omit to state a material fact necessary in
order to make the statements herein or therein, in light of the circumstances
under which they were made, not misleading.
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7. Representations and Warranties of the Buyer. The Buyer represents and
warrants to the Seller as follows:
7.1 Organization. The Buyer is a corporation organized, existing and in good
standing under the laws of the State of Delaware and has the requisite
corporate power to carry on its business as now conducted.
7.2 Authority Relative to this Agreement.
7.2.1 The Buyer has the requisite corporate power and authority to enter into
this Agreement and to perform its obligations hereunder. The execution and
delivery of this Agreement by the Buyer and the consummation by the Buyer of
the transactions contemplated hereby have been duly authorized by the Board of
Directors of the Buyer, and no other corporate proceeding on the part of the
Buyer is necessary to authorize this Agreement and the transactions
contemplated hereby. This Agreement has been duly executed and delivered by the
Buyer and constitutes, and the Buyer Indemnification Agreement will, upon its
execution, constitute, a valid and binding obligation of the Buyer, enforceable
against the Buyer in accordance with its terms.
7.2.2 Neither the execution and delivery of this Agreement or the Buyer
Indemnification Agreement by the Buyer nor the consummation of the transactions
contemplated hereby nor compliance by the Buyer with any of the provisions
hereof will (i) violate, conflict with, or result in a breach of any provision
of, or constitute a default (or an event which, with notice or lapse of time or
both, would constitute a default) under, or result in the termination of, or
accelerate the performance required by, or result in a right of termination or
acceleration under, or result in the creation of any Lien upon any of the
properties or assets of the Buyer under, any of the terms, conditions or
provisions of (x) the Certificate of Incorporation or By-Laws of the Buyer or
(y) any note, bond, mortgage, indenture, deed of trust, license, lease,
agreement or other instrument or obligation to which the Buyer is a party, or
to which it, or any of its properties or assets, may be subject, or (ii)
subject to compliance with the statutes and regulations referred to in Section
7.2.3 below, violate any judgment, ruling, order, writ, injunction, decree,
statute, rule or regulation applicable to the Buyer or any of its properties or
assets, except in the case of clauses (i)(y) and (ii) above for violations,
breaches and defaults which would not, individually or in the aggregate, have a
material adverse effect on the ability of the Buyer to consummate the
Transactions or the other transactions contemplated hereby.
7.2.3 Other than compliance with the H-S-R Act and the Securities Act, no
notice to, filing with, or authorization, consent or approval of, any
Governmental Body is necessary for the consummation by the Buyer of the
transactions contemplated by this Agreement and the Buyer Indemnification
Agreement.
7.3 Buyer Common Stock. The shares of Buyer Common Stock constituting the
Purchase Consideration, when issued and delivered as consideration for the
Purchased Assets pursuant to the terms hereof, will be validly issued and
outstanding, fully paid and nonassessable, and the issuance of such shares is
not and will not be subject to preemptive rights of any securityholder of the
Buyer.
7.4 Brokers. Other than as previously disclosed to the Seller, no broker,
finder or investment banker is entitled to any brokerage, finder's or other fee
or commission in connection with the Acquisition or the transactions
contemplated hereby based upon arrangements made by or on behalf of the Buyer.
7.5 Ruling Request. All representations and statements of fact included in
the Ruling Request (and any supplements, additions or exhibits thereto), to the
extent that they relate to the Buyer, are true, complete and accurate in all
material respects.
8. Covenants and Agreements. The Buyer and the Seller covenant and agree as
follows:
8.1 Conduct of Business. From the date hereof through the Closing Date,
unless the Buyer shall otherwise agree in writing or as otherwise expressly
contemplated hereby, neither the Seller nor any of its
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Subsidiaries shall, directly or indirectly, take (or agree, in writing or
otherwise, to take) any action, including without limitation, any acquisition
(by merger, consolidation, or acquisition of stock or assets) of any other
Person, or any investment either by purchase of stock or securities,
contributions to capital (other than to wholly-owned Subsidiaries), property
transfer, or, except in the ordinary course, purchase of any property or assets
of any other Person, or the incurrence of any indebtedness for money borrowed
or the issuance of any debt securities or the assumption or guarantee of any of
the foregoing, except short-term indebtedness incurred in the ordinary course
of business and consistent with past practices, (i) which would make any
representation or warranty in Section 6 hereof untrue or incorrect in any
material respect, (ii) which materially impairs the Seller's ability to satisfy
any of the conditions set forth in Section 9.1 or 9.3 below or has the effect
of preventing or disabling the Seller from performing its obligations under
this Agreement, (iii) which diminishes the number of shares of Buyer Common
Stock held by the Seller or its Subsidiaries as of the date hereof by an amount
greater than the number of Permitted Shares or (iv) which could reasonably
result in preventing the consummation of the Transactions or the other
transactions contemplated hereby.
8.2 The Petrie Stock Transfer; the Disposition; the Dissolution.
8.2.1 Prior to the Closing Date, the Seller will consummate the Petrie Stock
Transfer in a manner that will not give rise to the recognition of taxable
income or gain to the Seller or any of its Subsidiaries for Federal income tax
purposes. In addition, prior to the Closing Date, the Seller shall use all
commercially reasonable efforts to consummate the Disposition in the manner set
forth (x) in the Ruling Request or in any manner set forth in a supplement to
the Ruling Request and (y) in the Private Letter Ruling, except to the extent
the Buyer concludes in good faith that the manner set forth in such supplement
may result in the Buyer incurring liabilities or obligations. In any case, the
parties intend that the Disposition will not create, give rise to or result in
any liability or obligation to the Buyer. In that regard, the Seller, on or
prior to the Closing Date, (i) will cause to be paid or satisfied any of its or
its Subsidiaries' liabilities that become due on or prior to the Closing Date,
and (ii) will establish an escrow and trust containing cash (or, to the extent,
the Seller's available cash shall be insufficient, shares of Buyer Common Stock
received as Purchase Consideration) and, to the extent determined by the
Seller, other assets in an amount (the "Escrow Amount") reasonably believed by
the Board of Directors of the Seller to satisfy the requirements of the BCL and
be sufficient to pay or adequately provide for any known, actual or contingent
liabilities or obligations of the Seller or its Subsidiaries, or arising out of
the Transactions that may be asserted against the Seller, its Subsidiaries,
such escrow and trust or the Buyer. Written notice of a preliminary estimate of
the Escrow Amount made by the Seller in good faith shall be delivered to the
Buyer at least 45 days prior to the Closing Date. Written notice of the
determination of the Escrow Amount by the Seller's Board of Directors and the
terms thereof, including copies of the minutes of any meetings or any consents
related thereto, shall be delivered to the Buyer at least 5 business days prior
to the Closing Date.
8.2.2 The foregoing escrow and trust shall be established with an independent
third party escrow agent reasonably acceptable to the Buyer pursuant to an
escrow agreement and trust agreement, in form and substance reasonably
acceptable to the Buyer, which agreements shall include provisions entitling
the Buyer to receive payment thereunder. The liabilities to be provided for in
the escrow and trust will include, without limitation, liabilities (if any)
under contracts, leases or other agreements, liability (if any) to trade and
other creditors, liability (if any) to dissenting shareholders of the Seller,
any liability (including legal fees and disbursements) related to any Actions
arising from the transactions contemplated hereby or relating to any assertion
of liability provided for in this Section 8.2, environmental liabilities (if
any), indebtedness for money borrowed (if any) and the fees and expenses of
consummating the transactions contemplated hereby. Such escrow agreement shall
provide that any tax imposed with respect to such escrow arrangement or the
earnings with respect to amounts contained in such escrow shall be paid with
funds withdrawn from such escrow.
8.2.3 Subsequent to the Acquisition, the Seller will consummate the
Dissolution, pursuant to which it will distribute the shares of Buyer Common
Stock received as Purchase Consideration (other than shares subject to escrow
as provided above) to the holders of Seller Common Stock.
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8.3 Call of Convertible Debentures. Prior to the Closing Date, the Seller
will call for redemption all outstanding Convertible Debentures and, on or
prior to the Closing Date, cause all such Convertible Debentures to be redeemed
or converted into Seller Common Stock pursuant to the terms thereof.
8.4 Ruling Request. The Seller and the Buyer shall promptly submit to the IRS
a joint request for a Private Letter Ruling, in a form to be agreed by the
Seller and the Buyer, requesting the IRS to rule that the Petrie Stock Transfer
does not give rise to the recognition of taxable income or gain to the Seller
or any Subsidiary thereof or the Buyer or any Subsidiary thereof, and that the
Acquisition and the Dissolution qualify as a reorganization under Section
368(a)(1)(C) of the Code (the "Ruling Request"), and, accordingly, no gain or
loss will be recognized by shareholders of the Seller by reason of receipt of
Buyer Common Stock in exchange for their Seller Common Stock. The Seller and
the Buyer shall each (i) notify the other promptly of the receipt of any
communications from the IRS regarding such request, (ii) participate in any
discussions with the IRS related thereto, and (iii) provide the other with
draft copies of all submissions proposed to be made in connection with such
request sufficiently in advance so as to provide the other with an adequate
opportunity to review and comment on such submissions.
8.5 Agreement Not to Sell Petrie Block Shares. The Seller hereby covenants
and agrees that the Seller will not:
(i) directly or indirectly, sell, transfer, assign, pledge, hypothecate
or otherwise dispose of or encumber the Petrie Block Shares, or enter into
any contract, option, agreement or the arrangement with respect to the
foregoing; provided, that the Seller may (A) sell or otherwise dispose of a
number of Petrie Block Shares equal to the number of Permitted Shares, so
long as (x) any such sale or disposition is made for a purpose of which the
Buyer is given prior written notice, (y) any such sale or disposition is
not made during the 10 trading days immediately preceding the commencement
of, or during, the Valuation Period and (z) prompt notice of the
consummation of such sale or disposition is given to the Buyer; and (B)
pledge pursuant to a pledge agreement delivered to the Buyer promptly upon
the execution and delivery thereof any Petrie Block Shares in one or more
bona fide loan transactions for the purpose of financing the Seller's
working capital and capital expenditures in the ordinary course of business
so long as the aggregate outstanding amount secured by such pledges does
not, at any time, exceed $175,000,000 (and upon foreclosure on any Petrie
Block Shares so pledged, the number of Petrie Block Shares so foreclosed
upon shall be taken into account in determining compliance with clause (A)
above);
(ii) directly or indirectly, solicit, encourage, participate in or
initiate discussions or negotiations with, or provide information to, any
Person other than the Buyer or any Affiliate or representative of the
Buyer, concerning any direct or indirect sale or other disposition of the
Petrie Block Shares, except as permitted above; or
(iii) purchase any additional shares of Buyer Common Stock.
8.6 Proxy Statement; Other Seller Filings. As promptly as practicable after
the date hereof, the Seller shall prepare and file with the Commission under
the Exchange Act, and shall use all reasonable efforts to have cleared by the
Commission, and promptly thereafter shall mail to its shareholders, a proxy
statement and form of proxy with respect to the Shareholders Meeting. "Proxy
Statement" means such proxy statement and form of proxy at the time it is
initially mailed to the Seller's shareholders and all amendments or supplements
thereto, if any, similarly filed and mailed. As soon as practicable after the
date of this Agreement, the Seller shall promptly prepare and file any other
filings required to be filed by the Seller under the Exchange Act, Securities
Act or any other federal or state securities laws relating to the Acquisition
and the transactions contemplated herein ("Other Seller Filings"). The Seller
shall notify the Buyer promptly of the receipt of any comments of the
Commission and of any request by the Commission for amendments or supplements
to the Proxy Statement or by any other governmental official with respect to
any Other Seller Filing or for additional information and will supply the Buyer
with copies of all correspondence with respect to the Proxy Statement and any
Other Seller Filings. Each of the Seller and the Buyer shall use its best
efforts to obtain and furnish the information required to be included in the
Proxy Statement and any Other Seller Filing. The Seller, after
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consultation with the Buyer, shall use its best efforts to respond promptly to
any comments made by the Commission with respect to the Proxy Statement and any
Other Seller Filing and any preliminary version thereof and cause the Proxy
Statement and related form of proxy to be mailed to the shareholders of the
Seller at the earliest practicable time. The Seller shall bear the costs and
expenses of printing and distributing the Proxy Statement and related form of
proxy (which will include the prospectus included in the Registration
Statement) to the Seller's shareholders, provided, that the Buyer shall be
responsible for any Commission or state blue sky filing or similar fees
relating to the Registration Statement, subject to Section 8.9 below. The
Seller shall notify the Buyer of its intention to mail the Proxy Statement to
the shareholders of the Seller at least 48 hours prior to the intended time of
such mailing. The information provided and to be provided by the Seller and the
Buyer, respectively, for use in the Proxy Statement and any Other Seller
Filings shall, on the date the Proxy Statement is first mailed to the Seller's
shareholders or any Other Seller Filing is filed with the appropriate
Governmental Body and in each case on the date of the Shareholders Meeting, be
true and correct in all material respects and shall not omit to state a
material fact necessary in order to make the statements made, in light of the
circumstances under which they were made, not misleading, and each of the
Seller and the Buyer agree to correct any such information provided by it for
use in the Proxy Statement or any Other Seller Filing which shall have become
false or misleading. The Proxy Statement and any Other Seller Filing, when
filed with the appropriate Governmental Body, shall comply as to form in all
material respects with all applicable requirements of law.
8.7 Meeting of Shareholders. The Seller shall take all action necessary, in
accordance with the BCL and its Certificate of Incorporation and By-Laws, to
duly call, give notice of, convene and hold a meeting of its shareholders as
promptly as practicable to consider and vote upon the approval of the
Acquisition and the transactions contemplated hereby (such meeting and any
adjournment or postponement thereof is referred to as the "Shareholders
Meeting"). The Proxy Statement shall contain the determinations and
recommendations of the Board of Directors of the Seller as to the Acquisition
and the transactions contemplated hereby, provided, that the Seller's Board of
Directors need not approve or recommend any particular form or terms of the
Disposition. The Seller shall use its best efforts to solicit from holders of
shares of Seller Common Stock proxies in favor of approval of the Acquisition
and the transactions contemplated hereby and to take all other action necessary
or, in the reasonable judgment of the Buyer, helpful to secure the vote of
holders of shares of Seller Common Stock required by law to effect the
Acquisition and the transactions contemplated hereby.
8.8 Registration Statement; Other Buyer Filings. As promptly as practicable
after the date hereof, the Buyer shall prepare and file the Registration
Statement with the Commission under the Securities Act and shall use all
reasonable efforts to cause the Registration Statement to be declared effective
by the Commission. As soon as practicable after the date of this Agreement, the
Buyer shall promptly prepare and file any other filings required to be filed by
the Buyer under the Securities Act or any other federal or state securities
laws relating to the Acquisition and the transactions contemplated herein
("Other Buyer Filings"). The Buyer shall notify the Seller promptly of the
receipt of any comments of the Commission and of any request by the Commission
for amendments or supplements to the Registration Statement or by any other
governmental official with respect to any Other Buyer Filing or for additional
information and will supply the Seller with copies of all correspondence with
respect to the Registration Statement and any Other Buyer Filings. Each of the
Seller and the Buyer shall use its best efforts to obtain and furnish the
information required to be included in the Registration Statement and any Other
Buyer Filing. The Buyer, after consultation with the Seller, shall use its best
efforts to respond promptly to any comments made by the Commission with respect
to the Registration Statement and any Other Buyer Filing and any preliminary
version thereof. The information provided and to be provided by the Seller and
the Buyer, respectively, for use in the Registration Statement and any Other
Buyer Filings shall, on the date the prospectus included in the Registration
Statement is first mailed to shareholders by the Seller as part of the Proxy
Statement or any Other Buyer Filing is filed with the appropriate Governmental
Body and, in each case, on the date of the Shareholders Meeting, be true and
correct in all material respects and shall not omit to state a material fact
necessary in order to make the statements made, in light of the circumstances
under which they were made, not
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misleading, and each of the Buyer and the Seller agree to correct any such
information provided by it for use in the Registration Statement or any Other
Buyer Filing which shall have become false or misleading. The Registration
Statement and any Other Buyer Filing, when filed with the appropriate
Governmental Body, shall comply as to form in all material respects with all
applicable requirements of law.
8.9 Fees and Expenses. If this Agreement or the transactions contemplated
hereby are abandoned or terminated for any reason (other than pursuant to
Section 10.1.8 or other than solely as a result of the failure to satisfy one
or more of the conditions set forth in (a) Section 9.2.1 or 9.2.2 or (b)
Section 9.2.3 or 9.3.3 solely as a result of the Buyer's refusal to comply with
Section 8.10(iv) below), the Seller shall promptly (and in any event within two
days after written request by the Buyer) reimburse the Buyer and its Affiliates
for all reasonable out-of-pocket expenses (including all fees and expenses of
counsel, outside accountants, investment banking firms, experts and consultants
to the Buyer and its Affiliates) incurred by them or on their behalf,
commencing in November 1993, in connection with the transactions contemplated
hereby, including without limitation, all costs and expenses of or relating to
(i) the preparation and negotiation of this Agreement, the Voting Agreement and
Proxy, the Seller Indemnification Agreement, the Buyer Indemnification
Agreement and the Ruling Request, (ii) the printing and filing of the
Registration Statement and exhibits thereto, each prospectus included therein
and any amendment or supplement to the Registration Statement or any such
prospectus, including, without limitation, any filing fees payable to the
Commission or any applicable blue sky authorities, (iii) the preparation and
delivery of stock certificates representing the Purchase Consideration, (iv)
the distribution, shipping and mailing to the Seller's shareholders of any
prospectus, including any supplement thereto, included in the Registration
Statement, (v) the listing of the shares representing the Purchase
Consideration on the New York Stock Exchange, (vi) any registration or
qualification of the shares representing the Purchase Consideration with
applicable blue sky authorities, including the fees and disbursements of blue
sky counsel in connection therewith and the preparation and printing of any
blue sky memoranda and (vii) compliance with the H-S-R Act, including the
payment of any filing fees. Except as provided in the preceding sentence, all
costs and expenses incurred in connection with this Agreement and the
transactions contemplated hereby shall be paid by the party incurring such
expenses.
8.10 Additional Agreements. Subject to the terms and conditions herein
provided, each of the parties hereto agrees to use its reasonable best efforts
to take, or cause to be taken, all actions and to do, or cause to be done, all
things necessary, proper or advisable to consummate and make effective as
promptly as practicable the transactions contemplated by this Agreement and to
cooperate with each other in connection with the foregoing, including (i) using
reasonable best efforts to obtain the favorable Private Letter Ruling
contemplated by Sections 9.2.3 and 9.3.3 below and all necessary waivers,
consents and approvals from other parties to loan agreements, leases and other
contracts and instruments; (ii) using reasonable best efforts to obtain all
necessary consents, approvals and authorizations as are required to be obtained
under any federal, state or foreign law or regulations, to defend all lawsuits
or other legal proceedings challenging this Agreement or the consummation of
the transactions contemplated hereby, to lift or rescind any injunction or
restraining order or other order adversely affecting the ability of the parties
to consummate the transactions contemplated hereby; (iii) effecting all
necessary registrations and filings, including, but not limited to, filings
under the H-S-R Act and submissions of information requested by governmental
authorities and (iv) suspending any tax-free distribution of shares of any
Subsidiary if necessary to satisfy the conditions set forth in Sections 9.2.3
and 9.3.3 below. For purposes of the foregoing sentence, the obligations of the
Seller and the Buyer to use "reasonable best efforts" to obtain waivers,
consents and approvals to loan agreements, leases and other contracts shall
not, by way of example, include any obligation to agree to an adverse
modification of the terms of such documents or to prepay or incur additional
obligations to such other parties. Nothing herein shall require the Seller to
effect the Disposition other than on terms its Board of Directors finds
acceptable.
8.11 Access to Information; Confidentiality.
8.11.1 Prior to the Closing Date, the Buyer shall be entitled, through its
officers, employees and agents, complete access at all reasonable times to the
offices and facilities of the Seller and its Subsidiaries and to
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their officers, employees, agents, properties, books, records and contracts,
and the Seller shall furnish the Buyer and its representatives all financial,
operating and other data and information as the Buyer, through its
representatives, may reasonably request. In addition, the Seller shall deliver
to the Buyer a copy of any report, opinion, recommendation, assessment,
summary, compilation or other document relating to the liabilities of the
Seller and its Subsidiaries and prepared for or on behalf of or addressed to
the Seller, the Seller's Board of Directors or any committee thereof. At the
Buyer's request, the Seller shall cause the party preparing any such document
to provide a letter permitting the Buyer to rely thereon as though it were
addressed to the Buyer. Subject to the requirements of law or judicial process,
the Buyer shall hold in confidence, and shall use its best efforts to cause its
representatives to hold in confidence, all nonpublic information concerning the
Seller until such time as such information is otherwise publicly available,
and, if this Agreement is terminated, the Buyer will, and will use its best
efforts to cause its representatives to, deliver to the Seller all documents,
work papers and other material (including copies) obtained by the Buyer, or on
its behalf, from the Seller as a result of this Agreement or in connection
herewith, whether so obtained before or after the execution hereof.
8.11.2 Prior to the Closing Date, the Seller shall be entitled to participate
in a due diligence meeting with one or more members of the senior management of
the Buyer, such member or members to be reasonably designated by the Buyer, to
the extent that such meeting shall be reasonably necessary to fulfill the due
diligence obligations of the Seller under the federal securities laws in
connection with the Proxy Statement. Subject to the requirements of law or
judicial process, the Seller shall hold in confidence all nonpublic information
concerning the Buyer until such time as such information is otherwise publicly
available.
8.11.3 No investigation pursuant to this Section 8.11 shall affect any
representations, warranties, covenants or agreements of the Seller or the Buyer
under this Agreement.
8.12 Public Announcements. The Seller and the Buyer will consult with each
other before issuing any press release or otherwise making any public
statements with respect to the transactions contemplated hereby (other than the
Disposition) and shall not issue any such press release or make any such public
statement prior to such consultation, except as may be required by law. Each of
the Seller and the Buyer shall expeditiously review any such press release or
other document in connection with any such consultation.
8.13 Notification of Certain Matters. The Seller shall give prompt notice to
the Buyer, and the Buyer shall give prompt notice to the Seller, of (i) the
occurrence, or failure to occur, of any event which occurrence or failure would
be likely to cause any of the representations or warranties of the Seller or
the Buyer, as the case may be, contained in this Agreement to be untrue or
inaccurate in any material respect at any time from the date hereof to the
Closing Date, and (ii) any material failure of the Seller or the Buyer, as the
case may be, or of any officer, director, employee or agent thereof, to comply
with or satisfy any covenant, condition or agreement to be complied with or
satisfied by it hereunder, provided, however, that no such notifications shall
affect the representations or warranties of the parties or the conditions to
the obligations of the parties hereunder.
8.14 Brokers. Any broker, finder or other fee or commission in connection
with the Transactions or the other transactions contemplated hereby based upon
arrangements made by or on behalf of either of the parties hereto will be paid,
except as set forth in Section 8.9 above, by the party making such arrangements
or on whose behalf such arrangements were made. Each party hereto will
indemnify and hold the other party harmless from any claims, liabilities, costs
and expenses incurred by such other party as a result of broker, finder or
other fees or commissions which were incurred by, or as result of any action or
involvement of, the indemnifying party in connection with the Transactions or
the other transactions contemplated hereby.
8.15 Bulk Sales. The Seller shall indemnify and hold harmless the Buyer and
its Affiliates against any Losses relating to, arising out of or in connection
with any liability under any Bulk Sales Act or similar law arising from the
Seller's consummation of the Disposition or any other transactions contemplated
hereby.
B-14
<PAGE>
8.16 Fiduciary Duty. Notwithstanding anything to the contrary herein, neither
the Seller nor the Buyer (or their respective boards of directors) shall be
prohibited from (i) making any disclosure to its own shareholders that, in the
judgment of the disclosing party's board of directors, in accordance with the
advice of counsel, is required under applicable law or (ii) taking any action
which the board of directors of the Seller or the Buyer, as the case may be,
determines in good faith on the basis of advice of counsel is necessary in
order for such board of directors to comply with its fiduciary obligations
under applicable law; provided, that, prior to making any such disclosure or
taking any such action, the party making such disclosure or taking such action
shall notify the other party in writing and afford the other party a reasonable
opportunity for consultation as to such proposed disclosure or action;
provided, further, (x) that the Buyer shall not exercise any rights under
clause (ii) above unless the Buyer shall determine in good faith to enter into
a transaction not solicited or initiated by the Buyer that its Board of
Directors determines, based upon advice of counsel, the Buyer is required to
enter into in accordance with the Board's fiduciary obligations and that would
be restricted or prohibited under the terms of the Ruling Request (other than
the transaction described in Section 8.10(iv)) and (y) that the Seller shall
not exercise any rights under clause (ii) above unless the Seller shall
determine in good faith to enter into a transaction not solicited or initiated
by the Seller that its Board of Directors determines, based upon advice of
counsel, the Seller is required to enter into in accordance with the Board's
fiduciary obligations.
9. Conditions.
9.1 Conditions to the Obligations of Each Party to Effect the
Acquisition. The respective obligations of each party to effect the Acquisition
shall be subject to the fulfillment at or prior to the Closing Date of each of
the following conditions:
9.1.1 The Transactions and the other transactions contemplated hereby shall
have been approved by the shareholders of the Seller by the vote (if any)
required by the BCL.
9.1.2 Any waiting period (and any extension thereof) applicable to the
consummation of the Acquisition under the H-S-R Act shall have expired or been
terminated.
9.1.3 No preliminary or permanent injunction or other order, decree or ruling
issued by a Governmental Body nor any statute, rule, regulation or executive
order promulgated or enacted by a Governmental Body shall be in effect which
would (i) make the acquisition by the Buyer of the Petrie Block Shares illegal
or (ii) otherwise prevent the consummation of the Acquisition and the
transactions contemplated hereby.
9.1.4 The Registration Statement shall be effective under the Securities Act
and no "stop order" shall have been issued with respect to the Registration
Statement and no proceeding for such purpose shall have been commenced.
9.1.5 The Petrie Stock Transfer and the Disposition shall have been completed
in a manner permitted by the Ruling Request and the Private Letter Ruling, as
the same shall be amended or supplemented from time to time.
9.1.6 The Buyer Common Stock constituting the Purchase Consideration shall
have been approved for listing by the New York Stock Exchange, subject to
official notice of issuance.
9.1.7 Any licenses, permits, consents, approvals, waivers, authorizations,
qualifications and orders of domestic governmental authorities and parties to
contracts and leases with the Seller and its Subsidiaries as are necessary in
connection with the consummation of the transactions contemplated hereby shall
have been obtained.
B-15
<PAGE>
9.2 Additional Conditions to the Obligations of the Seller. The obligation of
the Seller to effect the Acquisition is also subject to each of the following
conditions:
9.2.1 The Buyer shall in all material respects have performed each obligation
to be performed by it hereunder on or prior to the Closing Date.
9.2.2 The representations and warranties of the Buyer set forth in this
Agreement shall be true and correct in all material respects at and as of the
Closing Date as if made at and as of such time, except to the extent that any
such representation or warranty is made as of a specified date, in which case
such representation or warranty shall have been true and correct as of such
date.
9.2.3 The Seller shall have received a favorable private letter ruling (the
"Private Letter Ruling"), in form and substance reasonably satisfactory to the
Seller, from the IRS, to the effect that the consummation of the Petrie Stock
Transfer, the Acquisition and the Dissolution will not give rise to the
recognition of taxable income or gain to the Seller, any of its Subsidiaries or
the Buyer for Federal income tax purposes and no gain or loss will be
recognized by shareholders of the Seller by reason of receipt of Buyer Common
Stock in exchange for their Seller Common Stock.
9.2.4 The Seller shall have received the legal opinion of Schulte Roth &
Zabel, counsel to the Buyer, to the effect set forth in Exhibit C.
9.3 Additional Conditions to the Obligations of the Buyer. The obligation of
the Buyer to effect the Acquisition is also subject to each of the following
conditions:
9.3.1 The Seller shall in all material respects have performed each
obligation to be performed by it hereunder on or prior to the Closing Date.
9.3.2 The representations and warranties of the Seller set forth in this
Agreement shall be true and correct in all material respects at and as of the
Closing Date as if made at and as of such time, except to the extent that any
such representation or warranty is made as of a specified date, in which case
such representation or warranty shall have been true and correct as of such
date.
9.3.3 The Buyer shall have received a favorable Private Letter Ruling, in
form and substance satisfactory to the Buyer in good faith, from the IRS, to
the effect that the consummation of the Petrie Stock Transfer, the Acquisition
and the Dissolution will not give rise to the recognition of taxable income or
gain to the Seller, any of its Subsidiaries or the Buyer for Federal income tax
purposes and no gain or loss will be recognized by shareholders of the Seller
by reason of receipt of Buyer Common Stock in exchange for their Seller Common
Stock.
9.3.4 Prior to the Closing Date, the Seller shall have taken all steps
necessary to consummate the Dissolution other than the filing of the
Certificate of Dissolution of the Seller with the Department of State of the
State of New York, each in a form and by a method acceptable to the Buyer.
9.3.5 Prior to the Closing Date, the Seller shall have paid or satisfied all
of its liabilities and indebtedness or the Seller's Board of Directors shall
have made adequate provision therefor in the escrow and trust required by
Section 8.2 above in an amount, and with terms and conditions, reasonably
satisfactory to the Buyer, in relation to the Designated Amount.
9.3.6 The Buyer shall not have reasonably determined, after taking into
account any applicable terms and provisions of the escrow and trust required by
Section 8.2 above, that the consummation of the Transactions and the other
transactions contemplated hereby (i) could result in liability to the Buyer or
(ii) could result in the Buyer receiving less than the Designated Amount, as
set forth in this Agreement.
B-16
<PAGE>
9.3.7 No Action shall have been commenced and be pending by any Person
against the Seller or the Buyer or any of their Affiliates, associates,
officers or directors, which is reasonably likely to be material to the Buyer,
in relation to the Designated Amount.
9.3.8 The holders of no more than 9.5% of the shares of Seller Common Stock
outstanding on the Closing Date shall have perfected dissenter's rights with
respect to any of the Transactions.
9.3.9 The Buyer shall have received the legal opinion of Skadden, Arps,
Slate, Meagher & Flom, counsel to the Seller, to the effect set forth in
Exhibit D.
10. Termination, Amendment and Waiver.
10.1 Termination. This Agreement may be terminated and the Acquisition and
the transactions contemplated hereby may be abandoned, by written notice
promptly given to the other party hereto, at any time prior to the Closing
Date, whether prior to or after approval by the shareholders of the Seller:
10.1.1 By mutual written consent of the Boards of Directors of the Seller and
the Buyer;
10.1.2 By either the Seller or the Buyer, if a Governmental Body shall have
issued an order, decree or ruling or promulgated or enacted any statute, rule,
regulation or executive order, in each case, permanently restraining, enjoining
or otherwise prohibiting the transactions contemplated by this Agreement;
provided, however, that any such order, decree or ruling shall have become
final and nonappealable;
10.1.3 By either the Seller or the Buyer, if the Closing shall not have
occurred on or before the Termination Date, unless the absence of such
occurrence shall be due to the failure of the party seeking to terminate this
Agreement to perform in all material respects each of its obligations under
this Agreement required to be performed by it prior to the Closing Date;
10.1.4 By either the Seller or the Buyer, if at the Shareholders Meeting the
Transactions and any other transactions contemplated hereby that are required
to be approved by the shareholders of the Seller shall fail to be approved by
such shareholders by the vote required by the BCL;
10.1.5 By either the Seller or the Buyer, if the Private Letter Ruling issued
by the IRS does not satisfy the conditions set forth in Sections 9.2.3 and
9.3.3 above, respectively;
10.1.6 By the Buyer, if the Buyer shall have reasonably determined, after
taking into account any applicable terms and provisions of the escrow and trust
required by Section 8.2 above, that consummation of the Transactions and the
other transactions contemplated hereby (i) could result in liability to the
Buyer or (ii) could result in the Buyer receiving less than the Designated
Amount, as set forth in this Agreement;
10.1.7 By the Buyer, if the Seller shall have (i) withdrawn, modified or
amended in any respect its approval or recommendation of the Acquisition or the
transactions contemplated hereby (other than any particular form of
Disposition), (ii) failed to include in the Proxy Statement such recommendation
(including the recommendation that the shareholders of the Seller vote in favor
of the Acquisition and the transactions contemplated hereby (other than any
particular form of Disposition), (iii) taken any public position inconsistent
with such recommendation or (iv) if the Board of Directors of the Seller shall
have resolved to do any of the foregoing;
10.1.8 By the Seller, if the Buyer fails to perform in all material respects
its obligations under this Agreement; provided, however, that the Buyer shall
have ten days from the date it receives notice of such failure to cure any
failure to perform any such obligations;
10.1.9 By the Buyer, if the Seller fails to perform in all material respects
its obligations under this Agreement; provided, however, that the Seller shall
have ten days from the date it receives notice of such failure to cure any
failure to perform any such obligations; or
B-17
<PAGE>
10.1.10 By the Seller, if the Board of Directors of the Seller shall
reasonably determine and notify the Buyer in writing that the contingent
liabilities of the Seller and its Subsidiaries have not been reduced below
$200,000,000.
10.2 Effect of Termination. In the event of the termination of this Agreement
and abandonment of the Acquisition as provided in Section 10.1 above, this
Agreement shall forthwith become void and there shall be no liability on the
part of the Seller or the Buyer, except as set forth in this Section, Section
8.9 above, the last sentences of Sections 8.11.1 and 8.11.2 above and Section
8.11.3 above and except to the extent that such termination results from the
willful breach of a party hereto of any of its representations, warranties,
covenants or agreements set forth in this Agreement.
10.3 Amendment. This Agreement may not be amended except by an instrument in
writing signed on behalf of each of the parties hereto.
10.4 Waiver. At any time prior to the Closing Date, whether before or after
the Shareholders Meeting, any party hereto, by action taken by its Board of
Directors, may (i) extend the time for the performance of any of the
obligations or other acts of any other party hereto or (ii) waive compliance
with any of the agreements of any other party or with any conditions to its own
obligations. Any agreement on the part of a party hereto to any such extension
or waiver shall be valid only if set forth in an instrument in writing signed
on behalf of such party by a duly authorized officer.
11. General Provisions.
11.1 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed to have been duly given if delivered personally or
sent by cable, telegram, telecopier or telex to the parties at the following
addresses or at such other addresses as shall be specified by the parties by
like notice:
(a) if to the Seller:
Petrie Stores Corporation
70 Enterprise Avenue
Secaucus, New Jersey 07094
Attention: Peter A. Left
Chief Operating Officer
Facsimile: (201) 866-2355
with a copy to:
Skadden, Arps, Slate, Meagher & Flom
919 Third Avenue
New York, New York 10022
Attention: Richard T. Prins, Esq.
Facsimile: (212) 735-2000
(b) if to the Buyer:
Toys "R" Us, Inc.
395 W. Passaic Street
Rochelle Park, New Jersey 07662
Attention: Louis Lipschitz
Chief Financial Officer
Facsimile: (201) 845-0973
with a copy to:
Schulte Roth & Zabel
900 Third Avenue
New York, New York 10022
Attention: Andre, Weiss, Esq.
Facsimile: (212) 593-5955
B-18
<PAGE>
11.2 Representations and Warranties; Etc. The respective representations and
warranties (other than Sections 6.10 and 7.5 above) of the Seller and the Buyer
contained herein shall expire with, and be terminated and extinguished upon,
consummation of the Acquisition and the transactions contemplated hereby, and
thereafter neither the Seller nor the Buyer nor any officer, director or
principal thereof shall be under any liability whatsoever with respect to any
such representation or warranty. This Section 11.2 shall have no effect upon
any other obligation of the parties hereto, whether to be performed before or
after the consummation of the Acquisition and the transactions contemplated
hereby.
11.3 Validity. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other
provisions of this Agreement, which shall remain in full force and effect.
11.4 Descriptive Headings. The descriptive headings herein are inserted for
convenience of reference only and are not intended to be part of or to affect
the meaning or interpretation of this Agreement.
11.5 Parties in Interest. This Agreement shall be binding upon and inure
solely to the benefit of each party hereto, and nothing in this Agreement,
express or implied, is intended to confer upon any other Person any rights or
remedies of any nature whatsoever under or by reason of this Agreement.
11.6 Miscellaneous. This Agreement and the Voting Agreement and Proxy (i)
constitute the entire agreement and supersede all other prior agreements and
undertakings, both written and oral, between or among the parties thereto with
respect to the subject matter hereof or thereof; (ii) may not be assigned by
either the Seller or the Buyer without the consent of the other party; and
(iii) shall be governed in all respects, including validity, interpretation and
effect, by the laws of the State of New York applicable to agreements made and
to be performed entirely within such State. This Agreement may be executed in
one or more counterparts which together shall constitute a single agreement.
In Witness Whereof, the Seller and the Buyer have caused this Agreement to be
executed as of the date first above written by their respective officers
thereunto duly authorized.
Toys "R" Us, Inc.
/s/ Louis Lipschitz
By: _________________________________
Name: Louis Lipschitz
Title: Senior VP--Finance and CFO
Petrie Stores Corporation
/s/ Allan Laufgraben
By: _________________________________
Name: Allan Laufgraben
Title: CEO--President
B-19
<PAGE>
May 10, 1994
Petrie Stores Corporation
70 Enterprise Avenue
Secaucus, New Jersey 07094
Re: Amendment No. 1
Dear Sirs:
Reference is made to the Acquisition Agreement, dated as of April 20, 1994,
between Toys "R" Us, Inc., a Delaware corporation (the "Buyer"), and Petrie
Stores Corporation, a New York corporation (the "Seller") (the "Acquisition
Agreement"). Capitalized terms used but not defined herein shall have the
meanings specified in the Acquisition Agreement.
The parties desire to amend the Acquisition Agreement.
Accordingly, the Buyer and the Seller hereby agree as follows:
1. Section 3(b) of the Acquisition Agreement is amended by adding the
following at the end thereof:
"The shares of Buyer Common Stock constituting the Purchase
Consideration shall be shares held in the treasury of the Buyer (and
previously included in a listing application approved by the New
York Stock Exchange), including without limitation, the Closing Date
Petrie Block Shares which shall be delivered to the Buyer pursuant
to Section 2(i) above."
2. Section 9.1.6 of the Acquisition Agreement is deleted in its entirety,
and Section 9.1.7 thereof is redesignated as Section 9.1.6.
Sincerely yours,
Toys "R" Us, Inc.
/s/ Louis Lipschitz
By: _________________________________
Name: Louis Lipschitz
Title: Senior Vice President--
Finance and Chief Financial
Officer
Accepted and Agreed:
Petrie Stores Corporation
/s/ Peter A. Left
By: _________________________________
Name: Peter A. Left
Title: Vice Chairman, Chief
Operating Officer, Chief
Financial Officer and
Secretary
B-20
<PAGE>
ANNEX C
PLAN OF LIQUIDATION AND DISSOLUTION OF PETRIE STORES CORPORATION
The following Plan of Liquidation and Dissolution (the "Plan") shall effect
the complete liquidation and dissolution of PETRIE STORES CORPORATION, a New
York corporation ("Petrie"), in accordance with Sections 368(a)(1)(C),
368(a)(2)(G) and 361(c) of the Internal Revenue Code of 1986, as amended (the
"Code"), and Article 10 of the New York Business Corporation Law (the "NYBCL").
1. Adoption of Plan. The Plan shall become effective, subject to the
conditions hereinafter provided, upon its approval and adoption by the
affirmative vote of the holders of record of two-thirds of the outstanding
shares of Petrie's common stock, par value $1.00 per share ("Petrie Common
Stock"), voting at a shareholders meeting called for such purpose. Such
approval of the Plan shall constitute approval by Petrie's shareholders of the
sale of substantially all of the assets of Petrie in accordance with Section
909 of the NYBCL and approval of each of the other actions contemplated by the
Plan.
2. The Exchange. Within the twelve-month period beginning on the date on
which the Plan becomes effective (the "Liquidation Period"), and pursuant to
the Acquisition Agreement, dated April 20, 1994, as amended on May 10, 1994,
between Petrie and Toys "R" Us, Inc., a Delaware corporation ("Toys"), Petrie
shall exchange with Toys all of the shares of Toys common stock, par value $.10
per share ("Toys Common Stock") held by certain subsidiaries of Petrie and cash
(up to $250 million) for a number of shares of Toys Common Stock equal to (a)
the number of shares of Toys Common Stock held by Petrie, less approximately
3.3 million shares of Toys Common Stock, plus (b) such amount of cash divided
by the market value of a share of Toys Common Stock (the "Exchange").
3. The Disposition. Within the Liquidation Period, Petrie shall have the
authority to engage in such transactions as may be appropriate to the sale or
other disposition (the "Disposition") of (i) the stock of any subsidiary of
Petrie engaged in retail operations and (ii) any retail assets held directly or
indirectly by Petrie (the "Retail Operations").
4. Sale of Other Assets. Within the Liquidation Period, Petrie shall have the
authority to engage in such other transactions as may be appropriate to its
complete liquidation and dissolution, including without limitation, the
authority to mortgage, pledge, sell, lease, exchange or otherwise dispose of
all or any part of its other assets for cash and/or shares, bonds, or other
securities or property upon such terms and conditions as Petrie's Board of
Directors shall determine, with no further approvals by Petrie's shareholders
except as required by law.
5. Provision for Liabilities. Within the Liquidation Period, Petrie shall pay
or discharge, or set aside cash, Toys Common Stock, or other assets for the
payment or discharge of, or to otherwise provide for, its liabilities and
obligations, including contingent or unascertained liabilities and obligations
determined or otherwise reasonably estimated to be due either by Petrie's Board
of Directors or a court of competent jurisdiction (the "Liabilities"). The
foregoing may be accomplished by use of one or more trusts (including a
liquidating trust), escrows, plans or other arrangements as determined by
Petrie's Board of Directors or required by law, and Petrie's shareholders by
adoption of this Plan do constitute and appoint any agent or trustee under the
arrangement provided by the Board of Directors pursuant to this Paragraph 5 as
the agent or trustee for the limited purposes provided in the agreement in
which such purposes are set forth.
6. Distribution to Shareholders. Upon the consummation of the Exchange and
the Disposition, and within the Liquidation Period, Petrie shall distribute
(the "Initial Distribution") to its shareholders their pro rata share of the
shares of Toys Common Stock received by Petrie in the Exchange and all of
Petrie's cash, if any, other than such shares of Toys Common Stock and cash set
aside for the payment of the Liabilities (the "Retained Assets"), in one or
more distributions, at such time and in such manner as Petrie's Board of
Directors, in its discretion, shall deem advisable.
<PAGE>
7. Escrow. Petrie, at such time as its Board of Directors shall deem
practicable, but in any event within the Liquidation Period, shall create and
execute with one or more agents ("Agents") selected by Petrie's Board of
Directors, one or more escrow agreements substantially in the form annexed
hereto as Exhibit A (the "Escrow"), and transfer to the Agents of the Escrows
physical possession of the Retained Assets. The Retained Assets will be held by
the Escrow Agents to provide for the Liabilities and for distributions to
beneficiaries of the Liquidating Trust (as defined below). Pursuant to the
terms of the Liquidating Trust Agreement (as defined below), Petrie will grant,
assign and convey all rights of ownership of the Retained Assets, subject to
the terms and provisions of the Escrows, to the Liquidating Trust.
8. Liquidating Trust. Petrie, at such time as its Board of Directors shall
deem practicable, but in any event within the Liquidation Period, shall (i)
create and execute with trustees ("Trustees") who were selected by Petrie's
Board of Directors, a liquidating trust agreement substantially in the form
annexed hereto as Exhibit B (the "Liquidating Trust Agreement") to establish a
liquidating trust (the "Liquidating Trust"), (ii) grant, assign, and convey to
the Trustees of the Liquidating Trust all rights of ownership of the Retained
Assets, subject to the terms and provisions of the Escrows and all of the
Liabilities and (iii) distribute interests in the Liquidating Trust to its
shareholders (this section 8, together with the Initial Distribution, shall be
referred as the "Liquidation").
(a) No distributions of any of the assets held by the Trustees of the
Liquidating Trust shall be made by the Trustees other than as provided by
the express terms and provisions of the Liquidating Trust Agreement, and no
assets held by the Trustees shall ever revert or be distributed to Petrie
or to any Petrie shareholder, as such, other than a former Petrie
shareholder entitled thereto as provided in the Liquidating Trust
Agreement. Assets held in the Liquidating Trust shall be distributed to the
beneficiaries of the Liquidating Trust at the time and under the conditions
set forth in the express terms and provisions of the Liquidating Trust
Agreement.
(b) It is intended that the assignment of the assets to the Trustees of
the Liquidating Trust shall, subject to the terms and provisions of the
Liquidating Trust Agreement, constitute a final liquidating distribution by
Petrie to its shareholders of their pro rata interests in such assets, and
Petrie's shareholders shall be the owners of the Liquidating Trust within
the meaning of Sections 671 through 679 of the Code.
9. Abandonment of Plan. If the Exchange and the Disposition are not
consummated within the Liquidation Period for any reason, Petrie's Board of
Directors may, without further action by its shareholders, abandon all or part
of the Plan.
10. Filing of Forms. The officers of Petrie are authorized and directed to
execute and file United States Treasury Form 966 pursuant to Section 6043 of
the Code within 30 days after the adoption of the Plan in accordance with
Paragraph 1 hereof, and such other forms and reports as may be necessary to
comply with the requirements of any foreign, state or local law, and such
additional forms and reports with and to the Internal Revenue Service or other
taxing authorities as may be necessary, desirable or appropriate in connection
with the execution of the Plan.
11. Dissolution. Upon the consummation of the Exchange, the Disposition and
the Liquidation, the Board of Directors shall execute and file a certificate of
dissolution of Petrie in accordance with Sections 1003 and 1004 of the NYBCL.
After dissolution, Petrie shall carry on no business except for the purpose of
winding up its affairs in accordance with Article 10 of the NYBCL and the
Liquidating Trust Agreement.
12. Authorization to Board of Directors, Officers. Petrie's Board of
Directors and officers are authorized to approve such changes to the terms of
any of the transactions referred to herein, to interpret any of the provisions
of the Plan, and to make, execute and deliver such other agreements,
conveyances, assignments, transfers, certificates and other documents and take
such other action as such Board of Directors and officers deem necessary or
desirable in order to carry out the provisions of the Plan and effect the
complete liquidation and dissolution of Petrie in accordance with Sections
368(a)(1)(c), 368(a)(2)(G) and 361(c) of the Code and Article 10 of the NYBCL.
C-2
<PAGE>
ANNEX D
PETRIE STORES CORPORATION
LIQUIDATING TRUST AGREEMENT
AGREEMENT AND DECLARATION OF TRUST, dated , 1994, by and between Petrie
Stores Corporation, a New York corporation ("Petrie"), and ,
and (collectively, the "Trustees").
WHEREAS, Petrie and Toys "R" Us, Inc., a Delaware corporation ("Toys"), are
parties to an Acquisition Agreement, dated April 20, 1994, as amended on May
10, 1994 (the "Acquisition Agreement"), pursuant to which Petrie has agreed to
exchange with Toys all of the shares of Toys common stock, par value $.10 per
share ("Toys Common Stock"), previously held by certain subsidiaries of Petrie
and presently held by Petrie, and cash (up to $250 million) for a number of
shares of Toys Common Stock, equal to (a) the number of shares of Toys Common
Stock held by Petrie less approximately 3.3 million shares of Toys Common
Stock, plus (b) such amount of cash divided by the market value of a share of
Toys Common Stock (the "Exchange");
WHEREAS, the Exchange, in conjunction with the complete liquidation of
Petrie, is intended to qualify as a tax-free reorganization under Sections
368(a)(1)(C) and (a)(2)(G) of the Internal Revenue Code of 1986, as amended
(the "Code");
WHEREAS, Petrie's Board of Directors anticipates that Petrie may not be able
to fully wind up all of its affairs prior to the date by which Petrie must
dissolve, and therefore have made specific arrangements for such contingency in
the Plan of Liquidation and Dissolution (the "Plan of Liquidation and
Dissolution");
WHEREAS, on November 1, 1994, Petrie's Board of Directors voted to submit to
its shareholders, among other things, (i) the disposition of Petrie's retail
store operations (the "Disposition"), (ii) the Exchange, and (iii) the
establishment of a liquidating trust and the complete liquidation and
dissolution of Petrie (the "Liquidation," and together with the Exchange and
Disposition, the "Transaction"), and on December 6, 1994, its shareholders
approved the Disposition, and on January [ ], 1995, its shareholders approved
the Exchange and the Liquidation, authorizing the complete liquidation and
dissolution of Petrie pursuant to the Plan of Liquidation and Dissolution (the
"Plan"); and
WHEREAS, the Plan, among other things, (i) provides that upon consummation of
the Exchange, Petrie will distribute pro rata to its shareholders all of its
assets consisting of Toys Common Stock and cash, if any, other than such assets
retained by Petrie and set aside in escrow (the "Retained Assets") to provide
for the payment of all liabilities of Petrie, (ii) provides for the
establishment of a liquidating trust pursuant to the terms and conditions
hereof (the "Trust") and the establishment of one or more escrow accounts (the
"Escrow Accounts"), pursuant to the terms and conditions of one or more
separate escrow agreements (the "Escrow Agreements"), (iii) provides the
methods by which both the Trustees were selected to serve as agents of the
Beneficiaries (as defined below) and trustees of the Trust, and one or more
escrow agents were selected to administer the Escrow Accounts, (iv) authorizes
and directs Petrie to grant, assign and convey the Retained Assets to the
Trustees as agents for the Beneficiaries (as defined below) in cancellation of
the interest of the Shareholders in Petrie, subject to the terms and provisions
of the Escrow Agreements, and to transfer physical possession of the Retained
Assets to the Escrow Agents, and (v) authorizes and directs the Trustees to
allocate, hold and distribute the Trust Assets for and on behalf of the
Beneficiaries in accordance with the terms and conditions hereof.
NOW, THEREFORE, in consideration of the premises, Petrie hereby, subject to
the terms and provisions of the Escrow Agreements, grants, releases, assigns,
conveys and delivers unto the Trustees for the benefit of the beneficiaries of
the Trust (the "Beneficiaries"), all of Petrie's right, title and interest in
and to the Retained Assets for the uses and purposes stated herein, subject to
the terms and provisions set out below, and the Trustees hereby accept such
assets and such Trust, subject to the following terms and provisions:
<PAGE>
ARTICLE I
Name and Definitions
1.1. Name. This trust shall be known as the Petrie Liquidating Trust.
1.2. Certain Terms Defined. For all purposes of this instrument, unless the
context otherwise requires:
(a) Affiliated Person shall mean a Person (i) who in his individual
capacity is a director, trustee, officer, partner or employee of the
Manager or of a Person who controls, is controlled by or is under common
control with the Manager or (ii) who controls, is controlled by or is under
common control with the Manager.
(b) Affiliated Trustee shall mean a Trustee (i) who in his individual
capacity is a director, trustee, officer, partner or employee of the
Manager or of a Person who controls, is controlled by or is under common
control with the Manager or (ii) who controls, is controlled by or is under
common control with the Manager.
(c) Agreement shall mean this instrument as originally executed or as it
may from time to time be amended pursuant to the terms hereof.
(d) Beneficial Interest shall mean each Beneficiary's proportionate share
of the Trust Assets initially determined by the ratio of the number of
Shares held by the Initial Beneficiary on the close of business on the
Record Date over the total number of Shares issued and outstanding on such
Record Date and thereafter each Beneficiaries' proportional beneficial
interest in the Trust.
(e) Initial Beneficiary shall mean each of the Shareholders.
(f) Manager shall mean such Person or Persons who have been employed by,
or who have contracted with, the Trustees to assist in the management of
the Trust.
(g) Person shall mean an individual, a corporation, a partnership, an
association, a joint stock company, a limited liability company, a trust, a
joint venture, any unincorporated organization, or a government or
political subdivision thereof.
(h) Record Date shall mean the date selected by the Board of Directors of
Petrie for determination of the shareholders of Petrie entitled to become
Beneficiaries.
(i) Shares shall mean the shares of common stock, par value $1.00 per
share, of Petrie.
(j) Shareholders shall mean the holders of record of the outstanding
Shares of Petrie at the close of business on the Record Date.
(k) Succession Date shall mean the date on which the first distribution
of assets of Petrie to the Trustees occurs.
(l) Trust shall mean the Trust created by this Agreement.
(m) Trust Assets shall mean all the property held from time to time by
the Trustees under this Agreement, which initially shall consist of the
Retained Assets granted, assigned and conveyed to the Trustees by Petrie
pursuant to the Plan of Liquidation and Dissolution, and, in addition,
shall thereafter include all dividends, rents, royalties, income, proceeds
and other receipts of, from, or attributable to any assets held by the
Trust.
(n) Trustees shall mean the original Trustees and their successors.
ARTICLE II
Nature of Transfer
2.1. Purpose of Trust.
(a) The Trust is organized for the sole purpose of winding up Petrie's
affairs with no objective to continue or engage in the conduct of a trade or
business.
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(b) As Petrie is required to liquidate and dissolve prior to fully winding up
its affairs, including, but not limited to, its payment of any unsatisfied
debts, claims, liabilities, commitments, suits and other obligations, whether
contingent or fixed or whether arising under the Acquisition Agreement, the
Seller Indemnification Agreement, dated as of , 1994, among Toys, Petrie
and the other parties thereto (the "Seller Indemnification Agreement"), or
otherwise (the "Liabilities"), without any established procedure to satisfy
such Liabilities, Petrie's Board of Directors and Shareholders each approved
the Plan, which calls for the establishment of the Trust, and sets forth the
manner in which the Trustees are selected, for the purpose of providing a
procedure which will enable Petrie to dissolve in a timely manner, and wind up
its affairs, by distributing to the Shareholders pro rata all its assets, other
than the Retained Assets, which will be granted, assigned and conveyed to the
Trustees pursuant to the terms contained herein. The Retained Assets granted,
assigned and conveyed to the Trustees subject to the terms and provisions of
the Escrow Agreements will be held in the Trust, and the Trustees will: (i)
further liquidate the Trust Assets if necessary to carry out the purpose of the
Trust and facilitate distribution of the Trust Assets; (ii) allocate, protect,
conserve and manage the Trust Assets in accordance with the terms and
conditions hereof; (iii) complete the winding up of Petrie's affairs; (iv) act
on behalf of the Beneficiaries and in the capacity of Petrie in connection with
the Acquisition Agreement; and (v) distribute the Trust Assets in accordance
with the terms and conditions hereof.
(c) It is intended that the granting, assignment and conveyance of the
Retained Assets by Petrie to the Trustees pursuant hereto shall be treated for
federal and state income tax purposes as if Petrie made such distributions
directly to the Shareholders. It is further intended that for federal, state
and local income tax purposes the Trust shall be treated as a liquidating trust
under Treasury Regulation Section 301.7701-4(d) and any analogous provision of
state or local law, and the Beneficiaries shall be treated as the owners of
their respective share of the Trust pursuant to Sections 671 through 679 of the
Code and any analogous provision of state or local law and shall be taxed on
their respective share of the Trust's taxable income (including both ordinary
income and capital gains) pursuant to Section 671 of the Code and any analogous
provision of state or local law. The Trustees shall file all tax returns
required to be filed with any governmental agency consistent with this
position, including, but not limited to, any returns required of grantor trusts
pursuant to Section 1.671-4(a) of the Income Tax Regulations.
2.2. Prohibited Activities. The Trust shall not continue or engage in the
conduct of any trade or business, and the Trustees are expressly prohibited
from, and shall have no power or authority to, continue or engage in the
conduct of any trade or business on behalf of the Trust or the Beneficiaries,
and all of the terms and conditions hereof shall be construed accordingly.
2.3. No Reversion to Petrie. In no event shall any part of the Trust Assets
revert to or be distributed to Petrie.
2.4. Instruments of Further Assurance. After the dissolution of Petrie, such
Persons as shall have the right and power to so act, will, upon reasonable
request of the Trustees, execute, acknowledge, and deliver such further
instruments and do such further acts as may be necessary or proper to carry out
effectively the purposes of this Agreement, to confirm or effectuate the
transfer to the Trustees of any property intended to be covered hereby, and to
vest in the Trustees, their successors and assigns, the estate, powers,
instruments or funds in trust hereunder.
2.5. Payment of Liabilities. The Trustees hereby assume all Liabilities.
Should any Liability be asserted against the Trustees as the transferees of the
Trust Assets or as a result of the assumption made in this paragraph, the
Trustees may use such part of the Trust Assets as may be necessary in
contesting any such Liability or in payment thereof, but in no event shall the
Trustees, Beneficiaries or employees or agents of the Trust or Toys or its
directors, officers, employees or agents be personally liable, nor shall resort
be had to the private property of such Persons, in the event the Trust Assets
are not sufficient to satisfy the Liabilities of the Trust.
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2.6. Incidents of Ownership. The Shareholders shall be the Initial
Beneficiaries of the Trust created by this Agreement and the Trustees shall
retain only such incidents of legal ownership as are necessary to undertake the
actions and transactions authorized herein.
2.7. Notice to Unlocated Shareholders. If the Trust holds Trust Assets for
unlocated Shareholders, due notice shall be given to such Shareholders in
accordance with local law.
ARTICLE III
Beneficiaries
3.1. Beneficial Interests.
(a) The Initial Beneficial Interest of each former Shareholder as a
Beneficiary hereof shall be determined by the Trustees in accordance with a
certified copy of Petrie's shareholder list as of the Record Date. Petrie will
deliver such a certified copy of its shareholder list to the Trustees within a
reasonable time after such date. For ease of administration, the Trustees shall
express the Beneficial Interest of each Beneficiary in terms of units
("Units").
(b) The certificates representing Shares will be deemed to evidence the
number of Units in the Trust owned by each Beneficiary, provided, however, that
upon exchange or transfer of such certificates, the certificates shall be
marked with an appropriate legend, or new certificates in a form approved by
the Trustees shall be issued and shall evidence the number of Units owned.
(c) If any conflicting claims or demands are made or asserted with respect to
the ownership of any Units, or if there should be any disagreement between the
transferees, assignees, heirs, representatives or legatees succeeding to all or
part of the interest of any Beneficiary resulting in adverse claims or demands
being made in connection with such Units, then, in any of such events, the
Trustees shall be entitled, at their sole election, to refuse to comply with
any such conflicting claims or demands. In so refusing, the Trustees may elect
to make no payment or distribution with respect to the such Units, or to make
such payment to a court of competent jurisdiction or an escrow agent, and in so
doing the Trustees shall not be or become liable to any of such parties for
their failure or refusal to comply with any of such conflicting claims or
demands, nor shall the Trustees be liable for interest on any funds which it
may so withhold. The Trustees shall be entitled to refrain and refuse to act
until either (i) the rights of the adverse claimants have been adjudicated by a
final judgment of a court of competent jurisdiction, (ii) all differences have
been adjusted by valid written agreement between all of such parties, and the
Trustees shall have been furnished with an executed counterpart of such
agreement, or (iii) there is furnished to the Trustees a surety bond or other
security satisfactory to the Trustees, as they shall deem appropriate, to fully
indemnify them as between all conflicting claims or demands.
3.2. Rights of Beneficiaries. Each Beneficiary shall be entitled to
participate in the rights and benefits due to a Beneficiary hereunder according
to his Beneficial Interest. Each Beneficiary shall take and hold the same
subject to all the terms and provisions of this Agreement. The interest of the
Beneficiary hereby is declared and shall be in all respects personal property
and upon the death of an individual Beneficiary, his Beneficial Interest shall
pass as personal property to his legal representative and such death shall in
no way terminate or affect the validity of this Agreement. A Beneficiary shall
have no title to, right to, possession of, management of, or control of, the
Trust Assets except as herein expressly provided. No widower, widow, heir, or
devisee of any person who may be a Beneficiary shall have any right of dower,
homestead, or inheritance, or of partition, or of any other right, statutory or
otherwise, in any property forming a part of the Trust Assets but the whole
title to all the Trust Assets shall be vested in the Trustees and the sole
interest of the Beneficiaries shall be the rights and benefits given to such
Persons under the Agreement.
3.3. Transfer of Interests of Beneficiaries. If the Trust receives either a
ruling from the Internal Revenue Service or an opinion from counsel acceptable
to the Trustees to the effect that transferability by
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Beneficiaries of their Beneficial Interests will not adversely affect the
Trust's qualification as a "liquidating trust" for purposes of the Code and
Treasury Regulation Section 301.7701-4(d), the Beneficial Interest of a
Beneficiary may be transferred, in accordance with applicable securities laws,
either by the Beneficiary in person or by a duly authorized agent or attorney,
or by the properly appointed legal representatives of the Beneficiary;
provided, however, that if the Trust receives a ruling from the Internal
Revenue Service to the effect that transferability by Beneficiaries of their
Beneficial Interests will adversely affect the Trust's qualification as a
"liquidating trust" for purposes of the Code and Treasury Regulation Section
301.7701-4(d), the Beneficial Interest of a Beneficiary may not be transferred
either by the Beneficiary in person or by a duly authorized agent or attorney,
or by the properly appointed legal representatives of the Beneficiary, nor may
a Beneficiary have authority or power to sell, assign, transfer, encumber, or
in any other manner anticipate or dispose of his Beneficial Interest; provided,
however, that the Beneficial Interest shall be assignable or transferable by
will, intestate succession, or operation of law and, further provided, that the
executor or administrator of the estate of a Beneficiary may mortgage, pledge,
grant a security interest in, hypothecate or otherwise encumber, the Beneficial
Interest held by the estate of such Beneficiary if necessary in order to borrow
money to pay estate, succession or inheritance taxes or the expenses of
administering the estate of the Beneficiary, upon written notice to the
Trustees.
The Beneficial Interests of the Beneficiaries hereunder shall not be subject
to attachment, execution, sequestration or any order of a court, nor shall such
interests be subject to the contracts, debts, obligations, engagements or
liabilities of any Beneficiary, but the interest of a Beneficiary shall be paid
by the Trustees to the Beneficiary free and clear of all assignments,
attachments, anticipations, levies, executions, decrees and sequestrations and
shall become the property of the Beneficiary only when actually received by
such Beneficiary.
3.4. Trustees as Beneficiaries. Each Trustee, either individually or in a
representative or fiduciary capacity may be a Beneficiary to the same extent as
if he were not a Trustee hereunder and have all the rights of a Beneficiary,
including, without limitation, the right to vote and to receive distributions,
to the same extent as if he were not a Trustee hereunder.
ARTICLE IV
Duration and Termination of Trust
4.1. Duration. The existence of this Trust shall terminate upon the earliest
of (i) a termination required by the applicable laws of the State of New York,
(ii) the termination due to the distribution of all the Trust Assets as
provided in Section 5.6, or (iii) the expiration of a period of five years from
the date of the creation of the Trust; provided, however, the Trustees, in
their discretion, may extend the existence of this Trust to such later date as
they may designate, if they determine that an extension is reasonably necessary
to pay or make provision for then known liabilities, actual or contingent, and
provided further, however, that the Trust shall not in any event terminate
pursuant to this clause (iii) prior to (a) the date the Trustees are permitted
to make a final distribution in accordance with Section 5.6 or (b) the
termination of the Escrow Agreements.
4.2. Other Obligations of Trustees upon Termination. Upon distribution of all
the Trust Assets, the Trustees shall provide for the retention of the books,
records, lists of holders of Units, certificates for Shares and Units and files
which shall have been delivered to or created by the Trustees. At the Trustees'
discretion, all of such records and documents may be destroyed at any time
after seven years from the distribution of all the Trust Assets. Except as
otherwise specifically provided herein, upon the distribution of all the Trust
Assets, the Trustees shall have no further duties or obligations hereunder.
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ARTICLE V
Administration of Trust Assets
5.1. Sale of Trust Assets. The Trustees may, at such times as they may deem
appropriate, transfer, assign, or otherwise dispose of all or any part of the
Trust Assets as they deem appropriate at public auction or at private sale for
cash, securities or other property, or upon credit (either secured or unsecured
as the Trustees shall determine).
5.2. Transactions with Related Persons. Notwithstanding any other provisions
of this Agreement, but only to the extent that such transactions have not been
previously approved by the Shareholders as part of the Plan of Liquidation and
Dissolution, the Trustees shall not knowingly, directly or indirectly, sell or
otherwise transfer all or any part of the Trust Assets to, or contract with,
(i) any Trustee, employee or agent (acting in their individual capacities) of
this Trust or (ii) any Person of which any Trustee, employee or agent of this
Trust is an affiliate by reason of being a trustee, director, officer, partner
or direct or indirect beneficial owner of 5% or more of the outstanding capital
stock, shares or other equity interest of such Persons; unless, in each such
case, after disclosure of such interest or affiliation, such transaction is
approved by a majority of the Trustees who are not interested in the
transaction and such Trustees determine that such transaction is on its terms
fair and reasonable to the Trust and is in the best interests of the
Beneficiaries, and in no event less favorable to this Trust than terms
available for a comparable transaction with unrelated Persons. The Trustees are
entitled to rely in good faith on certificates of the Trustees, employees and
agents of the Trust with respect to their interests in any transaction.
5.3. Restriction on Trust Assets. Other than Toys Common Stock, the Trust
shall not receive transfers of any assets prohibited by Revenue Procedure 82-
58, as the same may be amended, supplemented or modified including, but not
limited to, any listed stocks or securities, any readily-marketable assets, any
operating assets of a going business, any unlisted stock of a single issuer
that represents 80 percent or more of the stock of such issuer or any general
or limited partnership interests, except any stock or securities received in a
transaction contemplated by Section 6.2(l) hereof.
5.4. Payment of Claims, Expenses and Liabilities. The Trustees shall pay from
the Trust Assets all claims, expenses, charges, liabilities, and obligations of
the Trust Assets and all Liabilities and obligations which the Trustees
specifically assume and agree to pay pursuant to this Agreement and such
transferee liabilities which the Trustees may be obligated to pay as
transferees of the Trust Assets, including among the foregoing, and without
limiting the generality of the foregoing, interest, penalties, taxes,
assessments, and public charges of every kind and nature and the costs,
charges, and expenses connected with or growing out of the execution or
administration of this Trust and such other payments and disbursements as are
provided in this Agreement or which may be determined to be a proper charge
against the Trust Assets by the Trustees.
5.5. Interim Distributions. At such times as may be determined by them, but
at least annually, the Trustees shall distribute, or cause to be distributed,
to the Beneficiaries, in proportion to the number of Units held by each
Beneficiary, such cash or other property comprising a portion of the Trust
Assets as the Trustees may in their sole discretion determine may be
distributed without detriment to the conservation and protection of the Trust
Assets; provided, however, that the Trustees shall not make any distributions
to the Beneficiaries unless (i) they shall have notified Toys of their intent
to make such a distribution and (ii) Toys has failed to give notice of its
objection thereto, pursuant to and upon the terms set forth in Section 14.4(b),
within 20 days of its receipt of the Trustee's notice.
5.6. Final Distribution. If the Trustees determine that the Liabilities and
all other claims, expenses, charges, liabilities and obligations of the Trust
have been paid or discharged, or if the existence of the Trust shall terminate
pursuant to Section 4.1, the Trustees shall, as expeditiously as is consistent
with the conservation and protection of the Trust Assets, distribute the Trust
Assets to the Beneficiaries in proportion to the number of Units held by each
Beneficiary; provided, however, that the Trustees shall not make any
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distributions to the Beneficiaries unless (i) they shall have notified Toys of
their intent to make such a distribution and (ii) Toys has failed to give
notice of its objection thereto, pursuant to and upon the terms set forth in
Section 14.4(b), within 20 days of its receipt of the Trustee's notice. The
Trustees shall hold in the Trust and thereafter make disposition of all
liquidating distributions and other payments due any Beneficiaries who have not
been located, in accordance with New York State law, subject to applicable
state laws regarding escheat and abandoned property.
5.7. Reports to Beneficiaries and Others. As soon as practicable after the
end of each taxable year of the Trust and after termination of the Trust, the
Trustees shall submit a written report and account to the Beneficiaries showing
(i) the assets and liabilities of the Trust at the end of such taxable year or
upon termination and the receipts and disbursements of the Trustees for such
taxable year or period, certified by an independent certified public
accountant, (ii) any changes in the Trust Assets which they have not previously
reported, and (iii) any action taken by the Trustees in the performance of
their duties under this Agreement which they have not previously reported and
which, in their opinion, materially affects the Trust Assets. The Trustees may
submit similar reports for such interim periods during the taxable year as they
deem advisable or as may be required by the Securities and Exchange Commission.
The taxable year of the Trust shall end on December 31 of each year unless the
Trustees deem it advisable to establish some other date as the date on which
the taxable year of the Trust shall end.
Within 30 days after the end of each calendar six month period that includes
any period prior to the Termination Date, the Trustees shall deliver to Toys a
written report showing (i) a schedule of the assets held by the Trust, (ii)
disbursements made by the Trust during such six month period, (iii) claims
asserted against the Trust and expenses incurred by the Trust during such six
month period; and (iv) all pending claims asserted against the Trust. In
addition, Toys shall be furnished, concurrently with the delivery thereof to
any of the Trustees, with a copy of any written report concerning the Trust
provided to any of the Trustees or to any Beneficiary. The Trustees shall
provide oral updates to Toys relating to the information set forth in
subparagraphs (i)-(iv) above, upon the reasonable request of Toys during normal
business hours. The obligation of the Trustees to provide written reports or
oral updates is conditioned upon receiving from Toys a confidentiality
agreement prior to the first such delivery which shall be substantially in the
form of Exhibit A attached hereto.
5.8. Federal Income Tax Information. As soon as practicable after the close
of each taxable year, the Trustees shall mail to each Person who was a
Beneficiary at the close of the year, a statement showing on a unit basis the
dates and amounts of all distributions made by the Trustees, the number of
shares of Toys Common Stock disposed of by the Trust, if any, income earned on
assets held by the Trust, if any, and such other information as is reasonably
available to the Trustees which may be helpful in determining the amount of
gross income attributable to the Trust that such Beneficiary should include in
such Person's Federal income tax return for the preceding year. In addition,
after receipt of a request in good faith, or in their discretion without such
request or if required by applicable law, the Trustees shall furnish to any
Person who has been a Beneficiary at any time during the preceding year a
statement containing such further information as is reasonably available to the
Trustees which shall be helpful in determining the amount of taxable income
which such Person should include in such Person's Federal income tax return.
5.9. Employment of Manager
(a) The Trustees shall be responsible for the general policies of the Trust
and for the general supervision of the activities of the Trust conducted by all
agents, employees, advisors or managers of the Trust. However, the Trustees are
not and shall not be required personally to conduct the activities of the
Trust, and consistent with their ultimate responsibility as stated above, the
Trustees shall have the power to appoint, employ or contract with any Person or
Persons (including one or more of themselves or any corporation, partnership,
or trust in which one or more of them may be directors, officers, stockholders,
partners or trustees) as the Trustee may deem necessary or proper for the
transaction of the activities of the Trust. The Trustees may therefore employ
or contract with such Person or Persons (herein referred to as the "Manager")
and may
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grant or delegate such authority to the Manager as the Trustees may in their
sole discretion deem necessary or desirable to carry out the purpose of the
Trust without regard to whether such authority is normally granted or delegated
by trustees.
The Trustees shall have the power to determine the terms and compensation of
the Manager or any other Person whom they may employ or with whom they may
contract, provided, however, that any determination to employ or contract with
any Trustee or other Person such that a Trustee or other Person would be an
Affiliated Trustee or an Affiliated Person shall be valid only if made,
approved or ratified after disclosure of such interests by the affirmative vote
or written consent of a majority of the non-Affiliated Trustees. The Trustees
may exercise broad discretion in allowing the Manager to administer and
regulate the operations of the Trust, to act as agent for the Trust, to execute
documents on behalf of the Trustees, and to make executive decisions which
conform to general policies and general principles previously established by
the Trustees.
(b) The Manager or other Persons shall not be required to administer the
Trust as its sole and exclusive function and may have other business interests
and may engage in other activities similar or in addition to those relating to
the Trust, including the rendering of advice or services of any kind to
investors or any other Persons and the management of other investments.
ARTICLE VI
Powers of and limitations on the Trustees
6.1. Limitations on Trustees. The Trustees shall not at any time, on behalf
of the Trust or Beneficiaries, enter into or engage in any trade or business,
and no part of the Trust Assets shall be used or disposed of by the Trustees in
furtherance of any trade or business. The Trustees shall be restricted to the
holding and collection of the Trust Assets and the payment and distribution
thereof for the purposes set forth in this Agreement and to the conservation
and protection of the Trust Assets and the administration thereof in accordance
with the provisions of this Agreement. In no event shall the Trustees receive
any property, make any distribution, satisfy or discharge any claims, expenses,
charges, Liabilities and obligations or otherwise take any action which is
inconsistent with a complete liquidation of Petrie as that term is used and
interpreted by Sections 368(a)(1)(C) and (a)(2)(G) of the Code, Treasury
Regulations promulgated thereunder, and rulings, decisions and determinations
of the Internal Revenue Service and courts of competent jurisdiction, or take
any action which would jeopardize the status of the Trust as a "liquidating
trust" for federal income tax purposes within the meaning of Treasury
Regulation Section 301.7701-4(d). This limitation shall apply regardless of
whether the conduct of any such trade or business is deemed by the Trustees to
be necessary or proper for the conservation and protection of the Trust Assets.
The Trustees shall not invest any of the funds held as Trust Assets, except
that the Trustees may invest any portion of the Trust Assets in (i) direct
obligations of the United States of America or obligations of any agency or
instrumentality thereof which mature not later than one year from the date of
acquisition thereof; (ii) money market deposit accounts, checking accounts,
savings accounts, or certificates of deposit, or other time deposit accounts
which mature not later than one year from the date of acquisition thereof which
are issued by a commercial bank or savings institution organized under the laws
of the United States of America or any state thereof; or (iii) any other
investments which may be determined by the Trustees to be permissible under
Revenue Procedure 82-58, as the same may be amended, supplemented or modified.
6.2. Specific Powers of Trustees. Subject to the provisions of Section 6.1,
the Trustees shall have the following specific powers in addition to any powers
conferred upon them by any other Section or provision of this Agreement or any
statutory laws of the State of New York; provided, however, that the
enumeration of the following powers shall not be considered in any way to limit
or control the power of the Trustees to act as specifically authorized by any
other Section or provision of this Agreement and to act in such a manner as the
Trustees may deem necessary or appropriate to conserve and protect the Trust
Assets or to confer on the Beneficiaries the benefits intended to be conferred
upon them by this Agreement:
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(a) To determine the nature and amount of the consideration to be
received with respect to the sale or other disposition of, or the grant of
interests in, the Trust Assets.
(b) To collect, liquidate or otherwise convert into cash, or such other
property as they deem appropriate, all property, assets and rights in the
Trust Assets, and to pay, discharge and satisfy all other claims, expenses,
charges, Liabilities, and obligations existing with respect to the Trust
Assets, the Trust or the Trustees.
(c) To elect, appoint, engage, retain or employ any Persons as agents,
representatives, employees, or independent contractors (including without
limitation real estate advisors, investment advisors, accountants, transfer
agents, attorneys-at-law, managers, appraisers, brokers, or otherwise) in
one or more capacities, and to pay compensation from the Trust Assets for
services in as many capacities as such Person may be so elected, appointed,
engaged, retained or employed, to prescribe the titles, powers and duties,
terms of service and other terms and conditions of the election,
appointment, engagement, retention or employment of such Persons and,
except as prohibited by law, to delegate any of the powers and duties of
the Trustees to any one or more Trustees, agents, representatives,
employers, independent contractors or other Persons.
(d) To retain and set aside such funds out of the Trust Assets as the
Trustees shall deem necessary or expedient to pay, or provide for the
payment of (i) unpaid claims, expenses, charges, Liabilities, and
obligations of the Trust or Petrie, (ii) contingencies, and (iii) the
expenses of administering the Trust Assets.
(e) To do and perform any and all acts necessary or appropriate for the
conservation and protection of the Trust Assets, including acts or things
necessary or appropriate to maintain assets held by the Trustees pending
sale or other disposition thereof or distribution thereof to the
Beneficiaries.
(f) To hold legal title to property of the Trust in the name of the
Trust, or in the name of one or more of the Trustees, or of any other
Person, without disclosure of the interest of the Trust therein.
(g) To cause any investments of any part of the Trust Assets to be
registered and held in the name of any one or more of their names or in the
names of a nominee or nominees without increase or decrease of liability
with respect thereto.
(h) To institute or defend actions or declaratory judgments or other
actions and to take such other action, in the name of the Trust or Petrie
or as otherwise required, as the Trustees may deem necessary or desirable
to enforce any instruments, contracts, agreements, causes of action or
rights relating to or forming a part of the Trust Assets.
(i) To determine conclusively from time to time the value of and to
revalue the securities and other property of the Trust, in accordance with
independent appraisals or other information as they deem satisfactory.
(j) To cancel, terminate, or amend any instruments, contracts,
agreements, obligations or causes of action relating to or forming a part
of the Trust Estate, and to execute new instruments, contracts, agreements,
obligations or causes of action notwithstanding that the terms of any such
instruments, contracts, agreements, obligations or causes of action may
extend beyond the terms of this Trust, provided that no such new
instrument, contract, agreement, obligation or cause of action shall permit
the Trustees to engage in any activity prohibited by Section 6.1.
(k) To vote by proxy or otherwise on behalf of the Beneficiaries and with
full power of substitution all shares of stock and all securities held by
the Trustees hereunder and to exercise every power, election, discretion,
option and subscription right and give every notice, make every demand, and
to do every act or thing in respect to any shares of stock or any
securities held by the Trustees which the Trustees might or could do if
they were the absolute owners thereof.
(l) To undertake or join in any merger, plan of reorganization,
consolidation, liquidation, dissolution, readjustment or other transaction
of any corporation, any of whose shares of stock or other securities,
obligations, or properties may at any time constitute a part of the Trust
Assets, and to accept
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the substituted shares of stock, bonds, securities, obligations and
properties and to hold the same in trust in accordance with the provisions
hereof.
(m) In connection with the sale or other disposition or distribution of
any securities held by the Trustees, to comply with the applicable Federal
and state securities laws, and to enter into agreements relating to sale or
other disposition or distribution thereof.
(n) To authorize transactions between corporations or other entities
whose securities, or other interests therein (either in the nature of debt
or equity) are held by the Trustees as part of the Trust Assets.
(o) To perform any act authorized, permitted, or required under any
instrument, contract, agreement, right, obligation or cause of action
relating to or forming a part of the Trust Assets whether in the nature of
an approval, consent, demand or notice thereunder or otherwise, unless such
act would require the consent of the Beneficiaries in accordance with the
express provisions of this Agreement.
ARTICLE VII
Concerning the Trustees, Beneficiaries, Employees and Agents
7.1. Generally. The Trustees accept and undertake to discharge the trust
created by this Agreement, upon the terms and conditions thereof on behalf of
the Beneficiaries. The Trustees shall exercise such of the rights and powers
vested in them by this Agreement, and use the same degree of care and skill in
their exercise as a prudent man would exercise or use under the circumstances
in the conduct of his own affairs. No provision of this Agreement shall be
construed to relieve the Trustees from liability for their own negligent
action, their own negligent failure to act, or their own willful misconduct,
except that:
(a) No Trustee shall be responsible for the acts or omissions of any
other Trustee if done or omitted without his knowledge or consent unless it
shall be proved that such Trustee was negligent in ascertaining the
pertinent facts, and no successor Trustee shall be in any way responsible
for the acts or omissions of any Trustees in office prior to the date on
which he becomes a Trustee.
(b) No Trustee shall be liable except for the performance of such duties
and obligations as are specifically set forth in this Agreement, and no
implied covenants or obligations shall be read into this Agreement against
the Trustees.
(c) In the absence of bad faith on the part of the Trustees, the Trustees
may conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon any certificates or
opinions furnished to the Trustees and conforming to the requirements of
this Agreement; but in the case of any such certificates or opinions which
are specifically required to be furnished to the Trustees by any provision
hereof, the Trustees shall be under a duty to examine the same to determine
whether or not they conform to the requirements of this Agreement.
(d) No Trustee shall be liable for any error of judgment made in good
faith.
(e) No Trustee shall be liable with respect to any action taken or
omitted to be taken by him in good faith in accordance with the direction
of Beneficiaries having an aggregate Beneficial Interest of more than 50%
relating to the time, method, and place of conducting any proceeding for
any remedy available to the Trustees, or exercising any trust or power
conferred upon the Trustees under this Agreement.
7.2. Reliance by Trustees. Except as otherwise provided in Section 7.1:
(a) The Trustees may rely and shall be protected in acting upon any
resolution, certificate, statement, instrument, opinion, report, notice,
request, consent, order, or other paper or document believed by them to be
genuine and to have been signed or presented by the proper party or
parties.
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(b) The Trustees may consult with legal counsel, auditors or other
experts to be selected by them, including firms of which a Trustee may be a
member, and the advice or opinion of such counsel, auditors or other
experts shall be full and complete personal protection to all Trustees,
employees and agents of the Trust in respect of any action taken or
suffered by them in good faith and in reliance on, or in accordance with,
such advice or opinion.
(c) Persons dealing with Trustees shall look only to the Trust Assets to
satisfy any liability incurred by the Trustees to such Person in carrying
out the terms of this Trust, and the Trustees shall have no personal or
individual obligation to satisfy any such liability.
(d) As far as practicable, the Trustees shall cause any written
instrument creating an obligation of the Trust to include a reference to
this Agreement and to provide that neither the Beneficiaries, the Trustees
nor their agents shall be liable thereunder and that the other parties to
such instrument shall look solely to the Trust Assets for the payment of
any claim thereunder or the performance thereof; provided, however, that
the omission of such provision from any such instrument shall not render
the Beneficiaries, Trustees, or their agents liable nor shall the Trustees
be liable to anyone for such omission.
7.3. Liability to Third Persons. Neither any Beneficiary nor Toys shall be
subject to any personal liability whatsoever, in tort, contract or otherwise,
to any Person in connection with the Trust Assets or the affairs of this Trust;
and no Trustee, employee or agent of this Trust shall be subject to any
personal liability whatsoever, in tort, contract or otherwise, to any Person in
connection with the Trust Assets or the affairs of this Trust, except for his
own willful misconduct, knowingly and intentionally committed in bad faith; and
all such other Persons shall look solely to the Trust Assets for satisfaction
of claims of any nature arising in connection with the affairs of this Trust.
The Trustees shall, at all times, maintain insurance for the protection of the
Trust Assets, its Beneficiaries, Trustees, employees and agents in such amount
as the Trustees shall deem adequate to cover all foreseeable liability to the
extent available at reasonable rates.
7.4. Recitals. Any written instrument creating an obligation of this Trust
shall be conclusively taken to have been executed or done by a Trustee,
employee or agent of this Trust only in his capacity as Trustee under this
Agreement or in his capacity as employee or agent of the Trust.
7.5. Indemnification. Each Trustee and employee and agent of the Trust and
Toys and its directors, officers, employees and agents (each an "Indemnified
Person" and collectively, the "Indemnified Persons") shall be indemnified out
of the Trust Assets against all liabilities and expenses, including amounts
paid in satisfaction of judgments, in compromise or as fines and penalties, and
counsel fees, reasonably incurred by the Indemnified Persons in connection with
the defense or disposition of any action, suit or other proceeding by the Trust
or any other Person, whether civil or criminal, in which the Indemnified Person
may be involved or with which the Indemnified Person may be threatened (i) in
the case of any Trustee or any employee or agent of the Trust, while in office
or thereafter, by reason of his being or having been such a Trustee, employee
or agent, and (ii) in the case of Toys or any director, officer, employee or
agent of Toys, by reason of Toys or any such director, officer, employee or
agent of Toys exercising or failing to exercise any right hereunder; provided,
however, that the Indemnified Person shall not be entitled to such
indemnification in respect of any matter as to which the Indemnified Person
shall have been adjudicated to have acted in bad faith or with willful
misfeasance, negligence, or in reckless disregard of the Indemnified Person's
duties, and; provided, further, however, that, as to any matter disposed of by
a compromise payment by such Indemnified Person pursuant to a consent decree or
otherwise, no indemnification either for said payment or for any other expenses
shall be provided unless the Trustees shall have received a written opinion
from independent counsel approved by the Trustees to the effect that if the
foregoing matters had been adjudicated, such Indemnified Person would not have
been found to have acted in bad faith or with willful misfeasance, negligence,
or in reckless disregard of the Indemnified Person's duties. The rights
accruing to any Indemnified Person under these provisions shall not exclude any
other right to which the Indemnified Person may be lawfully entitled; provided,
however, that no Indemnified Person may satisfy any right of indemnity or
reimbursement granted herein or to which the Indemnified Person may be
otherwise entitled except out of the Trust Assets, and no Beneficiary shall be
personally liable to any person with respect to any claim for indemnity or
reimbursement
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or otherwise. The Trustees may make advance payments in connection with
indemnification under this Section, provided that the Indemnified Person shall
have given a written undertaking to repay any amount advanced to the
Indemnified Person and to reimburse the Trust in the event it is subsequently
determined that the Indemnified Person is not entitled to such indemnification.
The Trustees may purchase such insurance as they feel, in the exercise of their
discretion, adequately insures that each Indemnified Person shall be
indemnified against any such loss, liability or damage pursuant to this
Section. The rights accruing to any Indemnified Person by reason of the
foregoing shall not be deemed to exclude any other right to which he may
legally be entitled nor shall anything else contained herein restrict the right
of the Trustees to indemnify or reimburse such Indemnified Person in any proper
case even though not specifically provided for herein, nor shall anything
contained herein restrict the right of any such Indemnified Person to
contribution under applicable law.
The foregoing shall be in addition to, and shall not limit or supersede in
any way, Toys' rights under the Seller Indemnification Agreement.
7.6. Rights of Trustees, Employees, Independent Contractors and Agents To Own
Units or Other Property and To Engage in Other Business. Any Trustee, employee,
independent contractor or agent may acquire, own, hold and dispose of Units for
his individual account, and may exercise all rights thereof and thereunder to
the same extent and in the same manner as if he were not a Trustee, employee,
independent contractor or agent. Any Trustee, employee, independent contractor
or agent may, in his personal capacity or in a capacity of trustee, officer,
director, stockholder, partner, member, advisor, employee of any Person or
otherwise, have business interests and holdings similar to or in addition to
those relating to the Trust. Subject to the provisions of Article V hereof, any
Trustee, employee, independent contractor or agent of the Trust may be a
trustee, officer, director, stockholder, partner, member, advisor, employee or
independent contractor of, or otherwise have a direct or indirect interest in,
any Person who may be engaged to render advice or services to the Trust, and
may receive compensation from such Person as well as compensation as Trustee,
employee, independent contractor or agent or otherwise hereunder. None of these
activities shall be deemed to conflict with his duties as Trustee, employee,
independent contractor or agent.
ARTICLE VIII
Protection of Persons Dealing with the Trustees
8.1. Action by Trustees. All action required or permitted to be taken by the
Trustees, in their capacity as Trustees, shall be taken (i) at a meeting at
which a quorum is present, having been duly called by one or more of the
Trustees on at least 24 hours prior written or telephonic notice to all of the
Trustees then serving, or (ii) without a meeting, by a written vote,
resolution, or other writing signed by all the Trustees then serving. Notice of
a meeting may be waived in writing by any Trustee either before or after such
meeting and the attendance of a Trustee shall constitute a waiver of notice of
such meeting except where a Trustee attends a meeting for the express purpose
of objecting to the transaction of any business on the ground that the meeting
has not been lawfully called or convened. All or any one or more Trustees may
participate in the meeting of the Trustees by means of conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other and participation in a meeting pursuant to
which such communications are used by a Trustee shall constitute presence in
person at such meeting. Except where this Agreement otherwise provides, all
action taken at such a meeting shall be by vote or resolution of a majority of
such of the Trustees as are present and shall have the same force and effect as
if taken by all the Trustees. A majority of the Trustees then serving shall
constitute a quorum. Any action taken by the Trustees pursuant to this Section
8.1 may be implemented by any one Trustee unless otherwise specified by the
Trustees authorizing or approving such action. Such implementation may include,
without limitation, the execution and delivery of documents. Without limiting
any of the foregoing of this Article VIII and subject to the approval of the
Trustees as herein provided, any one Trustee may hold title to, or an interest
in, any and all of the Trust Assets, for and on behalf of the Trust and the
Trustees.
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8.2. Delegation. An individual Trustee may, at any time and from time to
time, by an instrument in writing delegate any or all of his rights, powers,
duties, authority and privileges, whether or not discretionary, to any other
Trustee for such period or periods of time as may be specified in such written
instrument; provided, however, that any such instrument shall be revocable at
any time and that any Trustee who is granted any discretionary power hereunder
may not delegate such discretionary power to any Trustee who is not granted
such discretionary power.
8.3. Reliance on Statement by Trustees. Any Person dealing with the Trustees
shall be fully protected in relying upon the Trustees' certificate signed by
any one or more of the Trustees that they have authority to take any action
under this Trust. Any Person dealing with the Trustees shall be fully protected
in relying upon the Trustees' certificate setting forth the facts concerning
the calling of any meeting of the Trustees or the Beneficiaries, the giving of
notice thereof, and the action taken at such meeting, including the aggregate
number of Units held by the Beneficiaries taking such action.
ARTICLE IX
Compensation of Trustees
9.1. Amount of Compensation. In lieu of commissions or other compensation
fixed by law for trustees, each Trustee shall receive as compensation for
services as Trustee hereunder, such compensation as shall be determined by the
Board of Directors of Petrie at their final meeting, or as may subsequently be
approved by Beneficiaries having an aggregate Beneficial Interest of more than
50%.
9.2. Dates of Payment. The compensation payable to each Trustee pursuant to
the provisions of Section 9.1 shall be paid monthly or at such other times as
the Trustees may determine.
9.3. Expenses. Each Trustee shall be reimbursed from the Trust Assets for all
expenses reasonably incurred by him in the performance of his duties in
accordance with this Agreement.
ARTICLE X
Trustees and Successor Trustees
10.1. Number of Trustees. Subject to the provisions of Section 10.3 relating
to the period pending the appointment of a successor Trustee, there shall
always be three Trustees of this Trust, each of whom shall be a citizen and
resident of or a corporation which is incorporated under the laws of a state of
the United States and, if a corporation, it shall be authorized to act as a
corporate fiduciary under the laws of the State of New York.
If any corporate Trustee shall ever change its name, or shall reorganize or
reincorporate, or shall merge with or into or consolidate with any other bank
or trust company, such corporate Trustee shall be deemed to be a continuing
entity and shall continue to act as a Trustee hereunder with the same
liabilities, duties, powers, titles, discretions and privileges as are herein
specified for a Trustee.
10.2. Resignation and Removal. Any Trustee may resign and be discharged from
the Trust hereby created by giving written notice thereof to the remaining
Trustee or Trustees and by mailing such notice to the Beneficiaries at their
respective addresses as they appear in the records of the Trustees. Such
resignation shall become effective on the day specified in such notice or upon
the appointment of such Trustee's successor and such successor's acceptance of
such appointment, whichever is earlier. Any Trustee may be removed at any time,
with or without cause, by Beneficiaries having an aggregate Beneficial Interest
of at least two-thirds of the total Beneficial Interest.
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10.3. Appointment of Successor. Should at any time a Trustee resign or be
removed, die, become mentally incompetent or incapable of action (as determined
by a majority of the remaining Trustees in their sole discretion), or be
adjudged a bankrupt or insolvent, a vacancy shall be deemed to exist and a
successor shall be appointed by the remaining Trustees. If such a vacancy is
not filled by the remaining Trustees within 30 days, the Beneficiaries may,
pursuant to Article XII hereof, call a meeting to appoint a successor Trustee
by Beneficiaries owning a majority of the Beneficial Interest represented at
the meeting. Pending the appointment of a successor Trustee, the remaining
Trustees then serving may take any action in the manner set forth in Section
8.1.
10.4. Acceptance of Appointment by Successor Trustee. Any successor Trustee
appointed hereunder shall execute an instrument accepting such appointment
hereunder and shall deliver one counterpart thereof to each of the other
Trustees and, in case of a resignation, to the retiring Trustee. Thereupon such
successor Trustee shall, without any further act, become vested with all the
estates, properties, rights, powers, trusts and duties of his or its
predecessor in the Trust hereunder with like effect as if originally named
therein; but the retiring Trustee shall nevertheless, when requested in writing
by the successor Trustee or by the remaining Trustees, execute and deliver an
instrument or instruments conveying and transferring to such successor Trustee
upon the trust herein expressed, all the estates, properties, rights, powers
and trusts of such retiring Trustee, and shall duly assign, transfer and
deliver to such successor Trustee all property and money held by him hereunder.
10.5. Bonds. Unless required by the Board of Directors of Petrie prior to the
Record Date, or unless a bond is required by law, no bond shall be required of
any original Trustee hereunder. Unless required by a majority vote of the
Trustees prior to a successor Trustee's acceptance of an appointment as such
pursuant to Section 10.4, or unless a bond is required by law and such
requirement cannot be waived by or with approval of the Beneficiaries, no bond
shall be required of any successor Trustee hereunder. If a bond is required by
law, no surety or security with respect to such bond shall be required unless
required by law and such requirement cannot be waived by or with approval of
the Beneficiaries or unless required by the Board of Directors of Petrie. If a
bond is required by the Board of Directors of Petrie or by a majority vote of
the Trustees, the Board of Directors of Petrie or the Trustees, as the case may
be, shall determine whether, and to what extent, a surety or security with
respect to such bond shall be required.
ARTICLE XI
Concerning the Beneficiaries
11.1. Evidence of Action by Beneficiaries. Whenever in this Agreement it is
provided that the Beneficiaries may take any action (including the making of
any demand or request, the giving of any notice, consent, or waiver, the
removal of a Trustee, the appointment of a successor Trustee, or the taking of
any other action), the fact that at the time of taking any such action such
Beneficiaries have joined therein may be evidenced (i) by any instrument or any
number of instruments of similar tenor executed by Beneficiaries in person or
by agent or attorney appointed in writing, or (ii) by the record of the
Beneficiaries voting in favor thereof at any meeting of Beneficiaries duly
called and held in accordance with the provisions of Article XII.
11.2. Limitation on Suits by Beneficiaries. No Beneficiary shall have any
right by virtue of any provision of this Agreement to institute any action or
proceeding at law or in equity against any party other than the Trustees upon
or under or with respect to the Trust Estate or the agreements relating to or
forming part of the Trust Estate, and the Beneficiaries do hereby waive any
such right, unless Beneficiaries having an aggregate Beneficial Interest of at
least 25% shall have made written request upon the Trustees to institute such
action or proceeding in their own names as Trustees hereunder and shall have
offered to the Trustees reasonable indemnity against the costs and expenses to
be incurred therein or thereby, and the Trustees for 30 days after their
receipt of such notice, request, and offer of indemnity shall have failed to
institute any such action or proceeding.
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11.3. Requirement of Undertaking. The Trustees may request any court to
require, and any court may in its discretion require, in any suit for the
enforcement of any right or remedy under this Agreement, or in any suit against
the Trustees for any action taken or omitted by them as Trustees, the filing by
any party litigant in such suit of an undertaking to pay the costs of such
suit, and such court may in its discretion assess reasonable costs, including
reasonable attorneys' fees, against any party litigant in such suit, having due
regard to the merits and good faith of the claims or defenses made by such
party litigant; provided, however, that the provisions of this Section shall
not apply to any suit by the Trustees.
ARTICLE XII
Meeting of Beneficiaries
12.1. Purpose of Meetings. A meeting of the Beneficiaries may be called at
any time and from time to time pursuant to the provisions of this Article for
the purposes of taking any action which the terms of this Agreement permit a
Beneficiary having a specified aggregate Beneficial Interest to take either
acting alone or with the Trustees.
12.2. Meeting Called by Trustees. The Trustees may at any time call a meeting
of the Beneficiaries to be held at such time and at such place within the State
of New York (or elsewhere if so determined by a majority of the Trustees) as
the Trustees shall determine. Written notice of every meeting of the
Beneficiaries shall be given by the Trustees (except as provided in Section
12.3), which written notice will set forth the time and place of such meeting
and in general terms the action proposed to be taken at such meeting, and shall
be mailed not more than 60 nor less than 10 days before such meeting is to be
held to all of the Beneficiaries of record not more than 60 days before the
date of such meeting. The notice shall be directed to the Beneficiaries at
their respective addresses as they appear in the records of the Trust.
12.3. Meeting Called on Request of Beneficiaries. Within 30 days after
written request to the Trustees by Beneficiaries having an aggregate Beneficial
Interest of at least 25% to call a meeting of all the Beneficiaries, which
written request shall specify in reasonable detail the action proposed to be
taken, the Trustees shall proceed under the provisions of Section 12.2 to call
a meeting of the Beneficiaries, and if the Trustees fail to call such meeting
within such 30-day period then such meeting may be called by Beneficiaries
having an aggregate Beneficial Interest of at least 25% or their designated
representative.
12.4. Persons Entitled to Vote at Meeting of Beneficiaries. Each Beneficiary
shall be entitled to vote at a meeting of the Beneficiaries either in person or
by his proxy duly authorized in writing. The vote of each Beneficiary shall be
weighted based on the number of Units held by each Beneficiary in the Trust
Estate. The signature of the Beneficiary on such written authorization need not
be witnessed or notarized.
12.5. Quorum. At any meeting of Beneficiaries, the presence of Beneficiaries
having an aggregate Beneficial Interest sufficient to take action on any matter
for the transaction of which such meeting was called shall be necessary to
constitute a quorum; but if less than a quorum be present, Beneficiaries having
an aggregate Beneficial Interest of more than 50% of the aggregate Beneficial
Interest of all Beneficiaries represented at the meeting may adjourn such
meeting with the same effect and for all intents and purposes as though a
quorum had been present.
12.6. Adjournment of Meeting. Any meeting of Beneficiaries may be adjourned
from time to time and a meeting may be held at such adjourned time and place
without further notice.
12.7. Conduct of Meetings. The Trustees shall appoint the Chairman and the
Secretary of the meeting. The vote upon any resolution submitted to any meeting
of Beneficiaries shall be by written ballot. Two Inspectors of Votes, appointed
by the Chairman of the meeting, shall count all votes cast at the meeting for
or against any resolution and shall make and file with the Secretary of the
meeting their verified written report.
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12.8. Record of Meeting. A record of the proceedings of each meeting of
Beneficiaries shall be prepared by the Secretary of the meeting. The record
shall be signed and verified by the Secretary of the meeting and shall be
delivered to the Trustees to be preserved by them. Any record so signed and
verified shall be conclusive evidence of all the matters therein stated.
ARTICLE XIII
Amendments
13.1. Consent of Beneficiaries. At the direction or with the consent of
Beneficiaries having an aggregate Beneficial Interest of at least two-thirds,
or such greater percentage as shall be specified in this Agreement for the
taking of an action by the Beneficiaries under the affected provision of this
Agreement, of the total Beneficial Interest, the Trustees shall promptly make
and execute a declaration amending this Agreement for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
this Agreement or amendments thereto; provided, however, that no such amendment
shall (i) permit the Trustees to engage in any activity prohibited by Section
6.1 hereof or affect the Beneficiaries' rights to receive their pro rata shares
of the Trust Assets at the time of distribution or (ii) affect any right or
benefit of Toys hereunder without Toys' consent; provided further, however,
that no consent of the Beneficiaries shall be required with respect to any
amendment made solely for the purpose of facilitating the transferability by
Beneficiaries of Units so long as such amendment has been approved by all the
Trustees.
13.2 Notice and Effect of Amendment. Promptly after the execution by the
Trustees of any such declaration of amendment, the Trustees shall give notice
of the substance of such amendment to the Beneficiaries or, in lieu thereof,
the Trustees may send a copy of the amendment to each Beneficiary. Upon the
execution of any such declaration of amendment by the Trustees, this Agreement
shall be deemed to be modified and amended in accordance therewith and the
respective rights, limitations of rights, obligations, duties, and immunities
of the Trustees and the Beneficiaries under this Agreement shall thereafter be
determined, exercised and enforced hereunder subject in all respects to such
modification and amendments, and all the terms and conditions of any such
amendment shall be thereby deemed to be part of the terms and conditions of
this Agreement for any and all purposes.
ARTICLE XIV
Miscellaneous Provisions
14.1. Filing Documents. This Agreement shall be filed or recorded in such
office or offices as the Trustees may determine to be necessary or desirable. A
copy of this Agreement and all amendments thereof shall be maintained in the
office of each Trustee and shall be available at all times during regular
business hours for inspection by any Beneficiary or his duly authorized
representative. The Trustees shall file or record any amendment of this
Agreement in the same places where the original Agreement is filed or recorded.
The Trustees shall file or record any instrument which relates to any change in
the office of Trustee in the same places where the original Agreement is filed
or recorded.
14.2. Intention of Parties to Establish Trust. This Agreement is not intended
to create and shall not be interpreted as creating a corporation, association,
partnership, or joint venture of any kind for purposes of Federal income
taxation or for any other purpose.
14.3. Beneficiaries Have No Rights or Privileges as Shareholders of
Petrie. Except as expressly provided in this Agreement or under applicable law,
the Beneficiaries shall have no rights or privileges attributable to their
former status as Shareholders of Petrie.
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14.4. Third Party Beneficiary.
(a) Petrie and the Trustees each acknowledge that each of Toys and PS
Acquisition Corp. ("PS Acquisition") is a third party beneficiary of this
Agreement.
(b) Toys' objection to any disbursement or distribution hereunder must state,
in effect, that it reasonably believes that the contemplated disbursement or
distribution could result in the remaining Trust Assets being insufficient to
pay for any of Petrie's obligations under the Seller Indemnification Agreement.
(c) If the Trustees intend to make a distribution notwithstanding Toys'
objection thereto, they will give Toys at least 20 days prior written notice of
their belief that the Toys notice fails to meet the standard set forth in
Section 14.4(b) and of their intention to proceed with the distribution.
14.5. Certain Claims. Petrie agrees that claims, if any, of (i) PS
Acquisition, pursuant to the Stock Purchase Agreement, dated as of August 23,
1994, as amended, by and between Petrie and PS Acquisition and (ii) Toys,
pursuant to the Acquisition Agreement or the Seller Indemnification Agreement,
shall not be barred by Section 1007(b) of the New York Business Corporation Law
for any failure to notify the Trustees of any of such claims.
14.6. Laws as to Construction. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York. The Trustees,
and the Beneficiaries (by their vote with respect to the Liquidation Plan
and/or their acceptance of any distributions made to them pursuant to this
Agreement), consent and agree that this Agreement shall be governed by and
construed in accordance with such laws.
14.7. Severability. In the event any provision of this Agreement or the
application thereof to any Person or circumstances shall be finally determined
by a court of proper jurisdiction to be invalid or unenforceable to any extent,
the remainder of this Agreement, or the application of such provision to
persons or circumstances other than those as to which it is held invalid or
unenforceable, shall not be affected thereby, and each provision of this
Agreement shall be valid and enforced to the fullest extent permitted by law.
14.8. Notices. A copy of all written notices and communications delivered by
the Trustees to the Beneficiaries or Toys pursuant to this Agreement, other
than the information provided to Toys pursuant to the second and third sentence
of the second paragraph of Section 5.7 hereof, shall also be sent to PS
Acquisition. Any notice or other communication by the Trustees to any
Beneficiary shall be deemed to have been sufficiently given, for all purposes,
if deposited, postage prepaid, in a post office or letter box addressed to such
Person at his address as shown in the records of the Trust.
All notices and other communications hereunder shall be in writing and shall
be deemed to have been duly given if delivered personally or sent by cable,
telegram, telecopier or telex to the parties and to Toys at the following
addresses or at such other addresses as shall be specified by the parties or by
Toys by like notice:
(a) If to the Trustees:
_________________________________
_________________________________
_________________________________
with a copy to:
Skadden, Arps, Slate, Meagher & Flom
919 Third Avenue
New York, New York 10022
Attention: Alan C. Myers, Esq.
Facsimile: (212) 735-2000
D-17
<PAGE>
(b) If to Toys:
Toys "R" Us, Inc.
395 W. Passaic Street
Rochelle Park, New Jersey 07662
Attention: Louis Lipschitz
Chief Financial Officer
Facsimile: (201) 845-0973
with a copy to:
Schulte Roth & Zabel
900 Third Avenue
New York, New York 10022
Attention: Andre Weiss, Esq.
Facsimile: (212) 593-5955
(c) If to Escrow Agents:
_________________________________
_________________________________
_________________________________
(d) If to PS Acquisition Corp.:
c/o E.M. Warburg, Pincus & Co.
466 Lexington Avenue
New York, New York 10017
Attention: Errol M. Cook
Facsimile: (212) 878-9351
with a copy to:
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Attention: Stephanie J. Seligman
Facsimile: (212) 403-2000
14.9. Specific Performance. The Trustees acknowledge that failure on their
part to comply with the terms of Sections 5.5 and 5.6 hereof shall cause Toys
immediate and irreparable harm that cannot be adequately compensated by the
remedies at law, and that in the event of such breach or violation, or
threatened breach or violation, Toys may have such sections of this Agreement
specifically enforced by preliminary and permanent injunctive relief without
having to prove the inadequacy of the available remedies at law or any actual
damages. Any remedy sought or obtained by Toys shall not be considered either
exclusive or a waiver of the rights of Toys or any other person to assert any
other remedies it has in law or equity. In any proceeding upon a motion for any
such injunctive relief, the Trustees' ability to answer in damages shall not be
a bar, or be interposed as a defense, to the granting of such injunctive relief
against the Trustees. Any rights under this Section may be enforced in any
appropriate court in the State of New York.
14.10. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but such counterparts shall
together constitute but one and the same instrument.
14.11. Binding.
(a) The name Petrie Stores Corporation is the designation created by Articles
of Incorporation dated April 25, 1929, as amended, to which reference is hereby
made. The obligations of Petrie are not personally binding upon, nor shall
resort be had to the private property of, any of the directors, shareholders,
officers, employees or agents of Petrie, but only the property of Petrie shall
be bound.
D-18
<PAGE>
(b) The obligations of the Trust are not personally binding upon, nor shall
resort be had to the private property of, any of the Trustees, Beneficiaries,
employees or agents of the Trust, but only the Trust Estate shall be bound.
IN WITNESS WHEREOF, Petrie Stores Corporation has caused this Agreement to be
signed and acknowledged by its [ ], and the same to be attested by its
Secretary, and the Trustees herein have executed this Agreement, as Trustees
and not as individuals, effective this day of , 1994.
Petrie Stores Corporation
By: _________________________________
Name:
Title:
Attest:
_____________________________________
Secretary
_____________________________________
Trustee
_____________________________________
Trustee
_____________________________________
Trustee
D-19
<PAGE>
EXHIBIT A
TOYS "R" US, INC.
461 FROM ROAD
PARAMUS, NEW JERSEY 07652
[Date]
[ ], as Trustee
[ ], as Trustee
[ ], as Trustee
[Address]
Gentlemen:
Pursuant to Section 5.7 of the Petrie Store Corporation Liquidating Trust
Agreement (the "Trust Agreement"), the above individuals, acting as trustees
(the "Trustees"), have agreed to provide Toys "R" Us, Inc. ("Toys") with
certain written reports and oral updates relating to the Trust (as defined in
the Trust Agreement) and its assets and liabilities (the "Confidential
Information"), as more fully described in such Section 5.7.
In consideration for the furnishing the Confidential Information to us, Toys
agrees that such information will be kept confidential and will not be
disclosed by us or our directors, officers, employees and agents (the persons
to whom such disclosure is permissible being collectively referred to as the
"Representatives") in whole or in part, and will not be used by Toys or the
Representatives directly or indirectly for any purpose other than evaluating
(the "Evaluation") whether the Trust Assets (as defined in the Trust Agreement)
are sufficient to pay all of Petrie Stores Corporation's obligations under the
Seller Indemnification Agreement (as defined in the Trust Agreement). Toys
further agrees to reveal the Confidential Information only to those
Representatives who have a need to know the Confidential Information for the
purpose of the Evaluation, who are informed by Toys of the confidential nature
of the Confidential Information and who agree to be bound by the terms and
conditions of this Agreement.
This Agreement shall not apply to such portions of the Confidential
Information which (i) are or become generally available to the public other
than through a breach of this Agreement by Toys or the Representatives, (ii)
become available to Toys on a non-confidential basis from a source other than
the Trustees, provided that such source is not bound by a confidentiality
agreement with the Trustees, or (iii) have been independently acquired or
developed by Toys without violating any of its obligations under this Agreement
and without the use of the Confidential Information.
In the event that Toys or one of the Representatives becomes legally
compelled to disclose any of the Confidential Information, Toys will provide
the Trustees with prompt written notice so that the Trustees may seek a
protective order or other appropriate remedy and/or waive compliance with the
provisions of this Agreement. In the event that such protective order or other
remedy is not obtained, or if the Trustees waive compliance with the terms of
this Agreement, Toys will furnish only that portion of the Confidential
Information which it is advised by legal counsel, is legally required to be
disclosed, and Toys will exercise its best efforts to obtain reliable
assurances that confidential treatment will be accorded the Confidential
Information. Toys also agrees to promptly inform the Trustees of the particular
Confidential Information which is so disclosed.
Very truly yours,
Toys "R" Us, Inc.
By: _________________________________
Name:
Title:
D-20
<PAGE>
ANNEX E
ESCROW AGREEMENT
This ESCROW AGREEMENT is made and entered into as of , 1994, between
Petrie Stores Corporation, a New York corporation ("Petrie"), and , as
Escrow Agent (the "Escrow Agent").
WHEREAS, Petrie and Toys "R" Us, Inc., a Delaware corporation ("Toys"), are
parties to an Acquisition Agreement, dated April 20, 1994, as amended on May
10, 1994 (the "Acquisition Agreement"), pursuant to which Petrie has agreed to
exchange with Toys all of the shares of Toys common stock, par value $.10 per
share ("Toys Common Stock"), previously held by certain subsidiaries of Petrie
and presently held by Petrie, and cash (up to $250 million) for a number of
shares of Toys Common Stock, equal to (a) the number of shares of Toys Common
Stock held by Petrie less approximately 3.3 million shares of Toys Common
Stock, plus (b) such amount of cash divided by the market value of a share of
Toys Common Stock (the "Exchange");
WHEREAS, the Exchange, in conjunction with the complete liquidation of
Petrie, is intended to qualify as a tax-free reorganization under Sections
368(a)(1)(C) and (a)(2)(G) of the Internal Revenue Code of 1986, as amended;
WHEREAS, Petrie's Board of Directors anticipates that Petrie may not be able
to fully wind up all of its affairs prior to the date by which Petrie must
dissolve, and therefore have made specific arrangements for such contingency in
the Plan of Liquidation and Dissolution (the "Plan");
WHEREAS, on November 1, 1994, Petrie's Board of Directors voted to submit to
its shareholders, among other things, (i) the disposition of Petrie's retail
store operations (the "Disposition"), (ii) the Exchange, and (iii) the
establishment of a liquidating trust (the "Trust") pursuant to an agreement and
declaration of trust, dated , 1994, by and between Petrie and ,
and (the "Liquidating Trust Agreement") and the complete liquidation and
dissolution of Petrie (the "Liquidation," and together with the Exchange and
Disposition, the "Transaction"), and on December 6, 1994, its shareholders
approved the Disposition, and on January [ ], 1995, its shareholders approved
the Exchange and the Liquidation, authorizing the complete liquidation and
dissolution of Petrie pursuant to the Plan; and
WHEREAS, the Plan, among other things, (i) provides that upon consummation of
the Exchange, Petrie will distribute pro rata to its shareholders all of its
assets consisting of Toys Common Stock and cash, if any, other than such assets
retained by Petrie and set aside in escrow (the "Retained Assets") to provide
for the payment of all liabilities of Petrie, (ii) provides for the
establishment of the Trust pursuant to the terms and conditions thereof and the
establishment of one or more escrow accounts one of which is pursuant to the
terms and conditions of this Escrow Agreement, and (iii) authorizes and directs
Petrie to transfer physical possession of the Retained Assets to one or more
escrow agents subject to the terms provided herein and therein.
NOW, THEREFORE, in consideration of the premises, Petrie hereby transfers
physical possession of the Retained Assets for the uses and purposes stated
herein, subject to the terms and provisions set out below, and the Escrow Agent
hereby accepts such Retained Assets, subject to the following terms and
provisions:
1. Certain Definitions. For purposes of this Escrow Agreement, unless the
context indicates otherwise, Petrie and the shareholders of Petrie ("Petrie
Shareholders"), upon the establishment of the Trust, shall mean, respectively,
in the case of (i) Petrie, the trustees (the "Trustees") of the Trust, and (ii)
Petrie Shareholders, the beneficiaries of the Trust (the "Beneficiaries").
2. Appointment and Agreement of Escrow Agent. Petrie hereby appoints the
Escrow Agent, as escrow agent, and Escrow Agent agrees to perform the duties of
Escrow Agent under this Agreement.
<PAGE>
3. Establishment of Escrow.
3.1 Delivery of Property and Receipt. Simultaneously with the execution of
this Escrow Agreement, Petrie is delivering to Escrow Agent the Retained Assets
consisting of $ in cash (the "Escrowed Cash") and shares of Toys
Common Stock ("Escrowed Stock," and together with the Escrowed Cash and any
additional income attributable to any property held pursuant to this Escrow
Agreement, the "Escrowed Property"). Escrow Agent hereby acknowledges receipt
of the Escrowed Property and agrees to hold and disburse the Escrowed Property
in accordance with the terms and conditions of this Escrow Agreement for the
uses and purposes stated herein.
3.2 Investment and Income. Pending the disbursement of the Escrowed Property
pursuant to this Escrow Agreement, Escrow Agent shall invest the Escrowed Cash
as directed by Petrie in (i) direct obligations of the United States of America
or obligations of any agency or instrumentality thereof which mature not later
than one year from the date of the acquisition thereof; (ii) money market
deposit accounts, checking accounts, savings accounts, or certificates of
deposit, or other time deposit accounts which mature not later than one year
from the date of acquisition thereof which are issued by a commercial bank or
savings institution organized under the laws of the United States of America or
any state thereof; or (iii) any other instruments which may be permissible
under Revenue Procedure 82-58, as the same may be amended, supplemented or
modified.
All dividends, interest and other amounts received with respect to Escrowed
Property shall be treated for Federal, state and local tax purposes as received
by Petrie or, upon the establishment of the Trust, by the Trustees, for the
benefit of the Beneficiaries.
4. Voting Rights of Escrowed Toys Common Stock. All voting rights on Toys
Common Stock are exercisable by Petrie, or upon the establishment of the Trust,
by the Trustees or their authorized agent on behalf of the Beneficiaries.
5. Obligations Secured. This Escrow Agreement has been executed and the
deposit of the Escrowed Property hereunder has been made for the purpose of
winding up Petrie's affairs, including but not limited to its payment of any
unsatisfied debts, claims, liabilities, commitments, suits and other
obligations, whether contingent or fixed or whether arising under the
Acquisition Agreement, the Seller Indemnification Agreement, dated as of
, 1994, among Toys, Petrie and the other parties thereto (the "Seller
Indemnification Agreement"), the Stock Purchase Agreement, dated as of August
23, 1994, as amended, by and between Petrie and PS Acquisition Corp. (the
"Stock Purchase Agreement"), or otherwise (each, a "Liability").
6. Procedures for Disbursement of Escrowed Fund. Escrow Agent shall hold and
distribute the Escrowed Property as follows:
6.1 Disbursement of Escrowed Property. Whenever there shall be delivered to
Escrow Agent a certificate signed by Petrie to Escrow Agent (i) that a
Liability is due and payable or (ii) that Petrie believes that the amount of
Escrowed Property is sufficient to cover all outstanding Liabilities, then
Escrow Agent shall deliver to Petrie such amount of Escrowed Property equal in
value to the amount requested in (i) above, and/or such amount over and above
the amount that Petrie believes is sufficient as stated in (ii) above. The
Escrow Agent shall deliver to Petrie, by certified check, such portion in cash
to the extent of cash in the Escrowed Property and, to the extent the amount of
cash in Escrowed Property is not sufficient to satisfy the claim, the balance
in Escrowed Stock held in Escrowed Property; provided, however, that the Escrow
Agent shall not make any distribution to Petrie pursuant to (ii) above unless
(x) it shall have notified Toys of its intent to make such a distribution and
(y) Toys has failed to give notice of its objection to such distribution,
pursuant to and upon the terms set forth in Section 9.3(b), within 20 days of
its receipt of such notice.
The Escrow Agent, at the direction of Petrie, shall deliver to Petrie the
Escrowed Stock, or a portion thereof, if simultaneously therewith, Petrie
delivers to the Escrow Agent, cash or cash equivalents in an amount equal to
the value of the exchanged Escrowed Stock. The value of the exchanged Escrowed
Stock shall be calculated using the closing price of Toys Common Stock, as
reported by the New York Stock Exchange, one business day prior to the delivery
to Petrie of the exchanged Escrowed Stock.
E-2
<PAGE>
If Escrowed Stock is thus required to be delivered, Escrow Agent shall cause
certificates of shares of the Escrowed Stock having a value in the amount of
such balance, and duly executed stock powers with respect to such certificates,
with signatures guaranteed by a bank or trust company or by a member firm of
the New York Stock Exchange, to be delivered to Petrie. Notwithstanding the
above, all Escrowed Property shall be delivered to the Trustees, subject to the
terms of the Trust, upon the termination of this Escrow Agreement pursuant to
Section 7 hereof.
6.2 Interim Distributions. Notwithstanding anything in this Escrow Agreement
to the contrary, all dividends paid on the Escrowed Stock and any income
attributable to the Escrowed Property will be distributed to the Trustees,
subject to the terms of the Trust, for the benefit of the Beneficiaries.
7. Termination of Escrow. This Escrow Agreement shall terminate (the
"Termination Date") upon the earliest of (i) five years from the date hereof;
(ii) the reasonable determination by the Trustees that all of the Liabilities
have been satisfied or paid; provided, however, that the Trustees shall notify
Toys of such determination and this Escrow Agreement shall not terminate if
within 20 days of delivery of such notice, Toys notifies the Trustees of its
objection to such termination, pursuant to and upon the terms set forth in
Section 9.3(b), and (iii) the disbursement of all of the Escrowed Property in
accordance with Section 6.1. On the business day following the Termination
Date, the Escrow Agent shall deliver the Escrowed Property, if any, to Petrie.
With respect to subparagraph (ii) above, this Escrow Agreement shall be
terminated only upon the receipt by Escrow Agent of a written notice of
termination executed by the Trustees directing the distribution of all Escrowed
Property then held by Escrow Agent under and pursuant to this Escrow Agreement,
which notice shall certify that Toys has not objected thereto as provided by
this Section 7.
8. The Escrow Agent.
8.1 Indemnification of Escrow Agent. Petrie hereby agrees to indemnify and
hold Escrow Agent and Toys and their respective directors, officers, agents and
employees harmless from and against any and all costs, charges, damages, and
attorneys' fees which Escrow Agent or Toys in good faith may incur or suffer in
connection with or arising out of this Escrow Agreement.
8.2 Duties of Escrow Agent and Toys. Escrow Agent and Toys shall have no
duties other than those expressly imposed on them herein and they shall not be
liable for any act or omission except for their own negligence or willful
misconduct.
8.3 Fees of Escrow Agent. The fees and charges of Escrow Agent with respect
to this Escrow Agreement shall be paid by Petrie in accordance with Escrow
Agent's customary fees as charged from time to time. Petrie agrees that Escrow
Agent may deduct any unpaid fees from Escrowed Property prior to the Escrow
Agent's distributing any assets in connection with the termination of this
Escrow Agreement.
8.4 Escrow Agent to Follow Instructions of Petrie. Any provision herein
contained to the contrary notwithstanding, Escrow Agent shall at any time and
from time to time take such action hereunder with respect to the Escrowed
Property as shall be agreed to in writing by Petrie provided that Escrow Agent
shall first be indemnified to its satisfaction, by Petrie, with respect to any
of its costs or expenses which might be incurred; provided, however, that
distributions of Escrowed Property shall be made only in accordance with
Sections 6 and 7 hereof.
8.5 Resignation of Escrow Agent. Escrow Agent may resign at any time by
providing Petrie with thirty days' written notice of its intention to do so.
Upon receiving such notice, Petrie shall endeavor to appoint a successor Escrow
Agent. If Petrie is unable to appoint a successor Escrow Agent within thirty
days of receipt by Petrie of Escrow Agent's notice of its intention to resign,
Escrow Agent may petition a court of competent jurisdiction to appoint a
successor. Escrow Agent's resignation shall be effective upon delivery of the
remaining Escrowed Property to the successor Escrow Agent and the successor
assuming the obligations, rights and duties of Escrow Agent hereunder.
E-3
<PAGE>
9. Provisions.
9.1 Notices. A copy of all notices and communications delivered by the Escrow
Agent pursuant to this Agreement shall be sent to Toys and PS Acquisition Corp.
All notices and other communications hereunder shall be in writing and shall be
deemed to have been duly given if delivered personally or sent by cable,
telegram, telecopier or telex to the parties hereto and to Toys at the
following addresses or at such other addresses as shall be specified by the
parties or by Toys by like notice:
(a) If to Petrie:
Petrie Stores Corporation
70 Enterprise Avenue
Secaucus, New Jersey 07094
Attention: Peter Left, Chief Operating Officer
Facsimile: (201) 866-2355
or following the establishment of the Trust, to the Trustees at such address as
Petrie shall provide:
If to the Trustees:
_________________________________
_________________________________
_________________________________
with a copy to:
Skadden, Arps, Slate, Meagher & Flom
919 Third Avenue
New York, New York 10022
Attention: Alan C. Myers, Esq.
Facsimile: (212) 735-2000
(b) If to Toys:
Toys "R" Us, Inc.
395 W. Passaic Street
Rochelle Park, New Jersey 07662
Attention:Louis Lipschitz
Chief Financial Officer
Facsimile:(201) 845-0973
with a copy to:
Schulte Roth & Zabel
900 Third Avenue
New York, New York 10022
Attention:Andre Weiss, Esq.
Facsimile: (212) 593-5955
(c) If to Escrow Agent:
_________________________________
_________________________________
_________________________________
E-4
<PAGE>
(d) If to PS Acquisition Corp.:
c/o E.M. Warburg, Pincus & Co.
466 Lexington Avenue
New York, New York 10017
Attention:Errol M. Cook
Facsimile:(212) 878-9351
with a copy to:
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Attention:Stephanie J. Seligman
Facsimile:(212) 403-2000
Notwithstanding the foregoing, Escrow Agent agrees that in respect of any
action, suit or proceeding it might initiate against Petrie, or the Petrie
shareholders by serving process on the Secretary of State of the State of New
York to furnish a duplicate copy of all such papers so served to Petrie, up
until the time it dissolves, and thereafter to the Trustees by a nationally-
recognized overnight courier at the address of each such party set forth above.
9.2 Benefit and Assignment. The rights and obligations of each party under
this Escrow Agreement may not be assigned without the prior written consent of
all other parties except that Petrie in connection with its dissolution may
assign this Escrow Agreement to the Trustees on behalf of the Beneficiaries.
This Escrow Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns (and, in the case of
Petrie, the Beneficiaries and the Trustees). Nothing in this Escrow Agreement,
expressed or implied, is intended to or shall (i) confer on any person other
than the parties hereto, or their respective successors or assigns, any rights,
remedies, obligations or liabilities under or by reason of this Escrow
Agreement other than in respect to the rights conferred on Toys or PS
Acquisition Corp. pursuant to Sections 6, 7, 8 and 9.3 hereof, or (ii)
constitute the parties hereto as partners or participants in a joint venture.
Escrow Agent shall not be obligated to recognize any such succession or
assignment, until satisfactory written evidence thereof shall have been
received by it.
9.3 Third Party Beneficiary. (a) Petrie and the Escrow Agent each
acknowledge that each of Toys and PS Acquisition Corp. is a third party
beneficiary of this Escrow Agreement.
(b) Toys' objection to any distribution hereunder or the termination of this
Agreement must state, in effect, that it reasonably believes that the
contemplated distribution or termination could result in the remaining Escrowed
Property being insufficient to pay for any of Petrie's obligations under the
Seller Indemnification Agreement.
(c) If the Escrow Agent intends to make a distribution notwithstanding Toys'
objection thereto, it will give Toys at least 20 days prior written notice of
its belief that the Toys notice fails to meet the standard set forth in Section
9.3(b) and of its intention to proceed with the distribution.
9.4. Specific Performance. The Escrow Agent acknowledges that failure on his
part to comply with the terms of Sections 6.1 and 7 hereof shall cause Toys
immediate and irreparable harm that cannot be adequately compensated by the
remedies at law, and that in the event of such breach or violation, or
threatened breach or violation, Toys may have such sections of this Agreement
specifically enforced by preliminary and permanent injunctive relief without
having to prove the inadequacy of the available remedies at law or any actual
damages. Any remedy sought or obtained by Toys shall not be considered either
exclusive or a waiver of the rights of Toys or any other person to assert any
other remedies it has in law or equity. In any proceeding upon a motion for any
such injunctive relief, the Escrow Agent's ability to answer in damages shall
not be a bar, or be interposed as a defense, to the granting of such injunctive
relief against the Escrow Agent. Any rights under this Section may be enforced
in any appropriate court in the State of New York.
E-5
<PAGE>
9.5. Entire Agreement; Amendment. This Escrow Agreement, the Acquisition
Agreement, the Stock Purchase Agreement and the Liquidating Trust Agreement
contain all the terms agreed upon by the parties with respect to the subject
matter hereof. This Escrow Agreement may be amended only by a written
instrument signed by Toys and the party against which enforcement of any
waiver, change, modification, extension or discharge is sought.
9.6 Headings. The headings of the sections and subsections of this Escrow
Agreement are for ease of reference only and shall not be deemed to evidence or
affect the meaning or construction of any of the provisions hereof.
9.7 Governing Law and Submission to Jurisdiction. This Escrow Agreement shall
be construed, as to both validity and performance, enforced in accordance with
and interpreted and governed by the laws of the State of New York, without
regard to any of the conflicts of laws provisions thereof.
Petrie and the Trustees agree that any claim, suit, action or other
proceeding for indemnity or otherwise provided for in this Escrow Agreement,
brought by Petrie, the Petrie shareholders, the Trustees or the Beneficiaries
shall be brought only in a court sitting in New York, New York.
9.8 Counterparts. This Escrow Agreement may be executed in multiple
counterparts, all of which taken together shall constitute one instrument.
IN WITNESS WHEREOF, the parties have caused this Escrow Agreement to be duly
executed by their respective duly authorized officers, all as of the day and
year first above written.
PETRIE STORES CORPORATION
ON BEHALF OF ITSELF AND
THE PETRIE SHAREHOLDERS
ATTEST:
_____________________________________
By: _________________________________
Title
[ESCROW AGENT]
ATTEST:
_____________________________________
By: _________________________________
Title
E-6
<PAGE>
ANNEX F
[LETTERHEAD OF BEAR, STERNS & CO. INC. APPEARS HERE]
November 3, 1994
The Board of Directors
Petrie Stores Corporation
70 Enterprise Avenue
Secaucus, New Jersey 07094
Dear Sirs:
We understand that Petrie Stores Corporation ("Petrie") intends to sell its
retail store operations (the "Retail Operations") to a group including E.M.
Warburg, Pincus & Co., the current senior management of Petrie, and Verna
Gibson (collectively, "Warburg") (the "Sale"). Pursuant to the Sale, Petrie
would sell 100% of the stock of a newly-formed corporation holding all the
assets and liabilities of the Retail Operations (the "Retail Holding Company")
to Warburg for consideration comprised of $190 million in cash and the
assumption of Petrie's contingent liabilities with respect to store leases,
prior years' taxes and pension obligations, except that Petrie would remain
liable for 75% of prior years' pension obligations in excess of $10 million and
not over $60 million. You have provided us with the proxy statement/prospectus
with respect to the proposed transaction between Toys "R" Us, Inc. ("Toys") and
Petrie (the "Toys Transaction") and the proposed liquidation of Petrie in
substantially final form (the "Proxy Statement").
You have asked us to render our opinion as to the fairness of the Sale, from
a financial point of view, to the shareholders of Petrie.
In the course of rendering our opinion, we have:
1. reviewed the Proxy Statement;
2. reviewed Petrie's Annual Reports to Shareholders and its Annual
Reports on Form 10-K for the fiscal years ended on or about January 31,
1990 through 1994, and its Quarterly Reports on Form 10-Q for the quarters
ended April 30, 1994 and July 30, 1994;
3. reviewed projected income statements of the Retail Operations,
prepared by management, for the fiscal years ending on or about January 31,
1995 through 1998;
4. reviewed operating and financial information related to the business,
operations, and prospects of Petrie, provided to us by management;
5. met with members of Petrie's management to discuss the operations,
historical financial statements and future prospects of the Retail
Operations;
<PAGE>
6. initiated and managed a sale process commencing on the date of the
announcement of the Toys Transaction, where all qualified interested
parties were provided with access to lease and financial information and to
Petrie management and were given the opportunity to submit a bid for the
Retail Operations;
7. met with Petrie and its counsel to discuss Petrie's contingent
liabilities, the Toys Transaction, the proposed liquidation of Petrie, and
other matters;
8. reviewed publicly available financial data and stock market
performance data of public companies which we deemed generally comparable
to the Retail Operations;
9. reviewed historical stock prices and trading volume of the common
stock of Petrie and of Toys; and
10. conducted such other studies, analyses, inquiries, and investigations
as we deemed appropriate.
In the course of our review, we have relied upon and assumed, without
independent verification, the accuracy and completeness of the financial and
other information provided to us by Petrie's management and counsel, and upon
their assurances that they are unaware of any facts that would make the
information provided to us incomplete or misleading. In arriving at our
opinion, we have not obtained or performed any independent appraisal of the
assets of the Retail Operations.
Based on the foregoing, it is our opinion that the Sale is fair, from a
financial point of view, to the shareholders of Petrie.
Very truly yours,
BEAR, STEARNS & CO. INC.
/s/ Gilbert E. Matthews
By: _______________________
Managing Director
F-2
<PAGE>
ANNEX G
TEXT OF SECTION 623 OF THE NEW YORK BUSINESS
CORPORATION LAW
SECTION 623. PROCEDURE TO ENFORCE SHAREHOLDER'S RIGHT TO RECEIVE PAYMENT FOR
SHARES.
(a) A shareholder intending to enforce his right under a section of this
chapter to receive payment for his shares if the proposed corporate action
referred to therein is taken shall file with the corporation, before the
meeting of shareholders at which the action is submitted to a vote, or at such
meeting but before the vote, written objection to the action. The objection
shall include a notice of his election to dissent, his name and residence
address, the number and classes of shares as to which he dissents and a demand
for payment of the fair value of his shares if the action is taken. Such
objection is not required from any shareholder to whom the corporation did not
give notice of such meeting in accordance with this chapter or where the
proposed action is authorized by written consent of shareholders without a
meeting.
(b) Within ten days after the shareholders' authorization date, which term as
used in this section means the date on which the shareholders' vote authorizing
such action was taken, or the date on which such consent without a meeting was
obtained from the requisite shareholders, the corporation shall give written
notice of such authorization or consent by registered mail to each shareholder
who filed written objection or from whom written objection was not required,
excepting any shareholder who voted for or consented in writing to the proposed
action and who thereby is deemed to have elected not to enforce his right to
receive payment for his shares.
(c) Within twenty days after the giving of notice to him, any shareholder
from whom written objection was not required and who elects to dissent shall
file with the corporation a written notice of such election, stating his name
and residence address, the number and classes of shares as to which he dissents
and a demand for payment of the fair value of his shares. Any shareholder who
elects to dissent from a merger under section 905 (Merger of subsidiary
corporation) or paragraph (c) of section 907 (Merger or consolidation of
domestic and foreign corporations) or from a share exchange under paragraph (g)
of section 913 (Share exchanges) shall file a written notice of such election
to dissent within twenty days after the giving to him of a copy of the plan of
merger or exchange or an outline of the material features thereof under section
905 or 913.
(d) A shareholder may not dissent as to less than all of the shares, as to
which he has a right to dissent, held by him of record, that he owns
beneficially. A nominee or fiduciary may not dissent on behalf of any
beneficial owner as to less than all of the shares of such owner, as to which
such nominee or fiduciary has a right to dissent, held of record by such
nominee or fiduciary.
(e) Upon consummation of the corporate action, the shareholder shall cease to
have any of the rights of a shareholder except the right to be paid the fair
value of his shares and any other rights under this section. A notice of
election may be withdrawn by the shareholder at any time prior to his
acceptance in writing of an offer made by the corporation, as provided in
paragraph (g), but in no case later than sixty days from the date of
consummation of the corporate action except that if the corporation fails to
make a timely offer, as provided in paragraph (g), the time for withdrawing a
notice of election shall be extended until sixty days from the date an offer is
made. Upon expiration of such time, withdrawal of a notice of election shall
require the written consent of the corporation. In order to be effective,
withdrawal of a notice of election must be accompanied by the return to the
corporation of any advance payment made to the shareholder as provided in
paragraph (g). If a notice of election is withdrawn, or the corporate action is
rescinded, or a court shall determine that the shareholder is not entitled to
receive payment for his shares, or the shareholder shall otherwise lose his
dissenter's rights, he shall not have the right to receive payment for his
shares and he shall be reinstated to all his rights as a shareholder as of the
consummation of the corporate action, including any
<PAGE>
intervening preemptive rights and the right to payment of any intervening
dividend or other distribution or, if any such rights have expired or any such
dividend or distribution other than in cash has been completed, in lieu
thereof, at the election of the corporation, the fair value thereof in cash as
determined by the board as of the time of such expiration or completion, but
without prejudice otherwise to any corporate proceedings that may have been
taken in the interim.
(f) At the time of filing the notice of election to dissent or within one
month thereafter the shareholder of shares represented by certificates shall
submit the certificates representing his shares to the corporation, or to its
transfer agent, which shall forthwith note conspicuously thereon that a notice
of election has been filed and shall return the certificates to the
shareholder or other person who submitted them on his behalf. Any shareholder
of shares represented by certificates who fails to submit his certificates for
such notation as herein specified shall, at the option of the corporation
exercised by written notice to him within forty-five days from the date of
filing of such notice of election to dissent, lose his dissenter's rights
unless a court, for good cause shown, shall otherwise direct. Upon transfer of
a certificate bearing such notation, each new certificate issued therefor
shall bear a similar notation together with the name of the original
dissenting holder of the shares and a transferee shall acquire no rights in
the corporation except those which the original dissenting shareholder had at
the time of the transfer.
(g) Within fifteen days after the expiration of the period within which
shareholders may file their notices of election to dissent, or within fifteen
days after the proposed corporate action is consummated, whichever is later
(but in no case later than ninety days from the shareholders' authorization
date), the corporation or, in the case of a merger or consolidation, the
surviving or new corporation, shall make a written offer by registered mail to
each shareholder who has filed such notice of election to pay for his shares
at a specified price which the corporation considers to be their fair value.
Such offer shall be accompanied by a statement setting forth the aggregate
number of shares with respect to which notices of election to dissent have
been received and the aggregate number of holders of such shares. If the
corporate action has been consummated, such offer shall also be accompanied by
(1) advance payment to each such shareholder who has submitted the
certificates representing his shares to the corporation as provided in
paragraph (f), of an amount equal to eighty percent of the amount of such
offer, or (2) as to each shareholder who has not yet submitted his
certificates a statement that advance payment to him of an amount equal to
eighty percent of the amount of such offer will be made by the corporation
promptly upon submission of his certificates. If the corporate action has not
been consummated at the time of the making of the offer, such advance payment
or statement as to advance payment shall be sent to each shareholder entitled
thereto forthwith upon consummation of the corporate action. Every advance
payment or statement as to advance payment shall include advice to the
shareholder to the effect that acceptance of such payment does not constitute
a waiver of any dissenters' rights. If the corporate action has not been
consummated upon the expiration of the ninety day period after the
shareholders' authorization date, the offer may be conditioned upon the
consummation of such action. Such offer shall be made at the same price per
share to all dissenting shareholders of the same class, or if divided into
series, of the same series and shall be accompanied by a balance sheet of the
corporation whose shares the dissenting shareholder holds as of the latest
available date, which shall not be earlier than twelve months before the
making of such offer, and a profit and loss statement or statements for not
less than a twelve month period ended on the date of such balance sheet or, if
the corporation was not in existence throughout such twelve month period, for
the portion thereof during which it was in existence. Notwithstanding the
foregoing, the corporation shall not be required to furnish a balance sheet or
profit and loss statement or statements to any shareholder to whom such
balance sheet or profit and loss statement or statements were previously
furnished, nor if in connection with obtaining the shareholders' authorization
for or consent to the proposed corporate action the shareholders were
furnished with a proxy or information statement, which included financial
statements, pursuant to Regulation 14A or Regulation 14C of the United States
Securities and Exchange Commission. If within thirty days after the making of
such offer, the corporation making the offer and any shareholder agree upon
the price to be paid for his shares, payment therefor shall be made within
sixty days after the making of such offer or the consummation of the proposed
corporate action, whichever is later, upon the surrender of the certificates
for any such shares represented by certificates.
G-2
<PAGE>
(h) The following procedure shall apply if the corporation fails to make such
offer within such period of fifteen days, or if it makes the offer and any
dissenting shareholder or shareholders fail to agree with it within the period
of thirty days thereafter upon the price to be paid for their shares:
(1) The corporation shall, within twenty days after the expiration of
whichever is applicable of the two periods last mentioned, institute a
special proceeding in the supreme court in the judicial district in which
the office of the corporation is located to determine the rights of
dissenting shareholders and to fix the fair value of their shares. If, in
the case of merger or consolidation, the surviving or new corporation is a
foreign corporation without an office in this state, such proceeding shall
be brought in the county where the office of the domestic corporation,
whose shares are to be valued, was located.
(2) If the corporation fails to institute such proceeding within such
period of twenty days, any dissenting shareholder may institute such
proceeding for the same purpose not later than thirty days after the
expiration of such twenty day period. If such proceeding is not instituted
within such thirty day period, all dissenter's rights shall be lost unless
the supreme court, for good cause shown, shall otherwise direct.
(3) All dissenting shareholders, excepting those who, as provided in
paragraph (g), have agreed with the corporation upon the price to be paid
for their shares, shall be made parties to such proceeding, which shall
have the effect of an action quasi in rem against their shares. The
corporation shall serve a copy of the petition in such proceeding upon each
dissenting shareholder who is a resident of this state in the manner
provided by law for the service of a summons, and upon each nonresident
dissenting shareholder either by registered mail and publication, or in
such other manner as is permitted by law. The jurisdiction of the court
shall be plenary and exclusive.
(4) The court shall determine whether each dissenting shareholder, as to
whom the corporation requests the court to make such determination, is
entitled to receive payment for his shares. If the corporation does not
request any such determination or if the court finds that any dissenting
shareholder is so entitled, it shall proceed to fix the value of the
shares, which, for the purposes of this section, shall be the fair value as
of the close of business on the day prior to the shareholders'
authorization date. In fixing the fair value of the shares, the court shall
consider the nature of the transaction giving rise to the shareholder's
right to receive payment for shares and its effects on the corporation and
its shareholders, the concepts and methods then customary in the relevant
securities and financial markets for determining fair value of shares of a
corporation engaging in a similar transaction under comparable
circumstances and all other relevant factors. The court shall determine the
fair value of the shares without a jury and without referral to an
appraiser or referee. Upon application by the corporation or by any
shareholder who is a party to the proceeding, the court may, in its
discretion, permit pretrial disclosure, including, but not limited to,
disclosure of any expert's reports relating to the fair value of the shares
whether or not intended for use at the trial in the proceeding and
notwithstanding subdivision (d) of section 3101 of the civil practice law
and rules.
(5) The final order in the proceeding shall be entered against the
corporation in favor of each dissenting shareholder who is a party to the
proceeding and is entitled thereto for the value of his shares so
determined.
(6) The final order shall include an allowance for interest at such rate
as the court finds to be equitable, from the date the corporate action was
consummated to the date of payment. In determining the rate of interest,
the court shall consider all relevant factors, including the rate of
interest which the corporation would have had to pay to borrow money during
the pendency of the proceeding. If the court finds that the refusal of any
shareholder to accept the corporate offer of payment for his shares was
arbitrary, vexatious or otherwise not in good faith, no interest shall be
allowed to him.
(7) Each party to such proceeding shall bear its own costs and expenses,
including the fees and expenses of its counsel and of any experts employed
by it. Notwithstanding the foregoing, the court may, in its discretion,
apportion and assess all or any part of the costs, expenses and fees
incurred by the corporation against any or all of the dissenting
shareholders who are parties to the proceeding, including
G-3
<PAGE>
any who have withdrawn their notices of election as provided in paragraph
(e), if the court finds that their refusal to accept the corporate offer
was arbitrary, vexatious or otherwise not in good faith. The court may, in
its discretion, apportion and assess all or any part of the costs, expenses
and fees incurred by any or all of the dissenting shareholders who are
parties to the proceeding against the corporation if the court finds any of
the following: (A) that the fair value of the shares as determined
materially exceeds the amount which the corporation offered to pay; (B)
that no offer or required advance payment was made by the corporation; (C)
that the corporation failed to institute the special proceeding within the
period specified therefor; or (D) that the action of the corporation in
complying with its obligations as provided in this section was arbitrary,
vexatious or otherwise not in good faith. In making any determination as
provided in clause (A), the court may consider the dollar amount or the
percentage, or both, by which the fair value of the shares as determined
exceeds the corporate offer.
(8) Within sixty days after final determination of the proceeding, the
corporation shall pay to each dissenting shareholder the amount found to be
due him, upon surrender of the certificate for any such shares represented
by certificates.
(i) Shares acquired by the corporation upon the payment of the agreed value
therefor or of the amount due under the final order, as provided in this
section, shall become treasury shares or be cancelled as provided in section
515 (Reacquired shares), except that, in the case of a merger or consolidation,
they may be held and disposed of as the plan of merger or consolidation may
otherwise provide.
(j) No payment shall be made to a dissenting shareholder under this section
at a time when the corporation is insolvent or when such payment would make it
insolvent. In such event, the dissenting shareholder shall, at his option:
(1) Withdraw his notice of election, which shall in such event be deemed
withdrawn with the written consent of the corporation; or
(2) Retain his status as a claimant against the corporation and, if it is
liquidated, be subordinated to the rights of creditors of the corporation,
but have rights superior to the non-dissenting shareholders, and if it is
not liquidated, retain his right to be paid for his shares, which right the
corporation shall be obliged to satisfy when the restrictions of this
paragraph do not apply.
(3) The dissenting shareholder shall exercise such option under
subparagraph (1) or (2) by written notice filed with the corporation within
thirty days after the corporation has given him written notice that payment
for his shares cannot be made because of the restrictions of this
paragraph. If the dissenting shareholder fails to exercise such option as
provided, the corporation shall exercise the option by written notice given
to him within twenty days after the expiration of such period of thirty
days.
(k) The enforcement by a shareholder of his right to receive payment for his
shares in the manner provided herein shall exclude the enforcement by such
shareholder of any other right to which he might otherwise be entitled by
virtue of share ownership, except as provided in paragraph (e), and except that
this section shall not exclude the right of such shareholder to bring or
maintain an appropriate action to obtain relief on the ground that such
corporate action will be or is unlawful or fraudulent as to him.
(l) Except as otherwise expressly provided in this section, any notice to be
given by a corporation to a shareholder under this section shall be given in
the manner provided in section 605 (Notice of meetings of shareholders).
(m) This section shall not apply to foreign corporations except as provided
in subparagraph (e)(2) of section 907 (Merger or consolidation of domestic and
foreign corporations). (Last amended by Ch. 117, L. '86, eff. 9-1-86.)
G-4
<PAGE>
- - --------------------------------------------------------------------------------
Annex H
Petrie Stores Corporation
70 Enterprise Avenue
Secaucus, New Jersey 07094
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
PROXY FOR THE 1994 ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON DECEMBER 6, 1994
The undersigned shareholder of Petrie Stores Corporation ("Petrie") hereby
appoints Joseph H. Flom, Alan C. Greenberg and Raymond S. Troubh and each of
them, the lawful attorneys and proxies of the undersigned, each with several
powers of substitution, to vote all the shares of Common Stock of Petrie Stores
Corporation held of record by the undersigned on October 31, 1994 at the Annual
Meeting of Shareholders (the "Annual Meeting") to be held at the offices of
Skadden, Arps, Slate, Meagher & Flom, 33rd Floor, 919 Third Avenue, New York,
New York, on Tuesday, December 6, 1994, at 9:00 a.m., local time, and at any and
all adjournments or postponements thereof, with all the powers the undersigned
would possess if personally present, upon all matters set forth in the Proxy
Statement/Prospectus, dated October 31, 1994.
Shares represented by all properly executed proxies will be voted in
accordance with instructions appearing on the proxy and at the discretion of the
proxy holders as to any other matter that may properly come before the Annual
Meeting of Shareholders. IN THE ABSENCE OF SPECIFIC INSTRUCTIONS, PROXIES WILL
BE VOTED FOR the nominees set forth in ITEM 1, FOR ITEM 2, FOR ITEM 3, FOR ITEM
4, FOR ITEM 5 AND AT THE DISCRETION OF THE PROXY HOLDERS AS TO ANY OTHER MATTER
THAT MAY PROPERLY COME BEFORE THE ANNUAL MEETING OF SHAREHOLDERS.
(TO BE SIGNED ON REVERSE SIDE)
- - --------------------------------------------------------------------------------
<PAGE>
[X] Please mark your votes as in this example.
FOR all nominees WITHHOLD AUTHORITY
listed to right to vote for all
(except as marked to nominees
the contrary below) listed to right
1. ELECTION
OF [_] [_]
DIRECTORS
Nominees: Joseph H. Flom
Jay Galin
Hilda Kirachbaum Gerstein
Alan C. Greenberg
Alan Laufgraben
Peter A Left
Daniel G. Meresca
Carroll Petrio
Jean Roberts
Dorothy Fink Stem
Laurence A. Tisch
Raymond S. Troubh
INSTRUCTION: To withhold authority to vote for any individual nominee(s), strike
a line through such nominee's name.)
- - --------------------------------------------------------------------------------
FOR AGAINST ABSTAIN
2. Approval of the disposition of Petrie's
retail operations. [_] [_] [_]
3. Approval of the exchange with Toys "R"
Us, Inc. ("Toys 'R' Us") of all the
shares of Toys 'R' Us common stock,
par value $.10 per share
("Toys Common Stock"), held by
certain subsidiaries of Petrie (currently,
approximately 39.9 million shares) and cash
(presently estimated to be $180 million) [_] [_] [_]
for a number of shares of Toys Common Stock
equal to (a) the number of shares of Toys
Common Stock held by Petrie, less
approximately 3.3 million shares of Toys
Common Stock, plus (b) such amount cash
divided by the market value of a share
of Toys Common Stock.
4. Approval of the establishment of a
liquidating trust and the complete [_] [_] [_]
liquidation and dissolution of Petrie.
5. Approval and ratification of the appoint-
ment of David Berdon & Co., as the
independent auditors of Petrie for the [_] [_] [_]
fiscal year ending January 28, 1995.
PLEASE DATE, SIGN, AND RETURN THIS PROXY IN THE ENCLOSED ENVELOPE.
DATE
- - -------------------------------- ---------------------
Signature
DATE
- - -------------------------------- ---------------------
Signature if held jointly
IMPORTANT: Please sign as name(s) appear on this proxy, and date this proxy. If
a joint account, each joint owner must sign. If signing for a
corporation or partnership or as agent, attorney or fiduciary,
indicate the capacity in which you are signing.
<PAGE>
GRAPHICS APPENDIX LIST
PAGE WHERE
GRAPHIC APPEARS DESCRIPTION OF GRAPHIC OR CROSS-REFERENCE
- - --------------- -----------------------------------------
Page 89 See "Performance Graph"
