<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 9, 1998
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
WOOLWORTH CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
NEW YORK 13-3513936
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
WOOLWORTH CORPORATION
233 BROADWAY
NEW YORK, NEW YORK 10279-0003
(212) 553-2000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
GARY M. BAHLER, ESQ.
WOOLWORTH CORPORATION
233 BROADWAY
NEW YORK, NEW YORK 10279-0003
(212) 553-2000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
COPIES OF ALL COMMUNICATIONS TO:
<TABLE>
<S> <C>
THOMAS H. KENNEDY, ESQ. JOHN S. FLETCHER, ESQ.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP MORGAN, LEWIS & BOCKIUS LLP
919 THIRD AVENUE 5300 FIRST UNION FINANCIAL CENTER
NEW YORK, NEW YORK 10022 MIAMI, FLORIDA 33131
(212) 735-3000 (305) 579-0300
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF THE PROPOSED SALE OF THE SECURITIES TO
THE PUBLIC: As soon as practicable after the Registration Statement becomes
effective and all other conditions to the merger of Liberty Merger Sub Inc. (a
wholly-owned subsidiary of the Registrant) with and into The Sports Authority,
Inc. ("Sports Authority"), as set forth in the Agreement and Plan of Merger,
dated as of May 7, 1998 (the "Merger Agreement"), described in the enclosed
Proxy Statement/Prospectus, are satisfied or waived.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
the General Instruction G, check the following box: [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the effective registration statement for the
same offering. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
=================================================================================================================================
PROPOSED
MAXIMUM PROPOSED MAXIMUM AMOUNT
AMOUNT TO BE OFFERING PRICE AGGREGATE OF
TITLE(1) REGISTERED(2) PER SHARE(3) OFFERING PRICE(3) REGISTRATION FEE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value $.01 per
share (including the associated
Rights to purchase Series B
Participating Preferred
Stock)(4)...................... 25,413,665 $19.28 $489,975,462 $144,543
=================================================================================================================================
</TABLE>
(1) This Registration Statement relates to the Registrant's Common Stock, par
value $.01 per share, to be issued to the holders of the Common Stock, par
value $.01 per share, of Sports Authority pursuant to the Merger Agreement.
(2) Represents an estimate of the maximum number of shares of the Registrant's
Common Stock issuable pursuant to the Merger Agreement.
(3) Estimated solely for purposes of calculating the registration fee under
Section 6(b) of the Securities Act and calculated pursuant to Rule 457 under
the Securities Act, based upon the average of the high and low sales prices
reported for a share of the Registrant's Common Stock on June 2, 1998, as
reported on the New York Stock Exchange Composite Transactions Tape.
(4) Rights to purchase Series B Participating Preferred Stock of the Registrant
are attached to and trade with the shares of the Registrant's Common Stock
being registered hereby. Value attributed to such rights, if any, is
reflected in the market price of the Registrant's Common Stock.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(a), MAY
DETERMINE.
================================================================================
<PAGE> 2
[SPORTS AUTHORITY LOGO]
THE SPORTS AUTHORITY, INC.
3383 NORTH STATE ROAD 7
FT. LAUDERDALE, FL 33319
, 1998
Dear Stockholder:
You are cordially invited to attend a Special Meeting of Stockholders (the
"Special Meeting") of The Sports Authority, Inc. ("Sports Authority"), which
will be held at , on , 1998, at , local
time.
At the Special Meeting, stockholders of Sports Authority will be asked to
consider and vote upon a proposal to approve and adopt an Agreement and Plan of
Merger, dated as of May 7, 1998 (the "Merger Agreement"), among Sports
Authority, Woolworth Corporation, a New York corporation ("Woolworth"), and
Liberty Merger Sub Inc., a newly organized Delaware corporation and a wholly
owned subsidiary of Woolworth ("Merger Sub"), and to approve the transactions
contemplated by the Merger Agreement. If stockholders of Sports Authority
approve and adopt the Merger Agreement and the transactions contemplated
thereby, and such transactions are consummated, Merger Sub will be merged with
and into Sports Authority (the "Merger"), with Sports Authority as the surviving
corporation, and each share of common stock, par value $.01 per share, of Sports
Authority (the "Sports Authority Common Stock") will be converted into the right
to receive 0.80 (the "Exchange Ratio") validly issued, fully paid and
nonassessable share of common stock, par value $.01 per share, of Woolworth
("Woolworth Common Stock"), with cash to be paid in lieu of fractional shares of
Woolworth Common Stock. Detailed information concerning the proposed Merger is
set forth in the accompanying Proxy Statement/Prospectus, which you are urged to
read carefully. A copy of the Merger Agreement is included as Annex A to the
accompanying Proxy Statement/Prospectus.
Approval and adoption of the Merger Agreement requires the affirmative vote
of a majority of the outstanding shares of Sports Authority Common Stock held by
stockholders of record on , 1998. abstentions and broker non-votes will
be included for purposes of determining the presence of a quorum at the Special
Meeting, but are the equivalent of "against" votes.
THE BOARD OF DIRECTORS HAS APPROVED THE MERGER AGREEMENT AND DETERMINED
THAT THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY ARE FAIR TO
AND IN THE BEST INTERESTS OF SPORTS AUTHORITY'S STOCKHOLDERS AND RECOMMENDS THAT
YOU VOTE FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND THE TRANSACTIONS
CONTEMPLATED THEREBY. In reaching such determination and recommendation, the
Board of Directors considered, among other things, the opinion of Merrill Lynch,
Pierce, Fenner & Smith Incorporated ("Merrill Lynch"), who served as the
directors' financial advisor with respect to such transactions, that the
Exchange Ratio was fair to the stockholders of Sports Authority from a financial
point of view, as of the date of such opinion. Merrill Lynch's opinion, dated
May 7, 1998, and as updated on , 1998, is included as Annex B to the
accompanying Proxy Statement/Prospectus. You are urged to read the opinion in
its entirety for further information with respect to the assumptions made,
matters considered and limits of the review undertaken by Merrill Lynch.
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE SPECIAL MEETING,
WHETHER OR NOT YOU PLAN TO ATTEND PERSONALLY. TO ENSURE THAT YOUR SHARES ARE
REPRESENTED AT THE SPECIAL MEETING, YOU SHOULD COMPLETE AND SIGN THE ENCLOSED
PROXY CARD AND RETURN IT AS SOON AS POSSIBLE IN THE ENCLOSED POSTAGE-PAID
ENVELOPE.
Yours very truly,
JACK A. SMITH
Chairman and Chief Executive Officer
<PAGE> 3
[SPORTS AUTHORITY LOGO]
THE SPORTS AUTHORITY, INC.
3383 NORTH STATE ROAD 7
FT. LAUDERDALE, FL 33319
------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON , 1998
------------------------
To the Stockholders of
The Sports Authority, Inc.:
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders (including
any adjournments or postponements thereof, the "Special Meeting") of The Sports
Authority, Inc., a Delaware corporation ("Sports Authority"), will be held at
, on , 1998, at , local time, for the
following purposes, which are more fully described in the accompanying Proxy
Statement/Prospectus:
1. To consider and vote upon a proposal to approve and adopt an
Agreement and Plan of Merger, dated as of May 7, 1998 (the "Merger
Agreement"), among Sports Authority, Woolworth Corporation, a New York
corporation ("Woolworth"), and Liberty Merger Sub Inc., a Delaware
corporation and a wholly owned subsidiary of Woolworth ("Merger Sub"),
pursuant to which, among other things, Merger Sub will be merged with and
into Sports Authority (the "Merger"), with Sports Authority as the
surviving corporation, and each share of common stock, par value $.01 per
share, of Sports Authority (the "Sports Authority Common Stock"), issued
and outstanding immediately prior to the effective time of the Merger will
be converted into the right to receive 0.80 validly issued, fully paid and
nonassessable share of common stock, par value $.01 per share, of Woolworth
(the "Woolworth Common Stock"), with cash to be paid in lieu of fractional
shares of Woolworth Common Stock, and to approve the transactions
contemplated by the Merger Agreement, including the Merger.
2. To vote upon adjournment of the Special Meeting for 30 days in the
event the Woolworth Average Price (as defined in the Merger Agreement) is
less than $20.50 and to vote on any subsequent adjournments in accordance
with the terms of the Merger Agreement.
3. To transact such other business as may properly come before the
Special Meeting.
Approval and adoption of the Merger Agreement requires the affirmative vote
of a majority of the outstanding shares of Sports Authority Common Stock held by
stockholders of record on , 1998 (the "Record Date"). Approval of
adjournment of the Special Meeting requires the affirmative vote of a majority
of the shares of Sports Authority Common Stock present at the Special Meeting in
person or by proxy.
Only stockholders of record at the close of business on the Record Date are
entitled to notice of, and to vote at, the Special Meeting. A complete list of
stockholders entitled to vote at the Special Meeting will be available for
examination, for proper purposes, during regular business hours at the corporate
headquarters of Sports Authority, located at 3383 North State Road 7, Fort
Lauderdale, Florida, during the 10 days immediately prior to the Special
Meeting.
Shares of Sports Authority Common Stock represented by all properly
executed proxies received in time for the Special Meeting will be voted in the
manner specified in the proxies relating thereto. Proxies that do not contain
any instruction to vote for or against or to abstain from voting on a particular
matter will be voted in favor of such matter.
<PAGE> 4
YOUR VOTE IS IMPORTANT REGARDLESS OF HOW MANY SHARES OF SPORTS AUTHORITY
COMMON STOCK YOU OWN. REGARDLESS OF WHETHER YOU PLAN TO ATTEND THE SPECIAL
MEETING, YOU ARE REQUESTED TO SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD
WITHOUT DELAY IN THE ENCLOSED POSTAGE-PAID ENVELOPE. YOU MAY REVOKE YOUR PROXY
AT ANY TIME PRIOR TO ITS EXERCISE. IF YOU ARE PRESENT AT THE SPECIAL MEETING OR
ANY ADJOURNMENTS OR POSTPONEMENTS THEREOF, YOU MAY REVOKE YOUR PROXY AND VOTE
PERSONALLY ON THE MATTERS PROPERLY BROUGHT BEFORE THE SPECIAL MEETING.
IF YOU HAVE ANY QUESTIONS OR REQUIRE ADDITIONAL MATERIAL, PLEASE CONTACT
AT AT (TOLL FREE) OR (COLLECT).
BY ORDER OF THE BOARD OF DIRECTORS,
FRANK W. BUBB, III
Secretary
Fort Lauderdale, Florida
, 1998
<PAGE> 5
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY STATE.
Subject to Completion, dated June 9, 1998
THE SPORTS AUTHORITY, INC.
PROXY STATEMENT
------------------------
WOOLWORTH CORPORATION
PROSPECTUS
COMMON STOCK, PAR VALUE
$.01 PER SHARE
------------------------
This Proxy Statement/Prospectus (the "Proxy Statement/Prospectus") is being
furnished to the holders of common stock, par value $.01 per share (the "Sports
Authority Common Stock"), of The Sports Authority, Inc., a Delaware corporation
("Sports Authority"), in connection with the solicitation of proxies by the
Board of Directors of Sports Authority (the "Sports Authority Board") for use at
a Special Meeting of the Stockholders of Sports Authority to be held at
, , , on
, , 1998, at , local time, and at any and all
adjournments or postponements thereof (the "Special Meeting"). See "THE MERGER
AGREEMENT -- Minimum Merger Consideration."
This Proxy Statement/Prospectus relates to the Agreement and Plan of Merger
dated as of May 7, 1998 (the "Merger Agreement") among Woolworth Corporation, a
New York corporation ("Woolworth"), Liberty Merger Sub Inc., a Delaware
corporation and a wholly owned subsidiary of Woolworth ("Merger Sub"), and
Sports Authority, which provides for the merger (the "Merger") of Merger Sub
with and into Sports Authority, with Sports Authority surviving as a wholly
owned subsidiary of Woolworth. Subject to the terms and conditions of the Merger
Agreement, each share of Sports Authority Common Stock outstanding immediately
prior to the Effective Time (as defined in the Merger Agreement) of the Merger
(other than shares owned directly or indirectly by Woolworth or Sports
Authority, which will be cancelled) will be converted into 0.80 (the "Exchange
Ratio") validly issued, fully paid and nonassessable shares of common stock, par
value $.01 per share, of Woolworth, including the related Preferred Stock
Purchase Rights (the "Rights") to purchase shares of Series B Participating
Preferred Stock, par value $1.00 per share (the "Woolworth Series B Preferred
Stock") issued pursuant to the Rights Agreement, dated March 11, 1998, between
Woolworth and First Chicago Trust Company of New York (collectively, the
"Woolworth Common Stock"). Cash will be paid in lieu of any fractional share of
Woolworth Common Stock.
The consummation of the Merger is subject, among other things, to: (i) the
approval and adoption of the Merger Agreement at the Special Meeting by the
holders of a majority of outstanding shares of Sports Authority Common Stock as
of the Record Date; and (ii) the receipt of certain regulatory approvals. A
conformed copy of the Merger Agreement is attached hereto as Annex A.
This Proxy Statement/Prospectus also constitutes the Prospectus of
Woolworth filed as part of a Registration Statement on Form S-4 (the "Form S-4")
with the Securities and Exchange Commission (the "SEC") under the Securities Act
of 1933, as amended (the "Securities Act"), relating to the shares of Woolworth
Common Stock to be issued pursuant to the Merger Agreement, if adopted.
Woolworth Common Stock is listed for trading under the symbol "Z" on the
New York Stock Exchange (the "NYSE"). Sports Authority Common Stock is listed
for trading under the symbol "TSA" on the NYSE. On May 6, 1998, the last trading
day prior to the execution of the Merger Agreement, the last reported sale price
of Woolworth Common Stock and Sports Authority Common Stock, as reported on the
NYSE Composite Transactions Tape, was $21.875 per share and $17.00 per share,
respectively. On , 1998, the last trading day prior to the date of this
Proxy Statement/Prospectus, the last reported sale price of Woolworth Common
Stock and Sports Authority Common Stock, as reported on the NYSE Composite
Transactions Tape, was $ per share and $ per share, respectively.
1
<PAGE> 6
This Proxy Statement/Prospectus and the accompanying form of proxy are
first being mailed to stockholders of Sports Authority on or about ,
1998.
In reviewing this Proxy Statement/Prospectus, stockholders of Sports
Authority should carefully consider the matters described under the heading
"RISK FACTORS" on page 21.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT/ PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
The date of this Proxy Statement/Prospectus is , 1998.
2
<PAGE> 7
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AVAILABLE INFORMATION....................................... 6
INCORPORATION OF DOCUMENTS BY REFERENCE..................... 7
CAUTIONARY STATEMENT........................................ 8
SUMMARY..................................................... 9
Risk Factors................................................ 9
The Companies............................................... 9
Special Meeting............................................. 10
The Merger and the Merger Agreement......................... 11
Interests of Certain Persons in the Merger.................. 13
Comparison of Stockholder Rights............................ 13
SELECTED HISTORICAL FINANCIAL INFORMATION................... 14
Woolworth................................................... 14
Sports Authority............................................ 15
PRO FORMA COMBINED FINANCIAL INFORMATION.................... 16
COMPARATIVE PER SHARE DATA.................................. 17
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL
STATEMENTS................................................ 18
RISK FACTORS................................................ 21
Fixed Exchange Ratio........................................ 21
Integration of Operations................................... 21
Stock Ownership in Woolworth................................ 21
Need for Government Approvals; Possible Operating
Restrictions.............................................. 21
Interests of Directors...................................... 22
THE COMPANIES............................................... 23
Woolworth................................................... 23
Liberty Merger Sub Inc...................................... 24
Sports Authority............................................ 24
RECENT DEVELOPMENTS......................................... 25
Woolworth................................................... 25
Sports Authority............................................ 25
SPECIAL MEETING............................................. 26
Date, Time, Place and Purpose............................... 26
Recommendation.............................................. 26
Record Date; Voting Rights and Proxies...................... 26
Adjournment or Postponement in Absence of Minimum Merger
Consideration............................................. 27
Share Ownership of Management............................... 27
Solicitation of Proxies..................................... 27
Quorum...................................................... 28
Required Vote............................................... 28
THE MERGER.................................................. 29
The Merger Agreement........................................ 29
Background.................................................. 29
Sports Authority's Reasons for the Merger; Recommendation of
the Sports Authority Board................................ 31
Woolworth's Reasons for the Merger; Approval by the
Woolworth Board........................................... 34
</TABLE>
3
<PAGE> 8
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Opinion of the Financial Advisor to the Sports Authority
Board..................................................... 34
Accounting Treatment........................................ 39
Certain Federal Income Tax Consequences of the Merger....... 39
Regulatory Approvals........................................ 41
Federal Securities Law Consequences......................... 41
Management and Operations of Sports Authority after the
Merger.................................................... 42
Certain Litigation.......................................... 42
No Appraisal Rights......................................... 42
INTERESTS OF CERTAIN PERSONS IN THE MERGER AND RELATED
MATTERS................................................... 43
Ownership of Sports Authority Common Stock.................. 46
THE MERGER AGREEMENT........................................ 48
Merger Consideration........................................ 48
Exchange Procedures......................................... 48
No Fractional Shares........................................ 49
Representations and Warranties.............................. 50
Conduct of Business Pending the Merger; Additional
Agreements................................................ 51
No Solicitation............................................. 53
Minimum Merger Consideration................................ 54
Conditions Precedent........................................ 55
Sports Authority Stock Options.............................. 57
Indemnification, Exculpation and Insurance.................. 57
Termination; Effect of Termination.......................... 58
Amendment and Waiver........................................ 59
Expenses.................................................... 59
MARKET PRICE AND DIVIDEND DATA.............................. 60
COMPARISON OF STOCKHOLDER RIGHTS............................ 61
Authorized Capital Stock.................................... 61
Business Combinations....................................... 61
State Takeover Legislation.................................. 62
Appraisal Rights............................................ 63
Amendments to Charters...................................... 63
Amendments to By-Laws....................................... 63
Preemptive Rights........................................... 64
Redemption of Capital Stock................................. 64
Dividend Sources............................................ 64
Duration of Proxies......................................... 65
Stockholder Action.......................................... 65
Special Stockholder Meetings................................ 65
Cumulative Voting........................................... 66
Number and Election of Directors............................ 66
Removal of Directors........................................ 66
Vacancies................................................... 67
Indemnification of Directors and Officers................... 68
Limitation of Personal Liability of Directors............... 69
Rights Plans................................................ 70
DESCRIPTION OF WOOLWORTH CAPITAL STOCK...................... 71
Authorized Capital Stock.................................... 71
Woolworth Common Stock...................................... 71
Woolworth Preferred Stock................................... 71
</TABLE>
4
<PAGE> 9
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Rights...................................................... 72
Transfer Agent and Registrar................................ 72
LEGAL OPINIONS.............................................. 72
EXPERTS..................................................... 73
ANNEX A MERGER AGREEMENT.................................... A-1
ANNEX B OPINION OF MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED.............................................. B-1
</TABLE>
5
<PAGE> 10
AVAILABLE INFORMATION
Woolworth and Sports Authority are subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and in accordance therewith file reports, proxy statements and other
information with the Securities and Exchange Commission (the "SEC"). Such
reports, proxy statements and other information may be inspected and copied at
the public reference facilities maintained by the SEC at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and should be available at
the following Regional Offices of the SEC: Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661; and 7 World Trade Center, Suite
1300, New York, New York 10048. Copies of such materials may also be obtained
from the Public Reference Section of the SEC at 450 Fifth Street, N.W.,
Washington D.C. 20549, at prescribed rates. Certain of such reports, proxy
statements and other information are also available from the SEC over the
Internet at http://www.sec.gov. The periodic reports, proxy statements and other
information filed by Woolworth and Sports Authority may be inspected at the
NYSE, 20 Broad Street, New York, New York 10005.
This Proxy Statement/Prospectus does not contain all of the information set
forth in the Form S-4, certain parts of which are omitted in accordance with the
rules and regulations of the SEC. Reference is made to the Form S-4 and the
Exhibits thereto for further information. Statements contained or incorporated
by reference herein concerning the provisions of any agreement or other document
filed as an Exhibit to the Form S-4 or otherwise filed with the SEC are not
necessarily complete and reference is hereby made to the copy thereof so filed
for more detailed information, each such statement being qualified in its
entirety by such reference. The Form S-4 and the exhibits thereto may be
inspected without charge at the offices of the SEC at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and copies my be obtained from the SEC at prescribed
rates.
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES BY REFERENCE DOCUMENTS THAT
ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. COPIES OF SUCH DOCUMENTS (OTHER
THAN EXHIBITS THERETO WHICH ARE NOT SPECIFICALLY INCORPORATED BY REFERENCE
HEREIN) ARE AVAILABLE, WITHOUT CHARGE, TO ANY PERSON, INCLUDING ANY BENEFICIAL
OWNER OF SHARES OF SPORTS AUTHORITY COMMON STOCK TO WHOM THIS PROXY
STATEMENT/PROSPECTUS IS DELIVERED, UPON WRITTEN OR ORAL REQUEST TO, IN THE CASE
OF DOCUMENTS RELATING TO WOOLWORTH, WOOLWORTH CORPORATION, 233 BROADWAY, NEW
YORK, NEW YORK 10279, TELEPHONE NUMBER (212) 553-2000, ATTENTION: SECRETARY AND,
IN THE CASE OF DOCUMENTS RELATING TO SPORTS AUTHORITY, THE SPORTS AUTHORITY,
INC., 3383 NORTH STATE ROAD 7, FORT LAUDERDALE, FLORIDA 33319, TELEPHONE NUMBER
(954) 735-1701, ATTENTION: SECRETARY. IN ORDER TO ENSURE DELIVERY OF DOCUMENTS
PRIOR TO THE SPECIAL MEETING, ANY REQUEST THEREFOR SHOULD BE MADE NOT LATER THAN
, 1998.
6
<PAGE> 11
INCORPORATION OF DOCUMENTS BY REFERENCE
The following documents heretofore filed with the SEC pursuant to the
Exchange Act are incorporated herein by reference:
1. Woolworth's Annual Report on Form 10-K for the year ended January
31, 1998;
2. Woolworth's Current Reports on Form 8-K reporting events on March
11, 1998, April 6, 1998, and May 11, 1998;
3. The description of the Woolworth Rights contained in the
Registration Statement on Form 8-A filed by Woolworth with the SEC on April
3, 1998, including any amendments or reports filed for the purpose of
updating such description;
4. The description of the Woolworth Common Stock set forth in the
Registration Statement filed by Woolworth pursuant to Section 12 of the
Exchange Act, including any amendment or report filed for purposes of
updating any such description;
5. Woolworth's Notice of 1998 Annual Meeting and Proxy Statement
dated April 28, 1998;
6. Sports Authority's Annual Report on Form 10-K for the year ended
January 25, 1998;
7. Sports Authority's Current Reports on Form 8-K reporting events on
December 22, 1997, January 29, 1998, and May 7, 1998;
8. The Sports Authority Registration Statement on Form 8-A with
respect to Sports Authority Common Stock and filed with the SEC on October
24, 1994, including any amendments or reports filed for the purpose of
updating such registration;
9. Sports Authority's Notice of 1998 Annual Meeting and Proxy
Statement dated April 27, 1998; and
10. Sports Authority's Proxy Statement Supplement dated May 12, 1998.
All reports and other documents filed by either Woolworth or Sports
Authority pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act
subsequent to the date of this Proxy Statement/Prospectus and prior to the date
of the Special Meeting shall be deemed to be incorporated by reference herein
and to be a part hereof from the dates of filing of such reports and documents.
Any statement contained in a document incorporated or deemed to be incorporated
by reference herein shall be deemed to be modified or superseded for purposes of
this Proxy Statement/Prospectus to the extent that a statement contained herein,
or in any other subsequently filed document which also is incorporated or 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.
------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS WITH RESPECT TO THE MATTERS DESCRIBED IN THIS PROXY
STATEMENT/PROSPECTUS OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE
HEREIN, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY EITHER WOOLWORTH OR SPORTS AUTHORITY.
THIS PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES, NOR DOES IT CONSTITUTE THE
SOLICITATION OF A PROXY, IN ANY JURISDICTION TO OR FROM ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE ANY SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER
THE DELIVERY OF THIS PROXY STATEMENT/PROSPECTUS NOR ANY DISTRIBUTION OF
SECURITIES HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF WOOLWORTH OR SPORTS AUTHORITY SINCE
THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY
TIME SUBSEQUENT TO ITS DATE.
------------------------
7
<PAGE> 12
CAUTIONARY STATEMENT
When used in this Proxy Statement/Prospectus with respect to Woolworth, the
words "estimate," "project," "intend," "expect" and similar expressions are
intended to identify forward-looking statements. Readers are cautioned not to
place undue reliance on these forward-looking statements, which speak only as of
the date of this Proxy Statement/Prospectus. Such forward-looking statements are
based on many assumptions and factors, including the effects of currency
fluctuations, consumer preferences and economic conditions world-wide, which are
subject to risks and uncertainties that could cause actual results to differ
materially from those contemplated in such forward-looking statements. Woolworth
does not undertake any obligation to publicly release any revisions to these
forward-looking statements to reflect events or circumstances after the date
hereof or to reflect the occurrence of unanticipated events.
When used in this Proxy Statement/Prospectus with respect to Sports
Authority, the words "estimate," "project" "intend," "expect" and similar
expressions are intended to identify forward-looking statements. Readers are
cautioned not to place undue reliance on these forward-looking statements, which
speak only as of the date of this Proxy Statement/Prospectus. Such
forward-looking statements are based on assumptions about, or include statements
concerning, many important factors, including, without limitation, changes in
discretionary consumer spending and consumer preferences, particularly as they
relate to sporting goods, athletic footwear and apparel; seasonal patterns in
consumer spending; Sports Authority's ability to effectively implement its
strategies, including its merchandising, distribution and store expansion
strategies; competitive trends and consolidation within the sporting goods
retailing industry; the effect of economic changes in other countries in which
Sports Authority does business, and other factors described in Sports
Authority's Form 10-K for 1997. While Sports Authority believes that its
assumptions are reasonable, it cautions that it is impossible to predict the
impact of certain factors which could cause actual results to differ materially
from expected results. Sports Authority does not undertake any obligation to
publicly release any revisions to these forward-looking statements to reflect
events or circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
As used herein, unless the context otherwise clearly requires: "Woolworth"
refers to Woolworth Corporation and its consolidated subsidiaries and "Sports
Authority" refers to The Sports Authority, Inc. and its consolidated
subsidiaries. Capitalized terms not defined in this Proxy Statement/Prospectus
have the respective meanings specified in the Merger Agreement.
------------------------
All information contained in this Proxy Statement/Prospectus with respect
to Woolworth and Merger Sub has been provided by Woolworth. All information
contained in this Proxy Statement/Prospectus with respect to Sports Authority
has been provided by Sports Authority.
------------------------
8
<PAGE> 13
SUMMARY
The following is a summary of certain information contained elsewhere or
incorporated by reference in this Proxy Statement/Prospectus and may not contain
all of the information that is important to you. Reference is made to, and this
summary is qualified in its entirety by, the more detailed information contained
or incorporated by reference in this Proxy Statement/Prospectus and the Annexes
hereto. To understand the Merger fully and for a more complete description of
the legal terms of the Merger, you should read carefully this entire document
and the documents to which we have referred you.
------------------------
STOCKHOLDERS OF SPORTS AUTHORITY ARE URGED TO READ THIS PROXY
STATEMENT/PROSPECTUS AND THE ANNEXES HERETO IN THEIR ENTIRETY AND SHOULD
CONSIDER CAREFULLY THE INFORMATION SET FORTH HEREIN UNDER THE HEADING "RISK
FACTORS."
RISK FACTORS
In considering whether to approve and adopt the Merger Agreement, the
Merger and the transactions contemplated thereby, the stockholders of Sports
Authority should consider that: (i) the Exchange Ratio is expressed in the
Merger Agreement as a fixed ratio and will not be adjusted in the event of any
increase or decrease in the price of either the Woolworth Common Stock or Sports
Authority Common Stock; (ii) there are uncertainties with respect to the
integration of the business operations of Woolworth and Sports Authority,
including the possibility of delays in accomplishing the same and in achieving
the desired level of cost savings and efficiency; (iii) certain directors and
executive officers of Sports Authority may be deemed to have conflicts of
interest with respect to the Merger; (iv) there can be no assurance that the
required regulatory approvals will be obtained or that operating restrictions,
if any are imposed, will not adversely affect the value of the combined company;
and (v) stock ownership in Woolworth, the business of which is different from
that of Sports Authority, will present different risks from those presented by
stock ownership in Sports Authority. See "RISK FACTORS."
THE COMPANIES
Woolworth Corporation.
Woolworth Corporation
233 Broadway
New York, New York 10279
Tel: 212-553-2000
Woolworth, incorporated under the laws of the State of New York in 1989,
has origins dating back to 1879. Woolworth is a diversified global retailer that
operates approximately 7,100 retail stores in 13 countries in North America,
Europe, Asia and Australia.
Woolworth's retailing business is conducted through two major segments:
Specialty and International General Merchandise. The Specialty segment includes:
the Athletic Group, the Northern Group, Specialty Footwear and Other Specialty
(which includes Afterthoughts and The San Francisco Music Box Company).
Businesses in the Athletic Group include: Foot Locker, Lady Foot Locker, Kids
Foot Locker and Champs Sports retail stores and Eastbay direct marketers. The
International General Merchandise segment includes operations in Germany and
Canada. Woolworth had sales of approximately $6,624 million in 1997.
In 1995, management, led by Roger N. Farah, Woolworth's Chairman and Chief
Executive Officer, implemented a strategic turn-around initiative that focused
on improving the financial position of Woolworth by focusing on its core
athletic competencies while maximizing the use of its capital and its return to
shareholders. From 1994 and through fiscal 1997, Woolworth has (i) sold or
disposed of 19 retail formats with 1,200 retail stores (including F.W. Woolworth
U.S.), (ii) reduced selling, general and administrative expenses by $314
million, (iii) eliminated short-term debt, (iv) reduced aged inventories (over
12 months old) to one percent from 9 percent of total inventories, and (v)
increased return on equity to 16.3% from 2.8%.
9
<PAGE> 14
Having closed the North American Woolworth general merchandise business in
1997 and closed or divested other non-strategic or underperforming businesses
over the past several years, Woolworth recently decided to change its corporate
name in order to update its corporate identity to reflect the principal focus of
its continuing operations. Accordingly, on June 12, 1998 (subject to shareholder
approval), Woolworth intends to change its name to Venator Group, Inc., which
management believes better reflects the new mix of the Company's portfolio of
businesses as it exists today. Venator is derived from a classical word for
"sportsman."
The Sports Authority, Inc.
The Sports Authority, Inc.
3383 North State Road 7
Ft. Lauderdale, Florida 33319
Tel: 954-735-1701
Sports Authority, incorporated under the laws of the State of Delaware, is
the largest operator of large format sporting goods stores in the United States
in terms of both sales and number of stores and is also the largest full-line
sporting goods retailer in the United States in terms of sales. At May 22, 1998,
Sports Authority operated 200 sporting goods megastores, virtually all in excess
of 40,000 gross square feet, and three stores under the format "The Sports
Authority, Ltd." These "Ltd." format stores range from 9,000 - 30,000 square
feet. Sports Authority's business strategy is to offer customers extensive
selections of quality, brand name sporting equipment and athletic and active
footwear and apparel, everyday fair prices and premium customer service. Sports
Authority has an international presence, with 189 stores in 31 states in the
United States, six stores in Canada and eight stores in Japan operated by a
joint venture 51% owned by Sports Authority. Sports Authority had sales of
approximately $1,464.6 million in 1997.
Sports Authority was founded by Jack A. Smith, its current Chairman and
Chief Executive Officer, who opened the first store in Fort Lauderdale, Florida
in 1987. During the following two years, Sports Authority added nine more
stores. In 1990, Sports Authority was acquired by Kmart Corporation ("Kmart"),
which provided additional capital to fund Sports Authority's expansion program
as well as its continued investment in infrastructure and technology. Following
public offerings in November 1994 and October 1995, Kmart no longer owns any
interest in Sports Authority.
SPECIAL MEETING
Date, Time, Place and Purpose. The Special Meeting will be held at
on , , 1998, at a.m., local time, to
consider and vote upon a proposal to approve and adopt the Merger Agreement,
which provides for the Merger of Merger Sub with and into Sports Authority, with
Sports Authority surviving as a wholly owned subsidiary of Woolworth. The
stockholders of Sports Authority will also consider and take action upon any
other business which may properly be brought before the Special Meeting. See
"SPECIAL MEETING -- Date, Time, Place and Purpose."
Record Date. Only holders of record of Sports Authority Common Stock at
the close of business on , 1998 (the "Record Date") are entitled to
receive notice of and to vote at the Special Meeting. At the close of business
on the Record Date, there were shares of Sports Authority Common Stock
outstanding, each of which entitles the registered holder thereof to one vote.
See "SPECIAL MEETING -- Record Date; Voting Rights and Proxies."
Required Vote. Approval and adoption of the Merger Agreement will require
the affirmative vote of the holders of a majority of the outstanding shares of
Sports Authority Common Stock as of the Record Date. An abstention, therefore,
is the equivalent of an "against" vote. Brokers who hold Sports Authority Common
Stock as nominees will not have discretionary authority to vote such shares in
the absence of instructions from the beneficial owners thereof. Broker non-votes
will not be counted as votes cast and are the equivalent of "against" votes. See
"SPECIAL MEETING -- Required Vote."
Revocability of Proxies. Any proxy given pursuant to the solicitation may
be revoked by (i) filing with the Secretary of Sports Authority, before the
taking of the vote at the Special Meeting, a written notice of revocation
bearing a later date than the date of the proxy or any later-dated proxy
relating to the same shares,
10
<PAGE> 15
or (ii) attending the Special Meeting and voting in person. See "SPECIAL
MEETING -- Record Date; Voting Rights and Proxies."
Adjournment or Postponement in Absence of Minimum Merger Consideration. In
the event that the average of the closing price on the NYSE for the Woolworth
Common Stock (the "Woolworth Average Price") is less than $20.50 for 20
consecutive trading days prior to the third business day prior to the scheduled
date of the Special Meeting (the "Measuring Period"), Sports Authority will give
notice to Woolworth as to whether it intends to terminate the Merger Agreement
in accordance with the terms thereof or adjourn such meeting for 30 days. If
Sports Authority elects to terminate the Merger Agreement (an "Election"),
Woolworth may rescind such Election (a "Rescission") by giving notice that
Woolworth elects to cause Sports Authority to adjourn or postpone such meeting
for 30 days (the "Adjournment Period"). A Measuring Period will then be observed
for the 20 consecutive trading days prior to the third business day prior to the
scheduled date of the adjourned or postponed meeting to determine if the
Woolworth Average Price during such period is less than $20.50. If the Woolworth
Average Price is $20.50 or higher, the Merger Agreement will be voted upon. If
the Woolworth Average Price is less than $20.50, the same process will be
followed again until either the Merger Agreement is voted upon or the Merger
Agreement is terminated. If an Adjournment Period would establish an adjourned
or postponed meeting date after January 1, 1999, the Adjournment Period will be
truncated, to the extent permitted by law and regulation, so that the Special
Meeting will be held on December 31, 1998 (subject to Sports Authority's
Election to terminate the Merger Agreement due to the level of the Woolworth
Average Price during the Measuring Period in respect of such December 31, 1998
meeting date, which Election will not give rise to a further right of Rescission
in favor of Woolworth). See "SPECIAL MEETING -- Adjournment in Absence of
Minimum Merger Consideration" and "THE MERGER AGREEMENT -- Minimum Merger
Consideration."
THE MERGER AND THE MERGER AGREEMENT
General. At the Effective Time of the Merger, Merger Sub will be merged
with and into Sports Authority, with Sports Authority continuing as the
surviving corporation (the "Surviving Corporation") and a wholly owned
subsidiary of Woolworth. As a result of the Merger, the separate corporate
existence of Merger Sub will cease and Sports Authority will succeed to all the
rights and be responsible for all the obligations of Merger Sub in accordance
with the General Corporation Law of the State of Delaware (the "DGCL"). Subject
to the terms and conditions of the Merger Agreement, each share of Sports
Authority Common Stock outstanding immediately prior to the Effective Time
(other than shares owned directly or indirectly by Woolworth or Sports
Authority, which will be cancelled) will be converted into 0.80 of a share of
Woolworth Common Stock. Cash will be paid in lieu of any fractional share of
Woolworth Common Stock. See "THE MERGER AGREEMENT -- Merger Consideration."
The Merger will become effective upon the filing of the Certificate of
Merger with the Secretary of State of the State of Delaware unless the
Certificate of Merger provides for a later date of effectiveness. The filing of
the Certificate of Merger will occur as soon as practicable on the Closing Date
which shall be no later than the satisfaction or waiver of the conditions set
forth in the Merger Agreement. See "THE MERGER AGREEMENT -- Conditions
Precedent."
Recommendation of the Sports Authority Board. The Sports Authority Board
has determined that the Merger and the Merger Agreement are fair to and in the
best interests of Sports Authority and its stockholders and recommends that the
Sports Authority stockholders vote to approve the Merger and the Merger
Agreement. See "THE MERGER -- Sports Authority's Reasons for the Merger;
Recommendation of the Sports Authority Board."
Opinion of Sports Authority's Financial Advisor. Sports Authority retained
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch") to act as
its exclusive financial advisor in connection with a possible business
combination with Woolworth. On May 7, 1998, Merrill Lynch rendered to the Sports
Authority Board its written opinion (the "Merrill Lynch Opinion") that, as of
such date and based upon and subject to the factors and assumptions set forth
therein, the Exchange Ratio was fair, from a financial point of view, to the
holders of Sports Authority Common Stock, other than Woolworth and its
affiliates. See "THE MERGER -- Opinion of the Financial Advisor to the Sports
Authority Board."
11
<PAGE> 16
Certain Federal Income Tax Consequences of the Merger. Except with respect
to cash received by Sports Authority stockholders in lieu of fractional shares
of Woolworth Common Stock, the Merger has been structured to qualify as a
tax-free transaction for U.S. federal income tax purposes. The obligation of
Woolworth and Sports Authority to effect the Merger is conditioned upon receipt
of legal opinions that, based upon certain representations and assumptions set
forth therein, the Merger will qualify under Section 368(a) of the Internal
Revenue Code of 1986, as amended (the "Code"), as a "reorganization" for U.S.
federal income tax purposes, Woolworth and Sports Authority each will be a party
to that reorganization within the meaning of Section 368(b) of the Code, and
other matters. Sports Authority stockholders are urged to consult their tax
advisors as to the specific tax consequences to them of the Merger. See "THE
MERGER -- Certain Federal Income Tax Consequences of the Merger."
Certain Litigation. On or about May 11 and May 12, 1998, four class action
lawsuits were commenced against Sports Authority and its directors by certain
purported Sports Authority stockholders in the Court of Chancery of the State of
Delaware in New Castle County. Three of the complaints also name Woolworth as a
defendant, and one of the complaints names Merger Sub as a defendant. The four
complaints allege, among other things, that Sports Authority directors breached
their fiduciary duties to Sports Authority stockholders by entering into the
Merger Agreement without maximizing stockholder value by failing, among other
things, to engage in an auction of Sports Authority or conduct a market check of
Sports Authority's value. The complaints also allege that the Exchange Ratio
offers inadequate value to Sports Authority's stockholders and should have
contained a "collar" or similar protective mechanism to protect Sports
Authority's stockholders. The complaints seek to enjoin the defendants from
proceeding with the Merger, to rescind the Merger if it is effected and to award
class monetary damages and attorneys' fees. Defendants believe that the actions
are without merit and intend to defend against them vigorously. See "THE
MERGER -- Certain Litigation."
Anticipated Accounting Treatment. The Merger is expected to be accounted
for as a pooling of interests in accordance with generally accepted accounting
principles. It is a condition to the consummation of the Merger that Woolworth
and Sports Authority will receive from each of Sports Authority's and
Woolworth's independent accountants letters stating that the Merger will qualify
for pooling of interests accounting treatment. See "THE MERGER -- Accounting
Treatment" and "THE MERGER AGREEMENT -- Conditions Precedent."
No Appraisal Rights. Under the DGCL, the stockholders of Sports Authority
are not entitled to appraisal rights with respect to the approval and adoption
of the Merger Agreement. See "THE MERGER -- No Appraisal Rights."
Termination of the Merger Agreement; Fees and Expenses. The Merger
Agreement may be terminated at any time prior to the Effective Time by the
mutual consent of Woolworth and Sports Authority and by either of them
individually under certain specified circumstances set forth in the Merger
Agreement, including by either Sports Authority or Woolworth if the Merger has
not been consummated by December 31, 1998 and by Sports Authority, if the
Woolworth Average Price for a Measuring Period is less than $20.50, Sports
Authority has made an Election and Woolworth has not made a Rescission. See "THE
MERGER AGREEMENT -- Minimum Merger Consideration" and "THE MERGER
AGREEMENT -- Termination; Effect of Termination." The Merger Agreement provides
for the payment of a termination fee following a termination of the Merger
Agreement under certain circumstances involving a possible business combination
with an entity other than Woolworth. See "THE MERGER AGREEMENT -- Termination;
Effect of Termination."
Percentage Ownership Interest of Sports Authority Stockholders After the
Merger. Based on the number of shares of Woolworth Common Stock outstanding on
the Record Date and assuming the issuance of approximately shares of
Woolworth Common Stock pursuant to the Merger, upon consummation of the Merger
there will be approximately shares of Woolworth Common Stock
outstanding at the Effective Time, of which the stockholders of Sports Authority
will own approximately % (approximately % on a fully diluted basis
assuming the exercise of all currently outstanding options to purchase shares of
Woolworth Common Stock and all currently outstanding options to purchase Sports
Authority Common Stock which either will be fully exercisable immediately prior
to, or will become (as a result of the Merger) fully exercisable at, the
Effective Time).
12
<PAGE> 17
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the Sports Authority Board, Sports
Authority stockholders should be aware that certain members of the Sports
Authority Board may have interests in the Merger that are different from, or in
addition to, the interests of Sports Authority stockholders generally, and which
may create potential conflicts of interest.
As of May 29, 1998, directors and executive officers of Sports Authority
and their affiliates were the beneficial owners of an aggregate of 1,180,607
shares (approximately 3.7%) of the Sports Authority Common Stock then
outstanding. See "INTERESTS OF CERTAIN PERSONS IN THE MERGER AND RELATED
MATTERS -- Ownership of Sports Authority Common Stock."
COMPARISON OF STOCKHOLDER RIGHTS
As a result of the Merger, shares of Sports Authority Common Stock, issued
by a Delaware corporation, will be converted into the right to receive shares of
Woolworth Common Stock, issued by a New York corporation. There are differences
between the rights of Sports Authority stockholders and Woolworth stockholders.
These differences result from (i) differences between New York and Delaware law,
and (ii) differences between the governing instruments of Sports Authority and
Woolworth. For a discussion of the material differences between the rights of
Sports Authority stockholders and Woolworth stockholders, see "COMPARISON OF
STOCKHOLDER RIGHTS."
13
<PAGE> 18
SELECTED HISTORICAL FINANCIAL INFORMATION
WOOLWORTH
When you read this selected historical consolidated financial information,
you should consider reading along with it the historical financial statements
and accompanying notes that Woolworth has included in its Annual Report on Form
10-K for the year ended January 31, 1998 (you can obtain this report by
following the instructions provided in this Proxy Statement/Prospectus under
"AVAILABLE INFORMATION" and "INCORPORATION OF DOCUMENTS BY REFERENCE").
<TABLE>
<CAPTION>
13 WEEKS ENDED FISCAL YEARS ENDED(1)
------------------ -------------------------------------------------------------------
MAY 2, APRIL 26, JANUARY 31, JANUARY 25, JANUARY 27, JANUARY 28, JANUARY 29,
1998 1997 1998 1997 1996 1995 1994
------ --------- ----------- ----------- ----------- ----------- -----------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
SUMMARY OF CONTINUING OPERATIONS
Sales............................. $1,466 $1,539 $6,624 $7,017 $7,031 $6,904 $7,820
Net income (loss) from continuing
operations...................... (5) 17 213 193 (98) 38 (226)
Income (loss) per basic share from
continuing operations........... (0.04) 0.13 1.58 1.45 (0.73) 0.29 (1.72)
Income (loss) per diluted share
from continuing operations...... (0.04) 0.13 1.57 1.44 (0.73) 0.29 (1.72)
Common stock dividends declared... -- -- -- -- -- 0.74 1.16
Preferred stock dividends
declared........................ -- -- -- 1.10 2.20 2.20 2.20
Weighted-average common shares
outstanding (in millions)....... 135.1 134.1 134.6 133.5 132.9 132.3 131.7
Weighted-average common shares
assuming dilution (in
millions)....................... 135.1 135.2 135.8 134.3 132.9 132.9 131.7
FINANCIAL CONDITION
Total assets...................... $3,412 $3,207 $3,182 $3,339 $3,339 $3,970 $4,349
Long-term obligations, including
long-term debt and obligations
under capital leases............ 1,168 1,259 1,177 1,272 1,432 1,097 1,156
</TABLE>
- ---------------
(1) The fiscal year ended January 31, 1998 consisted of a 53-week year. Each of
the other fiscal years shown consisted of 52 weeks.
14
<PAGE> 19
SPORTS AUTHORITY
When you read this selected historical consolidated and combined financial
data, you should consider reading along with it the historical financial
statements and accompanying notes that Sports Authority has included in its
Annual Report on Form 10-K for the year ended January 25, 1998 (you can obtain
this report by following the instructions provided in this Proxy
Statement/Prospectus under "AVAILABLE INFORMATION" and "INCORPORATION OF
DOCUMENTS BY REFERENCE").
<TABLE>
<CAPTION>
13 WEEKS ENDED FISCAL YEARS ENDED(1)
--------------------- -------------------------------------------------------------------
APRIL 26, APRIL 27, JANUARY 25, JANUARY 26, JANUARY 28, JANUARY 22, JANUARY 23,
1998 1997 1998 1997 1996 1995 1994
--------- --------- ----------- ----------- ----------- ----------- -----------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
SUMMARY OF CONTINUING OPERATIONS
Sales......................... $ 346 $ 320 $1,465 $1,271 $1,047 $ 839 $ 607
Net income (loss) from
continuing operations....... (4) 3 22 30 22 17 13
Income (loss) per basic share
from continuing
operations(2)............... (0.12) 0.08 0.70 0.96 0.72 0.54 0.41
Income (loss) per diluted
share from continuing
operations(2)............... (0.12) 0.08 0.70 0.94 0.71 0.54 0.41
Common stock dividends
declared.................... -- -- -- -- -- -- --
Weighted-average common shares
outstanding (in millions)... 31.6 31.5 31.5 31.4 31.2 31.2 31.2
Weighted-average common shares
assuming dilution (in
millions)................... 31.6 31.8 31.8 31.8 31.4 31.2 31.2
FINANCIAL CONDITION
Total assets.................. $ 917 777 812 754 526 463 298
Long-term obligations,
including long-term debt and
obligations under capital
leases...................... 193 176 188 175 -- -- --
</TABLE>
- ---------------
(1) The fiscal year ended January 28, 1996 consisted of a 53-week year. Each of
the other fiscal years shown consisted of 52 weeks.
(2) Basic earnings per share and earnings per share assuming dilution of Sports
Authority Common Stock for the fiscal years ended January 22, 1995 and
January 23, 1994 are pro forma and are based on the actual number of shares
of Sports Authority Common Stock outstanding at January 22, 1995, adjusted
for the three for two common stock split effected on July 16, 1996.
15
<PAGE> 20
PRO FORMA COMBINED FINANCIAL INFORMATION
The following Pro Forma Combined Financial Information illustrates the pro
forma effect of the Merger and has been derived from, or prepared on a basis
consistent with, the unaudited pro forma financial information included
elsewhere in this Proxy Statement/Prospectus. This information is presented for
illustrative purposes only and is not necessarily indicative of the combined
results of operations or financial position that would have occurred if the
Merger had occurred at the assumed dates indicated, nor is it necessarily
indicative of the future operating results or financial position of Woolworth.
The pro forma combined financial information should be read in conjunction with
the selected historical financial information of Woolworth and Sports Authority
and the Unaudited Pro Forma Condensed Combined Financial Statements, including
the notes thereto, appearing elsewhere in this Proxy Statement/Prospectus. See
"UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS."
<TABLE>
<CAPTION>
FISCAL YEARS ENDED JANUARY
--------------------------
1998 1997 1996
------ ------ ------
(IN MILLIONS, EXCEPT PER
SHARE AMOUNTS)
<S> <C> <C> <C>
PRO FORMA COMBINED STATEMENT OF OPERATIONS DATA:(1)(3)
Sales..................................................... $8,089 $8,288 $8,078
Income (loss) from continuing operations before income
tax.................................................... 373 368 (96)
Income (loss) from continuing operations.................. 235 223 (76)
Income (loss) per basic share from continuing
operations(2).......................................... 1.47 1.41 (0.48)
Income (loss) per diluted share from continuing
operations(2).......................................... 1.46 1.39 (0.48)
Weighted-average common shares outstanding(2)............. 159.8 158.6 157.9
Weighted-average common shares assuming dilution(2)....... 161.3 161.3 157.9
</TABLE>
<TABLE>
<CAPTION>
AT JANUARY 1998
-------------------
<S> <C>
PRO FORMA COMBINED BALANCE SHEET DATA:(1)(3)
Total assets.............................................. $3,994
Long-term obligations, including long-term debt and
obligations under capital leases(4).................... 1,365
Total shareholders' equity(3)............................. 1,593
</TABLE>
- ---------------
(1) It is expected that certain Merger-related expenses will be incurred,
including the elimination of duplicate facilities and excess capacity and
organizational realignment. The pro forma combined statements of operations
and the pro forma combined balance sheet do not reflect the impact of these
charges because an estimate of these costs has not yet been determined.
These costs will be charged to operations as a non-recurring charge in the
quarter the Merger occurs.
(2) Pursuant to the Merger Agreement, holders of Sports Authority Common Stock
will receive 0.80 share of Woolworth Common Stock for each share of Sports
Authority Common Stock they hold.
(3) It is estimated that the transaction costs for fees of investment bankers,
attorneys and accountants, financial printing and other related charges,
will be approximately $11 million. The impact of these fees and expenses has
been reflected as a reduction of pro forma shareholders' equity. These
charges are not reflected in the pro forma statements of operations or the
pro forma combined income (loss) per share data.
(4) At the consummation of the Merger, the debt holders of the 5.25% Convertible
Subordinated Notes (the "Notes") can require, at the option of such holders,
Sports Authority to repurchase the Notes at 100% of the principal and
interest in cash. If the holders exercise such option, Woolworth expects to
finance the repurchase with long-term borrowings.
16
<PAGE> 21
COMPARATIVE PER SHARE DATA
The following table sets forth certain historical per share data of
Woolworth and Sports Authority and combined per share data on an unaudited pro
forma combined basis and on a per share equivalent pro forma combined basis for
Sports Authority after giving effect to the Merger using the
pooling-of-interests basis of accounting. Pro forma earnings per share and book
value per share have been calculated assuming that 0.80 share of Woolworth
Common Stock is issued in exchange for each share of Sports Authority Common
Stock outstanding. The Equivalent Pro Forma Woolworth/Sports Authority Per
Sports Authority share of common stock amounts are based on the assumed
conversion of each share of Sports Authority Common Stock outstanding into 0.80
share of Woolworth Common Stock. The information set forth below should be read
in conjunction with the selected historical financial data and the unaudited pro
forma combined financial information included elsewhere in this Proxy
Statement/Prospectus, and the separate historical financial statements of
Woolworth and Sports Authority and the notes thereto, incorporated by reference
herein. The unaudited pro forma combined financial data are not necessarily
indicative of the operating results or financial position that would have been
achieved had the Merger been in effect as of the beginning of the periods
presented and should not be construed as representative of future operations.
Sports Authority has never paid cash dividends on the Sports Authority Common
Stock. Woolworth has not declared cash dividends since the fourth quarter of the
fiscal year ended January 28, 1995.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED JANUARY
---------------------------
1998 1997 1996
------ ------ -------
<S> <C> <C> <C>
WOOLWORTH CORPORATION
Historical Per Common Share:
Income (loss) per basic share from continuing
operations............................................ $1.58 $1.45 $(0.73)
Income (loss) per diluted share from continuing
operations............................................ 1.57 1.44 (0.73)
Book Value(1).......................................... 9.42 9.96 9.24
Pro Forma Combined per share of Woolworth Common Stock:(2)
Income (loss) per basic share from continuing
operations........................................... 1.47 1.41 (0.48)
Income (loss) per diluted share from continuing
operations............................................ 1.46 1.39 (0.48)
Book Value(1).......................................... 9.94 10.27 9.47
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEARS ENDED JANUARY
----------------------------
1998 1997 1996
------- ------ -------
<S> <C> <C> <C>
SPORTS AUTHORITY
Historical Per Common Share:
Income per basic share from continuing operations...... $ 0.70 $0.96 $ 0.72
Income per diluted share from continuing operations.... 0.70 0.94 0.71
Book Value(1).......................................... 10.58 9.86 8.87
Pro Forma Combined per share Equivalent of Sports
Authority Common Stock:(2)
Income (loss) per basic share from continuing
operations............................................ 1.18 1.12 (0.39)
Income (loss) per diluted share from continuing
operations............................................ 1.17 1.12 (0.38)
Book Value(1).......................................... 7.96 8.21 7.57
</TABLE>
- ---------------
(1) Historical book value per common share is computed by dividing shareholders'
equity for Woolworth and Sports Authority by the number of shares of common
stock outstanding at the end of each period for Woolworth and Sports
Authority, respectively. Pro forma book value per common share is computed
by dividing pro forma shareholders' equity by the pro forma number of shares
of common stock outstanding at the end of the period.
(2) Pursuant to the Merger Agreement, holders of Sports Authority Common Stock
will receive 0.80 share of Woolworth Common Stock for each share of Sports
Authority Common Stock they hold.
17
<PAGE> 22
UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS
WOOLWORTH CORPORATION
FISCAL YEARS ENDED JANUARY 1998, 1997 AND 1996
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
WOOLWORTH SPORTS AUTHORITY
---------------------------------------------------- -----------------------
QUARTER FISCAL YEARS ENDED QUARTER FISCAL YEARS ENDED
ENDED --------------------------------------- ENDED -----------
MAY 2, JANUARY 31, JANUARY 25, JANUARY 27, APRIL 26, JANUARY 25,
1998 1998 1997 1996 1998 1998
---------- ----------- ----------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Sales....................... $1,466 $6,624 $7,017 $7,031 $ 346 $1,465
Costs and expenses
Cost of sales............... 1,046 4,568 4,783 4,863 257 1,045
Selling, general and
administrative expenses... 391 1,535 1,712 1,801 83 345
Depreciation and
amortization.............. 44 168 171 216 11 37
Interest expense, net....... 12 44 59 104 3 6
Other income................ (19) (29) (28) (31) (1) (3)
Adoption of accounting
standard for impairment... -- -- -- 211 -- --
------ ------ ------ ------ ------ ------
1,474 6,286 6,697 7,164 353 1,430
------ ------ ------ ------ ------ ------
Income (loss) from
continuing operations
before income tax expense
(benefit)................. (8) 338 320 (133) (7) 35
Income tax expense
(benefit)................. (3) 125 127 (35) (3) 15
Minority interest........... -- -- -- -- -- (2)
------ ------ ------ ------ ------ ------
Income (loss) from
continuing operations..... $ (5) $ 213 $ 193 $ (98) $ (4) $ 22
====== ====== ====== ====== ====== ======
Income (loss) per basic
share from continuing
operations(l)............. $(0.04) $ 1.58 $ 1.45 $(0.73) $(0.12) $ 0.70
Weighted-average common
shares outstanding (1).... 135.1 134.6 133.5 132.9 31.6 31.5
Income (loss) per diluted
share from continuing
operations(l)............. $(0.04) $ 1.57 $ 1.44 $(0.73) $(0.12) $ 0.70
Weighted-average common
shares assuming
dilution(1)............... 135.1 135.8 134.3 132.9 31.6 31.8
<CAPTION>
SPORTS AUTHORITY PRO FORMA COMBINED TOTAL
------------------------- -------------------------------------------
FISCAL YEARS ENDED
------------------------- ---------------------------
JANUARY 26, JANUARY 28, FIRST QUARTER JANUARY JANUARY JANUARY
1997 1996 1998 1998 1997 1996
----------- ----------- ------------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Sales....................... $1,271 $1,047 $1,812 $ 8,089 $ 8,288 $ 8,078
Costs and expenses
Cost of sales............... 906 754 1,303 5,613 5,689 5,617
Selling, general and
administrative expenses... 290 237 474 1,880 2,002 2,038
Depreciation and
amortization.............. 28 20 55 205 199 236
Interest expense, net....... 2 1 15 50 61 105
Other income................ (3) (2) (20) (32) (31) (33)
Adoption of accounting
standard for impairment... -- -- -- -- -- 211
------ ------ ------ ------- ------- -------
1,223 1,010 1,827 7,716 7,920 8,174
------ ------ ------ ------- ------- -------
Income (loss) from
continuing operations
before income tax expense
(benefit)................. 48 37 (15) 373 368 (96)
Income tax expense
(benefit)................. 20 15 (6) 140 147 (20)
Minority interest........... (2) -- -- (2) (2) --
------ ------ ------ ------- ------- -------
Income (loss) from
continuing operations..... $ 30 $ 22 $ (9) $ 235 $ 223 $ (76)
====== ====== ====== ======= ======= =======
Income (loss) per basic
share from continuing
operations(l)............. $ 0.96 $ 0.72 $(0.06) $ 1.47 $ 1.41 $ (0.48)
Weighted-average common
shares outstanding (1).... 31.4 31.2 160.4 159.8 158.6 157.9
Income (loss) per diluted
share from continuing
operations(l)............. $ 0.94 $ 0.71 $(0.06) $ 1.46 $ 1.39 $ (0.48)
Weighted-average common
shares assuming
dilution(1)............... 31.8 31.4 160.4 161.3 161.3 157.9
</TABLE>
- ---------------
(1) Pursuant to the Merger Agreement, holders of Sports Authority Common Stock
will receive 0.80 share of Woolworth Common Stock for each share of Sports
Authority Common Stock they hold.
18
<PAGE> 23
WOOLWORTH CORPORATION
FISCAL YEAR ENDED JANUARY 1998
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
(IN MILLIONS)
<TABLE>
<CAPTION>
SPORTS
WOOLWORTH AUTHORITY PRO FORMA
JANUARY 31, JANUARY 25, PRO FORMA COMBINED
1998 1998 ADJUSTMENTS TOTAL
----------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents......................... $ 116 $ 20 $ $ 136
Merchandise inventories........................... 1,159 328 1,487
Net assets of discontinued operations............. 7 -- 7
Other current assets.............................. 177 44 221
------ ---- ---- ------
1,459 392 1,851
PROPERTY AND EQUIPMENT, NET......................... 1,053 313 1,366
DEFERRED CHARGES AND OTHER ASSETS................... 670 107 777
------ ---- ---- ------
$3,182 $812 $ -- $3,994
====== ==== ==== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term debt................................... $ -- $ 22 $ $ 22
Accounts payable.................................. 327 148 475
Accrued liabilities(1)............................ 335 123 11 469
Current portion of reserve for discontinued
operations..................................... 72 -- 72
Current portion long-term debt & capital leases... 22 -- 22
------ ---- ---- ------
$ 756 $293 $ 11 $1,060
LONG-TERM DEBT AND OBLIGATIONS UNDER CAPITAL
LEASES(3)......................................... 535 157 692
DEFERRED TAXES...................................... 48 4 52
RESERVE FOR DISCONTINUED OPERATIONS................. 18 -- 18
OTHER LIABILITIES................................... 554 27 581
MINORITY INTEREST................................... -- (2) (2)
SHAREHOLDERS' EQUITY(1)(2).......................... 1,271 333 (11) 1,593
COMMITMENTS.........................................
------ ---- ---- ------
$3,182 $812 $ -- $3,994
====== ==== ==== ======
</TABLE>
- ---------------
(1) Accrued liabilities and retained earnings were adjusted by $11 million for
transaction fees and expenses.
(2) Pursuant to the Merger Agreement, holders of Sports Authority Common Stock
will receive 0.80 share of Woolworth Common Stock for each share of Sports
Authority Common Stock they hold. Additional paid-in capital and common
stock were adjusted for the effect of the conversion of Sports Authority
Common Stock into Woolworth Common Stock.
(3) At the consummation of the Merger, the debt holders of the 5.25% Convertible
Subordinated Notes (the "Notes") can require, at the option of such holders,
Sports Authority to repurchase the Notes at 100% of the principal and
interest in cash. If the holders exercise such option, Woolworth expects to
finance the repurchase with long-term borrowings.
19
<PAGE> 24
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION
The unaudited pro forma condensed combined statements of operations combine
the historical statements of operations of Woolworth for the fiscal years ended
January 31, 1998, January 25, 1997 and January 27, 1996 with the historical
statements of operations of Sports Authority for the fiscal years ended January
25, 1998, January 26, 1997 and January 28, 1996.
No adjustments have been made in these pro forma condensed combined
financial statements to conform the accounting policies of the combining
companies. The nature and extent of other such adjustments, if any, are not
expected to be significant.
NOTE 2. PRO FORMA NUMBER OF SHARES OUTSTANDING
The number of shares of Woolworth Common Stock that will be issued in the
Merger in exchange for the outstanding shares of Sports Authority Common Stock
assumes an Exchange Ratio of 0.80 share of Woolworth Common Stock. The following
table sets forth the pro forma number of shares to be outstanding after
completion of the Merger based on the number of shares of Woolworth Common Stock
outstanding as of January 31, 1998.
<TABLE>
<CAPTION>
(IN MILLIONS)
-------------
<S> <C>
Number of shares of Sports Authority Common Stock
outstanding as of January 25, 1998........................ 31.5
Exchange Ratio.............................................. 0.80
-----
Number of shares of Woolworth Common Stock issued in the
Merger.................................................... 25.2
Number of shares of Woolworth Common Stock outstanding as of
January 31, 1998.......................................... 135.0
-----
Number of shares of Woolworth Common Stock outstanding after
completion of the Merger.................................. 160.2
=====
</TABLE>
NOTE 3. MERGER-RELATED EXPENSES
It is expected that certain Merger-related expenses will be incurred,
including the elimination of duplicate facilities and excess capacity and
organizational realignment. The pro forma statements of operations and the pro
forma balance sheet do not reflect the impact of these charges because an
estimate of these costs has not been determined. These costs will be charged to
operations as a non-recurring charge in the quarter the Merger occurs.
It is estimated that the transaction costs for fees of investment bankers,
attorneys and accountants, financial printing and other related charges, will be
approximately $11 million. The impact of these fees and expenses has been
reflected as a reduction of pro forma shareholders' equity. These charges are
not reflected in the pro forma statements of operations or the pro forma
combined income (loss) per share data.
20
<PAGE> 25
RISK FACTORS
FIXED EXCHANGE RATIO
Pursuant to the terms of the Merger Agreement, upon consummation of the
Merger, each outstanding share of Sports Authority Common Stock will be
converted into 0.80 share of Woolworth Common Stock. The Merger Agreement does
not contain any provisions for adjustment of the Exchange Ratio based upon
fluctuations in the price of the Woolworth Common Stock or the Sports Authority
Common Stock. Accordingly, the market value of the stock consideration to be
received by the holders of Sports Authority Common Stock upon the consummation
of the Merger is not presently ascertainable and will depend upon the market
price of the Woolworth Common Stock at the Effective Time. On May 6, 1998, the
last full trading day prior to the public announcement of the proposed Merger,
the closing prices of the Woolworth Common Stock and the Sports Authority Common
Stock as reported on the NYSE Composite Transactions Tape were $21.875 and
$17.00, respectively. On , 1998, the last trading day prior to the date
of filing with the SEC of the Form S-4 of which this Proxy Statement/Prospectus
forms a part, the closing prices of the Woolworth Common Stock and the Sports
Authority Common Stock as reported on the NYSE Composite Transactions Tape were
$ and $ , respectively. HOLDERS OF SPORTS AUTHORITY COMMON STOCK ARE
URGED TO OBTAIN CURRENT MARKET QUOTATIONS PRIOR TO MAKING ANY DECISIONS WITH
RESPECT TO THE MERGER. The Merger Agreement provides Sports Authority the right
to terminate the agreement under certain circumstances if the Woolworth Average
Price (as defined in the Merger Agreement) for a Measuring Period (as defined in
the Merger Agreement) is $20.50 or less. See "THE MERGER
AGREEMENT -- Termination; Effect of Termination" and "MARKET PRICE AND DIVIDEND
DATA."
INTEGRATION OF OPERATIONS
The Merger involves the integration of two companies that have previously
operated independently, with focuses on different market segments using
different retail channels of distribution. No assurance can be given that
Woolworth will be able to integrate the operations of Sports Authority without
encountering difficulties or experiencing the loss of key Sports Authority
employees, customers or suppliers, or that the benefits expected from such
integration will be realized.
STOCK OWNERSHIP IN WOOLWORTH
Upon completion of the Merger, holders of Sports Authority Common Stock
will become holders of Woolworth Common Stock. Woolworth's business is different
from that of Sports Authority, and Woolworth's results of operations, as well as
the price of Woolworth Common Stock, will be affected by many factors different
from those affecting Sports Authority's results of operations and the price of
Sports Authority Common Stock. See "MARKET PRICE AND DIVIDEND DATA."
NEED FOR GOVERNMENT APPROVALS; POSSIBLE OPERATING RESTRICTIONS
The consummation of the Merger is conditioned upon the expiration or
termination of the applicable waiting period under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976. In addition, other filings required under
the Canadian Competition Act with respect to the transactions contemplated by
the Merger Agreement must be made. Sports Authority and Woolworth have made such
filings and have received a no-action letter from the Canadian Bureau of
Competition. Sports Authority and Woolworth are seeking to obtain all required
regulatory approvals prior to the Special Meeting; however, no assurances can be
given that required regulatory approvals will be obtained on that timetable or
that restrictions on the combined company will not be sought by governmental
agencies as a condition to obtaining such approvals. There can be no assurance
that any operating restrictions imposed would not adversely affect the value of
the combined company. See "THE MERGER -- Regulatory Approvals."
21
<PAGE> 26
INTERESTS OF DIRECTORS
Certain members of the Sports Authority Board have interests in the Merger
that are in addition to or different from the interests of the Sports Authority
stockholders generally. The Merger will give rise to certain entitlements and
benefits pursuant to various Sports Authority employment agreements and other
arrangements described herein. It is estimated that certain members of the
Sports Authority Board will receive in the aggregate approximately
upon consummation of the Merger. See "INTERESTS OF CERTAIN PERSONS IN THE MERGER
AND RELATED MATTERS."
22
<PAGE> 27
THE COMPANIES
WOOLWORTH
General
Woolworth, incorporated under the laws of the State of New York in 1989,
has origins dating back to 1879. Woolworth is a diversified global retailer that
operates approximately 7,100 retail stores in 13 countries in North America,
Europe, Asia and Australia.
Woolworth's retailing business is conducted through two major segments:
Specialty and International General Merchandise. The Specialty segment includes:
the Athletic Group, the Northern Group, Specialty Footwear and Other Specialty.
The International General Merchandise segment includes operations in Germany and
Canada.
In 1995, management, led by Mr. Farah, implemented a strategic turn-around
initiative that focused on improving the financial position of Woolworth by
focusing on its core athletic competencies while maximizing the use of its
capital and its return to shareholders. From 1994 and through fiscal 1997,
Woolworth has (i) sold or disposed of 19 retail formats with 1,200 retail stores
(including F.W. Woolworth U.S.), (ii) reduced selling, general and
administrative expenses by $314 million, (iii) eliminated short-term debt, (iv)
reduced aged inventories (over 12 months old) to one percent from 9 percent of
total inventories, and (v) increased return on equity to 16.3% from 2.8%.
Having closed the North American Woolworth general merchandise business in
1997 and closed or divested other non-strategic or underperforming businesses
over the past several years, Woolworth recently decided to change its corporate
name in order to update its corporate identity to reflect the principal focus of
its continuing operations. Accordingly, on June 12, 1998 (subject to shareholder
approval), Woolworth intends to change its name to Venator Group, Inc., which
management believes better reflects the new mix of the Company's portfolio of
businesses as its exists today. Venator is derived from a classical word for
"sportsman."
Athletic Group
The Athletic Group, Woolworth's largest and most profitable business,
operates 3,588 stores in North America, Europe, Asia and Australia and accounted
for 56% of sales for the fiscal year ended January 31, 1998. In the United
States, the Athletic Group operates 3,083 stores that are located primarily in
regional malls. Businesses in the Athletic Group include: Foot Locker, Lady Foot
Locker, Kids Foot Locker and Champs Sports retail stores and Eastbay direct
marketers. Eastbay, the largest direct marketer of athletic footwear, apparel,
and equipment in the United States is also part of the Athletic Group.
Additionally, the Athletic Group operates an apparel imprint/embroidery factory
located in the United States. In Europe, there are 252 Foot Locker stores
located in the Netherlands, Belgium, England, Germany, France, Italy, Spain,
Austria and Luxembourg. In Canada, the group operates 195 Foot Locker and Champs
Sports stores which are primarily located in regional malls. The group also
operates 55 Foot Locker stores in Australia and three in Japan.
Northern Group
The Northern Group consists of 827 stores in the United States (401 stores)
and Canada (426 stores) that offer a unique range of private label casual
apparel for women (Northern Reflections), children (Northern Getaway) and men
(Northern Elements) in addition to private label coordinates for dressy, non-
formal occasions (Northern Traditions). The Northern Group accounted for 7% of
sales for the fiscal year ended January 31, 1998.
23
<PAGE> 28
Specialty Footwear
Specialty Footwear includes formats in the United States, Canada, and
Australia, the largest of which is the Kinney Shoe store chain. This group
operates 1,021 retail stores and 3 factories located in the United States that
manufacture footwear and accounted for 8% of sales for the fiscal year ended
January 31, 1998.
Other Specialty
Other Specialty is comprised of non-footwear specialty chains, including
Afterthoughts and The San Francisco Music Box Company, and operates 1,275 stores
in the United States and abroad. Other Specialty accounted for 7% of sales for
the fiscal year ended January 31, 1998.
International General Merchandise Segment
Through Retail Company of Germany, Inc, Woolworth operates 365 Woolworth
general merchandise stores in Germany and Austria. Woolworth Canada Inc.
operates 161 general merchandise stores through The Bargain! Shop chain. The
International General Merchandise Segment accounted for 22% of sales for the
fiscal year ended January 31, 1998.
LIBERTY MERGER SUB INC.
Liberty Merger Sub Inc. ("Merger Sub") is a Delaware corporation formed by
Woolworth on April 30, 1998 solely for the purpose of being merged with and into
Sports Authority and is wholly owned by Woolworth. The mailing address of Merger
Sub's principal executive offices is c/o Woolworth Corporation, 233 Broadway,
New York, New York 10279, Attention: Secretary, telephone number (212) 553-2000.
SPORTS AUTHORITY
Sports Authority is the largest operator of large format sporting goods
stores in the United States in terms of both sales and number of stores and is
also the largest full-line sporting goods retailer in the United States in terms
of sales. At May 22, 1998, Sports Authority operated 200 sporting goods
megastores, virtually all in excess of 40,000 gross square feet, and three
stores under the format "The Sports Authority, Ltd." These "Ltd." format stores
range from 9,000 - 30,000 square feet. Sports Authority's business strategy is
to offer customers extensive selections of quality, brand name sporting
equipment and athletic and active footwear and apparel, everyday fair prices and
premium customer service. Sports Authority has an international presence, with
189 stores in 31 states in the United States, six stores in Canada and eight
stores in Japan operated by a joint venture 51% owned by Sports Authority.
Sports Authority had sales of approximately $1,464.6 million in 1997.
Sports Authority was founded by Jack A. Smith, its current Chairman and
Chief Executive Officer, who opened the first store in Fort Lauderdale, Florida
in 1987. During the following two years, Sports Authority added nine more
stores. In 1990, Sports Authority was acquired by Kmart Corporation ("Kmart"),
which provided additional capital to fund Sports Authority's expansion program
as well as its continued investment in infrastructure and technology. Following
public offerings in November 1994 and October 1995, Kmart no longer owns any
interest in Sports Authority.
24
<PAGE> 29
RECENT DEVELOPMENTS
WOOLWORTH
On May 20, 1998, Woolworth announced financial results for the quarter
ended May 2, 1998, including a net loss of $5 million, or $0.04 per share. This
compares to net income of $1 million, or $0.01 per share, for the same period
last year, which includes a $16 million, or $0.12 per share, loss from
discontinued operations. During the first quarter, Woolworth opened 178 stores,
including 90 recently acquired Athletic Fitters stores and 21 temporary and 7
permanent stores converted to athletic formats from former Woolworth general
merchandise stores. In the quarter, Woolworth remodeled 63 stores and closed or
disposed of 168 stores. Management remains optimistic that new merchandise
assortments for the important back-to-school selling season and contributions
from new and remodeled stores should improve results for the second half of the
fiscal year. See also the Woolworth Current Report on Form 8-K filed on May 11,
1998, listed in "INCORPORATION OF DOCUMENTS BY REFERENCE."
SPORTS AUTHORITY
On May 12, 1998, Sports Authority announced financial results for the
quarter ended April 26, 1998, including a net loss of $3.7 million, or $0.12 per
share. This compares to net income of $2.6 million, or $0.08 per share, for the
same period last year. Sales for the period were $346 million, an 8.1% increase
over sales of $320 million in the prior year period. Comparable store sales for
the quarter decreased 6.2%, while comparable store sales adjusted for stores
cannibalized by new store openings decreased 5.4%. Sales were especially soft in
the footwear, fitness and licensed apparel categories. Additionally, sales were
negatively impacted by productivity and allocation issues related to the
start-up of Sports Authority's first regional distribution center.
25
<PAGE> 30
SPECIAL MEETING
This Proxy Statement/Prospectus is furnished in connection with the
solicitation of proxies from the holders of Sports Authority Common Stock by the
Sports Authority Board for use at the Special Meeting. This Proxy
Statement/Prospectus and accompanying forms of proxy are first being mailed to
the holders of Sports Authority Common Stock on or about , 1998.
DATE, TIME, PLACE AND PURPOSE
The Special Meeting will be held at a.m. on , 1998 at
, . At the Special Meeting (including any adjournments
thereof), the holders of Sports Authority Common Stock will be asked to consider
and vote upon the approval and adoption of the Merger Agreement and such other
matters as may properly go before the Special Meeting.
Approval by the holders of Sports Authority Common Stock of the Merger
Agreement is required by the DGCL (Subchapter IX, Section 251(c)).
The Sports Authority Amended and Restated By-Laws (the "Sports Authority
By-laws") provide that the purpose or purposes of the Special Meeting be set
forth in the written notice of the Special Meeting.
RECOMMENDATION
THE SPORTS AUTHORITY BOARD (i) HAS APPROVED THE MERGER, THE TERMS OF THE
MERGER AGREEMENT AND THE CONSUMMATION OF THE TRANSACTIONS CONTEMPLATED THEREBY,
(ii) BELIEVES THAT THE TERMS OF THE MERGER AGREEMENT AND THE MERGER ARE FAIR TO,
AND IN THE BEST INTEREST OF, SPORTS AUTHORITY AND ITS STOCKHOLDERS AND (iii)
RECOMMENDS THAT THE HOLDERS OF SPORTS AUTHORITY COMMON STOCK VOTE "FOR" APPROVAL
AND ADOPTION OF THE MERGER AGREEMENT.
RECORD DATE; VOTING RIGHTS AND PROXIES
Only holders of record of Sports Authority Common Stock at the close of
business on , 1998 (the "Record Date") are entitled to receive
notice of and to vote at the Special Meeting. As of the Record Date, there were
outstanding shares of Sports Authority Common Stock, each of which entitled
the holder thereof to one vote.
Holders of Sports Authority Common Stock as of the close of business on the
Record Date are entitled to vote on approval and adoption of the Merger
Agreement, adjournments of the meeting, if any, and such other matters as may
properly go before the Special Meeting.
Each share of Sports Authority Common Stock outstanding as of the Record
Date will entitle the registered holder thereof to one vote on each proposal to
be voted on, and such stockholders may vote in person or by proxy. Execution of
a proxy will not in any way affect a stockholder's right to attend the Special
Meeting and vote in person.
All shares of Sports Authority Common Stock represented by properly
executed proxies returned in time will, unless such proxies have been previously
revoked, be voted in accordance with the instructions indicated in such proxies.
IF NO INSTRUCTIONS ARE INDICATED, SUCH SHARES OF SPORTS AUTHORITY COMMON STOCK
WILL BE VOTED "FOR" APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND "FOR" ANY
ADJOURNMENTS OF THE SPECIAL MEETING IF THE WOOLWORTH AVERAGE PRICE IS LESS THAN
$20.50 DURING THE APPLICABLE MEASURING PERIOD. Sports Authority knows of no
other matter to be presented at the Special Meeting. If any other matter or
matters are properly presented for action at the Special Meeting, the persons
named in the enclosed forms of proxy and acting thereunder will have the
discretion to vote on such matters in accordance with their best judgment. Any
stockholder giving a proxy has the right to revoke it at any time before it is
exercised by (i) filing with the Secretary of Sports Authority, before the
taking of the vote at the Special Meeting, a written notice of revocation
bearing a later date than the date of the proxy or any later-dated proxy
relating to the same shares, or (ii) attending the Special Meeting and voting in
person. Votes cast by proxy or in person at the Special Meeting will be
tabulated by the inspector of election appointed for the Special Meeting.
26
<PAGE> 31
If Sports Authority proposes to adjourn the Special Meeting, the persons
named as attorneys in the enclosed forms of proxy card will vote all shares for
which they have voting authority in favor of such adjournment. If the Special
Meeting is adjourned, at any subsequent reconvening of such meeting, all proxies
will be voted in the same manner as such proxies would have been voted at the
initial convening of the Special Meeting (except for any proxies that
theretofore effectively have been revoked or withdrawn), notwithstanding that
they may have been voted on the same or any other matter at a previous meeting.
The Special Meeting shall not take place later than December 31, 1998.
Holders of Sports Authority Common Stock are requested to complete, sign,
date and promptly return the enclosed proxy card in the postage-prepaid envelope
provided for such purpose to ensure that their shares are voted.
ADJOURNMENT OR POSTPONEMENT IN ABSENCE OF MINIMUM MERGER CONSIDERATION
In the event that the Woolworth Average Price is less than $20.50 for the
Measuring Period, Sports Authority will give notice to Woolworth as to whether
it intends to terminate the Merger Agreement in accordance with the terms
thereof or adjourn or postpone such meeting for 30 days. If Sports Authority
makes an Election to terminate the Merger Agreement, Woolworth may rescind such
Election by giving notice that Woolworth elects to cause Sports Authority to
adjourn such meeting for the Adjournment Period. A Measuring Period will then be
observed for the 20 consecutive trading days prior to the third business day
prior to the scheduled date of the adjourned or postponed meeting to determine
if the Woolworth Average Price during such period is less than $20.50. If the
Woolworth Average Price is $20.50 or higher, the Merger Agreement will be voted
upon. If the Woolworth Average Price is less than $20.50, the same process will
be followed again until either the Merger Agreement is voted upon or the Merger
Agreement is terminated. If an Adjournment Period would establish an adjourned
or postponed meeting date after January 1, 1999, the Adjournment Period will be
truncated, to the extent permitted by law and regulation, so that the Special
Meeting will be held on December 31, 1998 (subject to Sports Authority's
Election to terminate the Merger Agreement due to the level of the Woolworth
Average Price during the Measuring Period in respect of such December 31, 1998
meeting date, which Election will not give rise to a further right of Rescission
in favor of Woolworth). See "THE MERGER AGREEMENT -- Minimum Merger
Consideration."
SHARE OWNERSHIP OF MANAGEMENT
As of May 29, 1998, Sports Authority directors, executive officers, and
their affiliates were the beneficial owners of an aggregate of approximately
1,180,607 shares of Sports Authority Common Stock, or approximately 3.7%, of the
shares of Sports Authority Common Stock outstanding on such date.
SOLICITATION OF PROXIES
Proxies are being solicited by and on behalf of the Sports Authority Board.
In addition to solicitation by use of the mails, proxies may be solicited by
directors, officers and employees of Sports Authority 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 out-of-pocket
expenses incurred in connection therewith. Arrangements have also been made with
brokerage firms, banks, custodians, nominees and fiduciaries for the forwarding
of proxy solicitation materials to owners of Sports Authority Common Stock held
of record by such persons and in connection therewith such firms will be
reimbursed for reasonable expenses incurred in forwarding such materials. Sports
Authority has retained to assist in the solicitation of proxies
from its stockholders. The total fees of $ are estimated to aggregate
$ plus costs and expenses.
HOLDERS OF SPORTS AUTHORITY COMMON STOCK SHOULD NOT SEND ANY CERTIFICATES
REPRESENTING SPORTS AUTHORITY COMMON STOCK WITH THEIR PROXY CARD. FOLLOWING THE
EFFECTIVE TIME, HOLDERS OF SPORTS AUTHORITY COMMON STOCK WILL RECEIVE
INSTRUCTIONS FOR THE SURRENDER AND EXCHANGE OF SUCH STOCK CERTIFICATES.
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QUORUM
For the approval and adoption of the Merger Agreement, the representation
in person or by properly executed proxy of at least a majority of the
outstanding shares of Sports Authority Common Stock entitled to vote on the
approval and adoption of the Merger Agreement is necessary to constitute a
quorum at the Special Meeting.
REQUIRED VOTE
The affirmative vote of the holders of a majority of the outstanding shares
of Sports Authority Common Stock is required to approve and adopt the Merger
Agreement. Accordingly, any failure by a holder of Sports Authority Common Stock
to vote will have the effect of a vote against approval and adoption of the
Merger Agreement. Brokers who hold shares of Sports Authority Common Stock as
nominees will not have discretionary authority to vote such shares in the
absence of instructions from the beneficial owners thereof. Broker non-votes
will have the same effect as votes cast against approval and adoption of the
Merger Agreement. The affirmative vote of the holders of a majority of shares of
Sports Authority Common Stock present at the Special Meeting in person or by
proxy is required to approve any adjournment of such meeting. A vote of
Woolworth stockholders is not required to approve and adopt the Merger
Agreement.
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THE MERGER
THE DESCRIPTION OF CERTAIN MATERIAL TERMS OF THE MERGER AGREEMENT SET FORTH
BELOW DOES NOT PURPORT TO BE COMPLETE AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE MERGER AGREEMENT, A COPY OF WHICH IS ATTACHED AS ANNEX A TO
THIS PROXY STATEMENT/PROSPECTUS AND INCORPORATED HEREIN BY REFERENCE.
THE MERGER AGREEMENT
The Merger Agreement provides that Merger Sub will be merged with and into
Sports Authority as a result of which Sports Authority will become a wholly
owned subsidiary of Woolworth, subject to the requisite approval of the Sports
Authority stockholders and the satisfaction or waiver of the other conditions to
the Merger. As a result of the Merger, the separate corporate existence of
Merger Sub will cease and Sports Authority as the Surviving Corporation will
succeed to all of the rights and be responsible for all of the obligations of
Merger Sub in accordance with the DGCL. The Merger will become effective at the
Effective Time upon the filing of a duly executed Certificate of Merger with the
Delaware Secretary of State or at such later time as shall be specified in the
Certificate of Merger. This filing is to be made on the Closing Date specified
by Sports Authority and Woolworth, which date shall be no later than the second
business day after the satisfaction or waiver of the conditions set forth in the
Merger Agreement. It is currently anticipated that the Effective Time will occur
shortly after the Special Meeting assuming that the Merger Agreement and the
Merger are approved at such meeting and all other conditions to the Merger have
been satisfied or waived.
BACKGROUND
In April 1997, Roger N. Farah, Woolworth's Chairman and Chief Executive
Officer, and Jack A. Smith, Sports Authority's Chairman and Chief Executive
Officer, were introduced to each other by Jack Levy of Merrill Lynch and, on
April 7, 1997, Messrs. Farah and Smith met to discuss collaborative
opportunities, including a potential business combination. Woolworth then sought
the advice of Morgan Stanley & Co. Incorporated ("Morgan Stanley"), its
financial advisor, with respect to a potential business combination with Sports
Authority. Similarly, Sports Authority management notified Merrill Lynch, its
financial advisor, of the possibility of a combination with Woolworth and
requested its assistance in analyzing such a combination. Thereafter, Merrill
Lynch and Morgan Stanley commenced a preliminary review of information on each
company's operations.
During the months of April, May and June 1997, Sports Authority and
Woolworth, together with their respective financial advisors, conducted a series
of exploratory discussions regarding a possible transaction between the two
entities. On or about June 3, 1997, Mr. Smith telephoned the other members of
the Sports Authority Board to inform them of the status of the ongoing
discussions. Sports Authority and Woolworth signed a confidentiality agreement
on June 6, 1997. At a meeting of the Woolworth Board on June 11, 1997, the
directors of Woolworth observed a presentation by Morgan Stanley, considered a
potential acquisition of Sports Authority and approved further discussions with
respect to such potential acquisition. The following day, Mr. Smith, Richard J.
Lynch, Jr., Sports Authority's President and Chief Operating Officer, and Robert
J. Timinski, Sports Authority's Senior Vice President and General Merchandise
Manager, traveled to New York to participate in a preliminary due diligence
meeting with Mr. Farah, Dale W. Hilpert, Woolworth's President and Chief
Operating Officer, and M. Jeffrey Branman, Woolworth's Senior Vice President --
Corporate Development.
Over the next six weeks, the parties, together with their respective
financial advisors, continued their preliminary due diligence reviews and
engaged in discussions regarding the terms and conditions of the combination
proposed by Woolworth. Additional due diligence and discussions ensued with the
purpose of resolving open issues and finalizing the economic terms of the
proposed merger but negotiations proved inconclusive and ended in the latter
part of August 1997 before any draft of a merger agreement had been circulated.
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In mid-January 1998, Mr. Farah and Mr. Smith again established contact for
the purpose of resuming discussions regarding a possible business combination.
During the months of February and March, Mr. Smith and Mr. Hanaka, on behalf of
Sports Authority, and Messrs. Farah, Hilpert and Branman, on behalf of
Woolworth, met several times to resume negotiations of various aspects of the
proposed combination, including the economic terms of such transaction. In
conjunction with the regularly scheduled meeting of the Sports Authority Board
on March 19, 1998, Mr. Smith briefed the non-employee directors present on the
status of these negotiations. On April 6, 1998, Woolworth submitted an offer to
Mr. Smith and Mr. Hanaka, and Mr. Smith so informed the Sports Authority
directors shortly thereafter. During the remainder of April and the first week
of May, representatives of Sports Authority and Woolworth and their respective
legal counsel and financial advisors performed due diligence and participated in
due diligence sessions in both Fort Lauderdale and New York, and engaged in more
detailed discussions with respect to the terms on which a possible combination
between Sports Authority and Woolworth might be effected.
At a regularly scheduled meeting of the Woolworth Board on April 8, 1998,
Woolworth management reviewed the status of the discussions, and representatives
of Morgan Stanley presented an analysis of the financial terms of the proposed
transaction. The Woolworth Board approved further discussions with the
management of Sports Authority along the lines presented at the meeting.
On April 30, 1998, Woolworth management reviewed the status of the
transaction with the members of the Acquisition and Finance Committee of the
Woolworth Board.
The Woolworth Board held a special meeting on May 5, 1998 to discuss the
proposed transaction. At the meeting, Woolworth management reviewed the status
of the transaction, a summary of Woolworth's due diligence was presented,
representatives of Morgan Stanley presented an analysis of the financial terms
of the proposed transaction, a representative of Woolworth's legal counsel
outlined the terms of the Merger Agreement and the Woolworth Board's legal
duties and responsibilities, and representatives of KPMG Peat Marwick LLP
discussed accounting matters related to the proposed transaction. At the
conclusion of the meeting, the Woolworth Board authorized entering into the
Merger Agreement on the terms and conditions negotiated by the management of
Woolworth and its advisors.
On May 5, 1998, the Sports Authority Board (with Messrs. Julius W. Erving
and Jack F. Kemp absent) held an eight-hour special meeting to consider the
proposed combination of Sports Authority and Woolworth. Among other things, the
Sports Authority Board received a presentation from legal counsel outlining the
terms of the Merger Agreement, the Sports Authority Board's legal duties and
responsibilities and the terms of the proposed agreements between Woolworth and
each of Mr. Smith and Mr. Hanaka, a presentation from Merrill Lynch analyzing
each of the companies and the financial terms and fairness of the proposed
transaction, presentations from management on various aspects of the proposed
transaction and the alternative of remaining independent, presentations from
legal counsel and management on the results of Sports Authority's due diligence,
and a presentation from Mr. Farah on Woolworth and the strategic implications
and benefits of the proposed transaction. The Sports Authority Board extensively
discussed the issues raised in such presentations, including various terms of
the proposed transaction and the alternative of remaining independent. At the
end of the May 5 meeting, Sports Authority representatives informed Woolworth
that substantial issues remained open, including the merger consideration.
On May 6, 1998, the Sports Authority Board met twice by telephone
conference to continue the prior day's meeting. During the first such meeting,
the Sports Authority Board approved the proposed combination, with six directors
voting in favor and two (Richard J. Lynch, Jr. and Steve Dougherty) voting
against. Mr. Lynch voted against the proposed combination because he viewed the
Exchange Ratio as inadequate. Mr. Dougherty voted against the proposed
combination because he believed Sports Authority should continue to operate as
an independent company and that, in any event, he viewed the Exchange Ratio as
inadequate. After further discussion, the directors rescinded their approval of
the proposed combination. Based upon instructions from the Sports Authority
Board at both sessions, Sports Authority representatives informed Woolworth that
the Sports Authority Board insisted upon changes in certain terms of the
proposed transaction, including the Woolworth stock price below which Sports
Authority could terminate the merger agreement, subject to certain conditions,
the requirement that Sports Authority reimburse certain expenses of
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Woolworth in the event of such a termination, and the preconditions for Sports
Authority's obligation to pay a termination fee in the event of another offer
involving Sports Authority.
On May 6 and May 7, 1998, representatives of Woolworth and Sports Authority
continued to negotiate these issues. At the conclusion of these discussions,
such representatives agreed on all of the economic terms in the proposed Merger
Agreement, including the changes proposed by the Sports Authority Board.
On May 7, 1998, certain members of management of Woolworth and
representatives of Woolworth's legal counsel and financial advisor had a
telephone conference with certain members of the Woolworth Board to provide them
with a status report concerning the progress of the negotiations between the two
companies.
On May 7, 1998, the Sports Authority Board again met by telephone
conference. The Board discussed the results of the negotiations conducted over
the prior day and a half. After a period of deliberation during which the Sports
Authority Board considered, among other things, the opinion of Merrill Lynch
that, as of such date, and subject to the assumptions made, matters considered
and limits on review set forth therein, the Exchange Ratio provided for in the
Merger Agreement is fair, from a financial point of view, to the holders of
Sports Authority Common Stock, the Sports Authority Board (with Messrs. Erving
and Kemp absent and Messrs. Lynch and Dougherty, having considered the progress
in the negotiations from the prior day, abstaining) approved the Merger
Agreement and the transactions contemplated thereby and recommended that the
Merger Agreement be presented to and approved and adopted by the holders of
Sports Authority Common Stock. See "-- Opinion of the Financial Advisor to the
Sports Authority Board."
Final agreement on the terms of the Merger Agreement was reached on May 7,
and both parties executed the Merger Agreement. A joint press release announcing
the proposed Merger was issued by the parties on May 7.
SPORTS AUTHORITY'S REASONS FOR THE MERGER; RECOMMENDATION OF THE SPORTS
AUTHORITY BOARD
During its deliberations on May 5, 6 and 7, 1998, the Sports Authority
Board considered the Merger Agreement in detail and met with and questioned
senior management of both Sports Authority and Woolworth, representatives of
Merrill Lynch, and Sports Authority's legal counsel. At the meeting, Merrill
Lynch presented its financial analysis of Sports Authority, Woolworth and the
combined company, reviewed the financial terms of the Merger Agreement and
delivered its opinion that, as of May 7, 1998, the Exchange Ratio was fair, from
a financial point of view, to the stockholders of Sports Authority. See
"-- Opinion of the Financial Advisor to the Sports Authority Board."
The Sports Authority Board believes that the Merger will create enhanced
value for Sports Authority stockholders by the strategic alliance of Woolworth
and Sports Authority. The Sports Authority Board believes that the Merger will
cause the combined company to realize significant synergies and cost savings
arising from savings in purchasing and international sourcing of merchandise,
reductions in general and administrative expense and the possible conversion of
several former Woolworth general merchandise store locations into Sports
Authority stores.
In reaching its decision to approve the Merger Agreement, the Sports
Authority Board considered in detail the case for remaining independent. The
directors had recently been advised by management that first quarter 1998 sales
had continued the soft sales trends which began in the latter part of 1997, in
particular, in the athletic footwear, fitness and licensed apparel categories,
and that productivity and allocation problems had been experienced in connection
with the start-up of Sports Authority's first regional distribution center. In
addition, the directors considered the deterioration in 1997 of several measures
of Sports Authority's performance, including the decline in comparable store
sales and the increase in selling, general and administrative expenses as a
percentage of sales, as well as the lower than anticipated sales volumes of a
number of stores opened in recent years. As a result of these factors and
additional analysis in light of the proposed Merger, management advised the
Sports Authority Board that, if Sports Authority were to remain independent, it
would need to improve certain practices and procedures and to take steps to
restructure its business, which could include store closures, product line
changes and store format changes, thus resulting in
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restructuring charges. The Sports Authority Board evaluated the potential
rewards to Sports Authority stockholders of staying independent over a
two-to-three year period compared to the potential rewards available to them as
stockholders of Woolworth over the same period and determined that they were
roughly the same. The Board then determined in light of several factors,
including the expected synergies from the Merger, that the risks of Sports
Authority's being able to successfully implement a restructuring of its business
and obtaining the potential rewards for its stockholders as an independent
company were significantly higher than the risks of obtaining roughly the same
potential rewards as stockholders of the combined company.
The Sports Authority Board, in consultation with its management and
financial advisors, extensively analyzed the price premium which the Merger
would provide to Sports Authority's stockholders. The Sports Authority Board was
of the view that, while the Merger's premium over the market price of Sports
Authority Common Stock was only 1.4%, based on May 4, 1998 closing prices, the
implied premium was in the range of 45%. The implied premium considered by the
Sports Authority Board was based on an implied trading price of Sports Authority
Common Stock calculated by discounting the market price to correct for market
rumors and the difference between publicly available analysts' estimates and
estimates of Sports Authority's management of first quarter results. The Sports
Authority Board was informed by its financial advisors that the price of Sports
Authority Common Stock had increased as a result of recent rumors of a possible
transaction involving the Sports Authority. In addition, based on the
application of Sports Authority's price-to-earnings multiples to financial
forecasts and first quarter results as then estimated by the management of
Sports Authority, Sports Authority Board's financial advisor derived a range of
implied trading prices for Sports Authority Common Stock (assuming the
announcement of such first quarter results and no announcement of a possible
transaction involving Sports Authority) from $10 to $14 per share and noted that
the trading price would probably trade toward the bottom of such range.
In addition, the Sports Authority Board considered the following reasons
that the Merger would be in the best interests of Sports Authority and its
stockholders:
- Sports Authority's stockholders would receive approximately 16% of the
combined company's common stock, while Sports Authority would contribute
approximately 11% of the combined company's pro-forma net income for 1997
and 1998.
- The expectation that investors would reward consolidation in the
fragmented sporting goods retail business.
- The strength of Woolworth's management and its record in turning around
Woolworth's business.
- The additional benefits obtainable from completion of Woolworth's
cost-cutting efforts and asset dispositions.
- Woolworth's relatively low price-earnings multiple and the likelihood of
an increase in that multiple as Woolworth continues to become a more
focused specialty retailer.
- The benefits that Woolworth could offer to Sports Authority's operations,
including:
- operating synergies;
- the availability of Eastbay to facilitate mail-order operations;
- the ability to enhance Sports Authority's purchasing and
international sourcing program;
- the availability of several former Woolworth general merchandise
store locations with attractive rents as possible sites for Sports
Authority stores;
- the availability of Woolworth's international experience and offices
to aid Sports Authority's international expansion; and
- Woolworth's financial strength and cash flow as a source of capital
for Sports Authority's expansion.
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- The ability of the Sports Authority Board under the Merger Agreement to
accept a superior proposal upon payment of a relatively modest
termination fee of $8.5 million;
- The ability of Sports Authority under the Merger Agreement to terminate
the transaction unless the price of Woolworth Common Stock exceeds $20.50
for a period of time before the Special Meeting (see "THE MERGER
AGREEMENT -- Minimum Merger Consideration");
- The expected treatment of the Merger as a tax-free reorganization; and,
- The expectation that Woolworth would acquire another large-format
sporting goods retailer if the Merger were not approved, and the adverse
effect of such an acquisition on Sports Authority.
In its consideration of the Merger Agreement, the Sports Authority Board
also considered, among other things, the following factors:
- The terms and conditions of the Merger Agreement and the arm's-length
nature of the negotiations;
- The results of due diligence investigations by Sports Authority's
management and its financial and legal advisors concerning the business,
operations, prospects, assets and financial condition of Woolworth;
- The directors' knowledge of the business, operations, prospects, assets
and financial condition of Woolworth;
- Ongoing trends in the sporting goods and athletic footwear businesses;
- The impact of the Merger on the employees of Sports Authority; and,
- The terms of the proposed agreements between Woolworth and Messrs. Smith
and Hanaka.
The Sports Authority Board also considered a number of negative factors in
its consideration of the Merger, including:
- The possibility that the value of the consideration to be received by the
Sports Authority stockholders could diminish prior to the closing as a
result of a decline in the market price of Woolworth Common Stock;
- The concentration of Woolworth's business in athletic footwear and the
shift in market demand from traditional athletic footwear to a broader
range of casual style footwear;
- The fact that Woolworth was also experiencing soft sales in athletic
footwear;
- The risk that Woolworth would not be able to reformat its Foot Locker
stores successfully or in a timely fashion;
- The effect of the announcement of the Merger Agreement on Sports
Authority's ability to attract and retain key management personnel; and,
- The other risks associated with the Merger described under "RISK
FACTORS."
The foregoing discussion of the factors considered by the Sports Authority
Board is not intended to be exhaustive but is believed to include all of the
material factors considered by the Sports Authority Board. In view of the
variety of factors considered in connection with its evaluation of the Merger,
the Sports Authority Board did not find it practicable to and did not quantify
or otherwise assign relative weight to the specific factors considered in
reaching its determination. In addition, individual members of the Sports
Authority Board may have given different weight to different factors.
The Sports Authority Board, by a vote of six in favor, two abstaining and
two absent, approved the Merger Agreement and determined that the Merger is in
the best interests of Sports Authority and its stockholders.
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WOOLWORTH'S REASONS FOR THE MERGER; APPROVAL BY THE WOOLWORTH BOARD
The Woolworth Board expects that consummation of the Merger will better
position Woolworth to enhance value for its shareholders while continuing to
grow its athletic operations profitably. The Woolworth Board believes that
Sports Authority will complement Woolworth's existing domestic and international
athletic operations. The Merger is expected to provide significant purchasing,
international sourcing and operating synergies over the next three years and is
expected to be accretive to earnings beginning in the year 2000.
The Woolworth Board has determined that the Merger is advisable and fair to
and in the best interests of Woolworth and accordingly has approved the Merger
Agreement.
OPINION OF THE FINANCIAL ADVISOR TO THE SPORTS AUTHORITY BOARD
Sports Authority retained Merrill Lynch to act as its exclusive financial
advisor in connection with a possible business combination with Woolworth. On
May 7, 1998, Merrill Lynch rendered to the Sports Authority Board its written
opinion (the "Merrill Lynch Opinion") that, as of such date and based upon and
subject to the factors and assumptions set forth therein, the Exchange Ratio was
fair, from a financial point of view, to the holders of Sports Authority Common
Stock, other than Woolworth and its affiliates. On , 1998, Merrill Lynch
updated the Merrill Lynch Opinion to confirm such conclusions as of such date.
THE FULL TEXT OF THE MERRILL LYNCH OPINION, WHICH SETS FORTH THE
ASSUMPTIONS MADE, MATTERS CONSIDERED, AND QUALIFICATIONS AND LIMITATIONS ON THE
REVIEW UNDERTAKEN BY MERRILL LYNCH, IS ATTACHED AS ANNEX B TO THIS PROXY
STATEMENT/PROSPECTUS AND IS INCORPORATED HEREIN BY REFERENCE. THE SUMMARY OF THE
MERRILL LYNCH OPINION SET FORTH IN THIS PROXY STATEMENT/ PROSPECTUS IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH OPINION. STOCKHOLDERS OF
SPORTS AUTHORITY ARE URGED TO READ SUCH OPINION IN ITS ENTIRETY. THE MERRILL
LYNCH OPINION WAS PROVIDED TO THE SPORTS AUTHORITY BOARD FOR ITS INFORMATION AND
IS DIRECTED ONLY TO THE FAIRNESS FROM A FINANCIAL POINT OF VIEW OF THE EXCHANGE
RATIO TO THE HOLDERS OF SPORTS AUTHORITY COMMON STOCK, OTHER THAN WOOLWORTH AND
ITS AFFILIATES, AND DOES NOT ADDRESS THE MERITS OF THE UNDERLYING DECISION BY
SPORTS AUTHORITY TO ENGAGE IN THE MERGER AND DOES NOT CONSTITUTE A
RECOMMENDATION TO ANY SPORTS AUTHORITY STOCKHOLDER AS TO HOW SUCH STOCKHOLDER
SHOULD VOTE ON THE PROPOSED MERGER OR ANY MATTER RELATED THERETO.
The Exchange Ratio was determined through negotiations between Woolworth
and Sports Authority and was approved by the Sports Authority Board. Merrill
Lynch provided advice to Sports Authority during the course of such
negotiations.
The summary set forth below does not purport to be a complete description
of the analyses underlying the Merrill Lynch Opinion or the presentation made by
Merrill Lynch to the Sports Authority Board. The preparation of a fairness
opinion is a complex analytic process involving various determinations as to the
most appropriate and relevant methods of financial analysis and the application
of those methods to the particular circumstances and, therefore, such an opinion
is not readily susceptible to partial analysis or summary description. In
arriving at its opinion, Merrill Lynch did not attribute any particular weight
to any analysis or factor considered by it, but rather made qualitative
judgments as to the significance and relevance of each analysis and factor.
Accordingly, Merrill Lynch believes that its analyses must be considered as a
whole and that selecting portions of its analyses, without considering all
analyses, would create an incomplete view of the process underlying its opinion.
In performing its analyses, numerous assumptions were made with respect to
industry performance, general business, economic, market and financial
conditions and other matters, many of which are beyond the control of Merrill
Lynch, Woolworth or Sports Authority. Any estimates contained in the analyses
performed
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by Merrill Lynch are not necessarily indicative of actual values or future
results, which may be significantly more or less favorable than suggested by
such analyses. Additionally, estimates of the value of businesses or securities
do not purport to be appraisals or to reflect the prices at which such
businesses or securities might actually be sold. Accordingly, such analyses and
estimates are inherently subject to substantial uncertainty. In addition, as
described above, the Merrill Lynch Opinion was among several factors taken into
consideration by the Sports Authority Board in making its determination to
approve the Merger Agreement and the Merger. Consequently, the Merrill Lynch
analyses described below should not be viewed as determinative of the decision
of the Sports Authority Board with respect to the fairness of the Exchange
Ratio.
Merrill Lynch expresses no opinion as to the relative value of the Exchange
Ratio as compared to the consideration that may be proposed to be delivered
pursuant to any other transaction proposal which Sports Authority has received
or may receive. In addition, Merrill Lynch expresses no opinion as to the prices
at which Sports Authority Common Stock, Woolworth Common Stock or any other
securities of Sports Authority or Woolworth would trade following the
announcement or consummation of the Merger.
In arriving at its opinion, Merrill Lynch, among other things, (i) reviewed
certain publicly available business and financial information relating to Sports
Authority and Woolworth which Merrill Lynch deemed to be relevant, (ii) reviewed
certain information which was furnished to Merrill Lynch by Sports Authority and
Woolworth, including financial forecasts, relating to the business, earnings,
cash flow, assets, liabilities and prospects of Sports Authority and Woolworth,
as well as the amount and timing of the cost savings, related expenses and
synergies expected to result from the Merger (the "Expected Synergies"), (iii)
conducted discussions with members of senior management and representatives of
Sports Authority and Woolworth concerning the matters described in clauses (i)
and (ii) above as well as their respective businesses and prospects before and
after giving effect to the Merger and the Expected Synergies, (iv) reviewed the
market prices and valuation multiples for Sports Authority Common Stock and
Woolworth Common Stock and compared them with those of certain publicly traded
companies which Merrill Lynch deemed to be relevant, (v) reviewed the results of
operations of Sports Authority and Woolworth and compared them with those of
certain publicly traded companies which Merrill Lynch deemed to be relevant,
(vi) compared the proposed financial terms of the Merger with the financial
terms of certain other transactions which Merrill Lynch deemed to be relevant,
(vii) participated in certain discussions and negotiations among representatives
of Sports Authority and Woolworth and their financial and legal advisers, (viii)
reviewed the potential pro forma impact of the Merger, (ix) reviewed the Merger
Agreement and (x) reviewed such other financial studies and analyses and took
into account such other matters as Merrill Lynch deemed necessary, including
Merrill Lynch's assessment of general economic, market and monetary conditions.
In preparing its opinion, Merrill Lynch assumed and relied on the accuracy
and completeness of all information supplied or otherwise made available to
Merrill Lynch, discussed with or reviewed by or for Merrill Lynch, or publicly
available, and Merrill Lynch did not assume any responsibility for independently
verifying such information and has not undertaken an independent evaluation or
appraisal of any of the assets or liabilities of Sports Authority or Woolworth
or been furnished with any such evaluation or appraisal. In addition, Merrill
Lynch did not assume any obligation to conduct any physical inspection of the
properties or facilities of Sports Authority or Woolworth. With respect to the
financial forecast information and the Expected Synergies furnished to or
discussed with Merrill Lynch by Sports Authority or Woolworth, Merrill Lynch
assumed that they have been reasonably prepared and reflect the best currently
available estimates and judgment of Sports Authority's or Woolworth's management
as to the expected future financial performance of Sports Authority or
Woolworth, as the case may be, and the Expected Synergies. Merrill Lynch further
assumed that the Merger will be accounted for as a pooling of interests under
generally accepted accounting principles and that it will qualify as a tax-free
reorganization for U.S. federal income tax purposes. The Merrill Lynch Opinion
is necessarily based upon market, economic and other conditions as they existed
on, and could be evaluated as of, the date of such opinion. Merrill Lynch
assumed that in the course of obtaining the necessary regulatory or other
consents or approvals (contractual or otherwise) for the Merger, no
restrictions, including any divestiture requirements or amendments or
modifications, will be imposed that will have a material adverse effect on the
contemplated benefits of the Merger. In connection with the preparation of its
opinion, Merrill Lynch was not authorized by Sports Authority or the Sports
Authority Board to solicit, nor
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did Merrill Lynch solicit, third-party indications of interest for the
acquisition of all or any part of Sports Authority.
The Merger provides for a fixed exchange ratio of 0.80 of a share of
Woolworth Common Stock for each share of Sports Authority Common Stock. Based on
the closing price of Woolworth Common Stock on May 4, 1998 (last trading day
prior to preparation of materials for Merrill Lynch's presentation to the Sports
Authority Board), of $23.13, the Exchange Ratio resulted in an implied price per
share of $18.50. After giving effect to the Merger, stockholders of Sports
Authority would have a fully diluted ownership interest of approximately 16% in
the pro forma combined company, based on the Exchange Ratio.
The following is a brief summary of the material analyses presented by
Merrill Lynch to the Sports Authority Board in connection with the rendering of
the Merrill Lynch Opinion.
Sports Authority Trading Price Performance Analysis. Merrill Lynch
observed the historical stock price for Sports Authority Common Stock from
November 18, 1994 to April 24, 1998, and compared it against the performance of
the S&P 500, the S&P Retail Index and a sporting goods composite index of five
companies in the sporting goods industry, over the same period. Merrill Lynch
calculated that the consideration to be paid in connection with the Merger to
the holders of Sports Authority Common Stock (assuming that Woolworth Common
Stock trades in a range that allows the holders of Sports Authority Common Stock
to receive $18.50 in value per share) represented a premium of (i) 72.1% over
the 52-week low price, (ii) 17.0% over the April 28, 1998 "unaffected" closing
price of $15.81 (the Sports Authority Common Stock price prior to rumors of a
potential business combination involving Sports Authority, which may have had
the effect of raising the price of Sports Authority Common Stock), (iii) 1.4%
over the May 4, 1998 closing price of $18.25 and (iv) 15.4% below the 52-week
high price.
Sports Authority Comparable Public Companies Analysis. Merrill Lynch
concluded that there were no publicly traded companies that were exactly
comparable to Sports Authority. Accordingly, as a proxy for publicly traded
companies comparable to Sports Authority, Merrill Lynch compared the trading
multiples for Sports Authority Common Stock to corresponding multiples of three
selected groups of public retail companies, each emphasizing a different aspect
of Sports Authority's overall business. The groups consisted of selected
retailers of athletic products, consisting of Finish Line, Footstar, Just for
Feet and Woolworth (owner of Foot Locker and Champs Sports) (the "Athletic
Products Retailer Group"), selected big box retailers, consisting of Autozone,
Home Depot, Office Depot, Staples and Toys "R" Us (the "Big Box Retailer
Group"), and selected category killer retailers, consisting of Barnes & Noble
Inc., Borders Group Inc., Linens 'N Things Inc. and Petsmart (the "Category
Killers Group"). The means calculated by Merrill Lynch of the ratio of price to
earnings for calendar year 1998 (the "1998 P/E Ratio") for the Athletic Products
Retailer Group, the Big Box Retailer Group and the Category Killers Group were
18.5x, 25.9x and 36.8x, respectively. The high 1998 P/E Ratio for each group was
23.0x, 34.7x and 53.0x, respectively, and the low 1998 P/E Ratio for each group
was 13.1x, 15.7x and 26.2x, respectively. Merrill Lynch noted that Sports
Authority's 1998 P/E Ratio was 17.2x, based on the closing price of Sports
Authority Common Stock on April 28, 1998 of $15.81. The means calculated by
Merrill Lynch of the five-year estimated growth rates, based on publicly
available analysts' estimates, for each of the Athletic Products Retailer Group,
the Big Box Retailer Group and the Category Killers Group were 22.9%, 21.3% and
26.5%, respectively. The high five-year estimated growth rate for each group was
35.0%, 29.0% and 30.0%, respectively, and the low five-year growth rate for each
group was 15.0%, 12.0% and 25.0%, respectively. The Sports Authority five-year
estimated growth rate was 19.6% for the same period. The ratios of the 1998 P/E
Ratio to the means of the five-year estimated growth rates for each of the
Athletic Products Retailer Group, the Big Box Retailer Group and the Category
Killers Group were 0.84x, 1.22x and 1.37x, respectively. The high ratio of the
1998 P/E Ratio to the five-year estimated growth rate for each group was 1.05x,
1.37x and 1.77x, respectively, and the low ratio of the 1998 P/E Ratio to the
five-year estimated growth rate for each group was 0.66x, 0.91x and 1.01x,
respectively. Merrill Lynch noted that Sports Authority's ratio of the 1998 P/E
Ratio to its five-year estimated growth rate was 0.88x.
No company in the Athletic Products Retailer Group, the Big Box Retailer
Group or the Category Killers Group is identical to Sports Authority.
Accordingly, an analysis of the results of the foregoing necessarily
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involves complex considerations and judgments concerning differences in
historical and projected financial, trading and operating characteristics of the
companies and other factors that could affect the public trading value of Sports
Authority and the companies in the Athletic Products Retailer Group, the Big Box
Retailer Group and the Category Killers Group.
Sports Authority Discounted Cash Flow Analysis. Merrill Lynch performed a
discounted cash flow analysis of Sports Authority using "Base Case" projections
and "Stretch Case" projections prepared by management of Sports Authority. The
Merrill Lynch "Stretch Case" projections reflect an increase in the projected
rate of growth and an increase in the projected profit margin for Sports
Authority above the "Base Case" projections, commencing in the fiscal year 2000.
Merrill Lynch calculated the theoretical unlevered discounted present value for
Sports Authority by adding together the present value of (i) the projected
stream of unlevered free cash flow through the year ended 2000 for Sports
Authority and (ii) the projected value of Sports Authority for the year ended
2000. The terminal value was calculated based upon EBITDA (earnings before
interest, taxes, depreciation and amortization) multiples ranging from 6.5x to
9.5x. The unlevered after tax discount rate using a discounted cash flow
analysis ranged from 12.0% to 14.0%. Based on its analysis, Merrill Lynch
derived a summary reference range of implied per share value of Sports Authority
Common Stock of $15.40 to $25.54 for the Sports Authority "Base Case" scenario,
and $20.59 to $33.39 for the Sports Authority "Stretch Case" scenario.
Sports Authority Comparable Acquisition Transactions Analysis. Merrill
Lynch reviewed certain publicly available information regarding 16 selected
specialty sector related acquisitions and calculated offer value, EBITDA, EBIT
(earnings before interest and taxes) and sales multiples for such transactions
(the "Comparable Transactions"). The maximum, mean, median and minimum of offer
value as a multiple of net income for the Comparable Transactions were 28.4x,
18.7x, 15.9x and 10.1x, respectively. The maximum, mean, median and minimum of
transaction value as a multiple of EBITDA for the Comparable Transactions were
11.7x, 8.7x, 8.4x and 4.6x, respectively. The maximum, mean, median and minimum
of transaction value as a multiple of EBIT for the Comparable Transactions were
16.0x, 11.1x, 10.9x and 7.1x, respectively. The maximum, mean, median and
minimum for transaction values as a multiple of sales for the Comparable
Transactions were 2.49x, 0.87x, 0.78x and 0.26x, respectively. Merrill Lynch
noted that the transaction multiples for Sports Authority resulting from the
Merger were 30.8x, for offer value to net income, 10.0x, for transaction value
to EBITDA, 19.4x, for transaction value to EBIT, and 0.50x, for transaction
value to sales, assuming a Woolworth stock price of $23.13 and an implied
transaction value of $758.2 million.
No company or transaction used in the above analysis as a comparison was
identical to Sports Authority or the Merger, respectively. Accordingly, an
analysis of the results of the comparison is not purely mathematical; rather it
involves complex considerations and judgments concerning differences in
historical and projected financial and operating characteristics of the
companies involved, the circumstances surrounding such transactions and other
factors that could affect the acquisition values of such companies and Sports
Authority.
Woolworth Comparable Public Companies Analysis. Merrill Lynch concluded
that there were no publicly traded companies that were exactly comparable to
Woolworth. Accordingly, as a proxy for publicly traded companies comparable to
Woolworth, Merrill Lynch compared the trading multiples for Woolworth Common
Stock to corresponding multiples of three selected groups of public retail
companies, each emphasizing a different aspect of Woolworth's overall business.
The groups consisted of selected sporting goods retailers, consisting of Finish
Line, Footstar, Just for Feet and Sports Authority (the "Woolworth Comparable
Sporting Goods Retailer Group"), selected specialty retailers, consisting of The
Gap, The Limited, Nine West and Payless Shoe Source (the "Specialty Retailer
Group"), and selected large retailers, consisting of Dayton Hudson, J.C. Penney
and Sears Roebuck (the "Large Retailer Group"). The means calculated by Merrill
Lynch of the 1998 P/E Ratio for the Woolworth Comparable Sporting Goods Retailer
Group, the Specialty Retailer Group and the Large Retailer Group were 19.5x,
22.1x and 19.4x, respectively. The high 1998 P/E Ratio for each group was 23.0x,
32.0x and 23.4x, respectively, and the low 1998 P/E Ratio for each group was
15.8x, 12.9x and 16.8x, respectively. Merrill Lynch noted that Woolworth's 1998
P/E Ratio was 13.1x, based on the closing price of Woolworth Common Stock on May
4, 1998 of $23.13. The means calculated by Merrill Lynch of the five-year
estimated growth rates, based on publicly available
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analysts' estimates, for each of the Woolworth Comparable Sporting Goods
Retailer Group, the Specialty Retailer Group and the Large Retailer Group were
23.7%, 15.2% and 15.2%, respectively. The high five-year estimated growth rate
for each group was 35.0%, 17.4% and 15.8%, respectively, and the low five-year
estimated growth rate for each group was 15.0%, 13.5% and 14.6%, respectively.
The Woolworth five-year estimated growth rate was 16.5%, for the same period.
The ratios of the 1998 P/E Ratio to the means of the five-year estimated growth
rates for each of the Woolworth Comparable Sporting Goods Retailer Group, the
Specialty Retailer Group and the Large Retailer Group were 0.87x, 1.44x and
1.27x, respectively. The high ratio of the 1998 P/E Ratio to the five-year
estimated growth rate for each group was 1.05x, 1.84x and 1.48x, respectively,
and the low ratio of the 1998 P/E Ratio to the five-year estimated growth rate
for each group was 0.66x, 0.86x and 1.15x, respectively. Merrill Lynch noted
that Woolworth's ratio of the 1998 P/E Ratio to its five-year estimated growth
rate was 0.79x.
No company in the Woolworth Comparable Sporting Goods Retailer Group, the
Specialty Retailer Group or the Large Retailer Group is identical to Woolworth.
Accordingly, an analysis of the results of the foregoing necessarily involves
complex considerations and judgments concerning differences in historical and
projected financial, trading and operating characteristics of the companies and
other factors that could affect the public trading value of Woolworth and the
companies in the Woolworth Comparable Sporting Goods Retailer Group, the
Specialty Retailer Group and the Large Retailer Group.
Exchange Ratio and Relative Valuation Analysis
Historical Exchange Ratio Analysis. Based on daily closing prices, Merrill
Lynch calculated the historical implied Woolworth Common Stock/Sports Authority
Common Stock exchange ratio from November 18, 1994, to April 24, 1998. Merrill
Lynch noted that the implied exchange ratio ranged from 0.53x to 1.04x during
the past twelve months, with an average over the past three years, two years,
one year and six months of 0.95x, 0.89x, 0.76x and 0.72x, respectively.
Relative Contribution Analysis. Based on projections provided by Sports
Authority's and Woolworth's managements, respectively, Merrill Lynch derived a
summary reference range of implied Woolworth Common Stock/Sports Authority
Common Stock exchange ratios based on relative stand-alone contributions to net
sales, EBITDA, EBIT and earnings per share ("EPS") of the combined company
(excluding synergies) in actual fiscal year 1997 and projected fiscal years
1998, 1999 and 2000. Based on its analysis of such relative contributions,
Merrill Lynch derived a summary reference range of implied exchange ratios of
0.51x to 0.64x for the Sports Authority "Base Case" scenario, and 0.51x to 0.84x
for the Sports Authority "Stretch Case" scenario.
Relative Discounted Cash Flow Analysis. Using a relative discounted cash
flow methodology, Merrill Lynch also calculated a range of implied Woolworth
Common Stock/Sports Authority Common Stock exchange ratios based on stand-alone
projections (excluding synergies) prepared by the managements of Sports
Authority and Woolworth, ranges of terminal EBITDA multiples of 6.0x to 9.5x and
ranges of discount rates of 12.0% to 14.0%. Based on such analyses, Merrill
Lynch calculated a range of implied exchange ratios from 0.42x to 1.05x under
the Sports Authority "Base Case" scenario, and from 0.57x to 1.37x under the
Sports Authority "Stretch Case" scenario.
Pro Forma Combination Analysis
Based on 1999 and 2000 estimates of respective earnings and synergies
provided by Sports Authority's and Woolworth's managements, Merrill Lynch
analyzed certain pro forma effects of the Merger, assuming that the Merger would
be accounted for as a pooling of interests under generally accepted accounting
principles. Merrill Lynch calculated that the Merger would result in EPS
accretion for the stockholders of Sports Authority of 47.5% for 1999 and 56.7%
for 2000 under the "Base Case" scenario, and of 38.4% for 1999 and 31.4% for
2000 under the "Stretch Case" scenario. Merrill Lynch calculated that the Merger
would result in EPS dilution for the stockholders of Woolworth of (1.6%) for
1999 under the "Base Case" scenario and (0.7%) for 1999 under the "Stretch Case"
scenario, and EPS accretion for the stockholders of Woolworth of 4.4% for 2000
under the "Base Case" scenario and 7.1% for 2000 under the "Stretch Case"
scenario.
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Other Matters
Pursuant to a letter agreement between Sports Authority and Merrill Lynch,
Sports Authority has agreed to pay Merrill Lynch a fee in an amount equal to
$4,800,000 upon the consummation of the Merger or certain other business
combinations involving Sports Authority and Woolworth. Pursuant to such letter
agreement, Sports Authority also agreed to reimburse Merrill Lynch for its
reasonable out-of-pocket expenses, including reasonable fees and disbursements
of its legal counsel whether or not a transaction is consummated. Additionally,
Sports Authority agreed to indemnify Merrill Lynch and certain related persons
for certain liabilities related to or arising out of its engagement, including
liabilities under the federal securities laws.
Sports Authority retained Merrill Lynch based upon Merrill Lynch's
experience and expertise. Merrill Lynch is an internationally recognized
investment banking and advisory firm. Merrill Lynch, as part of its investment
banking business, is continuously engaged in the valuation of businesses and
securities in connection with mergers and acquisitions, negotiated
underwritings, competitive biddings, secondary distributions of listed and
unlisted securities, private placements and valuations for corporate and other
purposes.
Merrill Lynch may provide financial advisory and financing services to the
surviving corporation in the Merger and/or its affiliates and may receive fees
for the rendering of such services. In the ordinary course of its business,
Merrill Lynch and its affiliates may actively trade the Sports Authority and the
Woolworth Common Stock for their own account and for the accounts of customers
and, accordingly, may at any time hold a long or short position in such
securities.
ACCOUNTING TREATMENT
It is expected that the Merger will be accounted for as a pooling of
interests for accounting and financial reporting purposes. It is a condition to
the obligations of Woolworth and Sports Authority to consummate the Merger that
Sports Authority and Woolworth shall have complied in all material respects with
the covenant that (i) each of Sports Authority and Woolworth shall use its
reasonable best efforts to cause the transactions contemplated by the Merger
Agreement, including the Merger, to be accounted for as a pooling of interests
under Opinion 16 of the Accounting Principles Board and applicable SEC rules and
regulations, and (ii) each of Sports Authority and Woolworth shall take no
action that would cause such accounting treatment not to be obtained. It is also
a condition to the obligations of Woolworth and Sports Authority to consummate
the Merger that Woolworth and Sports Authority shall have received letters from
each of Sports Authority's independent accountants and Woolworth's independent
accountants, dated as of the date the Form S-4 is declared effective and as of
the Closing Date, in each case addressed to Woolworth and Sports Authority,
stating that accounting for the Merger as a pooling of interests under Opinion
16 of the Accounting Principles Board and applicable SEC rules and regulations
is appropriate if the Merger is consummated as contemplated in the Merger
Agreement. See "THE MERGER AGREEMENT-- Conditions Precedent."
Under the pooling-of-interests method of accounting, the recorded assets
and liabilities of Woolworth and Sports Authority will be carried forward to the
combined company at their historical recorded amounts subject to any adjustments
required to conform accounting policies of the two companies, income of the
combined company will include income of Woolworth and Sports Authority for the
entire fiscal year in which the Merger occurs, and the reported income of the
separate companies for previous periods will be combined and restated as income
of the combined company.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following discussion is a summary of certain U.S. federal income tax
consequences of the Merger to a stockholder of Sports Authority. The discussion
which follows is based on the Code, Treasury regulations promulgated thereunder,
administrative rulings and pronouncements and judicial decisions as of the date
hereof, all of which are subject to change, possibly with retroactive effect.
The discussion below is for general information only and does not address the
effects of any state, local or foreign tax laws on the Merger. The tax treatment
of a Sports Authority stockholder may vary depending upon his or her particular
situation, and certain stockholders (including insurance companies, tax-exempt
organizations, financial institutions and broker-dealers, persons who do not
hold Sports Authority stock as capital assets, individuals who received
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Sports Authority stock pursuant to the exercise of employee stock options or
otherwise as compensation, and non-U.S. persons) may be subject to special rules
not discussed below.
Consummation of the Merger is conditioned upon the receipt by Woolworth of
opinions from Skadden, Arps, Slate, Meagher & Flom LLP, special counsel to
Woolworth, and by Sports Authority of opinions from Morgan, Lewis & Bockius LLP,
special counsel to Sports Authority, prior to the mailing of the Proxy
Statement/Prospectus and on the Closing Date, that the Merger will qualify under
Section 368(a) of the Code as a "reorganization" for U.S. federal income tax
purposes, Woolworth and Sports Authority each will be a party to that
reorganization within the meaning of Section 368(b) of the Code, and other
matters. Such opinions of counsel are based on certain representations as to
factual matters made by, among others, Woolworth and Sports Authority. Such
representations, if incorrect in certain material respects, could jeopardize the
conclusions reached in the opinions. Neither Woolworth nor Sports Authority is
currently aware of any facts or circumstances which would cause any such
representations made to counsel to be untrue or incorrect in any material
respect. Any opinion of counsel is not binding on the Internal Revenue Service
(the "IRS") or the courts.
Based on the opinions discussed above, the material U.S. federal income tax
consequences that will result from the Merger are as follows:
(i) The Merger will qualify as a "reorganization" under Section 368(a)
of the Code;
(ii) Woolworth and Sports Authority each will be a party to that
reorganization within the meaning of Section 368(b);
(iii) no income, gain or loss will be recognized by Woolworth or
Sports Authority as a result of the Merger;
(iv) a Sports Authority stockholder will not recognize any income,
gain or loss as a result of the receipt of Woolworth Common Stock pursuant
to the Merger, except for cash received in lieu of fractional shares of
Woolworth Common Stock;
(v) a Sports Authority stockholder's tax basis for the Woolworth
Common Stock received pursuant to the Merger, including any fractional
share interest in Woolworth Common Stock for which cash is received, will
equal such Sports Authority stockholder's tax basis in the Sports Authority
Common Stock exchanged therefor;
(vi) a Sports Authority stockholder's holding period for the Woolworth
Common Stock received pursuant to the Merger will include the holding
period of the Sports Authority Common Stock surrendered in exchange
therefor, provided that the Sports Authority Common Stock was held as a
capital asset at the Effective Time; and
(vii) a Sports Authority stockholder that receives cash in lieu of a
fractional share interest in Woolworth Common Stock pursuant to the Merger
will be treated as having received such cash in exchange for such
fractional share interest and generally will recognize capital gain or loss
on such deemed exchange in an amount equal to the difference between the
amount of cash received and the basis of the Sports Authority Common Stock
allocable to such fractional share. In general, such gain or loss will
constitute capital gain or loss if the Sports Authority Common Stock was
held as a capital asset at the Effective Time. The tax rate applicable to
capital gain of an individual taxpayer varies depending on the taxpayer's
holding period for the shares. In the case of an individual, any such
capital gain will be subject to a maximum federal income tax rate of (i)
20% if the individual's holding period in such stock was more than 18
months on the date of the Effective Time or (ii) 28% if the individual's
holding period was more than one year but not more than 18 months on the
date of the Effective Time. An individual's gain on the sale of capital
assets held for one year or less is subject to tax as ordinary income at a
maximum rate of 39.6%.
Transfer Taxes. In the event that any transfer taxes (the "Transfer
Taxes") are imposed on Sports Authority stockholders as a result of the Merger,
Sports Authority will pay the Transfer Taxes directly to state
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and local taxing authorities. Any such payments may result in dividend income to
the Sports Authority stockholders, which is not expected to be material.
BECAUSE OF THE INDIVIDUAL NATURE OF TAX CONSEQUENCES, EACH SPORTS AUTHORITY
STOCKHOLDER IS URGED TO CONSULT HIS OR HER TAX ADVISOR WITH RESPECT TO THE TAX
CONSEQUENCES TO HIM OR HER OF THE MERGER, INCLUDING THE EFFECT OF U.S. FEDERAL,
STATE AND LOCAL, AND FOREIGN AND OTHER TAX RULES, AND THE EFFECT OF POSSIBLE
CHANGES IN TAX LAWS.
REGULATORY APPROVALS
HSR Act and Antitrust. Woolworth and Sports Authority have observed the
notification and waiting period requirements of the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"). The HSR Act provides for
an initial 30-calendar day waiting period following the filing with the Federal
Trade Commission (the "FTC") and the Department of Justice of certain
Notification and Report Forms by the parties to the Merger. The HSR Act further
provides that if, within the initial 30-calendar-day waiting period, the FTC or
the Department of Justice issues a request for additional information or
documents, the waiting period will be extended until 11:59 p.m. on the twentieth
day after the date of substantial compliance by the filing parties with such
request. Only one such extension of the initial waiting period is permitted
under the HSR Act; however, the filing parties may voluntarily extend the
waiting period.
On May 15, 1998 Woolworth and Sports Authority filed the Notification and
Report Forms with the Department of Justice and the FTC for review in connection
with the Merger. [The applicable waiting periods are expected to expire at 11:59
p.m. on June , 1998.] Notwithstanding expiration of the waiting periods, at
any time before or after the Effective Time, the FTC, the Department of Justice
or others could take action under the antitrust laws with respect to the Merger,
including seeking to enjoin the consummation of the Merger or seeking the
divestiture by Woolworth of all or part of the stock or assets of Sports
Authority, or of other business conducted by Woolworth.
It is possible that the FTC may seek, as conditions for granting approval,
various concessions. If any regulatory body conditions its approval of the
Merger upon concessions that would be expected to have a Material Adverse Effect
(as defined in the Merger Agreement) on Sports Authority or Woolworth, either
company may terminate the Merger Agreement. There can be no assurance that the
required regulatory approvals will be obtained during the time frame
contemplated by the Merger Agreement. See "THE MERGER AGREEMENT -- Termination;
Effect of Termination" and "-- Conditions Precedent."
Foreign Regulatory Filings. Because both Woolworth and Sports Authority
conduct operations in Canada, notifications under the Canadian Competition Act
are also required for the acquisition of Sports Authority by Woolworth. The
required pre-merger notification filing under the Canadian Competition Act was
submitted on May 15, 1998, and a "no action" letter was received from the
Canadian Bureau of Competition on May 28, 1998. Although the Director under the
Canadian Competition Act may initiate proceedings to challenge a merger for up
to three years following completion of the transaction, Woolworth has no reason
to believe such proceedings will be commenced in respect of the acquisition of
Sports Authority.
Under the Investment Canada Act, Woolworth is required to submit a
prescribed form of notification with the Investment Review Division of Industry
Canada in respect of the indirect acquisition of Sports Authority's operations
in Canada. Woolworth will file the prescribed notification within the period
required under the Investment Canada Act.
FEDERAL SECURITIES LAW CONSEQUENCES
The shares of Woolworth Common Stock to be issued to Sports Authority
stockholders in connection with the Merger will be freely transferable under the
Securities Act, except for shares of Woolworth Common Stock issued to any person
deemed to be an affiliate of Sports Authority for purposes of Rule 145 under the
Securities Act at the time of the execution and delivery of the Affiliates
Letter ("Affiliates"). Affiliates may not sell their shares of Woolworth Common
Stock acquired in connection with the Merger except pursuant to
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an effective registration statement under the Securities Act covering such
shares, or in compliance with Rule 145 promulgated under the Securities Act or
another applicable exemption from the registration requirements of the
Securities Act. Sports Authority has agreed to use all reasonable efforts to
cause each person who is identified as an Affiliate to deliver to Woolworth on
or prior to the date which is 30 days prior to the Effective Time a written
agreement that such Affiliate will not sell, pledge, transfer or otherwise
dispose of any shares of Woolworth Common Stock received in the Merger in
violation of the Securities Act, and that such Affiliate will not sell any
shares of Woolworth Common Stock or any shares of Sports Authority Common Stock
or otherwise reduce such Affiliate's risk relative to any shares of Woolworth
Common Stock until after such time as consolidated financial statements which
reflect at least 30 days of post-Merger operations have been published by
Woolworth in the form of a quarterly earnings report, an effective registration
statement filed with the Commission, a report to the Commission on Form 10-K,
10-Q or 8-K, or any other public filing or announcement which include the
combined results of operations. See "-- Accounting Treatment."
MANAGEMENT AND OPERATIONS OF SPORTS AUTHORITY AFTER THE MERGER
After the Merger, Sports Authority will be a wholly owned subsidiary of
Woolworth and will operate as one of Woolworth's business units. After the
Merger, Sports Authority will have access to resources generally available to
Woolworth's other business units, will participate in appropriate activities
with other Woolworth business units and will operate under the direction of the
Sports Authority Board that will include Jack A. Smith and Martin E. Hanaka, and
a management team that is expected to include the officers of Sports Authority
immediately prior to the Merger.
Mr. Hanaka, Vice Chairman and a director of Sports Authority, has executed
an employment agreement with Woolworth that provides that, after the Effective
Time, Mr. Hanaka will serve as the Chief Executive Officer of Sports Authority.
Mr. Smith, Chairman and Chief Executive Officer of Sports Authority, has entered
into an agreement with Woolworth and Sports Authority that provides that, after
the Effective Time, he will serve as the Chairman of Sports Authority and he
will be elected to the Woolworth Board. See "INTERESTS OF CERTAIN PERSONS IN THE
MERGER AND RELATED MATTERS."
CERTAIN LITIGATION
On or about May 11 and May 12, 1998, four class action lawsuits were
commenced against Sports Authority and its directors by certain purported Sports
Authority stockholders in the Court of Chancery of the State of Delaware in New
Castle County. Three of the complaints also name Woolworth as a defendant, and
one of the complaints names Merger Sub as a defendant. The four complaints
allege, among other things, that Sports Authority directors breached their
fiduciary duties to Sports Authority stockholders by entering into the Merger
Agreement without maximizing stockholder value by failing, among other things,
to engage in an auction of Sports Authority or conduct a market check of Sports
Authority's value. The complaints also allege that the Exchange Ratio offers
inadequate value to Sports Authority's stockholders and should have contained a
"collar" or similar protective mechanism to protect Sports Authority's
stockholders. The complaints seek, among other things, to enjoin the defendants
from proceeding with the Merger, to rescind the Merger if it is effected and to
award class monetary damages and attorneys' fees. Defendants believe that the
actions are without merit and intend to defend against them vigorously.
NO APPRAISAL RIGHTS
Under Delaware law, stockholders in a public company are not entitled to
appraisal rights in a merger if the consideration they receive in the merger
consists only of shares listed on a national securities exchange and cash in
lieu of fractional shares. Accordingly, holders of Sports Authority Common Stock
are not entitled to appraisal rights in connection with the Merger because the
shares of Sports Authority Common Stock and shares of Woolworth Common Stock are
listed on the NYSE.
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INTERESTS OF CERTAIN PERSONS IN THE MERGER AND RELATED MATTERS
In considering the recommendation of the Sports Authority Board, Sports
Authority stockholders should be aware that certain members of the Sports
Authority Board may have interests in the Merger that are different from, or in
addition to, the interests of Sports Authority stockholders generally. Three
executive officers, Jack A. Smith, Martin E. Hanaka and Richard J. Lynch, Jr.,
are members of the 10-person Sports Authority Board that approved the Merger.
Agreements with Mr. Smith. Sports Authority entered into an agreement with
Mr. Smith on August 29, 1996, which provides that he will continue to render
services for Sports Authority as its Chief Executive Officer until June 30,
2000, subject to the provisions of the agreement. If Mr. Smith's employment is
terminated other than for cause (as defined in the agreement) or is terminated
by death, Sports Authority will pay Mr. Smith (or his estate) through June 30,
2000 monthly payments equal to his monthly base salary at the time of
termination, plus one-twelfth of the "on plan" bonus amount targeted for him
under Sports Authority's Annual Incentive Bonus Plan (the "Bonus Plan") for the
fiscal year in which termination occurs, and will provide certain medical and
dental benefits for Mr. Smith and his wife. In addition, all of Mr. Smith's
unvested stock options, restricted stock and restricted stock units granted
under the Management Stock Purchase Plan (but not the restricted stock granted
under the 1996 Stock Option and Restricted Stock Plan) will vest on the
termination of his employment. The agreement also provides that, if Mr. Smith
terminates his employment between March 31, 1997 and June 30, 2000, he will
receive the benefits described above, except that the period during which
payments in respect of salary and bonus are payable may not exceed one year and
the unvested restricted stock and restricted stock units will not vest on
termination. The agreement also provides that, if there is a change in control
(as defined in the agreement) of Sports Authority, and if Mr. Smith's employment
is terminated (i) by Sports Authority other than for cause (as defined in the
agreement), (ii) at his election for good reason (as defined in the agreement),
or (iii) by his death, in each case within two years after the change in
control, Sports Authority will pay Mr. Smith or his estate a lump sum cash
payment equal to 2.99 times the sum of his annual rate of base salary at the
time of termination or immediately prior to the change in control, whichever is
greater, and the "on plan" bonus amount targeted for him under the Bonus Plan
for the fiscal year in which termination occurs or the fiscal year immediately
prior to the change in control, whichever bonus amount is greater. This lump sum
payment is subject to reduction as necessary to prevent it from being treated as
an "excess parachute payment" under Section 280G of the Internal Revenue Code.
Finally, the agreement obligates Mr. Smith not to compete against Sports
Authority, solicit its employees or disclose confidential information about
Sports Authority before June 30, 2000. The approval of the Merger by Sports
Authority stockholders would constitute a "change in control" under Mr. Smith's
agreement with Sports Authority.
On May 7, 1998, Woolworth and Mr. Smith entered into an agreement pursuant
to which (i) Mr. Smith will be elected to the Woolworth Board promptly after the
Effective Time, and (ii) Mr. Smith has agreed that termination of his status as
Chief Executive Officer of Sports Authority at the Effective Time would not
constitute "good reason" for him to terminate his employment under his current
agreement with Sports Authority.
Agreements with Mr. Hanaka. Sports Authority entered into an agreement
with Mr. Hanaka as of February 2, 1998, the date his employment as Vice Chairman
of Sports Authority commenced. This agreement provides for, among other things,
(i) a base salary at an annual rate of $500,000 during the 1998 fiscal year,
(ii) the grant of options to purchase 250,000 shares of Sports Authority Common
Stock at an exercise price of $12.375, (iii) the grant of 50,000 restricted
shares of Sports Authority Common Stock, and (iv) Mr. Hanaka's election as Vice
Chairman and as a director of Sports Authority. The agreement provides that Mr.
Hanaka will be evaluated by the Chairman and the Sports Authority Board for
election as Sports Authority's Chief Executive Officer and that, if he is
employed by Sports Authority on February 1, 1999, he will be elected as Sports
Authority's Chief Executive Officer. The agreement further provides that, if Mr.
Hanaka's employment is terminated by Sports Authority other than for cause (as
defined in the agreement) or is terminated by death, Sports Authority will pay
Mr. Hanaka (or his estate) through June 30, 2000 monthly payments equal to his
monthly base salary at the time of termination, plus one-twelfth of the "on
plan" bonus amount targeted for him under the Bonus Plan for the fiscal year in
which termination occurs.
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In addition, the agreement provides that all of Mr. Hanaka's unvested stock
options will vest on the termination of his employment. The agreement also
provides that, if there is a change in control (as defined in the agreement) of
Sports Authority, and if Mr. Hanaka's employment is terminated by Sports
Authority other than for cause (as defined in the agreement) or at his election
for good reason (as defined in the agreement), in either case within two years
after the change in control, Sports Authority will pay Mr. Hanaka a lump sum
cash payment equal to 2.99 times the sum of his annual rate of base salary at
the time of termination or immediately prior to the change in control, whichever
is greater, and the "on plan" bonus amount targeted for him under the Bonus Plan
for the fiscal year in which termination occurs or the fiscal year immediately
prior to the change in control, whichever bonus amount is greater. This lump sum
payment is subject to reduction as necessary to prevent it from being treated as
an "excess parachute payment" under Section 280G of the Code. In addition, if
there is a change in control of Sports Authority and Mr. Hanaka terminates his
employment with Sports Authority (other than for good reason) at any time after
one year after the change in control, Sports Authority must pay him through the
earlier of June 30, 2000 or one year after his employment is terminated a
monthly fee equal to his monthly base salary at the time of termination, plus
one-twelfth of the "on plan" bonus amount targeted for him under the Bonus Plan
for the fiscal year in which termination occurs. Finally, the agreement
obligates Mr. Hanaka not to compete against Sports Authority, solicit its
employees or disclose confidential information about Sports Authority before
June 30, 2000. The approval of the Merger by Sports Authority stockholders would
constitute a "change in control" under Mr. Hanaka's agreement with Sports
Authority.
On May 7, 1998, Woolworth and Mr. Hanaka entered into an agreement which
would supersede his agreement with Sports Authority as of the Effective Time,
providing that he will be employed as Chief Executive Officer of Sports
Authority for a three-year period commencing at the Effective Time. The
agreement provides for the following compensation to be paid to Mr. Hanaka: (i)
a base salary at the rate per year of $550,000 to April 30, 1999, $600,000 to
April 30, 2000 and $650,000 to the three-year anniversary of the Effective Time;
(ii) a grant of options as of the Effective Time to purchase 250,000 shares of
Woolworth Common Stock vesting on the three-year anniversary of the Effective
Time; (iii) a grant of 50,000 shares of Woolworth restricted stock vesting at
the rate of 20% on each of the first five anniversaries of the Effective Time;
(iv) a guaranteed bonus for 1998 of at least $275,000; (v) beginning in 1999,
the right to participate in Sports Authority's annual incentive compensation
plan to earn a target bonus of 50% of his base salary; (vi) the right to
participate in Woolworth's Long-Term Incentive Compensation Plan at a rate
comparable to chief executive officers of other Woolworth operating units based
upon an assumed employment commencement date of February 1, 1998; and (vii) the
right to participate in all other Woolworth bonus, incentive, equity, pension
and fringe benefit plans for comparable chief executive officers of other
Woolworth operating units. The agreement also provides that if Mr. Hanaka's
employment is terminated without cause, or if he terminates his employment for
good reason, he will be paid severance payments equal to his base salary and
bonus through the third anniversary of the Effective Time, except that if Mr.
Hanaka is terminated without cause, or if he terminates his employment for good
reason, within 24 months following a change in control of Woolworth, he will
receive a severance payment equal to 2.99 times his annual rate of base salary
and bonus. If Mr. Hanaka resigns after one year following a change in control of
Woolworth and before the third anniversary of the Effective Time (other than for
good reason), he will be paid his base salary and bonus through the earlier of
one year after the last day of his employment or the third anniversary of the
Effective Time.
Agreement with Mr. Lynch. Under an agreement entered into by Sports
Authority and Mr. Lynch in 1994, if Mr. Lynch's employment is terminated at any
time other than for cause or disability (as defined in the agreement) or at his
election for good reason (as defined in the agreement), Mr. Lynch would be
entitled to severance benefits consisting of monthly payments equal to his
monthly base salary at the time of termination, plus one-twelfth of the "on
plan" bonus amount targeted for him under the Bonus Plan for the fiscal year in
which termination occurs. Such monthly payments would commence in the month of
termination and continue for twelve full calendar months. Mr. Lynch's agreement
was not amended in connection with the Merger.
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<PAGE> 49
Equity-Based Awards. Stock options and restricted stock have been granted
to Messrs. Smith, Hanaka and Lynch under Sports Authority's stock option plans.
The options to purchase Sports Authority Common Stock which are held by these
officers and which will be exercisable at the Effective Time are shown in the
following table. All such options will be converted into Adjusted Options (as
defined herein) at the Effective Time. All options which are not yet exercisable
would become exercisable as a result of the approval of the Merger by Sports
Authority stockholders; such options for these officers are indicated by an
asterisk in the following table.
OPTIONS EXERCISABLE AT THE EFFECTIVE TIME
<TABLE>
<CAPTION>
NUMBER OF
EXECUTIVE DATE OF GRANT SPORTS AUTHORITY SHARES EXERCISE PRICE
--------- ------------- ----------------------- --------------
<S> <C> <C> <C>
Jack A. Smith................................. 11/17/94 150,936 $11.91
3/25/95 37,500 $12.50
3/26/96 52,500* $15.75
3/11/97 50,000* $19.25
1/28/98 35,000* $10.75
Martin E. Hanaka.............................. 2/02/98 250,000* $12.375
Richard J. Lynch, Jr.......................... 11/17/94 78,532 $11.91
3/25/95 22,500 $12.50
3/26/96 30,000* $15.75
3/11/97 30,000* $19.25
1/28/98 20,000* $10.75
</TABLE>
- ---------------
* These options would become exercisable as a result of the approval of the
Merger by Sports Authority stockholders.
Under the 1996 Stock Option and Restricted Stock Plan, Sports Authority has
granted 66,750 restricted shares of Sports Authority Common Stock to Mr. Smith
(of which 33,375 are not yet vested) and 50,000 restricted shares of Sports
Authority Common Stock to Mr. Hanaka (none of which are vested). All unvested
restricted shares will vest as a result of the approval of the Merger by Sports
Authority stockholders, and each such share will be converted into 0.80
unrestricted shares of Woolworth Common Stock at the Effective Time.
Under the Management Stock Purchase Plan, certain officers of Sports
Authority purchased restricted shares of Sports Authority Common Stock at a 20%
discount from the market price on March 26, 1996 with a portion of their bonuses
for 1995 under the Bonus Plan. The restricted shares are subject to partial
forfeiture and are restricted from resale for three years after purchase, such
that if the grantee's employment is terminated by Sports Authority other than
for cause, the grantee will be entitled to receive unrestricted shares pro-rated
for the elapsed portion of the three-year restricted period, and to receive
unrestricted shares equal in value to the lesser of the then current value of
the remaining restricted shares or their aggregate purchase cost to the grantee.
All such restrictions lapse on a change in control, which under the plan's
definition would include the approval of the Merger by Sports Authority
stockholders. The number of restricted shares granted under the Management Stock
Purchase Plan on March 26, 1996 at a price of $12.60 were 12,868 shares to Mr.
Smith and 3,424 shares to Mr. Lynch.
Payments under the Bonus Plan. Under the Bonus Plan, upon a change in
control (as defined in the plan) of Sports Authority during a plan year (defined
as a fiscal year of Sports Authority), the plan year will be deemed to have been
completed, the target levels of performance thereunder will be deemed to have
been attained, and a pro rata portion of the bonus so determined for each
participant will be paid in cash. Assuming the Merger is approved by Sports
Authority stockholders on the date of the Special Meeting, the following bonuses
would be payable: $ to Mr. Smith, $ to Mr. Hanaka, and
$ to Mr. Lynch. The amount shown for Mr. Hanaka is included in the
$275,000 guaranteed bonus provided for in his agreement with Woolworth described
above.
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<PAGE> 50
Acceleration of Vesting under Certain Benefit Plans. Under the
Supplemental Executive Retirement Plan, the benefits payable to each participant
upon reaching age 65 become vested after seven years of service or upon a change
in control (as defined in the plan). Such benefits are fully vested for Messrs.
Smith and Lynch, and Mr. Hanaka's benefits would vest upon approval of the
Merger by Sports Authority stockholders. The estimated monthly benefit payable
to Mr. Hanaka at age 65 if the Merger is approved at the Meeting would be
$ .
Equity-Based Compensation of Non-Employee Directors. Each non-employee
director of Sports Authority receives his or her entire annual retainer for a
plan year under the Director Stock Plan in the form of restricted shares of
Sports Authority Common Stock valued at $25,000 on the first day of the plan
year, unless the director elects in advance to receive his or her retainer in
the form of stock options with an exercise price equal to their fair market
value on the first day of the plan year. A plan year is the period beginning on
the day after the date of each annual meeting of Sports Authority's stockholders
and ending on the date of the next annual meeting. The restrictions on the
restricted shares lapse proportionally during the plan year, and the
restrictions lapse on a change in control of Sports Authority. The options
terminate three months after the grantee ceases being a director of Sports
Authority. For the plan year which began May 29, 1998, each non-employee
director received 1,694 restricted shares of Sports Authority Common Stock. In
addition, pursuant to elections made for the plan year which began on May 30,
1997, each of Nicholas A. Buoniconti, Steve Dougherty, Carol Farmer, W. Mitt
Romney and Harold Toppel holds fully vested options to purchase 5,607 shares of
Sports Authority Common Stock at an exercise price of $17.875 per share. All
such options will be converted into Adjusted Options at the Effective Time.
Indemnification and Insurance. The Merger Agreement provides that all
rights to indemnification and exculpation from liabilities existing in favor of
the current or former directors or officers of Sports Authority provided in its
certificate of incorporation and bylaws will be maintained by Woolworth and will
continue in effect in accordance with their terms, and directors and officers of
Sports Authority who become directors and officers of Woolworth will be entitled
to the same indemnification rights as are afforded to other directors and
officers of Woolworth. The Merger Agreement also provides that, for four years
after the Effective Time, Woolworth will provide liability covering acts or
omissions occurring prior to the Effective Time with respect to those persons
who were covered by Sports Authority's directors' and officers' liability
insurance policy on terms with respect to such coverage and amounts no less
favorable than those in effect on the date of the Merger Agreement, provided
that Woolworth will not be required to pay more than 200% of the current amount
paid by Sports Authority to maintain such insurance.
OWNERSHIP OF SPORTS AUTHORITY COMMON STOCK
As of May 29, 1998, directors and executive officers of Sports Authority
and their affiliates were the beneficial owners of 1,180,607 shares
(approximately 3.7%) of the Sports Authority Common Stock then outstanding.
46
<PAGE> 51
The following table shows the beneficial ownership of Sports Authority
Common Stock as of May 29, 1998 by each person known by Sports Authority to be
the beneficial owner of more than 5% of any class of Sports Authority's voting
securities based on Forms 13D and 13G as filed with the SEC.
<TABLE>
<CAPTION>
PERCENT OF
SHARES SPORTS AUTHORITY
BENEFICIALLY COMMON STOCK
BENEFICIAL OWNER OWNED OUTSTANDING
---------------- ------------ ----------------
<S> <C> <C>
JUSCO Co., Ltd. ............................................ 3,030,000(1) 9.5%
5-1 Nakase 1-chome
Mihama-ku, Chiba 261
Japan
Wellington Management Company LLP........................... 2,348,500(2) 7.4%
75 State Street
Boston, MA 02109
The Capital Group Companies, Inc. and The Capital Research
and Management Company.................................... 2,295,360(3) 7.2%
333 S. Hope Street
Los Angeles, CA 90071
</TABLE>
- ---------------
(1) The person named has sole voting and investment power with respect to the
shares of Sports Authority Common Stock shown.
(2) The person named reported shared voting power with respect to 1,874,100 of
the shares of Sports Authority Common Stock shown and shared dispositive
power with respect to all shares of Sports Authority Common Stock shown.
(3) The persons named reported sole dispositive power with respect to all of
the shares of Sports Authority Common Stock shown but no voting power. The
shares of Sports Authority Common Stock reported include 337,060 shares of
Sports Authority Common Stock which the persons named have the right to
acquire upon conversion of $11,000,000 principal amount of the Company's
5.25% Convertible Subordinated Notes due 2001.
47
<PAGE> 52
THE MERGER AGREEMENT
MERGER CONSIDERATION
Exchange Ratio. Upon consummation of the Merger, each share of Sports
Authority Common Stock issued and outstanding immediately prior to the Effective
Time (other than shares, if any, held in the treasury of Sports Authority or
held by Woolworth or any of its subsidiaries, which will be cancelled) will be
converted into the right to receive 0.80 (the "Exchange Ratio") share of
Woolworth Common Stock (including the related Preferred Stock Purchase Rights
issued pursuant to the Rights Agreement, dated March 11, 1998, between Woolworth
and First Chicago Trust Company of New York (the "Rights Agreement")). In the
event that prior to the Effective Time, the outstanding shares of Sports
Authority Common Stock or of Woolworth Common Stock shall be changed into a
different number of shares by reason of any reclassification, recapitalization,
split-up, combination or exchange of shares, or any dividend payable in stock or
other securities shall be declared thereon with a record date within such
period, the Exchange Ratio shall be adjusted accordingly to provide to the
holders of Sports Authority Common Stock the same economic effect as
contemplated by the Merger Agreement prior to such reclassification,
recapitalization, split-up, combination, exchange or dividend.
Fractional Shares. No fractional shares of Woolworth Common Stock shall be
issued in the Merger, and to the extent that an outstanding share of Sports
Authority Common Stock would otherwise have become a fractional share of
Woolworth Common Stock, the holder thereof, will be entitled to receive a cash
payment therefor.
Conversion of Merger Sub Common Stock. Each share of common stock, par
value $.01 per share, of Merger Sub issued and outstanding immediately prior to
the Effective Time will be converted into one share of Common Stock, par value
$.01 per share, of Sports Authority as the Surviving Corporation. Such newly
issued shares will thereupon constitute all of the issued and outstanding
capital stock of the Surviving Corporation.
EXCHANGE PROCEDURES
Woolworth and Sports Authority have authorized First Chicago Trust Company
of New York to act as Exchange Agent under the Merger Agreement. As of the
Effective Time, Woolworth will deposit with the Exchange Agent, for the benefit
of the holders of a certificate or certificates which immediately prior to the
Effective Time represented shares of Sports Authority Common Stock (the
"Certificates"), certificates representing shares of Woolworth Common Stock
issuable pursuant to the Merger Agreement in exchange for outstanding shares of
Sports Authority Common Stock. Such shares of Woolworth Common Stock, together
with any dividends or distributions with respect thereto with a record date
after the Effective Time, any Excess Shares (as hereinafter defined) and any
cash (including cash proceeds from the sale of Excess Shares) payable in lieu of
any fractional shares of Woolworth Common Stock are hereinafter referred to as
the "Exchange Fund." The Exchange Agent will deliver certificates representing
shares of Woolworth Common Stock upon the surrender for exchange of the
Certificates.
As soon as practicable after the Effective Time, the Exchange Agent will
mail to each record holder of a Certificate (i) a letter of transmittal (which
will specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon delivery of the Certificates to the Exchange
Agent and shall be in the form and have such other provisions as Sports
Authority and Woolworth may reasonably specify) and (ii) instructions for use in
surrendering the Certificates in exchange for the Merger Consideration (as
defined in the Merger Agreement). Upon surrender of a Certificate for
cancellation to the Exchange Agent, together with such letter of transmittal,
duly executed, and such other documents as may reasonably be required by the
Exchange Agent, the holder of such Certificate shall be entitled to receive in
exchange therefor a certificate representing that number of whole shares of
Woolworth Common Stock into which the shares of Sports Authority Common Stock
represented by the surrendered Certificate(s) have been converted at the
Effective Time, cash in lieu of any fractional share of Woolworth Common Stock
(see "-- No Fractional Shares") and (iii) the dividends and other distributions
described in the next paragraph. All Certificates so surrendered will
48
<PAGE> 53
be cancelled. All shares of Woolworth Common Stock (including cash paid in
respect of any such fractional share or of any such dividend or distributions)
will be deemed to have been issued (and paid) in full satisfaction of all rights
pertaining to the shares of Sports Authority Common Stock represented by such
surrendered Certificates; provided, however, that Sports Authority is obligated
to pay any dividends or make any other distributions with a record date prior to
the Effective Time, if any, which may have been authorized or made by Sports
Authority on such shares of Sports Authority which remain unpaid at the
Effective Time.
No dividend or other distributions with respect to Woolworth Common Stock
with a record date after the Effective Time will be paid to the holder of any
unsurrendered Certificate with respect to the shares of Woolworth Common Stock
represented thereby, and no cash payment in lieu of fractional shares will be
paid to any such holder pursuant to the Merger Agreement, and all such
dividends, other distributions and cash in lieu of fractional shares will be
paid to any such holder pursuant to the Merger Agreement, and all such
dividends, other distributions and cash in lieu of fractional shares of
Woolworth Common Stock will be paid by Woolworth to the Exchange Agent and will
be included in the Exchange Fund, in each case until the surrender of such
Certificate in accordance with the exchange procedures set forth in the Merger
Agreement. Subject to the effect of applicable escheat or similar laws,
following the surrender of any such Certificate there will be paid to the holder
of the certificate representing whole shares of Woolworth Common Stock issued in
exchange therefor, without interest, (i) at the time of such surrender, the
amount of dividends or other distributions with a record date after the
Effective Time theretofore paid with respect to such whole shares of Woolworth
Common Stock and, in the case of Certificates representing Sports Authority
Common Stock, the amount of any cash payable in lieu of a fractional share of
Woolworth Common Stock to which such holder is entitled pursuant to the Merger
Agreement and (ii) at the appropriate payment date, the amount of dividends or
other distributions with a record date after the Effective Time and with a
payment date subsequent to such surrender payable with respect to such whole
shares of Woolworth Common Stock.
If, after the Effective Time, Certificates are presented to the Surviving
Corporation or the Exchange Agent for any reason, they shall be cancelled and
exchanged as described in the three preceding paragraphs, except as otherwise
provided by law. There will be no further registration of transfers on the stock
transfer books of Sports Authority of the shares of Sports Authority Common
Stock which were outstanding immediately prior to the Effective Time.
Any portion of the Exchange Fund which remains undistributed to the holders
of the Certificates for six months after the Effective Time shall be delivered
to Woolworth, upon demand, and any holders of the Certificates who have not
theretofore complied with the exchange provisions of the Merger Agreement may
thereafter look only to Woolworth for payment of their claim for Merger
Consideration, any dividends or distributions with respect to Woolworth Common
Stock and any cash in lieu of fractional shares of Woolworth Common Stock.
None of Woolworth, Merger Sub, Sports Authority (including in its capacity
as the Surviving Corporation), or the Exchange Agent shall be liable to any
person in respect of any shares of Woolworth Common Stock, any dividends or
distributions with respect thereto, any cash in lieu of fractional shares of
Woolworth Common Stock or any cash from the Exchange Fund, in each case
delivered to a public official pursuant to any applicable abandoned property,
escheat or similar law.
The Exchange Agent shall invest any cash included in the Exchange Fund, as
directed by Woolworth, on a daily basis. Any interest and other income resulting
from such investments shall be paid to Woolworth.
HOLDERS OF SPORTS AUTHORITY COMMON STOCK SHOULD NOT FORWARD THEIR
CERTIFICATES WITH THE ENCLOSED PROXY CARD, NOR SHOULD THEY FORWARD THEIR
CERTIFICATES TO THE EXCHANGE AGENT BEFORE THEY HAVE RECEIVED THE LETTER OF
TRANSMITTAL AND INFORMATION DESCRIBED ABOVE.
NO FRACTIONAL SHARES
No fractional shares of Woolworth Common Stock shall be issued upon the
surrender for exchange of Certificates, no dividend or distribution of Woolworth
shall relate to such fractional share interests and such fractional share
interests will not entitle the owner thereof to voting or other rights of a
stockholder of
49
<PAGE> 54
Woolworth. In lieu of any such fractional share, each holder of shares of Sports
Authority Common Stock who would otherwise have been entitled thereto upon the
surrender of Certificates for exchange will be paid cash (as described below).
As promptly as practicable following the Effective Time, the Exchange Agent
shall determine the excess of (i) the number of whole shares of Woolworth Common
Stock delivered to the Exchange Agent by Woolworth pursuant to the Merger
Agreement over (ii) the aggregate number of whole shares of Woolworth Common
Stock to be distributed to former holders of Sports Authority Common Stock
pursuant to the Merger Agreement (such excess being herein called the "Excess
Shares"). Following the Effective Time, the Exchange Agent shall, on behalf of
the former stockholders of Sports Authority, sell the Excess Shares at
then-prevailing prices on the New York Stock Exchange, Inc. ("NYSE"), all in the
manner provided in the Merger Agreement (as described in the paragraph
immediately below).
The sale of the Excess Shares by the Exchange Agent shall be executed on
the NYSE through one or more member firms of the NYSE and shall be executed in
round lots to the extent practicable. The Exchange Agent shall use reasonable
efforts to complete the sale of the Excess Shares as promptly following the
Effective Time as, in the Exchange Agent's sole judgment, is practicable,
consistent with obtaining the best execution of such sales in light of
prevailing market conditions. Until the net proceeds of such sale or sales have
been distributed to the holders of Certificates formerly representing Sports
Authority Common Stock, the Exchange Agent shall hold such proceeds in trust for
such holders (the "Common Shares Trust"). The Surviving Corporation shall pay
all commissions, transfer taxes and other out-of-pocket transaction costs,
including the expenses and compensation of the Exchange Agent incurred in
connection with such sale of the Excess Shares. The Exchange Agent shall
determine the portion of the Common Shares Trust to which each former holder of
Sports Authority Common Stock is entitled, if any, by multiplying the amount of
the aggregate net proceeds comprising the Common Shares Trust by a fraction, the
numerator of which is the amount of the fractional share interest to which such
former holder of Sports Authority Common Stock is entitled (after taking into
account all shares of Sports Authority Common Stock held at the Effective Time
by such holder) and the denominator of which is the aggregate amount of
fractional share interests to which all former holders of Sports Authority
Common Stock are entitled.
Notwithstanding the provisions of the Merger Agreement described in the two
preceding paragraphs, Woolworth may elect at its option, exercised prior to the
Effective Time, in lieu of the issuance and sale of Excess Shares and the making
of the payments in accordance with the terms of the Merger Agreement as
described above, to pay each former holder of Sports Authority Common Stock an
amount in cash equal to the product obtained by multiplying (A) the fractional
share interest to which such former holder (after taking into account all shares
of Sports Authority Common Stock held at the Effective Time by such holder)
would otherwise be entitled by (B) the average of the closing prices of the
Woolworth Common Stock as reported on the NYSE Composite Transaction Tape (as
reported in The Wall Street Journal, or, if not reported therein, any other
authoritative source) during the ten trading days preceding the fifth trading
day prior to the Closing Date).
As soon as practicable after the determination of the amount of cash, if
any, to be paid to holders of Certificates formerly representing Sports
Authority Common Stock with respect to any fractional share interests, the
Exchange Agent shall make available such amounts to such holders of Certificates
formerly representing Sports Authority Common Stock subject to and in accordance
with the Merger Agreement. See "-- Exchange Procedures."
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various representations and warranties of
Woolworth, Sports Authority and Merger Sub, relating, among other things, to the
following:
(a) their organization, good standing and corporate power and similar
corporate matters;
(b) their capitalization;
50
<PAGE> 55
(c) their authorization, execution, delivery and performance and the
enforceability of the Merger Agreement and related matters;
(d) the absence of conflicts, violations and defaults under their
respective certificates of incorporation and by-laws and certain other
agreements and documents;
(e) the documents and reports filed with the SEC and the accuracy and
completeness of the information contained therein;
(f) the absence of undisclosed liabilities;
(g) compliance with laws, ordinances and regulations;
(h) employee benefit matters;
(i) the absence of certain material changes or events since, in the
case of Sports Authority, January 25, 1998 and, in the case of Woolworth
and Merger Sub, January 31, 1998;
(j) pending or threatened investigations or litigation;
(k) the Form S-4 and this Proxy Statement/Prospectus and the accuracy
and completeness of the information contained therein and in the Merger
Agreement;
(l) the lack of ownership of each other's stock;
(m) tax matters;
(n) the receipt of fairness opinions from financial advisors; and,
(o) the availability of pooling of interests accounting treatment.
The representations and warranties made by the parties in the Merger
Agreement will not survive the Effective Time, although it is a condition of
each party's obligations under the Merger Agreement that the other parties'
representations and warranties be true and correct on and as of the Closing Date
(except for those made as of a specified time), except for such inaccuracies
which do not have and are not likely to have, individually or in the aggregate,
a material adverse effect on the representing or warranting party.
CONDUCT OF BUSINESS PENDING THE MERGER; ADDITIONAL AGREEMENTS
Each of Sports Authority and Woolworth has agreed that during the period
from the date of the Merger Agreement through the Effective Time or the date
upon which the Merger Agreement terminates in accordance with its terms (the
"Termination Date"), except as otherwise agreed to by the other parties to, or
permitted by, the Merger Agreement, it will, and will cause each of its
subsidiaries to, carry on its respective business in the ordinary course
consistent with past practice and in compliance in all material respects with
all applicable laws and regulations and, to the extent consistent therewith, use
all reasonable efforts to preserve intact its current business organization, use
reasonable efforts to assist in keeping available the services of current
officers and other key employees and use reasonable efforts to preserve
relationships with those persons having business dealings with them to the end
that its goodwill and ongoing business shall be unimpaired at the Effective
Time.
Each of Sports Authority and Woolworth has agreed promptly to advise the
other party orally and in writing to the extent it has knowledge of (i) any
representation or warranty made by it contained in the Merger Agreement that is
qualified as to materiality becoming untrue or inaccurate in any material
respect or any such representation or warranty that is not so qualified becoming
untrue or inaccurate in any material respect, (ii) the failure by it to comply
in any material respect with or satisfy in any material respect any covenant,
condition or agreement to be complied with or satisfied by it under the Merger
Agreement and (iii) any change or event having, or which, insofar as can
reasonably be foreseen, could reasonably be expected to have a material adverse
effect on such party or on the truth of their respective representations and
warranties or the ability of the conditions set forth in the Merger Agreement to
be satisfied; provided, however,
51
<PAGE> 56
that no such notification shall affect the representations, warranties,
covenants or agreements of the parties (or remedies with respect thereto) or the
conditions to the obligations of the parties under the Merger Agreement.
Without limiting the generality of the foregoing and except as otherwise
agreed to by the parties to, or permitted by, the Merger Agreement, Sports
Authority has agreed that during the period from the date of this Agreement to
the Effective Time, it will not, and will not permit any of its subsidiaries to:
(i)(x) declare, set aside or pay any dividends on, make any other
distributions in respect of, or enter into any agreement with respect to
the voting of, any of its capital stock, (y) split, combine or reclassify
any of its capital stock or issue or authorize the issuance of any other
securities in respect of, in lieu of or in substitution for shares of its
capital stock, except for issuances of Sports Authority Common Stock upon
conversion of Sports Authority Convertible Securities or upon the exercise
of Sports Authority Employee Stock Options, in each case, outstanding as of
the date of the Merger Agreement in accordance with their present terms, or
(z) purchase, redeem or otherwise acquire any shares of capital stock of
Sports Authority or any of its subsidiaries or any other securities thereof
or any rights, warrants or options to acquire any such shares or other
securities;
(ii) except as set forth in the Merger Agreement, issue, deliver,
sell, pledge or otherwise encumber or subject to any Lien any shares of its
capital stock, any other voting securities or any securities convertible
into, or any rights, warrants or options to acquire, any such shares,
voting securities or convertible securities (other than (x) the issuance of
Sports Authority Common Stock upon conversion of Sports Authority
Convertible Securities (as defined in the Merger Agreement) in accordance
with their present terms at the option of the holders thereof, and (y) the
issuance of Sports Authority Common Stock upon the exercise of Sports
Authority Employee Stock Options (as defined in the Merger Agreement), in
each case, outstanding as of the date of the Merger Agreement in accordance
with their present terms);
(iii) amend its certificate of incorporation, by-laws or other
comparable organizational documents;
(iv) acquire or agree to acquire by merging or consolidating with, or
by purchasing a substantial portion of the assets of, or by any other
manner, any business or any person;
(v) subject to compliance with the Merger Agreement, sell, lease,
license, mortgage or otherwise encumber or subject to any lien or otherwise
dispose of any of its properties or assets (including securitizations),
other than in the ordinary course of business consistent with past
practice;
(vi) except for borrowings under existing lines of credit, incur any
indebtedness for borrowed money or issue any debt securities or assume,
guarantee or endorse, or otherwise as an accommodation become responsible
for the obligations of any person for borrowed money; authorize, or commit
or agree to take, any of the foregoing actions; or
(vii) take any action which would be reasonably likely to interfere
with Woolworth's ability to account for the Merger as a pooling of
interests.
Without limiting the generality of the foregoing, and except as otherwise
agreed to by the parties or permitted during the period from the date of this
Agreement to the Effective Time, Woolworth will not, and will not permit any of
its subsidiaries to:
(i) other than dividends and distributions by a direct or indirect
wholly owned subsidiary of Woolworth to its parent, or by a subsidiary that
is partially owned by Woolworth or any of its subsidiaries, provided that
Woolworth or any such subsidiary receives or is to receive its
proportionate share thereof, declare, set aside or pay any dividends on,
make any other distributions in respect of, or enter into any agreement
with respect to the voting of, any of its capital stock, other than
reasonable quarterly dividends on Woolworth Common Stock if the Woolworth
Board shall so determine;
(ii) except as contemplated by the Merger Agreement, amend its
certificate of incorporation; and
(iii) take any action that would be reasonably likely to interfere
with Woolworth's ability to account for the Merger as a pooling of
interests.
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Each of Sports Authority and Woolworth has also agreed that, except as
required by law, it shall not, and shall not permit any of its subsidiaries to,
voluntarily take any action that would, or that could reasonably be expected to,
result in (i) any of the representations and warranties of such party set forth
in the Merger Agreement that are qualified as to materiality becoming untrue at
the Effective Time, (ii) any of such representations and warranties that are not
so qualified becoming untrue in any material respect at the Effective Time, or
(iii) any of the conditions to the Merger set forth in the Merger Agreement not
being satisfied.
Each of Sports Authority and Woolworth further has agreed, among other
things, that they will together, or pursuant to an allocation of responsibility
to be agreed upon between them, (i) prepare and file with the SEC, as soon as
practicable following the date of the Merger Agreement, this Proxy
Statement/Prospectus and the Form S-4, (ii) as promptly as practicable after the
Form S-4 is declared effective, call and hold a special meeting of the Sports
Authority stockholders, (iii) as promptly as practicable prepare and file with
the NYSE a listing application covering the shares of Woolworth Common Stock
issuable in the Merger or upon exercise of Sports Authority stock options,
warrants, conversion rights or other rights or vesting or payment of other
Sports Authority equity-based awards and use its reasonable best efforts to
obtain, prior to the Effective Time, approval for the listing of such Woolworth
Common Stock, subject only to official notice of issuance; (iv) cooperate with
one another to lift any injunctions or remove any other impediment to the
consummation of the transactions contemplated in the Merger Agreement; (v) use
reasonable best efforts to cause the Merger to qualify as a reorganization under
the provisions of Section 368 of the Code and to obtain an opinion of Skadden,
Arps, Slate, Meagher & Flom LLP, counsel to Woolworth, and Morgan, Lewis &
Bockius LLP, counsel to Sports Authority, concerning certain tax matters; (vi)
use reasonable best efforts to cause to be delivered to the other party, comfort
letters from its independent accountants in connection with the Form S-4 and a
letter stating that accounting for the Merger as a pooling of interests under
Opinion 16 of the Accounting Principles Board and applicable SEC rules and
regulations is appropriate if the Merger is closed and consummated as
contemplated in this Agreement; (vii) cooperate in the preparation and filing of
all returns or other documents relating to conveyance taxes that become payable
in connection with the transactions contemplated by the Merger Agreement; and
(viii) take such actions as are necessary to implement the provisions of the
Indenture between Sports Authority and The Bank of New York, dated September 20,
1996, related to the Sports Authority's 5.25% Convertible Subordinated Notes due
2001.
NO SOLICITATION
Sports Authority has agreed that it will not, nor will it permit any of its
subsidiaries to, nor will it authorize or permit any of its directors, officers
or employees or any investment banker, financial advisor, attorney, accountant
or other representative retained by it or any of its subsidiaries to, directly
or indirectly through another person, (i) solicit, initiate or encourage
(including by way of furnishing information), or take any other action designed
to facilitate, any inquiries or the making of any proposal which constitutes any
Sports Authority Takeover Proposal (as defined below) or (ii) participate in any
discussions or negotiations regarding any Sports Authority Takeover Proposal;
provided, however, that if the Sports Authority Board determines in good faith,
based on the advice of outside counsel, that it is necessary to do so in order
to act in a manner consistent with its fiduciary duties to Sports Authority's
stockholders under applicable law, Sports Authority may, in response to a Sports
Authority Superior Proposal (as defined below) which was not solicited by it,
which did not otherwise result from a breach of the Merger Agreement and which
is made or received prior to the obtaining of the Sports Authority Stockholder
Approval, and subject to providing prior written notice of its decision to take
such action to Woolworth and compliance with the provisions of the Merger
Agreement, (x) furnish information with respect to Sports Authority and its
subsidiaries to any person making a Sports Authority Superior Proposal pursuant
to a customary confidentiality agreement (as determined by Sports Authority
based on the advice of its outside counsel, the terms of which are no more
favorable to such person than the Confidentiality Agreement between Woolworth
and Sports Authority) and (y) participate in discussions or negotiations
regarding such Sports Authority Superior Proposal.
As used in the Merger Agreement and in this Proxy Statement/Prospectus,
"Sports Authority Takeover Proposal" means any inquiry, proposal or offer from
any person relating to any direct or indirect acquisition or
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purchase of a business that constitutes 10% or more of the net revenues, net
income or the assets of Sports Authority and its subsidiaries, taken as a whole,
or 10% or more of any equity securities of Sports Authority, any tender offer or
exchange offer that if consummated would result in any person beneficially
owning any equity securities of Sports Authority, or any merger, consolidation,
business combination, recapitalization, liquidation, dissolution or similar
transaction involving Sports Authority (or any Sports Authority subsidiary whose
business constitutes 10% or more of the net revenues, net income or the assets
of Sports Authority and its subsidiaries, taken as whole) or the Sports
Authority Common Stock, other than the transactions contemplated by the Merger
Agreement. For purposes of this Agreement, a "Sports Authority Superior
Proposal" means any bona fide proposal made by a third party to acquire,
directly or indirectly, including pursuant to a tender offer, exchange offer,
merger, consolidation, business combination, recapitalization, liquidation,
dissolution or similar transaction, for consideration consisting of cash and/or
securities, more than 50% of the combined voting power of the shares of Sports
Authority Common Stock then outstanding or all or substantially all the assets
of Sports Authority and otherwise on terms which the Sports Authority Board
determines in its good faith judgment (based on the advice of a financial
advisor of nationally recognized reputation) to be more favorable to Sports
Authority's stockholders than the Merger and for which financing, to the extent
required, is then committed or which, in the good faith judgment of the Sports
Authority Board, based on the advice of its financial advisor, is reasonably
capable of being obtained by such third party.
Except as expressly permitted by the provisions of the Merger Agreement
prohibiting solicitation by Sports Authority, Sports Authority has agreed that
neither the Sports Authority Board nor any committee thereof will (i) withdraw
or modify, or propose publicly to withdraw or modify, in a manner adverse to
Woolworth, the approval or recommendation by such Board or such committee of the
Merger or this Agreement, (ii) approve or recommend, or propose publicly to
approve or recommend, any Sports Authority Takeover Proposal, or (iii) cause
Sports Authority to enter into any letter of intent, agreement in principle,
acquisition agreement or other similar agreement (each, a "Sports Authority
Acquisition Agreement") related to any Sports Authority Takeover Proposal.
Notwithstanding the foregoing, at any time prior to the obtaining of the Sports
Authority Stockholder Approval, the Sports Authority Board, to the extent that
it determines in good faith, based upon the advice of outside counsel, that it
is necessary to do so in order to act in a manner consistent with its fiduciary
duties to Sports Authority's stockholders under applicable law, may (subject to
this and the following sentences) terminate the Merger Agreement solely in order
to concurrently enter into a Sports Authority Acquisition Agreement with respect
to any Sports Authority Superior Proposal, but only at a time that is after the
fifth business day following Woolworth's receipt of written notice advising
Woolworth that the Sports Authority Board is prepared to accept a Sports
Authority Superior Proposal, specifying the material terms and conditions of
such Sports Authority Superior Proposal and identifying the person making such
Sports Authority Superior Proposal, all of which information shall be kept
confidential by Woolworth.
In addition to the obligations of Sports Authority described in the
preceding paragraphs, Sports Authority has agreed that it will immediately
advise Woolworth orally and in writing of any request for information or of any
Sports Authority Takeover Proposal, the material terms and conditions of such
request or Sports Authority Takeover Proposal and the identity of the person
making such request or Sports Authority Takeover Proposal. Sports Authority has
agreed to keep Woolworth reasonably informed of the status and details
(including amendments or proposed amendments) of any such request or Sports
Authority Takeover Proposal.
Nothing contained in the Merger Agreement prohibits Sports Authority from
taking and disclosing to its stockholders a position contemplated by Rule
14e-2(a) promulgated under the Exchange Act or from making any disclosure to
Sports Authority's stockholders if, in the good faith judgment of the Sports
Authority Board, after consultation with outside counsel, failure so to disclose
would be inconsistent with its obligations under applicable law.
MINIMUM MERGER CONSIDERATION
For purposes of the Merger Agreement and this Proxy Statement/Prospectus,
the average of the closing price on the NYSE for the Woolworth Common Stock for
the 20 consecutive trading days prior to the third
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business day prior to the scheduled date of the Sports Authority Stockholders
Meeting (the "Measuring Period") is referred to as the "Woolworth Average
Price." If, during the Measuring Period for the Special Meeting as originally
scheduled, the Woolworth Average Price is less than $20.50, Sports Authority (by
5:00 p.m. eastern time on the second business day prior to the scheduled date of
such meeting) must give notice to Woolworth as to whether it intends to
terminate the Merger Agreement due to the level of the Woolworth Average Price
or adjourn or postpone such meeting for 30 days. If Sports Authority elects to
terminate the Merger Agreement due to the level of the Woolworth Average Price
(an "Election"), Woolworth can rescind such Election (a "Rescission") by giving
notice (by 5:00 p.m. eastern time on the business day prior to the scheduled
date of such meeting) that Woolworth elects to cause Sports Authority to adjourn
or postpone such meeting for 30 days (the "Adjournment Period"). To the extent
necessary, the process set forth in the preceding sentence will be followed with
respect to the first adjourned or postponed meeting date and each successive
adjourned or postponed meeting date thereafter, and revised record dates will be
established to the extent required by the DGCL and the rules of the NYSE and
appropriate notice and disclosure will be sent to the stockholders of Sports
Authority. If an Adjournment Period established pursuant to the preceding two
sentences would establish an adjourned or postponed meeting date after January
1, 1999, the Adjournment Period will be truncated, to the extent permitted by
law and regulation, so that the Special Meeting will be held on December 31,
1998 (subject to Sports Authority's Election to terminate the Merger Agreement
due to the level of the Woolworth Average Price during the Measuring Period in
respect of such December 31, 1998 meeting date, which Election will not give
rise to a further right of Rescission in favor of Woolworth). Without limiting
the generality of the foregoing but subject to its rights to terminate the
Merger Agreement if it determines, in accordance with the terms thereof, that it
is necessary to do so in order to act in a manner consistent with its fiduciary
duties to the Sports Authority stockholders, Sports Authority agrees that its
obligations under the Merger Agreement as described in this paragraph will not
be affected by the commencement, public proposal, public disclosure or
communication to Sports Authority of any Sports Authority Takeover Proposal.
CONDITIONS PRECEDENT
The obligations of Woolworth and Sports Authority to effect the Merger are
subject to the satisfaction or waiver by the parties on or prior to the Closing
Date of the following conditions: (i) the Sports Authority Stockholder Approval
shall have been obtained, (ii) the waiting period (and any extension thereof)
applicable to the Merger under the HSR Act shall have been terminated or shall
have expired, (iii) other than the filing of the Certificate of Merger and
filings pursuant to the HSR Act (which are addressed in the preceding clause),
all consents, approvals and actions of, filings with and notices to any
Governmental Entity required of Sports Authority, Woolworth or any of their
subsidiaries to consummate the Merger and the other transactions contemplated by
the Merger Agreement, the failure of which to be obtained or taken (a) is
reasonably expected to have a material adverse effect on the Surviving
Corporation and its prospective subsidiaries, taken as a whole, or (b) will
result in a violation of any laws, shall have been obtained, all in form and
substance reasonably satisfactory to Sports Authority and Woolworth; (iv) no
judgment, order, decree, statute, law, ordinance, rule or regulation, entered,
enacted, promulgated, enforced or issued by any court or other Governmental
Entity of competent jurisdiction or other legal restraint or prohibition
(collectively, "Restraints") shall be in effect (a) preventing the consummation
of the Merger, or (b) which otherwise is reasonably likely to have a material
adverse effect on Sports Authority or Woolworth, as applicable; provided,
however, that each of the parties shall have used its reasonable best efforts to
prevent the entry of any such Restraints and to appeal as promptly as possible
any such Restraints that may be entered; (v) the Form S-4 shall have become
effective under the Securities Act prior to the mailing of the Proxy
Statement/Prospectus by Sports Authority to its stockholders and no stop order
or proceedings seeking a stop order shall be threatened by the SEC or shall have
been initiated by the SEC; (vi) the shares of Woolworth Common Stock issuable to
Sports Authority's stockholders as Merger Consideration and the shares of
Woolworth Common Stock issuable upon exercise of Adjusted Options pursuant to
the provisions of Merger Agreement relating to the Sports Authority Employee
Stock Options (as defined in the Merger Agreement) shall have been approved for
listing on the NYSE, subject to official notice of issuance; and (vii) Woolworth
and Sports Authority shall have received letters from each of Sports Authority's
independent accountants and
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Woolworth's independent accountants, dated as of the date the Form S-4 is
declared effective and as of the Closing Date, in each case addressed to
Woolworth and Sports Authority, stating that accounting for the Merger as a
pooling of interests under Opinion 16 of the Accounting Principles Board and
applicable SEC rules and regulations is appropriate if the Merger is consummated
and closed as contemplated by the Merger Agreement.
The obligation of Woolworth to effect the Merger is further subject to
satisfaction or waiver of the following conditions: (i) the representations and
warranties of Sports Authority set forth in the Merger Agreement shall be true
and correct both when made and at and as of the Closing Date, as if made at and
as of such time (except to the extent expressly made as of an earlier date, in
which case as of such date), except where the failure of such representations
and warranties to be so true and correct (without giving effect to any
limitation as to "materiality" or "material adverse effect" set forth therein)
does not have, and is not likely to have, individually or in the aggregate, a
material adverse effect on Sports Authority; provided that the representation
and warranty relating to store leases shall be deemed true and correct only if
the "direct store profit" (as shown in the internal financial records of Sports
Authority) for the most recent fiscal year of all stores in respect of which one
or more contracts relating to the lease of real property are subject to
termination or modification is $3 million or less in the aggregate (excluding
stores as to which the lessor shall have waived its right of termination or
modification); (ii) Sports Authority shall have performed in all material
respects all obligations required to be performed by it under the Merger
Agreement at or prior to the Closing Date; (iii) Woolworth shall have received
from Skadden, Arps, Slate, Meagher & Flom LLP, counsel to Woolworth, on a date
immediately prior to the mailing of the Proxy Statement/Prospectus and on the
Closing Date, an opinion dated as of such date, to the effect that (a) the
Merger will constitute a "reorganization" within the meaning of Section 368(a)
of the Code, and Woolworth and Sports Authority will each be a party to such
reorganization within the meaning of Section 368(b) of the Code, (b) no gain or
loss will be recognized by Woolworth or Sports Authority as a result of the
Merger, (c) no gain or loss will be recognized by the stockholders of Sports
Authority upon the exchange of their shares of Sports Authority Common Stock
solely for shares of Woolworth Common Stock pursuant to the Merger, except with
respect to cash, if any, received in lieu of fractional shares of Woolworth
Common Stock, (d) the aggregate tax basis of the shares of Woolworth Common
Stock received solely in exchange for shares of Sports Authority Common Stock
pursuant to the Merger (including fractional shares of Woolworth Common Stock
for which cash is received) will be the same as the aggregate tax basis of the
shares of Sports Authority Common Stock exchanged therefor, and (e) the holding
period for shares of Woolworth Common Stock received in exchange for shares of
Sports Authority Common Stock pursuant to the Merger will include the holding
period of the shares of Sports Authority Common Stock exchanged therefor,
provided such shares of Sports Authority Common Stock were held as capital
assets by the stockholder at the Effective Time; (iv) at any time after the date
of the Merger Agreement there shall not have occurred any material adverse
change relating to Sports Authority.
The obligation of Sports Authority to effect the Merger is further subject
to satisfaction or waiver of the following conditions: (i) the representations
and warranties of Woolworth set forth in the Merger Agreement shall be true and
correct both when made and at and as of the Closing Date, as if made at and as
of such time (except to the extent expressly made as of an earlier date, in
which case as of such date), except where the failure of such representations
and warranties to be so true and correct (without giving effect to any
limitation as to "materiality," or "material adverse effect" set forth therein)
does not have, and is not likely to have, individually or in the aggregate, a
material adverse effect on Woolworth; (ii) Woolworth shall have performed in all
material respects all obligations required to be performed by it under the
Merger Agreement at or prior to the Closing Date; (iii) Sports Authority shall
have received from Morgan, Lewis & Bockius LLP, counsel to Sports Authority, on
a date immediately prior to the mailing of the Proxy Statement/Prospectus and on
the Closing Date, an opinion as of such date, to the effect that: (a) the Merger
will constitute a "reorganization" within the meaning of Section 368(a) of the
Code, and Woolworth and Sports Authority will each be a party to such
reorganization within the meaning of Section 368(b) of the Code; (b) no gain or
loss will be recognized by Woolworth or Sports Authority as a result of the
Merger; (c) no gain or loss will be recognized by the stockholders of Sports
Authority upon the exchange of their shares of Sports Authority Common Stock
solely for shares of Woolworth Common Stock pursuant to the Merger, except with
respect to cash, if any, received in lieu of fractional shares of Woolworth
Common Stock; (d) the aggregate tax basis of the shares of
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Woolworth Common Stock received solely in exchange for shares of Sports
Authority Common Stock pursuant to the Merger (including fractional shares or
Woolworth Common Stock for which cash is received) will be the same as the
aggregate tax basis of the shares of Sports Authority Common Stock exchanged
therefor; and (e) the holding period for shares of Woolworth Common Stock
received in exchange for shares of Sports Authority Common Stock pursuant to the
Merger will include the holding period of the shares of Sports Authority Common
Stock exchanged therefor, provided such shares of Sports Authority Common Stock
were held as capital assets by the stockholder at the Effective Time; (iv) at
any time after the date of this Agreement there shall not have occurred any
material adverse change relating to Woolworth.
For a discussion of the circumstances under which the foregoing conditions
may be waived by the parties, see "-- Amendment and Waiver."
SPORTS AUTHORITY STOCK OPTIONS
Woolworth and Sports Authority covenant in the Merger Agreement to cause
each outstanding Sports Authority Employee Stock Option to be converted into an
option (an "Adjusted Option") to purchase the number of shares of Woolworth
Common Stock equal to the number of shares of Sports Authority Common Stock
subject to such Sports Authority Employee Stock Option immediately prior to the
Effective Time multiplied by the Exchange Ratio (rounded to the nearest whole
number of shares of Woolworth Common Stock), at an exercise price per share
equal to the exercise price for each such share of Sports Authority Common Stock
subject to such option divided by the Exchange Ratio (rounded down to the
nearest whole cent), and to cause all references in each such option to Sports
Authority to be deemed to refer to Woolworth, where appropriate; provided,
however, that the adjustments provided (i) with respect to any options which are
described in Section 423 of the Code, will be affected in a manner consistent
with the requirements of Section 424(a) of the Code, and (ii) Woolworth will
assume the obligations of Sports Authority under the Sports Authority Stock
Plans. Woolworth and Sports Authority have agreed to cause the other terms of
each Adjusted Option, and the plans or agreements under which they were issued,
to continue to apply in accordance with their terms, with the date of grant of
each Adjusted Option being deemed the date on which the corresponding Sports
Authority Employee Stock Option was granted.
Accordingly, Sports Authority has agreed to amend each of the Sports
Authority Stock Plans, to the extent necessary, to reflect the transactions
contemplated by the Merger Agreement, including, but not limited to the
conversion of shares of Sports Authority Common Stock held or to be awarded or
paid pursuant to such benefit plans, programs or arrangements into shares of
Woolworth Common Stock on a basis consistent with the transactions contemplated
by the Merger Agreement. Although approval thereof is not a condition to the
consummation of the Merger, Sports Authority agrees to submit the amendments to
the Sports Authority Stock Plans to its stockholders, if such submission is
determined to be necessary by counsel to Sports Authority or Woolworth after
consultation with one another.
Woolworth has agreed that it will (i) reserve for issuance the number of
shares of Woolworth Common Stock that will become subject to the benefit plans,
programs and arrangements referred to in this or the preceding two paragraphs
and (ii) issue or cause to be issued the appropriate number of shares of
Woolworth Common Stock pursuant to applicable plans, programs and arrangements,
upon the exercise or maturation of rights existing thereunder on the Effective
Time or thereafter granted or awarded. Woolworth has also agreed that, no later
than the Effective Time, it shall prepare and file with the SEC a registration
statement on Form S-8 (or other appropriate form) registering a number of shares
of Woolworth Common Stock necessary to fulfill Woolworth' obligations as
described in this and the preceding two paragraphs. Such registration statement
shall be kept effective (and the current status of the prospectus required
thereby shall be maintained) for at least as long as Adjusted Options remain
outstanding.
INDEMNIFICATION, EXCULPATION AND INSURANCE
Woolworth has agreed to maintain in effect in accordance with their terms
all rights to indemnification and exculpation from liabilities for acts or
omissions occurring at or prior to the Effective Time now existing in favor of
the current or former directors or officers of Sports Authority and its
subsidiaries as provided in their
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respective certificates of incorporation or by-laws (or comparable
organizational documents) and any indemnification agreements of Sports
Authority. In addition, from and after the Effective Time, directors and
officers of Sports Authority who become directors or officers of Woolworth will
be entitled to the same indemnity rights and protections as are afforded to
other directors and officers of Woolworth.
In the event that Woolworth or any of its successors or assigns (i)
consolidates with or merges into any other person and is not the continuing or
surviving corporation or entity of such consolidation or merger or (ii)
transfers or conveys all or substantially all of its properties and assets to
any person, then, and in each such case, proper provision will be made so that
the successors and assigns of Woolworth assume the obligations set forth in the
Merger Agreement.
For four years after the Effective Time, Woolworth has agreed to provide to
Sports Authority's current directors and officers liability insurance covering
acts or omissions occurring prior to the Effective Time with respect to those
persons who are currently covered by Sports Authority's directors' and officers'
liability insurance policy on terms with respect to such coverage and amount no
less favorable than those of such policy in effect on the date hereof, provided
that in no event shall Woolworth be required to expend more than 200% of the
current amount expended by Sports Authority to maintain such coverage.
TERMINATION; EFFECT OF TERMINATION
The Merger Agreement may be terminated at any time prior to the Effective
Time, and (except as set forth in the Merger Agreement) whether before or after
the Sports Authority Stockholder Approval (i) by mutual written consent of
Woolworth and Sports Authority, (ii) by either Woolworth or Sports Authority (A)
if the Merger shall not have been consummated by December 31, 1998, provided,
however, that the right to terminate the Merger Agreement pursuant to this
clause shall not be available to any party whose failure to perform any of its
obligations under the Merger Agreement results in the failure of the Merger to
be consummated by such time; and provided, however, that the Merger Agreement
may be extended not more than 30 days by either party by written notice to the
other party if the Merger shall not have been consummated as a direct result of
Woolworth or Sports Authority having failed to receive all regulatory approvals
required to be obtained with respect to the Merger, (B) if the Sports Authority
Stockholder Approval shall not have been obtained at a Special Meeting duly
convened therefor or at any adjournment or postponement thereof or (C) if any
judgment, order, decree, statute, law, ordinance, rule or regulation, entered,
enacted, promulgated, enforced or issued by any court or other governmental
entity of competent jurisdiction or other legal restraint or prohibition
(collectively "Restraints") either preventing the consummation of the Merger or
which is otherwise reasonably likely to have a material adverse effect on Sports
Authority or Woolworth shall be in effect and shall have become final and
nonappealable; provided, that the party seeking to terminate the Merger
Agreement as described in this clause shall have used reasonable best efforts to
prevent the entry of and to remove such Restraint; (iii) by Woolworth, if Sports
Authority shall have breached or failed to perform in any material respect any
of its representations, warranties, covenants or other agreements contained in
the Merger Agreement, which breach or failure to perform (A) would give rise to
the failure of a condition to the obligations of Woolworth which relate to the
representations and warranties and performance of obligations of Sports
Authority under the Merger Agreement and (B) is incapable of being cured by
Sports Authority or is not cured within 45 days of written notice thereof; (iv)
by Sports Authority, if Woolworth shall have breached or failed to perform in
any material respect any of its representations, warranties, covenants or other
agreements contained in the Merger Agreement, which breach or failure to perform
(A) would give rise to the failure of a condition to the obligations of Sports
Authority which relates to the representations and warranties and performance of
obligations of Woolworth under the Merger Agreement and (B) is incapable of
being cured by Woolworth or is not cured within 45 days of written notice
thereof; (v) prior to receipt of the Sports Authority Stockholder Approval, by
Sports Authority in accordance with the Merger Agreement in order to act in a
manner consistent with the fiduciary duties to Sports Authority's stockholders
under applicable law; provided that, in order for the termination of the Merger
Agreement as described in this clause to be deemed effective, Sports Authority
shall have complied with all applicable provisions of the Merger Agreement,
including the notice provisions therein, and with applicable requirements,
including the payment of the Termination Fee (as defined below); or (vi) by
Sports Authority, if the
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Woolworth Average Price for a Measuring Period is less than $20.50, Sports
Authority has made an Election and Woolworth has not made a Rescission. See
"-- Minimum Merger Consideration."
In the event that (i) (A) a Sports Authority Takeover Proposal shall have
been made known to Sports Authority or any of its subsidiaries or has been made
directly to its stockholders generally or any person shall have publicly
announced an intention (whether or not conditional) to make a Sports Authority
Takeover Proposal, (B) thereafter the Merger Agreement is terminated by either
Woolworth or Sports Authority as described in clause (ii)(1) or (ii)(2) of the
preceding paragraph and (C) either (x) the Sports Authority Board, or a
committee thereof, has prior to such termination withdrawn or modified in a
manner adverse to Woolworth the approval or recommendation by such Board or
committee of the Merger or the Merger Agreement or (y) within the year following
the termination, Sports Authority enters into an agreement providing for in
excess of 25% of the equity or 50% of the assets of Sports Authority to be
acquired by another party, or (ii) the Merger Agreement is terminated by Sports
Authority as described in clause (v) of the preceding paragraph, then Sports
Authority shall promptly, but in no event later than two days after the date of
such termination, pay Woolworth a fee equal to $8.5 million (the "Termination
Fee").
AMENDMENT AND WAIVER
The Merger Agreement may be amended by the parties at any time before or
after the Sports Authority Stockholder Approval; provided, however, that after
any such approval, there shall not be made any amendment that by law requires
further approval by the stockholders of Sports Authority without the further
approval of such stockholders.
At any time prior to the Effective Time, a party may (a) extend the time
for the performance of any of the obligations or other acts of the other
parties, (b) waive any inaccuracies in the representations and warranties of the
other parties contained in the Merger Agreement or in any document delivered
pursuant to the Merger Agreement or (c) waive compliance by the other party with
any of the agreements or conditions contained in the Merger Agreement, provided
that, if after the Sports Authority Stockholder Approval, such waiver shall not
have the effect that further approval by the stockholders of Sports Authority or
Woolworth shall be required.
EXPENSES
Whether or not the Merger is consummated, Woolworth and Sports Authority
will each pay their own expenses in connection with the Merger. In the event
Woolworth commences a suit to enforce its rights under the Merger Agreement to
receive the Termination Fee and such suit results in a judgment against Sports
Authority for the Termination Fee, Sports Authority will pay to Woolworth its
costs and expenses (including attorneys' fees and expenses) in connection with
such suit, together with interest on the amount of the fee at the rate on
six-month U.S. Treasury obligations plus 300 basis points in effect on the date
such payment was required to be made.
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MARKET PRICE AND DIVIDEND DATA
The Woolworth Common Stock is listed and primarily traded on the NYSE under
the symbol "Z" and the Sports Authority Common Stock is listed and primarily
traded on the NYSE under the symbol "TSA." The table below sets forth (i) the
range of the reported high and low prices of the Woolworth Common Stock on the
NYSE Composite Transactions Tape and (ii) the range of the reported high and low
prices of the Sports Authority Common Stock on the NYSE Composite Transactions
Tape in each case for the calendar quarters indicated. The information in the
table has been adjusted to reflect retroactively all applicable stock splits. No
cash dividends were declared by Woolworth or Sports Authority during the
calendar quarters indicated.
<TABLE>
<CAPTION>
WOOLWORTH COMMON SPORTS AUTHORITY
STOCK PRICE COMMON STOCK PRICE
---------------- ------------------
HIGH LOW HIGH LOW
------ ------ ------- -------
<S> <C> <C> <C> <C>
1995
First Quarter....................................... $19.38 $14.75 $14.11 $10.73
Second Quarter...................................... 16.38 14.38 14.11 11.14
Third Quarter....................................... 16.88 12.75 19.97 13.37
Fourth Quarter...................................... 15.75 9.38 18.07 12.87
1996
First Quarter....................................... 19.75 10.88 18.23 11.14
Second Quarter...................................... 23.25 18.25 23.93 17.33
Third Quarter....................................... 22.38 18.63 27.75 18.50
Fourth Quarter...................................... 25.25 20.25 29.00 20.38
1997
First Quarter....................................... 24.13 18.50 22.00 16.50
Second Quarter...................................... 28.19 19.38 19.75 16.63
Third Quarter....................................... 28.75 19.25 21.75 17.25
Fourth Quarter...................................... 23.25 18.25 21.88 13.75
1998
First Quarter....................................... 26.94 21.56 16.63 10.75
Second Quarter (through May 22, 1998)............... 25.88 20.31 18.75 14.63
</TABLE>
On May 6, 1998, the last full day of trading before the public announcement
of the proposed Merger, Sports Authority Common Stock closed at $17.00 and
Woolworth Common Stock closed at $21.875, as reported on the NYSE Composite
Transactions Tape. The value of Sports Authority Common Stock at May 6, 1998, on
an equivalent per share basis, was $ (based on the Exchange Ratio of 0.80).
On , 1998, the last trading day prior to the date of filing with the
SEC of the Form S-4 of which this Proxy Statement/Prospectus forms a part,
Sports Authority Common Stock closed at $ and Woolworth Common Stock
closed at $ , as reported on the NYSE Composite Transactions Tape. More
recent stock price quotes may be obtained in most newspapers or in other
financial sources.
Woolworth has applied for the listing of the shares of Woolworth Common
Stock to be issued in the Merger on the NYSE.
If the Merger is consummated, the Sports Authority Common Stock will be
delisted from the NYSE and will be deregistered under the Exchange Act.
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COMPARISON OF STOCKHOLDER RIGHTS
If the Merger is consummated, holders of Sports Authority Common Stock,
whose rights are currently governed by Delaware law and by the Sports Authority
Restated Certificate of Incorporation (the "Sports Authority Certificate of
Incorporation") and the Sports Authority Amended and Restated By-Laws (the
"Sports Authority By-Laws") will become holders of Woolworth Common Stock, whose
rights will be governed by the laws of the State of New York and by the
Woolworth Certificate of Incorporation and the Woolworth By-Laws, as amended.
The rights of Woolworth stockholders under the Woolworth Certificate of
Incorporation, as amended (the "Woolworth Certificate of Incorporation"), and
the Woolworth By-Laws, as amended (the "Woolworth By-Laws"), differ in certain
respects from the rights of Sports Authority stockholders under the Sports
Authority Certificate of Incorporation and the Sports Authority By-Laws. The
following discussion is intended only to highlight certain material differences
between the rights of stockholders under Delaware law and New York law,
generally, and between the rights of stockholders of Sports Authority and
Woolworth, specifically, under their respective charters and by-laws. THIS
SUMMARY IS NOT INTENDED TO BE RELIED UPON AS AN EXHAUSTIVE LIST OR A DETAILED
DESCRIPTION OF THE PROVISIONS DISCUSSED AND IS QUALIFIED IN ITS ENTIRETY BY THE
RESPECTIVE CORPORATE CODES OF THE STATES OF NEW YORK AND DELAWARE AND BY THE
SPORTS AUTHORITY CERTIFICATE OF INCORPORATION AND SPORTS AUTHORITY BY-LAWS AND
THE WOOLWORTH CERTIFICATE OF INCORPORATION AND BY-LAWS. For information as to
how you can obtain such documents, see "AVAILABLE INFORMATION" and
"INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE."
As a preliminary matter, two New York State bills (Numbers S476B and
S5680), which passed the Senate on June 25, 1997 and the Assembly on July 15,
1997 and were signed into law by the Governor on August 26, 1997, generally
revise the New York Business Corporation Law (the "NYBCL"). These new laws and
their revisions to the NYBCL took effect on February 22, 1998. The new
amendments to the NYBCL are extensive and amend certain provisions, including
those relating to corporate finance, proxies, powers of directors and mergers,
and also repeal certain provisions relating thereto. The most relevant new
amendments are summarized below. The provisions of the NYBCL and the DGCL differ
in numerous respects. Summarized below are certain of the principal differences
between the NYBCL and the DGCL affecting the rights of stockholders.
AUTHORIZED CAPITAL STOCK
The Sports Authority Certificate of Incorporation authorizes 100,000,000
shares of Common Stock, par value $.01 per share, and 5,000,000 shares of
Preferred Stock, par value $.01 per share.
The Woolworth Certificate of Incorporation authorizes 500,000,000 shares of
Common Stock, par value $.01 per share, and 7,000,000 shares of Preferred Stock,
par value $1.00 per share.
BUSINESS COMBINATIONS
Generally, under the DGCL, the approval by the affirmative vote of the
holders of a majority of the outstanding stock (or, if the certificate of
incorporation provides for more or less than one vote per share, a majority of
the votes of the outstanding stock) of a corporation entitled to vote on the
matter is required for a merger or consolidation or sale, lease or exchange of
all or substantially all the corporation's assets to be consummated. The Sports
Authority Certificate of Incorporation does not contain any provisions relating
to stockholder approval of business combinations.
The new amendments to the NYBCL include provisions permitting a plan of
merger, plan of share exchange, or sale, lease, exchange or other disposition to
be adopted by a majority of all outstanding shares (instead of a two-thirds
vote) in cases where the certificate of incorporation so provides. The Woolworth
Certificate of Incorporation does not contain any provisions relating to
stockholder approval of business combinations.
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STATE TAKEOVER LEGISLATION
Delaware Business Combination Law. Section 203 of the DGCL generally
prohibits any business combination (defined to include a variety of
transactions, including (i) mergers and consolidations, (ii) sales or
dispositions of assets having an aggregate market value equal to 10% or more of
the aggregate market value of the corporation determined on a consolidated
basis, (iii) issuances of stock (except for certain pro rata and other
issuances), and (iv) disproportionate benefits from the corporation (including
loans and guarantees)) between a Delaware corporation and any interested
stockholder (defined generally as any person who, directly or indirectly,
beneficially owns 15% or more of the outstanding voting stock of the
corporation) for a period of three years after the date on which the interested
stockholder became an interested stockholder. The restrictions of the Delaware
Business Combination Law do not apply, however, (A) if, prior to such date, the
board of directors of the corporation approved either the business combination
or the transaction which resulted in such stockholder's becoming an interested
stockholder, (B) if, upon consummation of the transaction resulting in such
stockholder's becoming an interested stockholder, the interested stockholder
owned at least 85% of the voting stock of the corporation at the time the
transaction was commenced (excluding, for the purposes of determining the number
of shares outstanding, shares owned by persons who are directors and also
officers and by certain employee plans of the corporation), (C) if, on or
subsequent to such date, the business combination is approved by the board of
directors and the holders of at least two-thirds of the shares not involved in
the transaction or (D) under certain other circumstances.
In addition, a Delaware corporation may adopt an amendment to its
certificate of incorporation or by-laws expressly electing not to be governed by
the Delaware Business Combination Law if, in addition to any other vote required
by law, such amendment is approved by the affirmative vote of a majority of the
shares entitled to vote. Such amendment will not, however, be effective until 12
months after such stockholder vote and will not apply to any business
combination with an interested stockholder who was such on or prior to the
effective date of such amendment. The Sports Authority Certificate of
Incorporation contains a provision by which Sports Authority expressly elects
not to be governed by the Delaware Business Combination Law.
New York Business Combination Law. Section 912 of the NYBCL (the "New York
Business Combination Law") prohibits any business combination (defined to
include a variety of transactions, including mergers, sales or dispositions of
assets, issuances of stock, liquidations, reclassifications and benefits from
the corporation, including loans or guarantees) with, involving or proposed by
any interested stockholder (defined generally as any person who, directly or
indirectly, beneficially owns 20% 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 stockholder became an interested stockholder. After
such five-year period a business combination between a resident domestic New
York corporation and such interested stockholder 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 stockholder or its affiliates. The restrictions of the New York
Business Combination Law do not apply, however, to any business combination with
an interested stockholder if such business combination, or the purchase of stock
by the interested stockholder that caused such stockholder 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 stockholder becomes such. Woolworth
will be considered a resident domestic New York corporation as long as at least
10% 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 may adopt an amendment to its
by-laws, approved by the affirmative vote of the holders, other than interested
stockholders and their affiliates and associates, of a majority of the
outstanding voting stock, excluding the voting stock of interested stockholders
and their affiliates and associates, expressly electing not to be governed by
the New York Business Combination Law. Such amendment will not, however, be
effective until 18 months after such stockholder vote and will not apply to any
business combination with an interested stockholder who was such on or prior to
the effective date of such amendment. Woolworth has not amended the Woolworth
By-Laws to elect not to be governed by the New York Business Combination Law. In
addition, the Woolworth Certificate of Incorporation contains a provision that
requires that a business combination or stock repurchase proposed by or on
behalf of an
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Interested Shareholder or an affiliate or associate of an Interested Shareholder
(or a person who would thereafter become and affiliate or associate of an
Interested Shareholder) be approved by the affirmative vote of not less than a
majority of the votes entitled to be cast by the holders of the then outstanding
shares of voting stock, excluding voting stock beneficially owned by such
Interested Shareholder. For purposes of the Woolworth Certificate of
Incorporation, the term "Interested Shareholder" means (a) any person (other
than Woolworth or any subsidiary or than any stock ownership or benefit plan or
any trustee or fiduciary with respect to any such a plan, when acting in such
capacity) who is or has announced an intention to become the beneficial owner of
voting stock representing 5% or more of the votes entitled to be cast by the
holders of all then outstanding shares of voting stock, or (b) is an affiliate
or associate of Woolworth and at any time within the two-year period immediately
prior to the date in question beneficially owned voting stock representing 5% or
more of the votes entitled to be cast by holders of all then outstanding voting
stock.
APPRAISAL RIGHTS
Under the DGCL, except as otherwise provided by the DGCL, stockholders have
the right to demand and receive payment of the fair value of their stock in the
event of a merger or consolidation. However, except as otherwise provided by the
DGCL, stockholders do not have appraisal rights if, among other things, the
consideration they receive for their shares consists of (i) shares of stock of
the corporation surviving or resulting from such merger or consolidation, (ii)
shares of stock of any other corporation which at the effective date of the
merger or consolidation will be either listed on a national securities exchange
(which is true in the case of the Woolworth Common Stock) or designated as a
national market system security on an inter-dealer quotation system by the
National Association of Securities Dealers, Inc. ("NASD") or held of record by
more than 2,000 stockholders, (iii) cash in lieu of fractional shares of the
corporations described in clause (i) or (ii) of this sentence, or (iv) any
combination of shares of stock and cash in lieu of fractional shares described
in the foregoing clauses (i), (ii) and (iii). See "THE MERGER -- No Appraisal
Rights."
Stockholders of a New York corporation have the right to dissent and
receive payment of the fair value of their shares, except as otherwise provided
by the NYBCL, in the event of certain amendments or changes to the certificate
of incorporation adversely affecting their shares, certain mergers or
consolidations, certain sales, leases, exchanges or other dispositions of all or
substantially all the corporation's assets and certain share exchanges.
AMENDMENTS TO CHARTERS
Under the DGCL, unless otherwise provided in the charter, a proposed
charter amendment requires an affirmative vote of a majority of all votes
entitled to be cast on the matter. If any such amendment would adversely affect
the rights of any holders of shares of a class or series of stock, the vote of
the holders of a majority of all outstanding shares of the class or series,
voting as a class, is also necessary to authorize such amendment. The Sports
Authority Certificate of Incorporation does not alter the basic DGCL
requirements for the amendment of its charter.
Under the NYBCL, amendments of the certificate of incorporation may be
authorized by vote of the holders of a majority of all outstanding shares
entitled to vote thereon at a meeting of stockholders. If any such amendment
would adversely affect the rights of any holders of shares of a class or series
of stock, the vote of the holders of a majority of all outstanding shares of the
class or series, voting as a class, is also necessary to authorize such
amendment. The Woolworth Certificate of Incorporation provides generally that in
addition to any vote required by law, any proposal by or on behalf of an
Interested Shareholder or an affiliate or associate thereof, to amend, repeal or
adopt any provision of the Woolworth Certificate of Incorporation inconsistent
with its business combination provisions, shall require the affirmative vote of
the holders not less than a majority, excluding stock beneficially owned such
Interested Shareholder.
AMENDMENTS TO BY-LAWS
Under the DGCL, the power to adopt, alter and repeal the by-laws is vested
in the stockholders, except to the extent that the charter vests concurrent
power in the board of directors. The Sports Authority Certificate
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of Incorporation provides that the Sports Authority Board shall have concurrent
power with the stockholders to make, alter, amend, arrange, add to or repeal the
By-Laws of Sports Authority.
Under the NYBCL, except as otherwise provided in the certificate of
incorporation, by-laws may be amended, repealed or adopted by 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 stockholders, by-laws also may be amended, repealed or adopted by
the board by such vote as may be therein specified, which may be greater than
the vote otherwise prescribed by law, but any by-law adopted by the board may be
amended or repealed by the stockholders entitled to vote thereon as provided by
the NYBCL.
The Woolworth Certificate of Incorporation provides that, subject always to
the By-Laws adopted by the stockholders, the Woolworth Board may amend or repeal
any By-Law or adopt any new By-Law; but any By-Law adopted by the Woolworth
Board may be amended or repealed by the stockholders at any annual meeting or at
any special meeting, provided notice of the proposed amendment or repeal is
included in the notice of any such special meeting.
PREEMPTIVE RIGHTS
Under the DGCL, a stockholder does not possess preemptive rights unless
such rights are specifically granted in the certificate of incorporation. The
Sports Authority Certificate of Incorporation does not provide for preemptive
rights.
Under the NYBCL, except as otherwise provided in the NYBCL or in the
certificate of incorporation, the holders of equity shares are granted certain
preemptive rights. The Woolworth Certificate of Incorporation provides that no
holder of Woolworth Common Stock has any preemptive rights to purchase any
shares or other securities of Woolworth.
REDEMPTION OF CAPITAL STOCK
Under the DGCL, subject to certain limitations, a corporation's stock may
be made subject to redemption by the corporation at its option, at the option of
the holders of such stock or upon the happening of a specified event. The Sports
Authority Certificate of Incorporation does not address the redemption of common
stock.
Under the NYBCL, subject to certain limitations, a corporation's
certificate of incorporation may provide for one or more classes or series of
shares to be redeemable at the option of the corporation or the holders thereof,
at such prices, within such times and under such conditions as are stated in the
certificate of incorporation. The Woolworth Certificate of Incorporation
provides for the redemption at the option of Woolworth of the Series B
Participating Preferred Stock on terms and conditions set forth therein.
DIVIDEND SOURCES
Under the DGCL, a board of directors may authorize a corporation to make
distributions to its stockholders, subject to any restrictions in its
certificate of incorporation, either (i) out of surplus or (ii) if there is no
surplus, out of net profits for the fiscal year in which the dividend is
declared and/or the preceding fiscal year. Under the DGCL, no distribution out
of net profits is permitted, however, if the corporation's capital is less than
the amount of capital represented by the issued and outstanding stock of all
classes having a preference upon the distribution of assets, until such
deficiency has been repaired.
Under the NYBCL, except as otherwise provided in the NYBCL, dividends may
be declared and paid and other distributions may be made out of surplus only, so
that the net assets of the corporation remaining after such declaration, payment
or distribution must at least equal the amount of its stated capital. A
corporation may declare and pay dividends or make other distributions, except
when the corporation is insolvent or would thereby be made insolvent, or when
the declaration, payment or distribution would be contrary to any restrictions
contained in the corporation's certificate of incorporation.
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DURATION OF PROXIES
Under the DGCL, no proxy is valid more than three years after its date
unless otherwise provided in the proxy. A proxy shall be irrevocable if it
states that it is irrevocable and if, and only as long as, it is coupled with an
interest sufficient in law to support an irrevocable power. A proxy may be made
irrevocable regardless of whether the interest with which it is coupled is an
interest in the stock itself or an interest in the corporation generally.
Under the NYBCL, no proxy is valid more than 11 months after its date
unless otherwise provided in the proxy. Irrevocable proxies may be created for
(i) a pledgee, (ii) a person who has purchased or agreed to purchase the shares,
(iii) a creditor of the corporation who extends credit in consideration of the
proxy, (iv) a person who has contracted to perform services as an officer of the
corporation if a proxy is required by the employment contract and (v) a person
designated under a voting agreement.
STOCKHOLDER ACTION
Under the DGCL, unless otherwise provided in the certificate of
incorporation, any action required or permitted to be taken at a meeting of
stockholders may be taken without a meeting, without prior notice and without a
vote, if a written consent or consents setting forth the action taken is signed
by the holders of outstanding stock having 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 upon such action were present and voted. The
Sports Authority Certificate of Incorporation provides that any action required
or permitted to be taken by the stockholders of Sports Authority must be
effected at an annual or special meeting of the stockholders of Sports Authority
and expressly prohibits any action by written consent of such stockholders.
The new amendments to the NYBCL include provisions similar to those of the
DGCL and allow, if the certificate of incorporation so permits, stockholder
action without a meeting upon the written consent of holders of outstanding
shares having not less than the minimum number of votes that would be necessary
to authorize such action at a meeting at which all shares entitled to vote
thereon were present and voted. The Woolworth Certificate of Incorporation does
not contain such a provision.
SPECIAL STOCKHOLDER MEETINGS
The DGCL provides that a special meeting of stockholders may be called by
the board of directors or by such person or persons as may be authorized by the
certificate of incorporation or by the by-laws. The Sports Authority By-Laws
provide that special meetings may be called by the President and must be called
by the President or the Secretary upon the written request of a majority of the
Sports Authority Board or at the written request of stockholders owning a
majority of the voting power of Sports Authority's capital stock entitled
generally to vote for the election of directors.
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 stockholders or, if no date
has been so fixed, for a period of 13 months after the last annual meeting,
there is a failure to elect a sufficient number of directors to conduct the
business of the corporation, the board shall call a special meeting for the
election of directors. If such special meeting is not called by the board within
two weeks after the expiration of such period or if it is called but there is a
failure to elect such directors for a period of two months after the expiration
of such period, holders of 10% of the shares entitled to vote in an election of
directors may, in writing, demand the calling of a special meeting for the
election of directors. The Woolworth By-Laws provide that special meetings of
the stockholders may be called at any time in writing by the Secretary upon the
direction of the Chairman of the Board and Chief Executive Officer, a Vice
Chairman of the Board, the President and Chief Operating Officer or a majority
of the entire Woolworth Board or upon a request signed by stockholders
representing at least one-third of the shares of Woolworth Common Stock.
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CUMULATIVE VOTING
Under the DGCL, the certificate of incorporation may provide that at all
elections of directors, or at elections held under specified circumstances, each
stockholder is entitled to cumulate such stockholder's votes. The Sports
Authority Certificate of Incorporation is silent on the issue of cumulative
voting for the election of directors and the Sports Authority By-Laws state that
directors shall be elected by a plurality of the votes cast at annual meetings
of stockholders.
Under the NYBCL, the certificate of incorporation may provide that in all
elections of directors each stockholder is entitled to cumulate such
stockholder's votes. The Woolworth Certificate of Incorporation does not contain
such a provision. The Woolworth By-Laws provide that at each annual meeting of
the stockholders, directors shall be elected to hold office by a plurality of
the votes cast.
NUMBER AND ELECTION OF DIRECTORS
The DGCL permits the certificate of incorporation or the by-laws of a
corporation to contain provisions governing the number and terms of directors.
However, if the certificate of incorporation contains provisions fixing the
number of directors, such number may not be changed without amending the
certificate of incorporation. The Sports Authority Certificate of Incorporation
provides that the number of directors shall consist of not less than three nor
more than eleven directors, with the exact number of directors to be determined
from time to time by resolution adopted by the affirmative vote of a majority of
the directors then in office. The Sports Authority By-Laws provide that the
number of directors is to be set according to the Sports Authority Certificate
of Incorporation.
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. The Sports Authority Certificate of Incorporation provides for a
classified board of directors with such board of directors divided into three
classes.
Subject to certain limitations, the NYBCL permits the number of directors
of a corporation to be fixed by its by-laws, by action of the stockholders or by
action of the board under the specific provision of a by-law adopted by the
stockholders. At each annual meeting of the stockholders, directors are to be
elected to hold office until the next annual meeting, except as described below
for corporations with classified boards. The Woolworth Certificate of
Incorporation does not contain a provision stating a minimum and maximum number
of directors. The Woolworth By-Laws provide that the number of directors shall
be not less than 9 nor more than 17, the exact number of directors within such
minimum and maximum limits to be fixed and determined by resolution adopted by a
majority of the entire Woolworth Board.
The NYBCL permits the certificate of incorporation or the specific
provisions of a by-law adopted by the stockholders to provide that directors be
divided into either two, three or four classes. All classes must be as nearly
equal in number as possible, and no class may include less than three directors.
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. The new amendments to
the NYBCL delete the requirement of at least three directors in any class. The
Woolworth Certificate of Incorporation provides for a classified board of
directors with the directors divided into three classes.
REMOVAL 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
at an election of directors, except that (i) members of a classified board 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 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 cumulatively voted at an election of the entire
board of directors or of the class of directors of which such director is a
part.
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The Sports Authority Certificate of Incorporation provides that a director
or directors may be removed by the stockholders of Sports Authority only for
cause.
The NYBCL provides that any or all of the directors may be removed for
cause by vote of the stockholders and, if the certificate of incorporation or
the specific provisions of a by-law adopted by the stockholders provide,
directors may 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 stockholders. 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% of the outstanding shares, whether or
not entitled to vote.
The Woolworth Certificate of Incorporation provides that a director or the
entire Woolworth Board may be removed only for cause.
VACANCIES
Under the DGCL, unless otherwise provided in the certificate of
incorporation or the by-laws, vacancies on the board of directors and newly
created directorships resulting from an increase in the authorized number of
directors may be filled by a majority of the directors then in office, although
less than a quorum, or by the sole remaining director, provided that, in the
case of a classified board, such vacancies and newly created directorships may
be filled by a majority of the directors elected by such class, or by the sole
remaining director so elected. In the case of a classified board, directors
elected to fill vacancies or newly created directorships shall hold office until
the next election of the class for which such directors have been chosen, and
until their successors have been duly elected and qualified. In addition, if, at
the time of the filling of any such vacancy or newly created directorship, the
directors in office constitute less than a majority of the whole board (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% of the total number of outstanding shares entitled to vote for such
directors, summarily order an election to fill any such vacancy or newly created
directorship, or replace the directors chosen by the directors then in office.
The Sports Authority Certificate of Incorporation provides that any vacancy
on the Sports Authority Board that results from an increase in the number of
directors may be filled by a majority of the Sports Authority directors then in
office, provided that a quorum is present, and any other vacancy occurring in
Sports Authority Board may be filed by a majority of the directors then in
office even if less than a quorum, or by a sole remaining director. The Sports
Authority Certificate of Incorporation provides that all directors elected to
fill vacancies or newly created directorships shall remain in office, (a) if the
vacancy does not result from an increase in the number of directors, for a term
that shall coincide with the remaining term of his or her predecessor or, (b) if
the vacancy results from an increase in the number of directors, the remaining
term of the class in which the number of directors was increased.
Under the NYBCL, newly created directorships resulting from an increase in
the number of directors and vacancies occurring on the board for any reason
except the removal of directors without cause may be filled by vote of the board
of directors. However, the certificate of incorporation or by-laws may provide
that such newly created directorships or vacancies are to be filled by vote of
the stockholders. Unless the certificate of incorporation or the specific
provisions of a by-law adopted by the stockholders provide that the board may
fill vacancies occurring on the board by reason of the removal of directors
without cause, such vacancies may be filled only by vote of the stockholders. A
director elected to fill a vacancy, unless elected by the stockholders, will
hold office until the next meeting of stockholders at which the election of
directors is in the regular order of business and until his or her successor has
been elected and qualified.
The Woolworth Certificate of Incorporation expressly states that the
removal of directors shall be only for cause and as such does not provide for
removal without cause. The Woolworth Certificate of Incorporation
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provides that any vacancy on the Woolworth Board may be filled by a majority
vote of the remaining directors even if the number of directors then in office
is less than a quorum. A director elected to fill a vacancy shall hold office
until the next meeting of stockholders called for the election of directors and
until his/her successor shall be elected and shall qualify.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under the DGCL, a corporation may not indemnify any director, officer,
employee or agent made or threatened to be made party to any threatened, pending
or completed proceeding unless such person acted in good faith and in a manner
such person reasonably believed to be in or not opposed to the best interests of
the corporation, and, with respect to any criminal proceeding, had no reasonable
cause to believe that his or her conduct was unlawful. The Sports Authority
Certificate of Incorporation contains provisions which require Sports Authority
to indemnify such persons to the full extent permitted by the DGCL.
The DGCL also establishes several mandatory rules for indemnification. In
the case of a proceeding by or in the right of the corporation to procure a
judgment in its favor (e.g., a stockholder derivative suit), a corporation may
indemnify an officer, director, employee or agent if such person acted in good
faith and in a manner such person reasonably believed to be in or not opposed to
the best interests of the corporation; provided, however, that no person
adjudged to be liable to the corporation may be indemnified unless, and only to
the extent that, the Delaware Court of Chancery or the court in which such
action or suit was brought determines upon application that, despite the
adjudication of liability but in view of all the circumstances of the case, such
person is fairly and reasonably entitled to indemnity for such expenses which
such court deems proper. A director or officer who is successful, on the merits
or otherwise, in defense of any proceeding subject to the DGCL's indemnification
provisions must be indemnified by the corporation for reasonable expenses
incurred therein, including attorneys' fees. The DGCL states that a
determination must be made that a director or officer has met the required
standard of conduct before the director or officer may be indemnified. The
determination may be made by (i) a majority vote of a quorum of disinterested
directors, (ii) independent legal counsel in a written opinion if a majority of
disinterested directors so directs, or (iii) the stockholders.
The DGCL also provides that a corporation may advance expenses to an
officer or director upon receipt of an undertaking by or on behalf of such
officer or director to repay the corporation if it is determined that the
required standard of conduct has not been met. The right to indemnification
conferred by the Sports Authority Certificate of Incorporation includes the
right to advancement of reasonable expenses incurred in defending or otherwise
participating in any proceeding. In addition, the Sports Authority Certificate
of Incorporation permits Sports Authority to advance expenses to other employees
and agents in a similar manner.
The Sports Authority Certificate of Incorporation expressly provides that
except for proceedings to enforce the right to indemnification, Sports Authority
shall not be obligated to indemnify any director or officer in connection with
any proceeding initiated by such person unless such proceeding was authorized or
consented to by the Sports Authority Board.
Under the NYBCL, a corporation may indemnify its directors and officers
made, or threatened to be made, a party to any action or proceeding, except for
stockholder derivative suits, if such director or officer acted in good faith,
for a purpose which he or she reasonably believed to be in or, in the case of
service to another corporation or enterprise, not opposed to the best interests
of the corporation, and, in criminal proceedings, had no reasonable cause to
believe his or her conduct was unlawful. In the case of stockholder derivative
suits, the corporation may indemnify a director or officer if he or she acted in
good faith for a purpose which he or she reasonably believed to be in or, in the
case of service to another corporation or enterprise, not opposed to the best
interests of the corporation, except that no indemnification may be made in
respect of (i) a threatened action, or a pending action which is settled or
otherwise disposed of, or (ii) any claim, issue or matter as to which such
person has been adjudged to be liable to the corporation, unless and only to the
extent that the court in which the action was brought, or, if no action was
brought, any court of competent jurisdiction, determines upon application that,
in view of all the circumstances of the case, the
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person is fairly and reasonably entitled to indemnity for such portion of the
settlement amount and expenses as the court deems proper.
Any person who has been successful on the merits or otherwise in the
defense of a civil or criminal action or proceeding will be entitled to
indemnification. Except as provided in the preceding sentence, unless ordered by
a court pursuant to the NYBCL, 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 upon the written opinion of independent legal counsel or (iii) the
stockholders.
The indemnification described above under the NYBCL is not exclusive of
other indemnification rights to which a director or officer may be entitled,
whether contained in the certificate of incorporation or by-laws or when
authorized by (i) such certificate of incorporation or by-laws, (ii) a
resolution of stockholders, (iii) a resolution of directors or (iv) an agreement
providing for such indemnification, provided that no indemnification may be made
to or on behalf of any director or officer if a judgment or other final
adjudication adverse to the director or officer establishes that his or her acts
were committed in bad faith or were the result of active and deliberate
dishonesty and were material to the cause of action so adjudicated, or that he
or she personally gained in fact a financial profit or other advantage to which
he or she was not legally entitled.
The Woolworth Certificate of Incorporation and the Woolworth By-Laws
provide that Woolworth is authorized, by (i) a resolution of stockholders, (ii)
a resolution of directors or (iii) an agreement providing for such
indemnification, to the fullest extent permitted by applicable law, to provide
indemnification and to advance expenses to its directors and officers in respect
of claims, actions, suits or proceedings based upon, arising from, relating to
or by reason of the fact that any such director or officer serves or served in
such capacity with Woolworth or at the request of Woolworth in any capacity with
any other enterprise. The Woolworth By-Laws permit advances of expenses incurred
in defending or otherwise participating in a proceeding to persons entitled to
indemnification in connection with such proceeding, upon receipt of an
undertaking by or on behalf of such person to repay such amounts if a judgment
or other trial adjudication adverse to the director or officer establishes that
his or her acts were committed in bad faith or were the result of active and
deliberate dishonesty and, in either case, were material to the cause of action
so adjudicated or (b) he or she personally gained in fact a financial profit or
other advantage to which he or she was not legally entitled.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling Woolworth or
Sports Authority pursuant to the foregoing provisions, Woolworth and Sports
Authority have been informed that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act and
is therefore unenforceable.
LIMITATION OF PERSONAL LIABILITY OF DIRECTORS
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. The
Sports Authority Certificate of Incorporation contains a provision eliminating
the personal liability for monetary damages of its directors for breach of
fiduciary duty as a director, except for liability, (i) for any breach of the
directors' duty of loyalty to Sports Authority or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violator of law, (iii) pursuant to Section 174 of the DGCL or (iv) from
any transaction from which the directors derived an improper personal benefit.
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 stockholders for damages for any breach of duty in
such capacity. However, no such provision can eliminate or limit the liability
of any director
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(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 in fact 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.
The Woolworth Certificate of Incorporation provides that no director will
be personally liable to Woolworth or any of its stockholders for damages for any
breach of duty as a director; provided, however, that the liability of a
director will not be eliminated or limited if a judgment or other final
adjudication adverse to him or her establishes that his or her acts or omissions
were in bad faith or involved intentional misconduct or a knowing violation of
law or that he or she personally gained in fact a financial profit or other
advantage to which he or she was not legally entitled or that his or her acts
violated Section 719 of the NYBCL (which includes declaration of dividends,
purchase of capital stock, distribution of assets to stockholders after
dissolution of the corporation and loans to directors to the extent contrary to
New York law).
RIGHTS PLANS
Sports Authority does not have a rights plan.
On March 11, 1998, the Woolworth Board declared a dividend distribution of
one Right for each outstanding share of Woolworth Common Stock to stockholders
of record at the close of business on April 14, 1998 (the "Rights Record Date").
Pursuant to the Rights Agreement between Woolworth and First Chicago Trust
Company of New York, as Rights Agent (the "Woolworth Rights Agreement"), each
Right entitles the registered holder to purchase from Woolworth a unit
consisting of one two-hundredth of a share (a "Unit") of Series B Preferred
Stock at a Purchase Price of $100 per Unit, subject to adjustment.
Initially, the Rights will be attached to all Common Stock certificates
representing shares then outstanding, and no separate Rights Certificates will
be distributed. Subject to certain exceptions specified in the Rights Agreement,
the Rights will separate from the Common Stock and a Distribution Date will
occur upon the earlier of (i) the close of business on the tenth business day
following a public announcement that a person or group of affiliated or
associated persons that constitutes an "Interested Shareholder," as defined in
Section 912 of the New York Business Corporation Law (an "Acquiring Person") has
become such (the "Stock Acquisition Date"), or (ii) the close of business on the
tenth business day (or such later date as the Board shall determine) following
the commencement of a tender offer or exchange offer that would result in a
person or group becoming an Acquiring Person. Until the Distribution Date, (i)
the Rights will be evidenced by the Common Stock certificates and will be
transferred with and only with such Common Stock certificates, (ii) new Common
Stock certificates issued after the Rights Record Date will contain a notation
incorporating the Rights Agreement by reference and (iii) the surrender for
transfer of any certificates for Common Stock outstanding will also constitute
the transfer of the Rights associated with the Common Stock represented by such
certificate. Pursuant to the Rights Agreement, Woolworth reserves the right to
require prior to the occurrence of a Triggering Event (as defined below) that,
upon any exercise of Rights, a number of Rights be exercised so that only whole
shares of Series B Preferred Stock will be issued.
The Rights are not exercisable until the Distribution Date and will expire
at 5:00 P.M. (New York City time) on April 14, 2008 (unless extended prior
thereto by the Board of Directors), or earlier if redeemed or exchanged by
Woolworth in accordance wit the terms of the Rights Agreement.
In the event that a Person becomes an Acquiring Person, except pursuant to
an offer for all outstanding shares of Common Stock which the Board of Directors
determines not to be inadequate and to otherwise be in the best interests of
Woolworth and its stockholders, after receiving advice from one or more
investment banking firms (a "Qualified Offer"), each holder of a Right will
thereafter have the right to receive, upon exercise, Common Stock (or, in
certain circumstances, cash, property or other securities of Woolworth) having a
value equal to two times the exercise price of the Right. The Exercise Price is
the Purchase Price times the number of shares of Common Stock associated with
each Right. Notwithstanding any of the foregoing, following the occurrence of
the event set forth in this paragraph, all Rights that are, or (under certain
circumstances specified in the Rights Agreement) were, beneficially owned by any
Acquiring Person
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will be null and void. However, Rights are not exercisable following the
occurrence of the event set forth above until such time as the Rights are no
longer redeemable by Woolworth.
In the event that, at any time following the Stock Acquisition Date, (i)
Woolworth engages in a merger or other business combination transaction in which
Woolworth is not the surviving corporation (other than with an entity which
acquired the shares pursuant to a Qualified Offer), (ii) Woolworth engages in a
merger or other business combination transaction in which Woolworth is the
surviving corporation and the Woolworth Common Stock is changed or exchanged, or
(iii) 50% or more of Woolworth's assets, cash flow or earning power is sold or
transferred, each holder of a Right (except Rights which have previously been
voided as set forth above) shall thereafter have the right to receive, upon
exercise, common stock of the acquiring company having a value equal to two
times the exercise price of the Right. The events set forth in this paragraph
are referred to as the "Triggering Events."
At any time after a person becomes an Acquiring Person and prior to the
acquisition by such person or group of fifty percent (50%) or more of the
outstanding Woolworth Common Stock, the Board may exchange the Rights (other
than Rights owned by such person or group which have become void), in whole or
in part, at an exchange ratio of one share of Woolworth Common Stock, or one
two-hundredth of a share of Series B Preferred Stock (or of a share of a class
or series of Woolworth's preferred stock having equivalent rights, preferences
and privileges), per Right (subject to adjustment).
Until a Right is exercised, the holder thereof, as such, will have no
rights as a stockholder of Woolworth, including, without limitation, the right
to vote or to receive dividends.
DESCRIPTION OF WOOLWORTH CAPITAL STOCK
The summary of the terms of the capital stock of Woolworth set forth below
does not purport to be complete and is qualified by reference to the Woolworth
Certificate of Incorporation and Woolworth By-Laws. Copies of the Woolworth
Certificate of Incorporation and Woolworth By-Laws are incorporated by reference
herein and will be sent to holders of shares of Sports Authority Common Stock
upon request. See "AVAILABLE INFORMATION" and "INCORPORATION OF DOCUMENTS BY
REFERENCE."
AUTHORIZED CAPITAL STOCK
Under the Woolworth Certificate of Incorporation, Woolworth's authorized
capital stock consists of 500,000,000 shares of Woolworth Common Stock and
7,000,000 shares of preferred stock, par value $1.00 per share ("Preferred
Stock").
WOOLWORTH COMMON STOCK
The holders of Woolworth Common Stock are entitled to one vote for each
share held of record on all matters submitted to a vote by stockholders. Subject
to preferences that may be applicable to any holders of outstanding Preferred
Stock, holders of Woolworth Common Stock are entitled to receive ratably such
dividends as may be declared by the Woolworth Board out of funds legally
available therefor. In the event of a liquidation or dissolution of Woolworth,
holders of Woolworth Common Stock are entitled to share ratably in all assets
remaining after payment of liabilities and the liquidation preference of any
outstanding Preferred Stock.
Holders of Woolworth Common Stock have no preemptive rights and have no
rights to convert their Woolworth Common Stock into any other securities. All of
the outstanding shares of Woolworth Common Stock are, and the shares of
Woolworth Common Stock issued pursuant to the Merger will be, duly authorized,
validly issued, fully paid and nonassessable.
WOOLWORTH PREFERRED STOCK
The Woolworth Board is authorized to designate any series of Preferred
Stock and the powers, preferences and rights of the shares of such series and
the qualifications, limitations or restrictions thereof
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without further action by the holders of Woolworth Common Stock. As of the
Record Date, no shares of Preferred Stock were issued or outstanding.
The Woolworth Board may create and issue a series of Preferred Stock with
rights, privileges or restrictions, and adopt a stockholder rights plan, having
the effect of discriminating against an existing or prospective holder of such
securities as a result of such security holder beneficially owning or commencing
a tender offer for a substantial amount of Woolworth Common Stock. One of the
effects of authorized but unissued and unreserved shares of capital stock may be
to render more difficult or discourage an attempt by a potential acquiror to
obtain control of Woolworth by means of a merger, tender offer, proxy contest or
otherwise, and thereby protect the continuity of Woolworth's management. The
issuance of such shares of capital stock may have the effect of delaying,
deferring or preventing a change in control of Woolworth without any further
action by the stockholders of Woolworth. To date, 1,000,000 shares of Preferred
Stock have been designated Series B Preferred Stock for issuance in connection
with the exercise of the Rights described below.
RIGHTS
Each share of Woolworth Common Stock currently has a Right associated with
it. On March 11, 1998, Woolworth declared a dividend distribution of one Right
for each outstanding share of Woolworth Common Stock. Under certain conditions
set forth in the Woolworth Rights Agreement, each Right may be exercised to
Purchase one two-hundredth of a share of the Series B Preferred Stock at a
Purchase price of $100, subject to adjustment. See "AVAILABLE INFORMATION" and
"COMPARISON OF STOCKHOLDER RIGHTS -- Rights Plans."
TRANSFER AGENT AND REGISTRAR
First Chicago Trust Company of New York is the transfer agent and registrar
for the Woolworth Common Stock.
It is a condition to the Merger that the shares of Woolworth Common Stock
to be issued in connection with the Merger be approved for listing on the NYSE
on or prior to the Effective Time, subject to official notice of issuance. If
the Merger is consummated, Sports Authority Common Stock will cease to be listed
on the NYSE and will be deregistered under the Exchange Act.
LEGAL OPINIONS
The legality of the shares of Woolworth Common Stock to be issued in
connection with the Merger is being passed upon for Woolworth by Skadden, Arps,
Slate, Meagher & Flom LLP, special counsel to Woolworth.
Certain of the tax consequences of the Merger will be passed upon at the
Effective Time, as a condition to the Merger, by Skadden, Arps, Slate, Meagher &
Flom LLP, on behalf of Woolworth, and by Morgan, Lewis & Bockius LLP, on behalf
of Sports Authority. See "THE MERGER -- Certain Federal Income Tax
Consequences."
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EXPERTS
The consolidated balance sheets of Woolworth as of January 31, 1998 and
January 25, 1997 and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the years in the three year
period ended January 31, 1998, incorporated by reference in this Proxy
Statement/Prospectus, have been incorporated herein in reliance on the report of
KPMG Peat Marwick LLP, independent accountants, given on the authority of that
firm as experts in accounting and auditing.
The consolidated financial statements of The Sports Authority, Inc. and its
subsidiaries at January 25, 1998 and January 26, 1997 and for each of the three
years in the period ended January 25, 1998 incorporated by reference in this
Prospectus and by reference to The Sports Authority, Inc. Annual Report on Form
10-K, have been so incorporated in reliance on the report of Price Waterhouse
LLP, independent certified public accountants, given on the authority of said
firm as experts in auditing and accounting.
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ANNEX A
AGREEMENT AND PLAN OF MERGER
AMONG
WOOLWORTH CORPORATION,
LIBERTY MERGER SUB INC.
AND
THE SPORTS AUTHORITY, INC.
DATED AS OF MAY 7, 1998
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TABLE OF CONTENTS
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ARTICLE I
THE MERGER
SECTION 1.1 The Merger............................................... A-6
SECTION 1.2 Closing.................................................. A-6
SECTION 1.3 Effective Time........................................... A-6
SECTION 1.4 Effects of the Merger.................................... A-6
SECTION 1.5 Certificate of Incorporation and By-laws of the Surviving A-7
Corporation..............................................
SECTION 1.6 Directors and Officers................................... A-7
ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT CORPORATIONS;
EXCHANGE OF CERTIFICATES
SECTION 2.1 Effect on Capital Stock.................................. A-7
(a) Cancellation of Treasury Stock and Woolworth-Owned Stock.... A-7
(b) Conversion of Sports Authority Common Stock................. A-7
(c) Conversion of Common Stock of Sub........................... A-7
SECTION 2.2 Exchange of Certificates................................. A-7
(a) Exchange Agent.............................................. A-7
(b) Exchange Procedures......................................... A-8
(c) Distributions with Respect to Unexchanged Shares............ A-8
(d) No Further Ownership Rights in Sports Authority Common
Stock....................................................... A-9
(e) No Fractional Shares........................................ A-9
(f) Termination of Exchange Fund................................ A-10
(g) No Liability................................................ A-10
(h) Investment of Exchange Fund................................. A-10
(i) Lost Certificates........................................... A-10
SECTION 2.3 Certain Adjustments...................................... A-10
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.1 Representations and Warranties of Sports Authority....... A-10
(a) Organization, Standing and Corporate Power.................. A-10
(b) Subsidiaries................................................ A-11
(c) Capital Structure........................................... A-11
(d) Authority; Noncontravention................................. A-12
(e) SEC Documents; Undisclosed Liabilities...................... A-13
(f) Information Supplied........................................ A-13
(g) Absence of Certain Changes or Events........................ A-13
(h) Compliance with Applicable Laws; Litigation................. A-14
(i) Absence of Changes in Benefit Plans......................... A-14
(j) ERISA Compliance............................................ A-15
(k) Taxes....................................................... A-16
(l) Voting Requirements......................................... A-16
(m) State Takeover Statutes..................................... A-17
(n) Accounting Matters.......................................... A-17
(o) Brokers..................................................... A-17
(p) Opinion of Financial Advisor................................ A-17
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(q) Ownership of Woolworth Common Stock......................... A-17
(r) Intellectual Property....................................... A-17
(s) Certain Contracts........................................... A-17
SECTION 3.2 Representations and Warranties of Woolworth.............. A-18
(a) Organization, Standing and Corporate Power.................. A-18
(b) Subsidiaries................................................ A-18
(c) Capital Structure........................................... A-18
(d) Authority; Noncontravention................................. A-19
(e) SEC Documents; Undisclosed Liabilities...................... A-20
(f) Information Supplied........................................ A-20
(g) Absence of Certain Changes or Events........................ A-21
(h) Compliance with Applicable Laws; Litigation................. A-21
(i) Absence of Changes in Benefit Plans......................... A-21
(j) ERISA Compliance............................................ A-22
(k) Taxes....................................................... A-23
(l) Voting Requirements......................................... A-23
(m) Accounting Matters.......................................... A-23
(n) Brokers..................................................... A-23
(o) Opinion of Financial Advisor................................ A-23
(p) Ownership of Sports Authority Common Stock.................. A-23
(q) Certain Contracts........................................... A-23
ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS
SECTION 4.1 Conduct of Business...................................... A-24
(a) Conduct of Business by Sports Authority..................... A-24
(b) Conduct of Business by Woolworth............................ A-25
(c) Other Actions............................................... A-25
(d) Advice of Changes........................................... A-25
SECTION 4.2 No Solicitation by Sports Authority...................... A-26
ARTICLE V
ADDITIONAL AGREEMENTS
SECTION 5.1 Preparation of the Form S-4 and the Proxy
Statement/Prospectus; Stockholders Meeting.............. A-27
SECTION 5.2 Letters of Sports Authority's Accountants............... A-28
SECTION 5.3 Letters of Woolworth's Accountants...................... A-28
SECTION 5.4 Access to Information; Confidentiality.................. A-29
SECTION 5.5 Reasonable Best Efforts................................. A-29
SECTION 5.6 Stock Options........................................... A-29
SECTION 5.7 Indemnification, Exculpation and Insurance.............. A-30
SECTION 5.8 Fees and Expenses....................................... A-31
SECTION 5.9 Public Announcements.................................... A-31
SECTION 5.10 Affiliates.............................................. A-31
SECTION 5.11 NYSE Listing............................................ A-31
SECTION 5.12 Stockholder Litigation.................................. A-32
SECTION 5.13 Tax Treatment........................................... A-32
SECTION 5.14 Pooling of Interests.................................... A-32
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SECTION 5.15 Standstill Agreements; Confidentiality Agreements....... A-32
SECTION 5.16 Conveyance Taxes........................................ A-32
SECTION 5.17 Sports Authority Convertible Notes...................... A-32
SECTION 5.18 Sports Authority Headquarters........................... A-32
ARTICLE VI
CONDITIONS PRECEDENT
SECTION 6.1 Conditions to Each Party's Obligation to Effect the A-33
Merger...................................................
(a) Stockholder Approval........................................ A-33
(b) HSR Act..................................................... A-33
(c) Governmental and Regulatory Approvals....................... A-33
(d) No Injunctions or Restraints................................ A-33
(e) Form S-4.................................................... A-33
(f) NYSE Listing................................................ A-33
(g) Pooling Letters............................................. A-33
SECTION 6.2 Conditions to Obligations of Woolworth................... A-33
(a) Representations and Warranties.............................. A-33
(b) Performance of Obligations of Sports Authority.............. A-34
(c) Tax Opinion................................................. A-34
(d) No Material Adverse Change.................................. A-34
SECTION 6.3 Conditions to Obligations of Sports Authority............ A-34
(a) Representations and Warranties.............................. A-34
(b) Performance of Obligations of Woolworth..................... A-34
(c) Tax Opinions................................................ A-34
(d) No Material Adverse Change.................................. A-35
SECTION 6.4 Frustration of Closing Conditions........................ A-35
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
SECTION 7.1 Termination.............................................. A-35
SECTION 7.2 Effect of Termination.................................... A-36
SECTION 7.3 Amendment................................................ A-36
SECTION 7.4 Extension; Waiver........................................ A-36
SECTION 7.5 Procedure for Termination, Amendment, Extension or A-36
Waiver...................................................
ARTICLE VIII
GENERAL PROVISIONS
SECTION 8.1 Nonsurvival of Representations and Warranties............ A-36
SECTION 8.2 Notices.................................................. A-36
SECTION 8.3 Definitions.............................................. A-37
SECTION 8.4 Interpretation........................................... A-37
SECTION 8.5 Counterparts............................................. A-38
SECTION 8.6 Entire Agreement; No Third-Party Beneficiaries........... A-38
SECTION 8.7 Governing Law............................................ A-38
SECTION 8.8 Assignment............................................... A-38
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SECTION 8.9 Consent to Jurisdiction.................................. A-38
SECTION 8.10 Headings................................................ A-38
SECTION 8.11 Severability............................................ A-38
Exhibit A Form of Affiliate Letter................................... A-40
Exhibit B Sports Authority Tax Representations....................... A-43
Exhibit C Woolworth Tax Representations.............................. A-45
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AGREEMENT AND PLAN OF MERGER dated as of May 7, 1998, between WOOLWORTH
CORPORATION, a New York corporation ("Woolworth"), LIBERTY MERGER SUB INC., a
Delaware corporation ("Sub"), and THE SPORTS AUTHORITY, INC., a Delaware
corporation ("Sports Authority").
WHEREAS, the respective Boards of Directors of Woolworth, Sub and Sports
Authority have each approved the merger of Sub with and into Sports Authority
(the "Merger"), upon the terms and subject to the conditions set forth in this
Agreement, whereby each issued and outstanding share of common stock, par value
$.01 per share, of Sports Authority ("Sports Authority Common Stock"), other
than shares owned by Woolworth or Sports Authority, will be converted into the
right to receive the Merger Consideration (as defined in Section 2.1(b));
WHEREAS, the respective Boards of Directors of Woolworth, Sub and Sports
Authority have each determined that the Merger and the other transactions
contemplated hereby are consistent with, and in furtherance of, their respective
business strategies and goals and are in the best interests of their respective
stock holders;
WHEREAS, the parties desire to make certain representations, warranties,
covenants and agreements in connection with the Merger and also to prescribe
various conditions to the Merger;
WHEREAS, for federal income tax purposes, it is intended that the Merger
will qualify as a reorganization under the provisions of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code") and this Agreement is
hereby adopted as a plan of reorganization; and
WHEREAS, for financial accounting purposes, it is intended that the Merger
will be accounted for as a pooling of interests transaction under United States
generally accepted accounting principles ("GAAP").
NOW, THEREFORE, in consideration of the representations, warranties,
covenants and agreements contained in this Agreement, the parties agree as
follows:
ARTICLE I
THE MERGER
SECTION 1.1 The Merger. Upon the terms and subject to the conditions set
forth in this Agreement, and in accordance with the Delaware General Corporation
Law (the "DGCL"), Sub shall be merged with and into Sports Authority at the
Effective Time (as defined in Section 1.3). Following the Effective Time, Sports
Authority shall be the surviving corporation (the "Surviving Corporation") and
shall succeed to and assume all the rights and obligations of Sub in accordance
with the DGCL.
SECTION 1.2 Closing. The closing of the Merger (the "Closing") will take
place at 10:00 a.m. on a date to be specified by the parties (the "Closing
Date"), which shall be no later than the second business day after satisfaction
or waiver of the conditions set forth in Article VI, unless another time or date
is agreed to by the parties hereto. The Closing will be held at such location in
the City of New York as is agreed to by the parties hereto.
SECTION 1.3 Effective Time. Subject to the provisions of this Agreement,
as soon as practicable on the Closing Date, the parties shall cause the Merger
to be consummated by filing a certificate of merger or other appropriate
documents (in any such case, the "Certificate of Merger") executed in accordance
with the relevant provisions of the DGCL and shall make all other filings or
recordings required under the DGCL. The Merger shall become effective at such
time as the Certificate of Merger is duly filed with the Secretary of State of
Delaware, or at such subsequent date or time as Sub and Sports Authority shall
agree and specify in the Certificate of Merger (the time the Merger becomes
effective being hereinafter referred to as the "Effective Time").
SECTION 1.4 Effects of the Merger. The Merger shall have the effects set
forth in Section 259 of the DGCL.
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SECTION 1.5 Certificate of Incorporation and By-laws of the Surviving
Corporation. The certificate of incorporation of Sub, as in effect immediately
prior to the Effective Time, shall be amended as of the Effective Time so that
Article First of such certificate of incorporation reads in its entirety as
follows: "The name of the Corporation is 'The Sports Authority, Inc."' and, as
so amended, such certificate of incorporation shall be the certificate of
incorporation of the Surviving Corporation until thereafter changed or amended
as provided therein or by applicable law. The by-laws of Sub, as in effect
immediately prior to the Effective Time, shall be the by-laws of the Surviving
Corporation until thereafter changed or amended as provided therein or by
applicable law.
SECTION 1.6 Directors and Officers. The directors of Sub and the officers
of Sports Authority at the Effective Time shall, from and after the Effective
Time, be the directors and officers, respectively, of the Surviving Corporation
until their successors shall have been duly elected or appointed or qualified or
until their earlier death, resignation or removal in accordance with the
certificate of incorporation and the by-laws of the Surviving Corporation.
ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL STOCK
OF THE CONSTITUENT CORPORATIONS;
EXCHANGE OF CERTIFICATES
SECTION 2.1 Effect on Capital Stock. As of the Effective Time, by virtue
of the Merger and without any action on the part of the holder of any shares of
Sports Authority Common Stock:
(a) Cancellation of Treasury Stock and Woolworth-Owned Stock. Each share
of Sports Authority Common Stock that is owned by Sports Authority or Woolworth
shall automatically be cancelled and retired and shall cease to exist, and no
consideration shall be delivered in exchange therefor.
(b) Conversion of Sports Authority Common Stock. Subject to Section
2.2(e), each issued and outstanding share of Sports Authority Common Stock
(other than shares to be cancelled in accordance with Section 2.1(a)) shall be
converted into the right to receive 0.80 (the "Exchange Ratio") validly issued,
fully paid and nonassessable shares of common stock, par value $.01 per share,
of Woolworth (including the related Preferred Stock Purchase Rights issued
pursuant to the Rights Agreement, dated March 11, 1998, between Woolworth and
First Chicago Trust Company of New York (the "Rights Agreement"), the "Woolworth
Common Stock"). The consideration to be issued to holders of Sports Authority
Common Stock is referred to herein as the "Merger Consideration." As of the
Effective Time, all such shares of Sports Authority Common Stock shall no longer
be outstanding and shall automatically be cancelled and retired and shall cease
to exist, and each holder of a certificate representing any such shares of
Sports Authority Common Stock shall cease to have any rights with respect
thereto, except the right to receive the Merger Consideration and any cash in
lieu of fractional shares of Woolworth Common Stock to be issued or paid in
consideration therefor upon surrender of such certificate in accordance with
Section 2.2, without interest.
(c) Conversion of Common Stock of Sub. Each issued and out standing share
of common stock, par value $.01 per share, of Sub shall be converted into one
validly issued, fully paid and nonassessable share of common stock of the
Surviving Corporation.
SECTION 2.2 Exchange of Certificates. (a) Exchange Agent. As of the
Effective Time, Woolworth shall enter into an agreement with such bank or trust
company as may be designated by Woolworth and reasonably satisfactory to Sports
Authority (the "Exchange Agent"), which shall provide that Woolworth shall
deposit with the Exchange Agent as of the Effective Time, for the benefit of the
holders of shares of Sports Authority Common Stock, for exchange in accordance
with this Article II, through the Exchange Agent, certificates representing the
shares of Woolworth Common Stock (such shares of Woolworth Common Stock,
together with any dividends or distributions with respect thereto with a record
date after the Effective Time, any Excess Shares (as defined in Section 2.2(e))
and any cash (including cash proceeds from the sale of the Excess Shares)
payable in lieu of any fractional shares of Woolworth Common Stock being
hereinafter
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referred to as the "Exchange Fund") issuable pursuant to Section 2.1 in exchange
for outstanding shares of Sports Authority Common Stock.
(b) Exchange Procedures. As soon as reasonably practicable after the
Effective Time, the Exchange Agent shall mail to each holder of record of a
certificate or certificates which immediately prior to the Effective Time
represented outstanding shares of Sports Authority Common Stock (the
"Certificates") whose shares were converted into the right to receive the Merger
Consideration pursuant to Section 2.1, (i) a letter of transmittal (which shall
specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon delivery of the Certificates to the Exchange
Agent and shall be in such form and have such other provisions as Sports
Authority and Woolworth may reasonably specify) and (ii) instructions for use in
surrendering the Certificates in exchange for the Merger Consideration. Upon
surrender of a Certificate for cancellation to the Exchange Agent, together with
such letter of transmittal, duly executed, and such other documents as may
reasonably be required by the Exchange Agent, the holder of such Certificate
shall be entitled to receive in exchange therefor a certificate representing
that number of whole shares of Woolworth Common Stock which such holder has the
right to receive pursuant to the provisions of this Article II, certain
dividends or other distributions in accordance with Section 2.2(c) and cash in
lieu of any fractional share of Woolworth Common Stock in accordance with
Section 2.2(e), and the Certificate so surrendered shall forthwith be cancelled.
Notwithstanding anything to the contrary contained herein, no certificate
representing Woolworth Common Stock or cash in lieu of a fractional share
interest shall be delivered to a person who is an affiliate of Sports Authority
for purposes of qualifying the Merger for pooling of interests accounting
treatment under Opinion 16 of the APB and applicable Securities and Exchange
Commission ("SEC") rules and regulations, unless such person has executed and
delivered an agreement in the form of Exhibit A hereto. In the event of a
surrender of a Certificate representing shares of Sports Authority Common Stock
which are not registered in the transfer records of Sports Authority under the
name of the person surrendering such Certificate, a certificate representing the
proper number of shares of Woolworth Common Stock may be issued to a person
other than the person in whose name the Certificate so surrendered is registered
if such Certificate shall be properly endorsed or otherwise be in proper form
for transfer and the person requesting such issuance shall pay any transfer or
other taxes required by reason of the issuance of shares of Woolworth Common
Stock to a person other than the registered holder of such Certificate or
establish to the satisfaction of Woolworth that such tax has been paid or is not
applicable. Until surrendered as contemplated by this Section 2.2, each
Certificate shall be deemed at any time after the Effective Time to represent
only the right to receive upon such surrender the Merger Consideration which the
holder thereof has the right to receive in respect of such Certificate pursuant
to the provisions of this Article II, certain dividends or other distributions
in accordance with Section 2.2(c) and cash in lieu of any fractional share of
Woolworth Common Stock in accordance with Section 2.2(e). No interest shall be
paid or will accrue on any cash payable to holders of Certificates pursuant to
the provisions of this Article II.
(c) Distributions with Respect to Unexchanged Shares. No dividends or
other distributions with respect to Woolworth Common Stock with a record date
after the Effective Time shall be paid to the holder of any unsurrendered
Certificate with respect to the shares of Woolworth Common Stock represented
thereby, and, in the case of Certificates representing Sports Authority Common
Stock, no cash payment in lieu of fractional shares shall be paid to any such
holder pursuant to Section 2.2(e), and all such dividends, other distributions
and cash in lieu of fractional shares of Woolworth Common Stock shall be paid by
Woolworth to the Exchange Agent and shall be included in the Exchange Fund, in
each case until the surrender of such Certificate in accordance with this
Article II. Subject to the effect of applicable escheat or similar laws,
following surrender of any such Certificate there shall be paid to the holder of
the certificate representing whole shares of Woolworth Common Stock issued in
exchange therefor, without interest, (i) at the time of such surrender, the
amount of dividends or other distributions with a record date after the
Effective Time theretofore paid with respect to such whole shares of Woolworth
Common Stock and, in the case of Certificates representing Sports Authority
Common Stock, the amount of any cash payable in lieu of a fractional share of
Woolworth Common Stock to which such holder is entitled pursuant to Section
2.2(e) and (ii) at the appropriate payment date, the amount of dividends or
other distributions with a record date after the Effective Time and with a
payment date subsequent to such surrender payable with respect to such whole
shares of Woolworth Common Stock.
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(d) No Further Ownership Rights in Sports Authority Common Stock. All
shares of Woolworth Common Stock issued upon the surrender for exchange of
Certificates in accordance with the terms of this Article II (including any cash
paid pursuant to this Article II) shall be deemed to have been issued (and paid)
in full satisfaction of all rights pertaining to the outstanding shares of
Sports Authority Common Stock, theretofore represented by such Certificates,
subject, however, to the Surviving Corporation's obligation to pay any dividends
or make any other distributions with a record date prior to the Effective Time
which may have been declared or made by Sports Authority on such shares of
Sports Authority Common Stock which remain unpaid at the Effective Time, and
there shall be no further registration of transfers on the stock transfer books
of the Surviving Corporation of the shares of Sports Authority Common Stock
which were outstanding immediately prior to the Effective Time. If, after the
Effective Time, Certificates are presented to the Surviving Corporation or the
Exchange Agent for any reason, they shall be cancelled and exchanged as provided
in this Article II, except as otherwise provided by law.
(e) No Fractional Shares. (i) No certificates or scrip representing
fractional shares of Woolworth Common Stock shall be issued upon the surrender
for exchange of Certificates, no dividend or distribution of Woolworth shall
relate to such fractional share interests and such fractional share interests
will not entitle the owner thereof to vote or to any rights of a stockholder of
Woolworth.
(ii) As promptly as practicable following the Effective Time, the
Exchange Agent shall determine the excess of (A) the number of whole shares
of Woolworth Common Stock delivered to the Exchange Agent by Woolworth
pursuant to Section 2.2(a) over (B) the aggregate number of whole shares of
Woolworth Common Stock to be distributed to former holders of Sports
Authority Common Stock pursuant to Section 2.2(b) (such excess being herein
called the "Excess Shares"). Following the Effective Time, the Exchange
Agent shall, on behalf of the former stockholders of Sports Authority, sell
the Excess Shares at then-prevailing prices on the New York Stock Exchange,
Inc. ("NYSE"), all in the manner provided in Section 2.2(e)(iii).
(iii) The sale of the Excess Shares by the Exchange Agent shall be
executed on the NYSE through one or more member firms of the NYSE and shall
be executed in round lots to the extent practicable. The Exchange Agent
shall use reasonable efforts to complete the sale of the Excess Shares as
promptly following the Effective Time as, in the Exchange Agent's sole
judgment, is practicable consistent with obtaining the best execution of
such sales in light of prevailing market conditions. Until the net proceeds
of such sale or sales have been distributed to the holders of Certificates
formerly representing Sports Authority Common Stock, the Exchange Agent
shall hold such proceeds in trust for such holders (the "Common Shares
Trust"). The Surviving Corporation shall pay all commissions, transfer
taxes and other out-of-pocket transaction costs, including the expenses and
compensation of the Exchange Agent incurred in connection with such sale of
the Excess Shares. The Exchange Agent shall determine the portion of the
Common Shares Trust to which each former holder of Sports Authority Common
Stock is entitled, if any, by multiplying the amount of the aggregate net
proceeds comprising the Common Shares Trust by a fraction, the numerator of
which is the amount of the fractional share interest to which such former
holder of Sports Authority Common Stock is entitled (after taking into
account all shares of Sports Authority Common Stock held at the Effective
Time by such holder) and the denominator of which is the aggregate amount
of fractional share interests to which all former holders of Sports
Authority Common Stock are entitled.
(iv) Notwithstanding the provisions of Section 2.2(e)(ii) and (iii),
Woolworth may elect at its option, exercised prior to the Effective Time,
in lieu of the issuance and sale of Excess Shares and the making of the
payments hereinabove contemplated, to pay each former holder of Sports
Authority Common Stock an amount in cash equal to the product obtained by
multiplying (A) the fractional share interest to which such former holder
(after taking into account all shares of Sports Authority Common Stock held
at the Effective Time by such holder) would otherwise be entitled by (B)
the average of the closing prices of the Woolworth Common Stock as reported
on the NYSE Composite Transaction Tape (as reported in The Wall Street
Journal, or, if not reported therein, any other authoritative source)
during the ten trading days preceding the fifth trading day prior to the
Closing Date, and, in such case, all
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references herein to the cash proceeds of the sale of the Excess Shares and
similar references shall be deemed to mean and refer to the payments
calculated as set forth in this Section 2.2(e)(iv).
(v) As soon as practicable after the determination of the amount of
cash, if any, to be paid to holders of Certificates formerly representing
Sports Authority Common Stock with respect to any fractional share
interests, the Exchange Agent shall make available such amounts to such
holders of Certificates formerly representing Sports Authority Common Stock
subject to and in accordance with the terms of Section 2.2(c).
(f) Termination of Exchange Fund. Any portion of the Exchange Fund which
remains undistributed to the holders of the Certificates for six months after
the Effective Time shall be delivered to Woolworth, upon demand, and any holders
of the Certificates who have not theretofore complied with this Article II shall
thereafter look only to Woolworth for payment of their claim for Merger
Consideration, any dividends or distributions with respect to Woolworth Common
Stock and any cash in lieu of fractional shares of Woolworth Common Stock.
(g) No Liability. None of Woolworth, Sub, Sports Authority, the Surviving
Corporation or the Exchange Agent shall be liable to any person in respect of
any shares of Woolworth Common Stock, any dividends or distributions with
respect thereto, any cash in lieu of fractional shares of Woolworth Common Stock
or any cash from the Exchange Fund, in each case delivered to a public official
pursuant to any applicable abandoned property, escheat or similar law.
(h) Investment of Exchange Fund. The Exchange Agent shall invest any cash
included in the Exchange Fund, as directed by Woolworth, on a daily basis. Any
interest and other income resulting from such investments shall be paid to
Woolworth.
(i) Lost Certificates. If any Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
such Certificate to be lost, stolen or destroyed and, if required by the
Surviving Corporation, the posting by such person of a bond in such reasonable
amount as the Surviving Corporation may direct as indemnity against any claim
that may be made against it with respect to such Certificate, the Exchange Agent
shall issue in exchange for such lost, stolen or destroyed Certificate the
Merger Consideration and, if applicable, any unpaid dividends and distributions
on shares of Woolworth Common Stock deliverable in respect thereof and any cash
in lieu of fractional shares, in each case pursuant to this Agreement.
SECTION 2.3 Certain Adjustments. If between the date hereof and the
Effective Time, the outstanding shares of Sports Authority Common Stock or of
Woolworth Common Stock shall be changed into a different number of shares by
reason of any reclassification, recapitalization, split-up, combination or
exchange of shares, or any dividend payable in stock or other securities shall
be declared thereon with a record date within such period, the Exchange Ratio
shall be adjusted accordingly to provide to the holders of Sports Authority
Common Stock the same economic effect as contemplated by this Agreement prior to
such reclassification, recapitalization, split-up, combination, exchange or
dividend.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.1 Representations and Warranties of Sports Authority. Except as
disclosed in the Sports Authority Filed SEC Documents (as defined in Section
3.1(g)) or as set forth on the Disclosure Schedule delivered by Sports Authority
to Woolworth prior to the execution of this Agreement (the "Sports Authority
Disclosure Schedule") and making reference to the particular subsection of this
Agreement to which exception is being taken, Sports Authority represents and
warrants to Woolworth as follows:
(a) Organization, Standing and Corporate Power. (i) Each of Sports
Authority and its subsidiaries (as defined in Section 8.3) is a corporation or
other legal entity duly organized, validly existing and in good standing (with
respect to jurisdictions which recognize such concept) under the laws of the
jurisdiction in which it is organized and has the requisite corporate or other
power, as the case may be, and authority to carry
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on its business as now being conducted, except, as to subsidiaries, for those
jurisdictions where the failure to be so organized, existing or in good standing
individually or in the aggregate would not have a material adverse effect (as
defined in Section 8.3) on Sports Authority. Each of Sports Authority and its
subsidiaries is duly qualified or licensed to do business and is in good
standing (with respect to jurisdictions which recognize such concept) in each
jurisdiction in which the nature of its business or the ownership, leasing or
operation of its proper ties makes such qualification or licensing necessary,
except for those jurisdictions where the failure to be so qualified or licensed
or to be in good standing individually or in the aggregate would not have a
material adverse effect on Sports Authority.
(ii) Sports Authority has delivered to Woolworth prior to the
execution of this Agreement complete and correct copies of its certificate
of incorporation and by-laws, as amended to date.
(iii) In all material respects, the minute books of Sports Authority
contain accurate records of all meetings and accurately reflect all other
actions taken by the stockholders, the Board of Directors and all
committees of the Board of Directors of Sports Authority since March 31,
1995.
(b) Subsidiaries. Exhibit 21 to Sports Authority's Annual Report on Form
10-K for the fiscal year ended January 25, 1998 and Section 3.1(b) of the Sports
Authority Disclosure Schedule together include all the subsidiaries of Sports
Authority which as of the date of this Agreement are Significant Subsidiaries
(as defined in Rule 1-02 of Regulation S-X of the SEC). Except as set forth in
Section 3.1(b) of the Sports Authority Disclosure Schedule, all the outstanding
shares of capital stock of, or other equity interests in, each such Significant
Subsidiary have been validly issued and are fully paid and nonassessable and are
owned directly or indirectly by Sports Authority, free and clear of all pledges,
claims, liens, charges, encumbrances and security interests of any kind or
nature whatsoever (collectively, "Liens") and free of any other restriction
(including any restriction on the right to vote, sell or otherwise dispose of
such capital stock or other ownership interests).
(c) Capital Structure. The authorized capital stock of Sports Authority
consists of 100,000,000 shares of Sports Authority Common Stock and 5,000,000
shares of preferred stock, par value $.01 per share. At the close of business on
April 27, 1998: (i) 31,732,167 shares of Sports Authority Common Stock were
issued and outstanding; (ii) 49,231 shares of Sports Authority Common Stock were
held by Sports Authority in its treasury; (iii) no shares of Sports Authority
Preferred Stock were issued and outstanding; (iv) 4,711,240 shares of Sports
Authority Common Stock were reserved for issuance pursuant to the Stock Option
Plan, the 1996 Stock Option and Restricted Stock Plan, the Director Stock Option
Plan, the Employee Stock Purchase Plan and the Management Stock Purchase Plan,
complete and correct copies of which have been delivered to Woolworth (such
plans, collectively, the "Sports Authority Stock Plans"); and (v) 4,580,964
shares of Sports Authority Common Stock were reserved for issuance upon
conversion of Sports Authority's 5.25% Convertible Subordinated Notes due 2001
(the "Sports Authority Convertible Securities"). Section 3.1(c) of the Sports
Authority Disclosure Schedule sets forth a complete and correct list, as of
April 27, 1998, of the number of shares of Sports Authority Common Stock subject
to employee stock options or other rights to purchase or receive Sports
Authority Common Stock granted under the Sports Authority Stock Plans
(collectively, "Sports Authority Employee Stock Options"), the dates of grant
and exercise prices thereof. All outstanding shares of capital stock of Sports
Authority are, and all shares which may be issued will be, when issued, duly
authorized, validly issued, fully paid and nonassessable and not subject to
preemptive rights. Except as set forth in this Section 3.1(c) and except for
changes since April 27, 1998 resulting from the issuance of shares of Sports
Authority Common Stock pursuant to the Sports Authority Employee Stock Options,
the Sports Authority Convertible Securities or as permitted by Section
4.1(a)(i)(y) and 4.1(a)(ii), (x) there are not issued, reserved for issuance or
outstanding (A) any shares of capital stock or other voting securities of Sports
Authority, (B) any securities of Sports Authority or any Sports Authority
subsidiary convertible into or exchangeable or exercisable for shares of capital
stock or voting securities of Sports Authority, (C) any warrants, calls, options
or other rights to acquire from Sports Authority or any Sports Authority
subsidiary, and any obligation of Sports Authority or any Sports Authority
subsidiary to issue, any capital stock, voting securities or securities
convertible into or exchangeable or exercisable for capital stock or voting
securities of Sports Authority, and (y) there are no outstanding obligations of
Sports Authority or any Sports Authority subsidiary to repurchase, redeem or
otherwise acquire any such securities or to issue, deliver or sell, or cause to
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be issued, delivered or sold, any such securities. Except as set forth in
Section 3.1(c) of the Sports Authority Disclosure Schedule, there are no
outstanding (A) securities of Sports Authority or any Sports Authority
subsidiary convertible into or exchangeable or exercisable for shares of capital
stock or other voting securities or ownership interests in any Sports Authority
subsidiary, (B) warrants, calls, options or other rights to acquire from Sports
Authority or any Sports Authority subsidiary, and any obligation of Sports
Authority or any Sports Authority subsidiary to issue, any capital stock, voting
securities or other ownership interests in, or any securities convertible into
or exchangeable or exercisable for any capital stock, voting securities or
ownership interests in, any Sports Authority subsidiary or (C) obligations of
Sports Authority or any Sports Authority subsidiary to repurchase, redeem or
otherwise acquire any such outstanding securities of Sports Authority
subsidiaries or to issue, deliver or sell, or cause to be issued, delivered or
sold, any such securities. Except as set forth in Section 3.1(c) of the Sports
Authority Disclosure Schedule, neither Sports Authority nor any Sports Authority
subsidiary is a party to any agreement restricting the transfer of, relating to
the voting of, requiring registration of, or granting any preemptive or, except
as provided by the terms of the Sports Authority Employee Stock Options and the
Sports Authority Convertible Securities, antidilutive rights with respect to,
any securities of the type referred to in the two preceding sentences. Other
than the Sports Authority subsidiaries, Sports Authority does not directly or
indirectly beneficially own any securities or other beneficial ownership
interests in any other entity except for non-controlling investments made in the
ordinary course of business in entities which are not individually or in the
aggregate material to Sports Authority and its subsidiaries as a whole.
(d) Authority; Noncontravention. Sports Authority has all requisite
corporate power and authority to enter into this Agreement and, subject, in the
case of the Merger, to the Sports Authority Stockholder Approval (as defined in
Section 3.1(l)) to consummate the transactions contemplated by this Agreement.
The execution and delivery of this Agreement by Sports Authority and the
consummation by Sports Authority of the transactions contemplated by this
Agreement have been duly authorized by all necessary corporate action on the
part of Sports Authority, subject, in the case of the Merger, to the Sports
Authority Stockholder Approval. This Agreement has been duly executed and
delivered by Sports Authority and, assuming the due authorization, execution and
delivery by Woolworth and Sub, constitutes the legal, valid and binding
obligation of Sports Authority, enforceable against Sports Authority in
accordance with its terms. Except as set forth in Section 3.1(d) of the Sports
Authority Disclosure Schedule, the execution and delivery of this Agreement do
not, and the consummation of the transactions contemplated by this Agreement and
compliance with the provisions of this Agreement will not, conflict with, or
result in any violation of, or default (with or without notice or lapse of time,
or both) under, or give rise to a right of termination, cancellation or
acceleration of any obligation or loss of a benefit under, or result in the
creation of any Lien upon any of the properties or assets of Sports Authority or
any of its subsidiaries under, (i) the certificate of incorporation or by-laws
of Sports Authority or the comparable organizational documents of any of its
subsidiaries, (ii) any loan or credit agreement, note, bond, mortgage,
indenture, lease or other agreement, instrument, permit, concession, franchise,
license or similar authorization applicable to Sports Authority or any of its
subsidiaries or their respective properties or assets or (iii) subject to the
governmental filings and other matters referred to in the following sentence,
any judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to Sports Authority or any of its subsidiaries or their respective
properties or assets, other than, in the case of clauses (ii) and (iii), any
such conflicts, violations, defaults, rights, losses or Liens that individually
or in the aggregate would not (x) have a material adverse effect on Sports
Authority or (y) reasonably be expected to impair the ability of Sports
Authority to perform its obligations under this Agreement. No consent, approval,
order or authorization of, action by or in respect of, or registration,
declaration or filing with, any federal, state, local or foreign government, any
court, administrative, regulatory or other governmental agency, commission or
authority or any nongovernmental self-regulatory agency, commission or authority
(a "Governmental Entity") is required by or with respect to Sports Authority or
any of its subsidiaries in connection with the execution and delivery of this
Agreement by Sports Authority or the consummation by Sports Authority of the
transactions contemplated by this Agreement, except for (1) the filing of a
pre-merger notification and report form by Sports Authority under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"); (2) the filing with the SEC of (A) a proxy statement relating to the
Sports Authority Stockholders Meeting (as defined in Section 5.1(b)) (such proxy
statement, as amended or supplemented
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from time to time, the "Proxy Statement/Prospectus"), and (B) such reports under
Section 13(a), 13(d), 15(d) or 16(a) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), as may be required in connection with this
Agreement and the transactions contemplated by this Agreement; (3) the filing of
the Certificate of Merger with the Secretary of State of Delaware and such
filings with Governmental Entities to satisfy the applicable requirements of
state securities or "blue sky" laws; (4) filings, if required, under the
Competition Act of Canada; and (5) such consents, approvals, orders or
authorizations the failure of which to be made or obtained individually or in
the aggregate would not (x) have a material adverse effect on Sports Authority
or (y) reasonably be expected to impair the ability of Sports Authority to
perform its obligations under this Agreement.
(e) SEC Documents; Undisclosed Liabilities. Sports Authority has filed all
required registration statements, prospectuses, reports, schedules, forms,
statements and other documents (including exhibits and all other information
incorporated therein) with the SEC since January 27, 1996 (the "Sports Authority
SEC Documents"). As of their respective dates, the Sports Authority SEC
Documents complied in all material respects with the requirements of the
Securities Act of 1933, as amended (the "Securities Act"), or the Exchange Act,
as the case may be, and the rules and regulations of the SEC promulgated
thereunder applicable to such Sports Authority SEC Documents, and none of the
Sports Authority SEC Documents when filed (as amended, restated or supplemented
by subsequently filed Sports Authority SEC Documents) contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. The financial
statements of Sports Authority included in the Sports Authority SEC Documents
comply as to form, as of their respective dates of filing with the SEC, in all
material respects with applicable accounting requirements and the published
rules and regulations of the SEC with respect thereto, have been prepared in
accordance with GAAP (except, in the case of unaudited statements, as permitted
by Form 10-Q of the SEC) 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 Sports Authority and its consolidated
subsidiaries as of the dates thereof and the consolidated results of their
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments). Except (i) as
reflected in such financial statements or in the notes thereto or (ii) for
liabilities incurred in connection with this Agreement or the transactions
contemplated hereby, neither Sports Authority nor any of its subsidiaries has
any liabilities or obligations of any nature which, individually or in the
aggregate, would have a material adverse effect on Sports Authority.
(f) Information Supplied. None of the information supplied or to be
supplied by Sports Authority specifically for inclusion or incorporation by
reference in (i) the registration statement on Form S-4 to be filed with the SEC
by Woolworth in connection with the issuance of Woolworth Common Stock in the
Merger (the "Form S-4"), will at the time the Form S-4 becomes effective under
the Securities Act, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein not misleading or (ii) the Proxy Statement/Prospectus will,
at the date it is first mailed to Sports Authority's stockholders or at the time
of the Sports Authority Stockholders Meeting, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading. The Proxy
Statement/Prospectus will comply as to form in all material respects with the
requirements of the Securities Act and the Exchange Act and the rules and
regulations thereunder with respect to information supplied by Sports Authority
specifically for inclusion or incorporation by reference in the Proxy
Statement/Prospectus.
(g) Absence of Certain Changes or Events. Except as set forth in Section
3.1(g) of the Sports Authority Disclosure Schedule and for liabilities incurred
in connection with this Agreement or the transactions contemplated hereby and
except as permitted by Section 4.1(a), since January 25, 1998, Sports Authority
and its subsidiaries have conducted their business only in the ordinary course
or as disclosed in any Sports Authority SEC Document filed since such date and
prior to the date hereof, and there has not been (i) any material adverse change
(as defined in Section 8.3) in Sports Authority, (ii) any declaration, setting
aside or payment of any dividend or other distribution (whether in cash, stock
or property) with respect to any
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of Sports Authority's capital stock, (iii) any split, combination or
reclassification of any of Sports Authority's capital stock or any issuance or
the authorization of any issuance of any other securities in respect of, in lieu
of or in substitution for shares of Sports Authority's capital stock, except for
issuances of Sports Authority Common Stock upon conversion of Sports Authority
Convertible Securities or upon the exercise of Sports Authority Employee Stock
Options, in each case awarded prior to the date hereof in accordance with their
present terms or issued pursuant to Section 4.1(a), (iv)(A) any granting by
Sports Authority or any of its subsidiaries to any current or former director,
executive officer or other key employee of Sports Authority or its subsidiaries
of any increase in compensation, bonus or other benefits, except for normal
increases as a result of promotions, normal increases of base pay in the
ordinary course of business or as was required under any employment agreements
in effect as of January 25, 1998, (B) any granting by Sports Authority or any of
its subsidiaries to any such current or former director, executive officer or
key employee of any increase in severance or termination pay, or (C) any entry
by Sports Authority or any of its subsidiaries into, or any amendment of, any
employment, deferred compensation, consulting, severance, termination or
indemnification agreement with any such current or former director, executive
officer or key employee, (v) except insofar as may have been disclosed in Sports
Authority SEC Documents filed and publicly available prior to the date of this
Agreement (as amended to the date hereof, the "Sports Authority Filed SEC
Documents") or required by a change in GAAP, any change in accounting methods,
principles or practices by Sports Authority materially affecting its assets,
liabilities or business, (vi) except insofar as may have been disclosed in the
Sports Authority Filed SEC Documents, any tax election that individually or in
the aggregate would have a material adverse effect on Sports Authority or any of
its tax attributes or any settlement or compromise of any material income tax
liability, or (vii) any action taken by Sports Authority or any of the Sports
Authority subsidiaries during the period from January 25, 1998 through the date
of this Agreement that, if taken during the period from the date of this
Agreement through the Effective Time would constitute a breach of Section
4.1(a).
(h) Compliance with Applicable Laws; Litigation. (i) Except as provided
in Section 3.1(h) of the Sports Authority Disclosure Schedule, Sports Authority
and its subsidiaries and employees hold all permits, licenses, variances,
exemptions, orders, registrations and approvals of all Governmental Entities
which are required for the operation of the businesses of Sports Authority and
its subsidiaries (the "Sports Authority Permits"), except where the failure to
have any such Sports Authority Permits individually or in the aggregate would
not have a material adverse effect on Sports Authority. Sports Authority and its
subsidiaries are in compliance with the terms of the Sports Authority Permits
and all applicable statutes, laws, ordinances, rules and regulations, except
where the failure so to comply individually or in the aggregate would not have a
material adverse effect on Sports Authority. As of the date of this Agreement,
except as disclosed in the Sports Authority Filed SEC Documents or in Section
3.1(h) of the Sports Authority Disclosure Schedule, no action, demand,
requirement or investigation by any Governmental Entity and no suit, action or
proceeding by any person, in each case with respect to Sports Authority or any
of its subsidiaries or any of their respective properties is pending or, to the
knowledge (as defined in Section 8.3) of Sports Authority, threatened, other
than, in each case, those the outcome of which individually or in the aggregate
would not (A) have a material adverse effect on Sports Authority or (B)
reasonably be expected to impair the ability of Sports Authority to perform its
obligations under this Agreement or prevent or materially delay the consummation
of any of the transactions contemplated by this Agreement.
(ii) Neither Sports Authority nor any Sports Authority subsidiary is
subject to any outstanding order, injunction or decree which has had or,
insofar as can be reasonably foreseen, individually or in the aggregate
will have a material adverse effect on Sports Authority.
(i) Absence of Changes in Benefit Plans. Sports Authority has delivered
to Woolworth true and complete copies of (i) all severance and employment
agreements of Sports Authority with directors, executive officers or key
employees, (ii) all severance programs and policies of each of Sports Authority
and each Sports Authority subsidiary, and (iii) all plans or arrangements of
Sports Authority and each Sports Authority subsidiary relating to its employees
which contain change in control provisions. Except as provided in Section 3.1(i)
of the Sports Authority Disclosure Schedule, since January 25, 1998 there has
not been any adoption or amendment in any material respect by Sports Authority
or any of its subsidiaries of any collective
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bargaining agreement, employment agreement, consulting agreement, severance
agreement or any material bonus, pension, profit sharing, deferred compensation,
incentive compensation, stock ownership, stock purchase, stock option, phantom
stock, retirement, vacation, severance, disability, death benefit,
hospitalization, medical or other plan, arrangement or understanding providing
benefits to any current or former employee, officer or director of Sports
Authority or any trade or business, whether or not incorporated (an "ERISA
Affiliate"), that would be deemed a "single employer" within the meaning of
Section 4001(b) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA") (collectively, the "Sports Authority Benefit Plans"), or any
material change in any actuarial or other assumption used to calculate funding
obligations with respect to any Sports Authority pension plans, or any material
change in the manner in which contributions to any Sports Authority pension
plans are made or the basis an which such contributions are determined. Schedule
3.1(i) identifies each of the Sports Authority Benefit Plans that is subject to
Section 302 or Title IV of ERISA or Section 412 of the Code.
(j) ERISA Compliance. (i) With respect to the Sports Authority Benefit
Plans, no event has occurred and, to the knowledge of Sports Authority, there
exists no condition or set of circumstances, in connection with which Sports
Authority or any of its subsidiaries could be subject to any liability that
individually or in the aggregate would have a material adverse effect on Sports
Authority under ERISA, the Code or any other applicable law.
(ii) Each Sports Authority Benefit Plan has been administered in
accordance with its terms, except for any failures so to administer any
Sports Authority Benefit Plan that individually or in the aggregate would
not have a material adverse effect on Sports Authority. Sports Authority,
its subsidiaries and all the Sports Authority Benefit Plans have been
operated, and are, in compliance with the applicable provisions of ERISA,
the Code and all other applicable laws and the terms of all applicable
collective bar gaining agreements, except for any failures to be in such
compliance that individually or in the aggregate would not have a material
adverse effect on Sports Authority. Each Sports Authority Benefit Plan that
is intended to be qualified under Section 401(a) or 401(k) of the Code has
received a favorable determination letter from the IRS that it is so
qualified and each trust established in connection with any Sports
Authority Benefit Plan that is intended to be exempt from federal income
taxation under Section 501(a) of the Code has received a determination
letter from the IRS that such trust is so exempt. To the knowledge of
Sports Authority, no fact or event has occurred since the date of any
determination letter from the IRS which is reasonably likely to affect
adversely the qualified status of any such Sports Authority Benefit Plan or
the exempt status of any such trust.
(iii) Neither Sports Authority nor any of its ERISA Affiliates has
incurred any unsatisfied liability under Title IV of ERISA (other than
liability for premiums to the Pension Benefit Guaranty Corporation arising
in the ordinary course). No Sports Authority Benefit Plan has incurred an
"accumulated funding deficiency" (within the meaning of Section 302 of
ERISA or Section 412 of the Code) whether or not waived. To the knowledge
of Sports Authority, there are not any facts or circumstances that would
materially change the funded status of any Sports Authority Benefit Plan
that is a "defined benefit" plan (as defined in Section 3(35) of ERISA)
since the date of the most recent actuarial report for such plan. No Sports
Authority Benefit Plan is a "multiemployer plan" within the meaning of
Section 3(37) of ERISA.
(iv) With respect to each of the Sports Authority Benefit Plans that
is subject to Title IV of ERISA, the present value of accrued benefits
under each such plan, based upon the actuarial assumptions used for funding
purposes in the most recent actuarial report prepared by such plan's
actuary with respect to such plan, did not, as of its latest valuation
date, exceed the then current value of the aggregate assets of such plans
allocable to such accrued benefits in any material respect.
(v) No Sports Authority Benefit Plan provides medical benefits
(whether or not insured), with respect to current or former employees after
retirement or other termination of service (other than coverage mandated by
applicable law or benefits, the full cost of which is borne by the current
or former employee) other than individual arrangements the amounts of which
are not material.
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(vi) As of the date of this Agreement, neither Sports Authority nor
any of its subsidiaries is a party to any collective bargaining or other
labor union contract applicable to persons employed by Sports Authority or
any of its subsidiaries and no collective bargaining agreement is being
negotiated by Sports Authority or any of its subsidiaries. As of the date
of this Agreement, there is no labor dispute, strike or work stoppage
against Sports Authority or any of its subsidiaries pending or, to the
knowledge of Sports Authority, threatened which may interfere with the
respective business activities of Sports Authority or any of its
subsidiaries, except where such dispute, strike or work stoppage
individually or in the aggregate would not have a material adverse effect
on Sports Authority. As of the date of this Agreement, to the knowledge of
Sports Authority, none of Sports Authority, any of its subsidiaries or any
of their respective representatives or employees has committed any material
unfair labor practice in connection with the operation of the respective
businesses of Sports Authority or any of its subsidiaries, and there is no
material charge or complaint against Sports Authority or any of its
subsidiaries by the National Labor Relations Board or any comparable
governmental agency pending or threatened in writing.
(vii) Except as set forth in Section 3.1 (j)(vii) of the Sports
Authority Disclosure Schedule, no employee of Sports Authority will be
entitled to any material payment, additional benefits or any acceleration
of the time of payment or vesting of any benefits under any Sports
Authority Benefit Plan as a result of the transactions contemplated by this
Agreement (either alone or in conjunction with any other event such as a
termination of employment).
(k) Taxes. Except as set forth in Section 3.1(k) of the Sports
Authority Disclosure Schedule, (i) Each of Sports Authority and its subsidiaries
has filed all material tax returns and reports required to be filed by it and
all such returns and reports are complete and correct in all material respects,
or requests for extensions to file such returns or reports have been timely
filed, granted and have not expired, except to the extent that such failures to
file, to be complete or correct or to have extensions granted that remain in
effect individually or in the aggregate would not have a material adverse effect
on Sports Authority. Sports Authority and each of its subsidiaries has paid (or
Sports Authority has paid on its behalf) all taxes (as defined herein) shown as
due on such returns, and the most recent financial statements contained in the
Sports Authority Filed SEC Documents reflect an adequate reserve in accordance
with GAAP for all taxes payable by Sports Authority and its subsidiaries for all
taxable periods and portions thereof accrued through the date of such financial
statements.
(ii) No deficiencies for any taxes have been proposed, asserted or
assessed against Sports Authority or any of its subsidiaries that are not
adequately reserved for, except for deficiencies that individually or in
the aggregate would not have a material adverse effect on Sports Authority.
The federal income tax returns of Sports Authority and each of its
subsidiaries consolidated in such returns for tax years through 1991 have
closed by virtue of the applicable statute of limitations.
(iii) Neither Sports Authority nor any of its subsidiaries has taken
any action or knows of any fact, agreement, plan or other circumstance that
is reasonably likely to prevent the Merger from qualifying as a
reorganization within the meaning of Section 368(a) of the Code.
(iv) As used in this Agreement, "taxes" shall include all (x) federal,
state, local or foreign income, property, sales, excise and other taxes or
similar governmental charges, including any interest, penalties or
additions with respect thereto, (y) liability for the payment of any
amounts of the type described in (x) as a result of being a member of an
affiliated, consolidated, combined or unitary group, and (z) liability for
the payment of any amounts as a result of being party to any tax sharing
agreement or as a result of any express or implied obligation to indemnify
any other person with respect to the payment of any amounts of the type
described in clause (x) or (y).
(l) Voting Requirements. The affirmative vote at the Sports Authority
Stockholders Meeting (the "Sports Authority Stockholder Approval") of the
holders of a majority of all outstanding shares of Sports Authority Common Stock
to adopt this Agreement is the only vote of the holders of any class or series
of Sports Authority's capital stock necessary to approve and adopt this
Agreement and the transactions contemplated hereby, including the Merger.
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(m) State Takeover Statutes. The Board of Directors of Sports Authority
has approved this Agreement and the transactions contemplated hereby and,
assuming the accuracy of Woolworth's representation and warranty contained in
Section 3.2(p), such approval constitutes approval of the Merger and the other
transactions contemplated hereby by the Sports Authority Board of Directors
under the provisions of Section 203 of the DGCL such that Section 203 of the
DGCL does not apply to this Agreement and the transactions contemplated hereby.
To the knowledge of Sports Authority, no other state takeover statute is
applicable to the Merger or the other transactions contemplated hereby.
(n) Accounting Matters. To its knowledge, neither Sports Authority nor
any of its affiliates (as such term is used in Section 5.11) has taken or agreed
to take any action that would prevent the business combination to be effected by
the Merger from being accounted for as a pooling of interests and Sports
Authority has no reason to believe that the Merger will not qualify for "pooling
of interests" accounting.
(o) Brokers. No broker, investment banker, financial advisor or other
person other than Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill
Lynch"), the fees and expenses of which will be paid by Sports Authority, is
entitled to any broker's, finder's, financial advisor's or other similar fee or
commission in connection with the transactions contemplated by this Agreement
based upon arrangements made by or on behalf of Sports Authority. Sports
Authority has furnished to Woolworth true and complete copies of all agreements
under which any such fees or expenses are payable and all indemnification and
other agreements related to the engagement of the persons to whom such fees are
payable.
(p) Opinion of Financial Advisor. Sports Authority has received the
opinion of Merrill Lynch dated the date of this Agreement, to the effect that,
as of such date, the Exchange Ratio for the conversion of Sports Authority
Common Stock into Woolworth Common Stock is fair from a financial point of view
to holders of shares of Sports Authority Common Stock (other than Woolworth and
its affiliates), a signed copy of which opinion has been delivered to Woolworth,
it being under stood and agreed by Woolworth that such opinion is for the
benefit of the Board of Directors of Sports Authority and may not be relied upon
by Woolworth, its affiliates or any of their respective stockholders.
(q) Ownership of Woolworth Common Stock. As of the date hereof, neither
Sports Authority nor, to its knowledge without independent investigation, any of
its affiliates, (i) beneficially owns (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, or (ii) is party to any agreement,
arrangement or understanding for the purpose of acquiring, holding, voting or
disposing of, in each case, shares of capital stock of Woolworth.
(r) Intellectual Property. Sports Authority and its subsidiaries own or
have a valid license to use all trademarks, service marks, trade names, patents
and copyrights (including any registrations or applications for registration of
any of the foregoing) (collectively, the "Sports Authority Intellectual
Property") necessary to carry on its business substantially as currently
conducted, except for such Sports Authority Intellectual Property the failure of
which to own or validly license individually or in the aggregate would not have
a material adverse effect on Sports Authority. Neither Sports Authority nor any
such subsidiary has received any notice of infringement of or conflict with,
and, to Sports Authority's knowledge, there are no infringements of or conflicts
(i) with the rights of others with respect to the use of, or (ii) by others with
respect to, any Sports Authority Intellectual Property that individually or in
the aggregate, in either such case, would have a material adverse effect on
Sports Authority.
(s) Certain Contracts. Except as set forth in the Sports Authority Filed
SEC Documents, neither Sports Authority nor any of its subsidiaries is a party
to or bound by (i) any "material contract" (as such term is defined in Item
601(b)(10) of Regulation S-K of the SEC), (ii) any non-competition agreement or
any other agreement or obligation which purports to limit in any material
respect the manner in which, or the localities in which, all or any material
portion of the business of Sports Authority and its subsidiaries (including, for
purposes of this Section 3.1(s), Woolworth and its subsidiaries, assuming the
Merger has taken place), taken as a whole, is or would be conducted, or (iii)
any contract or other agreement which would prohibit or materially delay the
consummation of the Merger or any of the transactions contemplated by this
Agreement (all contracts of the type described in clauses (i) and (ii) being
referred to herein as "Sports Authority Material Contracts"). Each Sports
Authority Material Contract is valid and binding on Sports
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Authority (or, to the extent a Sports Authority subsidiary is a party, such
subsidiary) and is in full force and effect, and Sports Authority and each
Sports Authority subsidiary have in all material respects performed all
obligations required to be performed by them to date under each Sports Authority
Material Contract, except where such noncompliance, individually or in the
aggregate, would not have a material adverse effect on Sports Authority. Neither
Sports Authority nor any Sports Authority subsidiary knows of, or has received
notice of, any material violation or material default under (nor, to the
knowledge of Sports Authority, does there exist any condition which with the
passage of time or the giving of notice or both would result in such a material
violation or material default under) any Sports Authority Material Contract,
provided, that for purposes of this sentence the term "material" shall mean
violations or defaults which would have an adverse impact of $5 million or more
in the aggregate for all Material Contracts. With respect to Sports Authority
contracts relating to the lease of real property (whether or not such contracts
constitute Sports Authority Material Contracts, as defined herein), except as
set forth in Section 3.1(s) of the Sports Authority Disclosure Schedule, the
terms and conditions of such Sports Authority contracts are not subject to a
right of the lessor to terminate or modify such contracts as a result of the
consummation of the Merger.
SECTION 3.2 Representations and Warranties of Woolworth. Except as
disclosed in the Woolworth Filed SEC Documents (as defined in Section 3.2(g)) or
as set forth on the Disclosure Schedule delivered by Woolworth to Sports
Authority prior to the execution of this Agreement (the "Woolworth Disclosure
Schedule") and making reference to the particular subsection of this Agreement
to which exception is being taken, Woolworth represents and warrants to Sports
Authority as follows:
(a) Organization, Standing and Corporate Power. (i) Each of Woolworth
and its subsidiaries (including Sub) is a corporation or other legal entity duly
organized, validly existing and in good standing (with respect to jurisdictions
which recognize such concept) under the laws of the jurisdiction in which it is
organized and has the requisite corporate or other power, as the case may be,
and authority to carry on its business as now being conducted, except, as to
subsidiaries, for those jurisdictions where the failure to be so organized,
existing or in good standing individually or in the aggregate would not have a
material adverse effect on Woolworth. Each of Woolworth and its subsidiaries is
duly qualified or licensed to do business and is in good standing (with respect
to jurisdictions which recognize such concept) in each jurisdiction in which the
nature of its business or the ownership, leasing or operation of its properties
makes such qualification or licensing necessary, except for those jurisdictions
where the failure to be so qualified or licensed or to be in good standing
individually or in the aggregate would not have a material adverse effect on
Woolworth.
(ii) Woolworth has delivered to Sports Authority prior to the
execution of this Agreement complete and correct copies of its certificate
of incorporation and by-laws, as amended to date.
(iii) Sub is a newly formed entity which has conducted no business
activities and incurred no liabilities other than incident to its formation
or pursuant to this Agreement.
(b) Subsidiaries. Exhibit 21 to Woolworth's Annual Report on Form 10-K
for the fiscal year ended January 31, 1998 includes all the subsidiaries of
Woolworth which as of the date of this Agreement are Significant Subsidiaries.
Except as set forth in Section 3.2(b) of the Woolworth Disclosure Schedule, all
the outstanding shares of capital stock of, or other equity interests in, each
such Significant Subsidiary have been validly issued and are fully paid and
nonassessable and are owned directly or indirectly by Woolworth, free and clear
of all Liens and free of any other restriction (including any restriction on the
right to vote, sell or otherwise dispose of such capital stock or other
ownership interests).
(c) Capital Structure. The authorized capital stock of Woolworth consists
of 500,000,000 shares of Woolworth Common Stock and 7,000,000 shares of
preferred stock, par value $1.00 per share, of Woolworth ("Woolworth Preferred
Stock"). At the close of business on May 1, 1998: (i) 135,258,891 shares of
Woolworth Common Stock were issued and outstanding; (ii) 19,350 shares of
Woolworth Common Stock were held by Woolworth in its treasury; (iii) no shares
of Woolworth Preferred Stock were issued and outstanding; (iv) 1,000,000 shares
of Series B Participating Preferred Stock were reserved for issuance pursuant to
the Rights Agreement; and (v) 22,250,000 of Woolworth Common Stock were reserved
for issuance pursuant to the 1995 Stock Option and Award Plan, the 1986 Stock
Option Plan, the Directors' Stock Plan and the 1994 Stock Purchase Plan,
complete and correct copies of which have been delivered to
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Sports Authority (such plans, collectively, together with the 1998 Stock Option
and Award Plan which has been approved by the Woolworth Board of Directors,
subject to stockholder approval, and the Woolworth 401-K Plan, the "Woolworth
Stock Plans"). Section 3.2(c) of the Woolworth Disclosure Schedule sets forth a
complete and correct list, as of May 1, 1998, of the number of shares of
Woolworth Common Stock subject to employee stock options or other rights to
purchase or receive Woolworth Common Stock granted under the Woolworth Stock
Plans (collectively, "Woolworth Employee Stock Options"), the dates of grant and
exercise prices thereof. All outstanding shares of capital stock of Woolworth
are, and all shares which may be issued pursuant to this Agreement or otherwise
will be, when issued, duly authorized, validly issued, fully paid and
nonassessable and not subject to preemptive rights. Except as set forth in this
Section 3.2(c) and except for changes since May 1, 1998 resulting from the
issuance of shares of Woolworth Common Stock pursuant to the Woolworth Employee
Stock Options, as of the date hereof, (x) there are not issued, reserved for
issuance or outstanding (A) any shares of capital stock or other voting
securities of Woolworth, (B) any securities of Woolworth or any Woolworth
subsidiary convertible into or exchangeable or exercisable for shares of capital
stock or voting securities of Woolworth, (C) any warrants, calls, options or
other rights to acquire from Woolworth or any Woolworth subsidiary, and any
obligation of Woolworth or any Woolworth subsidiary to issue, any capital stock,
voting securities or securities convertible into or exchangeable or exercisable
for capital stock or voting securities of Woolworth, and (y) there are no
outstanding obligations of Woolworth or any Woolworth subsidiary to repurchase,
redeem or otherwise acquire any such securities or to issue, deliver or sell, or
cause to be issued, delivered or sold, any such securities. As of the date
hereof, there are no outstanding (A) securities of Woolworth or any Woolworth
subsidiary convertible into or exchangeable or exercisable for shares of capital
stock or other voting securities or ownership interests in any Woolworth
subsidiary, (B) warrants, calls, options or other rights to acquire from
Woolworth or any Woolworth subsidiary, and any obligation of Woolworth or any
Woolworth subsidiary to issue, any capital stock, voting securities or other
ownership interests in, or any securities convertible into or exchangeable or
exercisable for any capital stock, voting securities or ownership interests in,
any Woolworth subsidiary or (C) obligations of Woolworth or any Woolworth
subsidiary to repurchase, redeem or otherwise acquire any such outstanding
securities of Woolworth subsidiaries or to issue, deliver or sell, or cause to
be issued, delivered or sold, any such securities. Neither Woolworth nor any
Woolworth subsidiary is a party to any agreement restricting the transfer of,
relating to the voting of, requiring registration of, or granting any preemptive
or, except as provided by the terms of the Woolworth Employee Stock Options,
antidilutive rights with respect to, any securities of the type referred to in
the two preceding sentences. The execution of this Agreement and the
consummation of the Merger will not constitute a Triggering Event (as defined in
the Rights Agreement) or result in a Distribution Date under Section 3(a) of
such Rights Agreement.
(d) Authority; Noncontravention. Woolworth and Sub each has all requisite
corporate power and authority to enter into this Agreement and to consummate the
transactions contemplated by this Agreement. The execution and delivery of this
Agreement by each of Woolworth and Sub and the consummation by each of Woolworth
and Sub of the transactions contemplated by this Agreement have been duly
authorized by all necessary corporate action on the part of Woolworth and Sub.
This Agreement has been duly executed and delivered by each of Woolworth and Sub
and, assuming the due authorization, execution and delivery by Sports Authority,
constitutes the legal, valid and binding obligations of each of Woolworth and
Sub, enforceable against each of Woolworth and Sub in accordance with its terms.
The execution and delivery of this Agreement does not, and the consummation of
the transactions contemplated by this Agreement and compliance with the
provisions of this Agreement will not, conflict with, or result in any violation
of, or default (with or without notice or lapse of time, or both) under, or give
rise to a right of termination, cancellation or acceleration of any obligation
or loss of a benefit under, or result in the creation of any Lien upon any of
the properties or assets of Woolworth or any of its subsidiaries (including Sub)
under, (i) the certificate of incorporation or by-laws of Woolworth or the
comparable organizational documents of any of its subsidiaries (including Sub),
(ii) any loan or credit agreement, note, bond, mortgage, indenture, lease or
other agreement, instrument, permit, concession, franchise, license or similar
authorization applicable to Woolworth or any of its subsidiaries (including Sub)
or their respective properties or assets or (iii) subject to the governmental
filings and other matters referred to in the following sentence, any judgment,
order, decree, statute, law, ordinance, rule or regulation applicable to
Woolworth or any of its subsidiaries (including Sub) or their
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respective properties or assets, other than, in the case of clauses (ii) and
(iii), any such conflicts, violations, defaults, rights, losses or Liens that
individually or in the aggregate would not (x) have a material adverse effect on
Woolworth or (y) reasonably be expected to impair the ability of Woolworth to
perform its obligations under this Agreement. No consent, approval, order or
authorization of, action by, or in respect of, or registration, declaration or
filing with, any Governmental Entity is required by or with respect to Woolworth
or any of its subsidiaries (including Sub) in connection with the execution and
delivery of this Agreement by each of Woolworth or Sub or the consummation by
Woolworth and Sub of the transactions contemplated by this Agreement, except for
(1) the filing of a pre-merger notification and report form by Woolworth under
the HSR Act; (2) the filing with the SEC of (A) the Proxy Statement/Prospectus,
(b) the Form S-4 and (C) such reports under Section 13(a), 13(d), 15(d) or 16(a)
of the Exchange Act as may be required in connection with this Agreement and the
transactions contemplated by this Agreement; (3) the filing of the Certificate
of Merger with the Secretary of State of Delaware and such filings with
Governmental Entities to satisfy the applicable requirements of state securities
or "blue sky" laws; (4) such filings with and approvals of the NYSE to permit
the shares of Woolworth Common Stock that are to be issued in the Merger and
under the Sports Authority Stock Plans to be listed on the NYSE; (5) filings, if
required, under the Competition Act of Canada; and (6) such consents, approvals,
orders or authorizations the failure of which to be made or obtained
individually or in the aggregate would not (x) have a material adverse effect on
Woolworth or (y) reasonably be expected to impair the ability of Woolworth to
perform its obligations under this Agreement.
(e) SEC Documents; Undisclosed Liabilities. Woolworth has filed all
required registration statements, prospectuses, reports, schedules, forms,
statements and other documents (including exhibits and all other information
incorporated therein) with the SEC since January 27, 1996 (the "Woolworth SEC
Documents"). As of their respective dates, the Woolworth SEC Documents complied
in all material respects with the requirements of the Securities Act or the
Exchange Act, as the case may be, and the rules and regulations of the SEC
promulgated thereunder applicable to such Woolworth SEC Documents, and none of
the Woolworth SEC Documents when filed contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The financial
statements of Woolworth included in the Woolworth SEC Documents comply as to
form, as of their respective dates of filing with the SEC, in all material
respects with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto, have been prepared in accordance
with GAAP (except, in the case of unaudited statements, as permitted by Form
10-Q of the SEC) 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 Woolworth and its consolidated subsidiaries
as of the dates thereof and the consolidated results of their operations and
cash flows for the periods then ended (subject, in the case of unaudited
statements, to normal year-end audit adjustments). Except (i) as reflected in
such financial statements or in the notes thereto or (ii) for liabilities
incurred in connection with this Agreement or the transactions contemplated
hereby, neither Woolworth nor any of its subsidiaries has any liabilities or
obligations of any nature which, individually or in the aggregate, would have a
material adverse effect on Woolworth.
(f) Information Supplied. None of the information supplied or to be
supplied by Woolworth specifically for inclusion or incorporation by reference
in (i) the Form S-4 will, at the time the Form S-4 becomes effective under the
Securities Act, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading or (ii) the Proxy Statement/Prospectus will,
at the date it is first mailed to Sports Authority's stockholders or at the time
of the Sports Authority Stockholders Meeting, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading. The Form S-4 and the
Proxy Statement/Prospectus will comply as to form in all material respects with
the requirements of the Securities Act and the Exchange Act and the rules and
regulations thereunder, except that no representation or warranty is made by
Woolworth with respect to statements made or incorporated by reference therein
based on information supplied by Sports Authority specifically for inclusion or
incorporation by reference in the Form S-4 or the Proxy Statement/Prospectus.
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(g) Absence of Certain Changes or Events. Except for liabilities incurred
in connection with this Agreement or the transactions contemplated hereby, and
except as permitted by Section 4.1(b), since January 31, 1998, Woolworth and its
subsidiaries have conducted their business only in the ordinary course or as
disclosed in any Woolworth SEC Document filed since such date and prior to the
date hereof, and there has not been (i) any material adverse change in
Woolworth, (ii) any declaration, setting aside or payment of any dividend or
other distribution (whether in cash, stock or property) with respect to any of
Woolworth's capital stock, (iii) any split, combination or reclassification of
any of Woolworth's capital stock or any issuance or the authorization of any
issuance of any other securities in respect of, in lieu of or in substitution
for shares of Woolworth's capital stock, except for issuances of Woolworth
Common Stock upon exercise of Woolworth Employee Stock Options, in each case,
awarded prior to the date hereof in accordance with their present terms or
issued pursuant to Section 4.1(b), (iv) except insofar as may have been
disclosed in Woolworth SEC Documents filed and publicly available prior to the
date of this Agreement (as amended to the date hereof, the "Woolworth Filed SEC
Documents") or required by a change in GAAP, any change in accounting methods,
principles or practices by Woolworth materially affecting its assets,
liabilities or business, (v) except insofar as may have been disclosed in the
Woolworth Filed SEC Documents, any tax election that individually or in the
aggregate would have a material adverse effect on Woolworth or any of its tax
attributes or any settlement or compromise of any material income tax liability
or (vi), except as set forth in Section 3.2(g) of the Woolworth Disclosure
Schedule, any action taken by Woolworth or any of the Woolworth subsidiaries
during the period from January 31, 1998 through the date of this Agreement that,
if taken during the period from the date of this Agreement through the Effective
Time would constitute a breach of Section 4.1(b).
(h) Compliance with Applicable Laws; Litigation. (i) Woolworth, its
subsidiaries and employees hold all permits, licenses, variances, exemptions,
orders, registrations and approvals of all Governmental Entities which are
required for the operation of the businesses of Woolworth and its subsidiaries
(the "Woolworth Permits") except where the failure to have any such Woolworth
Permits individually or in the aggregate would not have a material adverse
effect on Woolworth. Woolworth and its subsidiaries are in compliance with the
terms of the Woolworth Permits and all applicable statutes, laws, ordinances,
rules and regulations, except where the failure so to comply individually or in
the aggregate would not have a material adverse effect on Woolworth. As of the
date of this Agreement, except as disclosed in the Woolworth Filed SEC Documents
or as set forth in Section 3.2(h) of the Woolworth Disclosure Schedule, no
action, demand, requirement or investigation by any Governmental Entity and no
suit, action or proceeding by any person, in each case with respect to Woolworth
or any of its subsidiaries or any of their respective properties, is pending or,
to the knowledge of Woolworth, threatened, other than, in each case, those the
outcome of which individually or in the aggregate would not (A) have a material
adverse effect on Woolworth or (B) reasonably be expected to impair the ability
of Wool worth to perform its obligations under this Agreement or prevent or
materially delay the consummation of any of the transactions contemplated by
this Agreement.
(ii) Neither Woolworth nor any Woolworth subsidiary is subject to any
outstanding order, injunction or decree which has had or, insofar as can be
reasonably foreseen, individually or in the aggregate will have a material
adverse effect on Woolworth.
(i) Absence of Changes in Benefit Plans. Except as set forth in Section
3.2(i) of the Woolworth Disclosure Schedule, since January 31, 1998, there has
not been any adoption or amendment in any material respect by Woolworth or any
of its subsidiaries of any collective bargaining agreement or any material
bonus, pension, profit sharing, deferred compensation, incentive compensation,
stock ownership, stock purchase, stock option, phantom stock, retirement,
vacation, severance, disability, death benefit, hospitalization, medical or
other plan, arrangement or understanding providing benefits to any current or
former employee, officer or director of Woolworth or any of its wholly owned
subsidiaries (collectively, the "Woolworth Benefit Plans"), or any material
change in any actuarial or other assumption used to calculate funding
obligations with respect to any Woolworth pension plans, or any material change
in the manner in which contributions to any Woolworth pension plans are made or
the basis on which such contributions are determined.
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(j) ERISA Compliance.
(i) With respect to the Woolworth Benefit Plans, no event has occurred
and, to the knowledge of Woolworth, there exists no condition or set of
circumstances, in connection with which Woolworth or any of its
subsidiaries could be subject to any liability that individually or in the
aggregate would have a material adverse effect on Woolworth under ERISA,
the Code or any other applicable law.
(ii) Each Woolworth Benefit Plan has been administered in accordance
with its terms, except for any failures so to administer any Woolworth
Benefit Plan that individually or in the aggregate would not have a
material adverse effect on Woolworth. Woolworth, its subsidiaries and all
the Woolworth Benefit Plans have been operated, and are in compliance with
the applicable provisions of ERISA, the Code and all other applicable laws
and the terms of all applicable collective bargaining agreements, except
for any failures to be in such compliance that individually or in the
aggregate would not have a material adverse effect on Woolworth. Except as
set forth in Section 3.2(j)(1) of the Woolworth Disclosure Schedule, each
Woolworth Benefit Plan that is intended to be qualified under Section
401(a) or 401(k) of the Code has received a favorable determination letter
from the IRS that it is so qualified and each trust established in
connection with any Woolworth Benefit Plan that is intended to be exempt
from federal income taxation under Section 501(a) of the Code has received
a determination letter from the IRS that such trust is so exempt. To the
knowledge of Woolworth, no fact or event has occurred since the date of any
determination letter from the IRS which is reasonably likely to affect
adversely the qualified status of any such Woolworth Benefit Plan or the
exempt status of any such trust.
(iii) Neither Woolworth nor any of its ERISA Affiliates has incurred
any unsatisfied liability under Title IV of ERISA (other than liability for
premiums to the Pension Benefit Guaranty Corporation arising in the
ordinary course). No Woolworth Benefit Plan has incurred an "accumulated
funding deficiency" (within the meaning of Section 302 of ERISA or Section
412 of the Code) whether or not waived. To the knowledge of Woolworth,
there are not any facts or circumstances that would materially change the
funded status of any Woolworth Benefit Plan that is a "defined benefit"
plan (as defined in Section 3(35) of ERISA) since the date of the most
recent actuarial report for such plan. No Woolworth Benefit Plan is a
"multiemployer plan" within the meaning of Section 3(37) of ERISA.
(iv) With respect to each of the Woolworth Benefit Plans that is
subject to Title IV of ERISA, the present value of accrued benefits under
each such plan, based upon the actuarial assumptions used for funding
purposes in the most recent actuarial report prepared by such plan's
actuary with respect to such plan, did not, as of its latest valuation
date, exceed the then current value of the aggregate assets of such plans
allocable to such accrued benefits in any material respect not reflected in
the Woolworth SEC Documents.
(v) With respect to each Woolworth Benefit Plan which provides medical
benefits to former employees after retirement or other termination of
service, the amount of accrued postretirement benefit obligation is
reflected in all material respects in the Woolworth SEC Documents.
(vi) Except as set forth in Section 3.2(j)(2) of the Woolworth
Disclosure Schedule, as of the date of this Agreement, neither Woolworth
nor any of its subsidiaries is a party to any collective bargaining or
other labor union contract applicable to persons employed by Woolworth or
any of its subsidiaries and no collective bargaining agreement is being
negotiated by Woolworth or any of its subsidiaries. As of the date of this
Agreement, there is no labor dispute, strike or work stoppage against
Woolworth or any of its subsidiaries pending or, to the knowledge of
Woolworth, threatened which may interfere with the respective business
activities of Woolworth or any of its subsidiaries, except where such
dispute, strike or work stoppage individually or in the aggregate would not
have a material adverse effect on Woolworth. As of the date of this
Agreement, to the knowledge of Woolworth, none of Woolworth, any of its
subsidiaries or any of their respective representatives or employees has
committed any material unfair labor practice in connection with the
operation of the respective businesses of Woolworth or any of its
subsidiaries, and there is no material charge or complaint against
Woolworth or any of its subsidiaries by the National Labor Relations Board
or any comparable governmental agency pending or threatened in writing.
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(vii) No employee of Woolworth will be entitled to any material
payment, additional benefits or any acceleration of the time of payment or
vesting of any benefits under any Woolworth Benefit Plan as a result of the
transactions contemplated by this Agreement (either alone or in conjunction
with any other event such as a termination of employment).
(k) Taxes. (i) Each of Woolworth and its subsidiaries has filed all
material tax returns and reports required to be filed by it and all such returns
and reports are complete and correct in all material respects, or requests for
extensions to file such returns or reports have been timely filed, granted and
have not expired, except to the extent that such failures to file, to be
complete or correct or to have extensions granted that remain in effect
individually or in the aggregate would not have a material adverse effect on
Woolworth. Woolworth and each of its subsidiaries has paid (or Woolworth has
paid on its behalf) all taxes shown as due on such returns, and the most recent
financial statements contained in the Woolworth Filed SEC Documents reflect an
adequate reserve in accordance with GAAP for all taxes payable by Woolworth and
its subsidiaries for all taxable periods and portions thereof accrued through
the date of such financial statements.
(ii) No deficiencies for any taxes have been proposed, asserted or
assessed against Woolworth or any of its subsidiaries that are not
adequately reserved for, except for deficiencies that individually or in
the aggregate would not have a material adverse effect on Woolworth. The
federal income tax returns of Woolworth and each of its subsidiaries
consolidated in such returns for tax years through January 1991 have closed
by virtue of the applicable statute of limitations.
(iii) Neither Woolworth nor any of its subsidiaries has taken any
action or knows of any fact, agreement, plan or other circumstance that is
reasonably likely to prevent the Merger from qualifying as a reorganization
within the meaning of Section 368(a) of the Code.
(l) Voting Requirements. Assuming the accuracy of the representations of
Sports Authority set forth in Section 3.1(c) hereof, no vote of the holders of
shares of Woolworth Common Stock is necessary to approve, in accordance with the
applicable rules of the NYSE, the issuance of Woolworth Common Stock pursuant to
the Merger.
(m) Accounting Matters. To its knowledge, neither Woolworth nor any of
its affiliates (as such term is used in Section 5.11) has taken or agreed to
take any action that would prevent the business combination to be effected by
the Merger from being accounted for as a pooling of interests and has no reason
to believe that the Merger will not qualify for "pooling of interest"
accounting.
(n) Brokers. No broker, investment banker, financial advisor or other
person, other than Morgan Stanley & Co. Incorporated ("Morgan Stanley"), the
fees and expenses of which will be paid by Woolworth, is entitled to any
broker's, finder's, financial advisor's or other similar fee or commission in
connection with the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of Woolworth.
(o) Opinion of Financial Advisor. Woolworth has received the opinion of
Morgan Stanley, dated the date of this Agreement, to the effect that, as of such
date, the Exchange Ratio for the conversion of Sports Authority Common Stock
into Woolworth Common Stock is fair from a financial point of view to Woolworth,
a signed copy of which opinion has been delivered to Sports Authority, it being
understood and agreed by Sports Authority that such opinion is for the benefit
of the Board of Directors of Woolworth and may not be relied upon by Sports
Authority, its affiliates or any of their respective stockholders.
(p) Ownership of Sports Authority Common Stock. As of the date hereof,
neither Woolworth nor, to its knowledge without independent investigation, any
of its affiliates, (i) beneficially owns (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, or (ii) is party to any agreement,
arrangement or understanding for the purpose of acquiring, holding, voting or
disposing of, in each case, shares of capital stock of Sports Authority.
(q) Certain Contracts. Neither Woolworth nor any of its subsidiaries is a
party to or bound by (i) any non-competition agreement or any other agreement or
obligation which purports to limit in any material respect the manner in which,
or the localities in which, all or any material portion of the business of
Sports
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Authority, is or would be conducted, or (ii) any contract or other agreement
which would prohibit or materially delay the consummation of the Merger or any
of the transactions contemplated by this Agreement.
ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS
SECTION 4.1 Conduct of Business. (a) Conduct of Business by Sports
Authority. Except as set forth in Section 4.1(a) of the Sports Authority
Disclosure Schedule, as otherwise expressly contemplated by this Agreement or as
consented to by Woolworth in writing, such consent not to be unreasonably
withheld or delayed, during the period from the date of this Agreement to the
Effective Time, Sports Authority shall, and shall cause its subsidiaries to,
carry on their respective businesses in the ordinary course consistent with past
practice and in compliance in all material respects with all applicable laws and
regulations and, to the extent consistent therewith, use all reasonable efforts
to preserve intact their current business organizations, use reasonable efforts
to assist Woolworth in keeping available the services of Sports Authority's
current officers and other key employees and to refrain from taking any actions
which would have a negative impact on such efforts, and use reasonable efforts
to preserve their relationships with those persons having business dealings with
them to the end that their goodwill and ongoing businesses shall be unimpaired
at the Effective Time. Without limiting the generality of the foregoing (but
subject to the above exceptions), during the period from the date of this
Agreement to the Effective Time, Sports Authority shall not, and shall not
permit any of its subsidiaries to:
(i) other than dividends and distributions by a direct or indirect
wholly owned subsidiary of Sports Authority to its parent, or by a
subsidiary that is partially owned by Sports Authority or any of its
subsidiaries, provided that Sports Authority or any such subsidiary
receives or is to receive its proportionate share thereof, (x) declare, set
aside or pay any dividends on, make any other distributions in respect of,
or enter into any agreement with respect to the voting of, any of its
capital stock, (y) split, combine or reclassify any of its capital stock or
issue or authorize the issuance of any other securities in respect of, in
lieu of or in substitution for shares of its capital stock, except for
issuances of Sports Authority Common Stock upon conversion of Sports
Authority Convertible Securities or upon the exercise of Sports Authority
Employee Stock Options, in each case, outstanding as of the date hereof in
accordance with their present terms, or (z) purchase, redeem or otherwise
acquire any shares of capital stock of Sports Authority or any of its
subsidiaries or any other securities thereof or any rights, warrants or
options to acquire any such shares or other securities;
(ii) except as set forth in Section 4.1(a)(ii) of the Sports Authority
Disclosure Schedule, issue, deliver, sell, pledge or otherwise encumber or
subject to any Lien any shares of its capital stock, any other voting
securities or any securities convertible into, or any rights, warrants or
options to acquire, any such shares, voting securities or convertible
securities (other than (x) the issuance of Sports Authority Common Stock
upon conversion of Sports Authority Convertible Securities in accordance
with their present terms at the option of the holders thereof, and (y) the
issuance of Sports Authority Common Stock upon the exercise of Sports
Authority Employee Stock Options, in each case, outstanding as of the date
hereof in accordance with their present terms);
(iii) amend its certificate of incorporation, by-laws or other
comparable organizational documents;
(iv) acquire or agree to acquire by merging or consolidating with, or
by purchasing a substantial portion of the assets of, or by any other
manner, any business or any person;
(v) subject to compliance with Section 5.14, sell, lease, license,
mortgage or otherwise encumber or subject to any Lien or otherwise dispose
of any of its properties or assets (including securitizations), other than
in the ordinary course of business consistent with past practice;
(vi) except for borrowings under existing lines of credit, incur any
indebtedness for borrowed money or issue any debt securities or assume,
guarantee or endorse, or otherwise as an accommodation become responsible
for the obligations of any person for borrowed money;
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(vii) authorize, or commit or agree to take, any of the foregoing
actions; or
(viii) take any action which would be reasonably likely to interfere
with Woolworth's ability to account for the Merger as a pooling of
interests; provided that the limitations set forth in this Section 4.1(a)
(other than clause (iii)) shall not apply to any transaction between Sports
Authority and any wholly owned subsidiary or between any wholly owned
subsidiaries of Sports Authority.
(b) Conduct of Business by Woolworth. Except as set forth in Section
4.1(b) of the Woolworth Disclosure Schedule, as otherwise expressly contemplated
by this Agreement or as consented to by Sports Authority in writing, such
consent not to be unreasonably withheld or delayed, during the period from the
date of this Agreement to the Effective Time, Woolworth shall, and shall cause
its subsidiaries to, carry on their respective businesses in the ordinary course
consistent with past practice and in compliance in all material respects with
all applicable laws and regulations and, to the extent consistent therewith, use
all reasonable efforts to preserve intact their current business organizations,
use reasonable efforts to keep available the services of their current officers
and other key employees and preserve their relationships with those persons
having business dealings with them to the end that their goodwill and ongoing
businesses shall be unimpaired at the Effective Time. Without limiting the
generality of the foregoing (but subject to the above exceptions), during the
period from the date of this Agreement to the Effective Time, Woolworth shall
not, and shall not permit any of its subsidiaries to:
(i) other than dividends and distributions by a direct or indirect
wholly owned subsidiary of Woolworth to its parent, or by a subsidiary that
is partially owned by Woolworth or any of its subsidiaries, provided that
Woolworth or any such subsidiary receives or is to receive its
proportionate share thereof, declare, set aside or pay any dividends on,
make any other distributions in respect of, or enter into any agreement
with respect to the voting of, any of its capital stock, other than
reasonable quarterly dividends on Woolworth Common Stock if the Board of
Directors of Woolworth shall so determine;
(ii) except as contemplated hereby, amend its certificate of
incorporation;
(iii) authorize, or commit or agree to take, any of the foregoing
actions;
provided that the limitations set forth in this Section 4.1(b) shall not apply
to any transaction between Woolworth and any wholly owned subsidiary or between
any wholly owned subsidiaries of Woolworth. Notwithstanding anything herein to
the contrary, the Board of Directors of Woolworth shall, pursuant to its
fiduciary duties, be permitted to authorize the acquisition or disposition of
the Company's assets, subsidiaries or businesses as it deems appropriate,
provided that Woolworth will not enter into any agreement to acquire all or
substantially all of the capital stock or assets of any other person or business
unless upon advice of counsel such transaction would not reasonably be expected
to prevent, materially delay or impede the consummation of the Merger.
(c) Other Actions. Except as required by law, Sports Authority and
Woolworth shall not, and shall not permit any of their respective subsidiaries
to, voluntarily take any action that would, or that could reasonably be expected
to, result in (i) any of the representations and warranties of such party set
forth in this Agreement that are qualified as to materiality becoming untrue at
the Effective Time, (ii) any of such representations and warranties that are not
so qualified becoming untrue in any material respect at the Effective Time, or
(iii) any of the conditions to the Merger set forth in Article VI not being
satisfied. Woolworth will not take any action which would be reasonably likely
to interfere with Woolworth's ability to account for the Merger as a pooling of
interests.
(d) Advice of Changes. Sports Authority and Woolworth shall promptly
advise the other party orally and in writing to the extent it has knowledge of
(i) any representation or warranty made by it contained in this Agreement that
is qualified as to materiality becoming untrue or inaccurate in any respect or
any such representation or warranty that is not so qualified becoming untrue or
inaccurate in any material respect, (ii) the failure by it to comply in any
material respect with or satisfy in any material respect any covenant, condition
or agreement to be complied with or satisfied by it under this Agreement and
(iii) any change or event having, or which, insofar as can reasonably be
foreseen, could reasonably be expected to have a material adverse effect on such
party or on the truth of their respective representations and warranties or the
ability of
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the conditions set forth in Article VI to be satisfied; provided, however, that
no such notification shall affect the representations, warranties, covenants or
agreements of the parties (or remedies with respect thereto) or the conditions
to the obligations of the parties under this Agreement.
SECTION 4.2 No Solicitation by Sports Authority. (a) Sports Authority
shall not, nor shall it permit any of its subsidiaries to, nor shall it
authorize or permit any of its directors, officers or employees or any
investment banker, financial advisor, attorney, accountant or other
representative retained by it or any of its subsidiaries to, directly or
indirectly through another person, (i) solicit, initiate or encourage (including
by way of furnishing information), or take any other action designed to
facilitate, any inquiries or the making of any proposal which constitutes any
Sports Authority Takeover Proposal (as defined below) or (ii) participate in any
discussions or negotiations regarding any Sports Authority Takeover Proposal;
provided, however, that if the Board of Directors of Sports Authority determines
in good faith, based on the advice of outside counsel, that it is necessary to
do so in order to act in a manner consistent with its fiduciary duties to Sports
Authority's stockholders under applicable law, Sports Authority may, in response
to a Sports Authority Superior Proposal (as defined in Section 4.2(b)) which was
not solicited by it, which did not otherwise result from a breach of this
Section 4.2(a) and which is made or received prior to the obtaining of the
Sports Authority Stockholder Approval, and subject to providing prior written
notice of its decision to take such action to Woolworth and compliance with
Section 4.2(c), (x) furnish information with respect to Sports Authority and its
subsidiaries to any person making a Sports Authority Superior Proposal pursuant
to a customary confidentiality agreement (as determined by Sports Authority
based on the advice of its outside counsel, the terms of which are no more
favorable to such person than the Confidentiality Agreement (as defined herein))
and (y) participate in discussions or negotiations regarding such Sports
Authority Superior Proposal. For purposes of this Agreement, "Sports Authority
Takeover Proposal" means any inquiry, proposal or offer from any person relating
to any direct or indirect acquisition or purchase of a business that constitutes
10% or more of the net revenues, net income or the assets of Sports Authority
and its subsidiaries, taken as a whole, or 10% or more of any equity securities
of Sports Authority, any tender offer or exchange offer that if consummated
would result in any person beneficially owning any equity securities of Sports
Authority, or any merger, consolidation, business combination, recapitalization,
liquidation, dissolution or similar transaction involving Sports Authority (or
any Sports Authority subsidiary whose business constitutes 10% or more of the
net revenues, net income or the assets of Sports Authority and its subsidiaries,
taken as whole) or the Sports Authority Common Stock, other than the
transactions contemplated by this Agreement.
(b) Except as expressly permitted by this Section 4.2, neither the Board of
Directors of Sports Authority nor any committee thereof shall (i) withdraw or
modify, or propose publicly to withdraw or modify, in a manner adverse to
Woolworth, the approval or recommendation by such Board of Directors or such
committee of the Merger or this Agreement, (ii) approve or recommend, or propose
publicly to approve or recommend, any Sports Authority Takeover Proposal, or
(iii) cause Sports Authority to enter into any letter of intent, agreement in
principle, acquisition agreement or other similar agreement (each, an "Sports
Authority Acquisition Agreement") related to any Sports Authority Takeover
Proposal. Notwithstanding the foregoing, at any time prior to the obtaining of
the Sports Authority Stockholder Approval, the Board of Directors of Sports
Authority, to the extent that it determines in good faith, based upon the advice
of outside counsel, that it is necessary to do so in order to act in a manner
consistent with its fiduciary duties to Sports Authority's stockholders under
applicable law, may (subject to this and the following sentences) terminate this
Agreement solely in order to concurrently enter into a Sports Authority
Acquisition Agreement with respect to any Sports Authority Superior Proposal,
but only at a time that is after the fifth business day following Woolworth's
receipt of written notice advising Woolworth that the Board of Directors of
Sports Authority is prepared to accept a Sports Authority Superior Proposal,
specifying the material terms and conditions of such Sports Authority Superior
Proposal and identifying the person making such Sports Authority Superior
Proposal, all of which information shall be kept confidential by Woolworth. For
purposes of this Agreement, an "Sports Authority Superior Proposal" means any
bona fide proposal made by a third party to acquire, directly or indirectly,
including pursuant to a tender offer, exchange offer, merger, consolidation,
business combination, recapitalization, liquidation, dissolution or similar
transaction, for consideration consisting of cash and/or securities, more than
50% of the combined voting power of the shares of Sports Authority Common Stock
then outstanding or all or substantially all the assets of Sports Authority
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and otherwise on terms which the Board of Directors of Sports Authority
determines in its good faith judgment (based on the advice of a financial
advisor of nationally recognized reputation) to be more favorable to Sports
Authority's stockholders than the Merger and for which financing, to the extent
required, is then committed or which, in the good faith judgment of the Board of
Directors of Sports Authority based on the advice of its financial advisor, is
reasonably capable of being obtained by such third party.
(c) In addition to the obligations of Sports Authority set forth in
paragraphs (a) and (b) of this Section 4.2, Sports Authority shall immediately
advise Woolworth orally and in writing of any request for information or of any
Sports Authority Takeover Proposal, the material terms and conditions of such
request or Sports Authority Takeover Proposal and the identity of the person
making such request or Sports Authority Takeover Proposal. Sports Authority will
keep Woolworth reasonably informed of the status and details (including
amendments or proposed amendments) of any such request or Sports Authority
Takeover Proposal.
(d) Nothing contained in this Section 4.2 shall prohibit Sports Authority
from taking and disclosing to its stockholders a position contemplated by Rule
14e-2(a) promulgated under the Exchange Act or from making any disclosure to
Sports Authority's stockholders if, in the good faith judgment of the Board of
Directors of Sports Authority, after consultation with outside counsel, failure
so to disclose would be inconsistent with its obligations under applicable law.
ARTICLE V
ADDITIONAL AGREEMENTS
SECTION 5.1 Preparation of the Form S-4 and the Proxy
Statement/Prospectus; Stockholders Meeting. (a) As soon as practicable
following the date of this Agreement, Sports Authority and Woolworth shall
prepare and file with the SEC the Proxy Statement/Prospectus and Woolworth shall
prepare and file with the SEC the Form S-4, in which the Proxy
Statement/Prospectus will be included as a prospectus. Each of Sports Authority
and Woolworth shall use reasonable best efforts to have the Form S-4 declared
effective under the Securities Act as promptly as practicable after such filing.
Sports Authority will use all reasonable best efforts to cause the Proxy
Statement/Prospectus to be mailed to Sports Authority's stock holders as
promptly as practicable after the Form S-4 is declared effective under the
Securities Act. Woolworth shall also take any action (other than qualifying to
do business in any jurisdiction in which it is not now so qualified or to file a
general consent to service of process) required to be taken under any applicable
state securities laws in connection with the issuance of Woolworth Common Stock
in the Merger and Sports Authority shall furnish all information concerning
Sports Authority and the holders of Sports Authority Common Stock as may be
reasonably requested in connection with any such action. No filing of, or
amendment or supplement to, the Form S-4 or the Proxy Statement/Prospectus will
be made by Woolworth without providing Sports Authority the opportunity to
review and comment thereon. Woolworth will advise Sports Authority, promptly
after it receives notice thereof, of the time when the Form S-4 has become
effective or any supplement or amendment has been filed, the issuance of any
stop order, the suspension of the qualification of the Woolworth Common Stock
issuable in connection with the Merger for offering or sale in any jurisdiction,
or any request by the SEC for amendment of the Proxy Statement/Prospectus or the
Form S-4 or comments thereon and responses thereto or requests by the SEC for
additional information. If at any time prior to the Effective Time any
information relating to Sports Authority or Woolworth, or any of their
respective affiliates, officers or directors, should be discovered by Sports
Authority or Woolworth which should be set forth in an amendment or supplement
to any of the Form S-4 or the Proxy Statement/Prospectus, so that any of such
documents would not include any misstatement of a material fact or omit to state
any material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, the party which
discovers such information shall promptly notify the other parties hereto and an
appropriate amendment or supplement describing such information shall be
promptly filed with the SEC and, to the extent required by law, disseminated to
the stockholders of Sports Authority and Woolworth.
(b) Sports Authority shall, as promptly as practicable after the Form S-4
is declared effective under the Securities Act, duly call, give notice of,
convene and (subject to the provisions of this Section 5.1(b)) hold a
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meeting of its stockholders (the "Sports Authority Stockholders Meeting") in
accordance with the DGCL for the purpose of obtaining the Sports Authority
Stockholder Approval and, subject to its rights to terminate this Agreement
pursuant to Section 4.2(b), shall, through its Board of Directors, recommend to
its stockholders the approval and adoption of this Agreement, the Merger and the
other transactions contemplated hereby. The average of the closing price on the
NYSE for the Woolworth Common Stock for the twenty (20) consecutive trading days
prior to the third business day prior to the scheduled date of the Sports
Authority Stockholders Meeting (the "Measuring Period") is referred to as the
"Woolworth Average Price." If, during the Measuring Period for the Sports
Authority Stockholders Meeting as originally scheduled, the Woolworth Average
Price is less than $20.50, Sports Authority (by 5:00 p.m. eastern time on the
second business day prior to the scheduled date of such meeting) shall give
notice to Woolworth as to whether it intends to terminate the Agreement pursuant
to Section 7.1(f) or adjourn such meeting for 30 days. If Sports Authority
elects to terminate the Agreement pursuant to Section 7.1(f) (an "Election"),
Woolworth can rescind such Election (a "Rescission") by giving notice (by 5:00
p.m. eastern time on the business day prior to the scheduled date of such
meeting) that Woolworth elects to cause Sports Authority to adjourn such meeting
for 30 days (the "Adjournment Period"). The process set forth in the preceding
sentence will be followed with respect to the first adjourned meeting date and
each successive adjourned meeting date thereafter, and provided that revised
record dates will be established to the extent required by the DGCL and the
rules of the NYSE and appropriate notice and disclosure will be sent to the
stockholders of Sports Authority. If an Adjournment Period established pursuant
to the preceding two sentences would establish an adjourned meeting date after
January 1, 1999, the Adjournment Period will be truncated, to the extent
permitted by law and regulation, so that the Sports Authority Stockholders
Meeting will be held on December 31, 1998. Without limiting the generality of
the foregoing but subject to its rights to terminate this Agreement pursuant to
Section 4.2(b), Sports Authority agrees that its obligations pursuant to this
Section 5.1(b) shall not be affected by the commencement, public proposal,
public disclosure or communication to Sports Authority of any Sports Authority
Takeover Proposal.
SECTION 5.2 Letters of Sports Authority's Accountants. (a) Sports
Authority shall use reasonable best efforts to cause to be delivered to
Woolworth two letters from Sports Authority's independent accountants, one dated
a date within two business days before the date on which the Form S-4 shall
become effective and one dated a date within two business days before the
Closing Date, each addressed to Woolworth, in form and substance reasonably
satisfactory to Woolworth and customary in scope and substance for comfort
letters delivered by independent public accountants in connection with
registration statements similar to the Form S-4.
(b) Sports Authority shall use reasonable best efforts to cause to be
delivered to Woolworth and Woolworth's accountants a letter from Sports
Authority's independent accountants addressed to Woolworth and Sports Authority,
dated as of the date the Form S-4 is declared effective and as of the Closing
Date, stating that accounting for the Merger as a pooling of interests under
Opinion 16 of the Accounting Principles Board and applicable SEC rules and
regulations is appropriate if the Merger is closed and consummated as
contemplated by this Agreement.
SECTION 5.3 Letters of Woolworth's Accountants. (a) Woolworth shall use
reasonable best efforts to cause to be delivered to Sports Authority two letters
from Woolworth's independent accountants, one dated a date within two business
days before the date on which the Form S-4 shall become effective and one dated
a date within two business days before the Closing Date, each addressed to
Sports Authority, in form and substance reasonably satisfactory to Sports
Authority and customary in scope and substance for comfort letters delivered by
independent public accountants in connection with registration statements
similar to the Form S-4.
(b) Woolworth shall use reasonable best efforts to cause to be delivered to
Sports Authority and Sports Authority's accountants a letter from Woolworth's
independent accountants, addressed to Sports Authority and Woolworth, dated as
of the date the Form S-4 is declared effective and as of the Closing Date,
stating that accounting for the Merger as a pooling of interests under Opinion
16 of the Accounting Principles Board and applicable SEC rules and regulations
is appropriate if the Merger is closed and consummated as contemplated by this
Agreement.
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SECTION 5.4 Access to Information; Confidentiality. Subject to the
Confidentiality Agreement dated June 6, 1997, as supplemented pursuant to the
Letter Agreement dated April 14, 1998, between Woolworth and Sports Authority
(the "Confidentiality Agreement"), and subject to restrictions contained in
confidentiality agreements to which such party is subject (which such party will
use its reasonable best efforts to have waived) and applicable law, each of
Sports Authority and Woolworth shall, and shall cause each of its respective
subsidiaries to, afford to the other party and to the officers, employees,
accountants, counsel, financial advisors and other representatives of such other
party, reasonable access during normal business hours during the period prior to
the Effective Time to all their respective properties, books, contracts,
commitments, personnel and records and, during such period, each of Sports
Authority and Woolworth shall, and shall cause each of its respective
subsidiaries to, furnish promptly to the other party (a) a copy of each report,
schedule, registration statement and other document filed by it during such
period pursuant to the requirements of federal or state securities laws and (b)
all other information concerning its business, properties and personnel as such
other party may reasonably request. No review pursuant to this Section 5.4 shall
affect any representation or warranty given by the other party hereto. Each of
Sports Authority and Woolworth will hold, and will cause its respective
officers, employees, accountants, counsel, financial advisors and other
representatives and affiliates to hold, any nonpublic information in accordance
with the terms of the Confidentiality Agreement.
SECTION 5.5 Reasonable Best Efforts. (a) Upon the terms and subject to
the conditions set forth in this Agreement, each of the parties agrees to use
reasonable best efforts to take, or cause to be taken, all actions, and to do,
or cause to be done, and to assist and cooperate with the other parties in
doing, all things necessary, proper or advisable to consummate and make
effective, in the most expeditious manner practicable, the Merger and the other
transactions contemplated by this Agreement, including (i) the obtaining of all
necessary actions or nonactions, waivers, consents and approvals from
Governmental Entities and the making of all necessary registrations and filings
and the taking of all steps as may be necessary to obtain an approval or waiver
from, or to avoid an action or proceeding by, any Governmental Entity, (ii) the
obtaining of all necessary consents, approvals or waivers from third parties,
(iii) the defending of any lawsuits or other legal proceedings, whether judicial
or administrative, challenging this Agreement or the consummation of the
transactions contemplated by this Agreement, including seeking to have any stay
or temporary restraining order entered by any court or other Governmental Entity
vacated or reversed, and (iv) the execution and delivery of any additional
instruments necessary to consummate the transactions contemplated by, and to
fully carry out the purposes of, this Agreement. Nothing set forth in this
Section 5.5(a) will limit or affect actions permitted to be taken pursuant to
Section 4.2.
(b) In connection with and without limiting the foregoing, Sports Authority
and Woolworth shall (i) take all action necessary to ensure that no state
takeover statute or similar statute or regulation is or becomes applicable to
the Merger, this Agreement, or any of the other transactions contemplated by
this Agreement and (ii) if any state takeover statute or similar statute or
regulation becomes applicable to the Merger, this Agreement, or any other
transaction contemplated by this Agreement, take all action necessary to ensure
that the Merger and the other transactions contemplated by this Agreement may be
consummated as promptly as practicable on the terms contemplated by this
Agreement and otherwise to minimize the effect of such statute or regulation on
the Merger and the other transactions contemplated by this Agreement.
SECTION 5.6 Stock Options. (a) As of the Effective Time, (i) each
outstanding Sports Authority Employee Stock Option shall be converted into an
option (an "Adjusted Option") to purchase the number of shares of Woolworth
Common Stock equal to the number of shares of Sports Authority Common Stock
subject to such Sports Authority Employee Stock Option immediately prior to the
Effective Time multiplied by the Exchange Ratio (rounded to the nearest whole
number of shares of Woolworth Common Stock), at an exercise price per share
equal to the exercise price for each such share of Sports Authority Common Stock
subject to such option divided by the Exchange Ratio (rounded down to the
nearest whole cent), and all references in each such option to Sports Authority
shall be deemed to refer to Woolworth, where appropriate; provided, however,
that the adjustments provided in this clause (i) with respect to any options
which are "incentive stock options" (as defined in Section 422 of the Code) or
which are described in Section 423 of the Code, shall be affected in a manner
consistent with the requirements of Section 424(a) of the Code, and
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(ii) Woolworth shall assume the obligations of Sports Authority under the Sports
Authority Stock Plans. The other terms of each Adjusted Option, and the plans or
agreements under which they were issued, shall continue to apply in accordance
with their terms. The date of grant of each Adjusted Option shall be the date on
which the corresponding Sports Authority Employee Stock Option was granted.
(b) Sports Authority agrees that each of the Sports Authority Stock Plans
shall be amended, to the extent necessary, to reflect the transactions
contemplated by this Agreement, including, but not limited to the conversion of
shares of Sports Authority Common Stock held or to be awarded or paid pursuant
to such benefit plans, programs or arrangements into shares of Woolworth Common
Stock on a basis consistent with the transactions contemplated by this
Agreement. Sports Authority agrees to submit the amendments to the Sports
Authority Stock Plans to its stockholders, if such submission is determined to
be necessary by counsel to Sports Authority or Woolworth after consultation with
one another; provided, however, that such approval shall not be a condition to
the consummation of the Merger.
(c) Woolworth shall (i) reserve for issuance the number of shares of
Woolworth Common Stock that will become subject to the benefit plans, programs
and arrangements referred to in this Section 5.6 and (ii) issue or cause to be
issued the appropriate number of shares of Woolworth Common Stock pursuant to
applicable plans, programs and arrangements, upon the exercise or maturation of
rights existing thereunder on the Effective Time or thereafter granted or
awarded. No later than the Effective Time, Woolworth shall prepare and file with
the SEC a registration statement on Form S-8 (or other appropriate form)
registering a number of shares of Woolworth Common Stock necessary to fulfill
Woolworth's obligations under this Section 5.6. Such registration statement
shall be kept effective (and the current status of the prospectus required
thereby shall be maintained) for at least as long as Adjusted Options remain
outstanding.
(d) As soon as practicable after the Effective Time, Woolworth shall
deliver to the holders of Sports Authority Employee Stock Options appropriate
notices setting forth such holders' rights pursuant to the respective Sports
Authority Stock Plans and the agreements evidencing the grants of such Sports
Authority Employee Stock Options and that such Sports Authority Employee Stock
Options and the related agreements shall be assumed by Woolworth and shall
continue in effect on the same terms and conditions (subject to the adjustments
required by this Section after giving effect to the Merger).
(e) Woolworth acknowledges that, for purposes of the Sports Authority
Benefit Plans other than those listed on Schedule 5.6(e) of the Sports Authority
Disclosure Schedule, the approval by the Sports Authority shareholders of this
Agreement shall constitute a "change in control" of Sports Authority.
SECTION 5.7 Indemnification, Exculpation and Insurance. (a) Woolworth
agrees to maintain in effect in accordance with their terms all rights to
indemnification and exculpation from liabilities for acts or omissions occurring
at or prior to the Effective Time now existing in favor of the current or former
directors or officers of Sports Authority and its subsidiaries as provided in
their respective certificates of incorporation or by-laws (or comparable
organizational documents) and any indemnification agreements of Sports
Authority. In addition, from and after the Effective Time, directors and
officers of Sports Authority who become directors or officers of Woolworth will
be entitled to the same indemnity rights and protections as are afforded to
other directors and officers of Woolworth.
(b) In the event that Woolworth or any of its successors or assigns (i)
consolidates with or merges into any other person and is not the continuing or
surviving corporation or entity of such consolidation or merger or (ii)
transfers or conveys all or substantially all of its properties and assets to
any person, then, and in each such case, proper provision will be made so that
the successors and assigns of Woolworth assume the obligations set forth in this
Section 5.8.
(c) For four (4) years after the Effective Time, Woolworth shall provide to
Sports Authority's current directors and officers liability insurance covering
acts or omissions occurring prior to the Effective Time with respect to those
persons who are currently covered by Sports Authority's directors' and officers'
liability insurance policy on terms with respect to such coverage and amount no
less favorable than those of such policy in effect on the date hereof, provided
that in no event shall Woolworth be required to expend more than 200% of the
current amount expended by Sports Authority to maintain such coverage.
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(d) The provisions of this Section 5.8 (i) are intended to be for the
benefit of, and will be enforceable by, each indemnified party, his or her heirs
and his or her representatives and (ii) are in addition to, and not in
substitution for, any other rights to indemnification or contribution that any
such person may have by contract or otherwise.
SECTION 5.8 Fees and Expenses. (a) Except as provided in this Section
5.8, all fees and expenses incurred in connection with the Merger, this
Agreement, and the transactions contemplated by this Agreement shall be paid by
the party incurring such fees or expenses, whether or not the Merger is
consummated.
(b) In the event that (i) (A) a Sports Authority Takeover Proposal shall
have been made known to Sports Authority or any of its subsidiaries or has been
made directly to its stockholders generally or any person shall have publicly
announced an intention (whether or not conditional) to make a Sports Authority
Takeover Proposal, (B) thereafter this Agreement is terminated by either
Woolworth or Sports Authority pursuant to Section 7.1(b)(i) or 7.1(b)(ii) and
(C) either (x) the Board of Directors of Sports Authority, or a committee
thereof, has prior to such termination withdrawn or modified in a manner adverse
to Woolworth the approval or recommendation by such Board or committee of the
Merger or this Agreement or (y) within the year following the termination,
Sports Authority enters into an agreement providing for in excess of 25% of the
equity or 50% of the assets of Sports Authority to be acquired by another party,
or (ii) this Agreement is terminated by Sports Authority pursuant to Section
7.1(e), then Sports Authority shall promptly, but in no event later than two
days after the date of such termination, pay Woolworth a fee equal to $8.5
million (the "Termination Fee"), payable by wire transfer of same day funds.
Sports Authority acknowledges that the agreements contained in this Section
5.8(b) are an integral part of the transactions contemplated by this Agreement,
and that, without these agreements, Woolworth would not enter into this
Agreement; accordingly, if Sports Authority fails promptly to pay the amount due
pursuant to this Section 5.8(b), and, in order to obtain such payment, Woolworth
commences a suit which results in a judgment against Sports Authority for the
fee set forth in this Section 5.8(b), Sports Authority shall pay to Woolworth
its costs and expenses (including attorneys' fees and expenses) in connection
with such suit, together with interest on the amount of the fee at the rate on
six-month U.S. Treasury obligations plus 300 basis points in effect on the date
such payment was required to be made.
SECTION 5.9 Public Announcements. Woolworth and Sports Authority will
consult with each other before issuing, and provide each other the opportunity
to review, comment upon and concur with and use reasonable efforts to agree on,
any press release or other public statements with respect to the transactions
contemplated by this Agreement, including the Merger, and shall not issue any
such press release or make any such public statement prior to such consultation,
except as either party may determine is required by applicable law, court
process or by obligations pursuant to any listing agreement with any national
securities exchange. The parties agree that the initial press release to be
issued with respect to the transactions contemplated by this Agreement shall be
in the form heretofore agreed to by the parties.
SECTION 5.10 Affiliates. (a) As soon as practicable after the date
hereof, Sports Authority shall deliver to Woolworth a letter identifying all
persons who are, at the time this Agreement is submitted for adoption by the
stockholders of Sports Authority, "affiliates" of Sports Authority for purposes
of Rule 145 under the Securities Act or for purposes of qualifying the Merger
for pooling of interests accounting treatment under Opinion 16 of the Accounting
Principles Board and applicable SEC rules and regulations, and such list shall
be updated as necessary to reflect changes from the date hereof. Sports
Authority shall use reasonable best efforts to cause each person identified on
such list to deliver to Woolworth not less than 30 days prior to the Effective
Time, a written agreement substantially in the form attached as Exhibit A
hereto.
(b) Woolworth shall publish no later than 45 days after the end of the
first month after the Effective Time in which there are at least 30 days of post
Merger combined operations (which month may be the month in which the Effective
Time occurs), combined sales and net income figures as contemplated by and in
accordance with the terms of SEC Accounting Series Release No. 135.
SECTION 5.11 NYSE Listing. Woolworth shall use reasonable best efforts to
cause the Woolworth Common Stock issuable under Article II and upon exercise of
Adjusted Options pursuant to Section 5.6 to be
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approved for listing on the NYSE, subject to official notice of issuance, as
promptly as practicable after the date hereof, and in any event prior to the
Closing Date.
SECTION 5.12 Stockholder Litigation. Each of Sports Authority and
Woolworth shall give the other the reasonable opportunity to participate in the
defense of any stockholder litigation against Sports Authority or Woolworth, as
applicable, and its directors relating to the transactions contemplated by this
Agreement.
SECTION 5.13 Tax Treatment. Each of Woolworth and Sports Authority shall
use reasonable best efforts to cause the Merger to qualify as a reorganization
under the provisions of Section 368 of the Code and to obtain the opinions of
counsel referred to in Sections 6.2(c) and 6.3(c).
SECTION 5.14 Pooling of Interests. Each of Sports Authority and Woolworth
shall use reasonable best efforts to cause the transactions contemplated by this
Agreement, including the Merger, to be accounted for as a pooling of interests
under Opinion 16 of the Accounting Principles Board and applicable SEC rules and
regulations, and such accounting treatment to be accepted by the SEC, and each
of Sports Authority and Woolworth agrees that it shall take no action that would
cause such accounting treatment not to be obtained.
SECTION 5.15 Standstill Agreements; Confidentiality Agreements. During
the period from the date of this Agreement through the Effective Time, Sports
Authority shall not terminate, amend, modify or waive any provision of any
confidentiality or standstill agreement to which it or any of its respective
subsidiaries is a party. During such period, Sports Authority shall enforce, to
the fullest extent permitted under applicable law, the provisions of any such
agreement, including by obtaining injunctions to prevent any breaches of such
agreements and to enforce specifically the terms and provisions thereof in any
court of the United States of America or of any state having jurisdiction.
SECTION 5.16 Conveyance Taxes. Woolworth and Sports Authority shall
cooperate in the preparation, execution and filing of all returns,
questionnaires, applications or other documents regarding any real property
transfer or gains, sales, use, transfer, value added, stock transfer and stamp
taxes, any transfer, recording, registration and other fees or any similar taxes
which become payable in connection with the transactions contemplated by this
Agreement that are required or permitted to be filed on or before the Effective
Time. Woolworth shall pay, and Sports Authority shall pay, without deduction or
withholding from any amount payable to the holders of Sports Authority Common
Stock, any such taxes or fees imposed by any Governmental Entity (and any
penalties and interest with respect to such taxes and fees), which become
payable in connection with the transactions contemplated by this Agreement, on
behalf of their respective stockholders.
SECTION 5.17 Sports Authority Convertible Notes. From and after the date
hereof and prior to the Effective Time, each of Woolworth or Sports Authority,
as applicable, shall take such actions (including entering into supplemental
indentures) with respect to the notes of Sports Authority issued under the
Indenture between Sports Authority and The Bank of New York, dated September 20,
1996, relating to Sports Authority's 5.25% Convertible Subordinated Notes due
2001, to implement the provisions of such Indenture necessary in connection with
the Merger, including to provide that such notes shall be convertible into
shares of Woolworth Common Stock and not Sports Authority Common Stock, as
adjusted, from and after the Effective Time.
SECTION 5.18 Sports Authority Headquarters. Until the second anniversary
of the Effective Time, the headquarters of Sports Authority will be maintained
within 25 miles of its current location.
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ARTICLE VI
CONDITIONS PRECEDENT
SECTION 6.1 Conditions to Each Party's Obligation to Effect the
Merger. The respective obligation of each party to effect the Merger is subject
to the satisfaction or waiver on or prior to the Closing Date of the following
conditions:
(a) Stockholder Approval. The Sports Authority Stockholder Approval shall
have been obtained.
(b) HSR Act. The waiting period (and any extension thereof) applicable to
the Merger under the HSR Act shall have been terminated or shall have expired.
(c) Governmental and Regulatory Approvals. Other than the filing provided
for under Section 1.3 and filings pursuant to the HSR Act (which are addressed
in Section 6.1(b)), all consents, approvals and actions of, filings with and
notices to any Governmental Entity required of Sports Authority, Woolworth or
any of their subsidiaries to consummate the Merger and the other transactions
contemplated hereby, the failure of which to be obtained or taken (i) is
reasonably expected to have a material adverse effect on the Surviving
Corporation and its prospective subsidiaries, taken as a whole, or (ii) will
result in a violation of any laws, shall have been obtained, all in form and
substance reasonably satisfactory to Sports Authority and Woolworth.
(d) No Injunctions or Restraints. No judgment, order, decree, statute,
law, ordinance, rule or regulation, entered, enacted, promulgated, enforced or
issued by any court or other Governmental Entity of competent jurisdiction or
other legal restraint or prohibition (collectively, "Restraints") shall be in
effect (i) preventing the consummation of the Merger, or (ii) which otherwise is
reasonably likely to have a material adverse effect on Sports Authority or
Woolworth, as applicable; provided, however, that each of the parties shall have
used its reasonable best efforts to prevent the entry of any such Restraints and
to appeal as promptly as possible any such Restraints that may be entered.
(e) Form S-4. The Form S-4 shall have become effective under the
Securities Act prior to the mailing of the Proxy Statement/Prospectus by Sports
Authority to its stockholders and no stop order or proceedings seeking a stop
order shall be threatened by the SEC or shall have been initiated by the SEC.
(f) NYSE Listing. The shares of Woolworth Common Stock issuable to Sports
Authority's stockholders as contemplated by Article II and the shares of
Woolworth Common Stock issuable upon exercise of Adjusted Options pursuant to
Section 5.6 shall have been approved for listing on the NYSE, subject to
official notice of issuance.
(g) Pooling Letters. Woolworth and Sports Authority shall have received
letters from each of Sports Authority's independent accountants and Woolworth's
independent accountants, dated as of the date the Form S-4 is declared effective
and as of the Closing Date, in each case addressed to Woolworth and Sports
Authority, stating that accounting for the Merger as a pooling of interests
under Opinion 16 of the Accounting Principles Board and applicable SEC rules and
regulations is appropriate if the Merger is consummated and closed as
contemplated by this Agreement.
SECTION 6.2 Conditions to Obligations of Woolworth. The obligation of
Woolworth to effect the Merger is further subject to satisfaction or waiver of
the following conditions:
(a) Representations and Warranties. The representations and warranties of
Sports Authority set forth herein shall be true and correct both when made and
at and as of the Closing Date, as if made at and as of such time (except to the
extent expressly made as of an earlier date, in which case as of such date),
except where the failure of such representations and warranties to be so true
and correct (without giving effect to any limitation as to "materiality" or
"material adverse effect" set forth therein) does not have, and is not likely to
have, individually or in the aggregate, a material adverse effect on Sports
Authority; provided that the representation and warranty set forth in the last
sentence of Section 3.1(s) shall be deemed true and correct only if the "direct
store profit" (as shown in the internal financial records of Sports Authority)
for the most recent fiscal year of all stores in respect of which one or more
contracts relating to the lease of real property are
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subject to termination or modification is $3 million or less in the aggregate
(excluding stores as to which the lessor shall have waived its right of
termination or modification).
(b) Performance of Obligations of Sports Authority. Sports Authority
shall have performed in all material respects all obligations required to be
performed by it under this Agreement at or prior to the Closing Date.
(c) Tax Opinion. Woolworth shall have received from Skadden, Arps, Slate,
Meagher & Flom LLP, counsel to Woolworth, on a date immediately prior to the
mailing of the Proxy Statement/Prospectus and on the Closing Date, an opinion
dated as of such date, to the effect that: (i) the Merger will constitute a
"reorganization" within the meaning of Section 368(a) of the Code, and Woolworth
and Sports Authority will each be a party to such reorganization within the
meaning of Section 368(b) of the Code; (ii) no gain or loss will be recognized
by Woolworth or Sports Authority as a result of the Merger; (iii) no gain or
loss will be recognized by the stockholders of Sports Authority upon the
exchange of their shares of Sports Authority Common Stock solely for shares of
Woolworth Common Stock pursuant to the Merger, except with respect to cash, if
any, received in lieu of fractional shares of Woolworth Common Stock; (iv) the
aggregate tax basis of the shares of Wool worth Common Stock received solely in
exchange for shares of Sports Authority Common Stock pursuant to the Merger
(including fractional shares of Woolworth Common Stock for which cash is
received) will be the same as the aggregate tax basis of the shares of Sports
Authority Common Stock exchanged therefor; and (v) the holding period for shares
of Woolworth Common Stock received in exchange for shares of Sports Authority
Common Stock pursuant to the Merger will include the holding period of the
shares of Sports Authority Common Stock exchanged therefor, provided such shares
of Sports Authority Common Stock were held as capital assets by the stockholder
at the Effective Time. In rendering such opinions, counsel for Woolworth shall
be entitled to rely upon representations of officers of Woolworth, Sports
Authority and stockholders of Sports Authority substantially in the form of
Exhibits B and C hereto.
(d) No Material Adverse Change. At any time after the date of this
Agreement there shall not have occurred any material adverse change relating to
Sports Authority.
SECTION 6.3 Conditions to Obligations of Sports Authority. The obligation
of Sports Authority to effect the Merger is further subject to satisfaction or
waiver of the following conditions:
(a) Representations and Warranties. The representations and warranties of
Woolworth set forth herein shall be true and correct both when made and at and
as of the Closing Date, as if made at and as of such time (except to the extent
expressly made as of an earlier date, in which case as of such date), except
where the failure of such representations and warranties to be so true and
correct (without giving effect to any limitation as to "materiality," or
"material adverse effect" set forth therein) does not have, and is not likely to
have, individually or in the aggregate, a material adverse effect on Woolworth.
(b) Performance of Obligations of Woolworth. Woolworth shall have
performed in all material respects all obligations required to be performed by
it under this Agreement at or prior to the Closing Date.
(c) Tax Opinions. Sports Authority shall have received from Morgan, Lewis
& Bockius LLP, counsel to Sports Authority, on a date immediately prior to the
mailing of the Proxy Statement/Prospectus and on the Closing Date, an opinion as
of such date, to the effect that: (i) the Merger will constitute a
"reorganization" within the meaning of Section 368(a) of the Code, and Woolworth
and Sports Authority will each be a party to such reorganization within the
meaning of Section 368(b) of the Code; (ii) no gain or loss will be recognized
by Woolworth or Sports Authority as a result of the Merger; (iii) no gain or
loss will be recognized by the stockholders of Sports Authority upon the
exchange of their shares of Sports Authority Common Stock solely for shares of
Woolworth Common Stock pursuant to the Merger, except with respect to cash, if
any, received in lieu of fractional shares of Woolworth Common Stock; (iv) the
aggregate tax basis of the shares of Woolworth Common Stock received solely in
exchange for shares of Sports Authority Common Stock pursuant to the Merger
(including fractional shares or Woolworth Common Stock for which cash is
received) will be the same as the aggregate tax basis of the shares of Sports
Authority Common Stock exchanged therefor; and (v) the holding period for shares
of Woolworth Common Stock received in exchange for shares of Sports Authority
Common Stock pursuant to the Merger will include the holding period of the
shares of
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Sports Authority Common Stock exchanged therefor, provided such shares of Sports
Authority Common Stock were held as capital assets by the stockholder at the
Effective Time. In rendering such opinions, counsel for Sports Authority shall
be entitled to rely upon representations of officers of Woolworth, Sports
Authority and stockholders of Sports Authority substantially in the form of
Exhibits B and C hereto.
(d) No Material Adverse Change. At any time after the date of this
Agreement there shall not have occurred any material adverse change relating to
Woolworth.
SECTION 6.4 Frustration of Closing Conditions. Neither Woolworth nor
Sports Authority may rely on the failure of any condition set forth in Section
6.1, 6.2 or 6.3, as the case may be, to be satisfied if such failure was caused
by such party's failure to use reasonable best efforts to consummate the Merger
and the other trans-actions contemplated by this Agreement, as required by and
subject to Section 5.5.
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
SECTION 7.1 Termination. This Agreement may be terminated at any time
prior to the Effective Time, and (except in the case of a termination pursuant
to Section 7.1(e)) whether before or after the Sports Authority Stockholder
Approval:
(a) by mutual written consent of Woolworth and Sports Authority;
(b) by either Woolworth or Sports Authority:
(i) if the Merger shall not have been consummated by December 31,
1998, provided, however, that the right to terminate this Agreement
pursuant to this Section 7.1(b)(i) shall not be available to any party
whose failure to perform any of its obligations under this Agreement
results in the failure of the Merger to be consummated by such time;
provided, however, that this Agreement may be extended not more than 30
days by either party by written notice to the other party if the Merger
shall not have been consummated as a direct result of Woolworth or Sports
Authority having failed to receive all regulatory approvals required to be
obtained with respect to the Merger.
(ii) if the Sports Authority Stockholder Approval shall not have been
obtained at a Sports Authority Stockholders Meeting duly convened therefor
or at any adjournment or postponement thereof; or
(iii) if any Restraint having any of the effects set forth in Section
6.1(d) shall be in effect and shall have become final and nonappealable;
provided, that the party seeking to terminate this Agreement pursuant to
this Section 7.1(b)(iii) shall have used reasonable best efforts to prevent
the entry of and to remove such Restraint;
(c) by Woolworth, if Sports Authority shall have breached or failed to
perform in any material respect any of its representations, warranties,
covenants or other agreements contained in this Agreement, which breach or
failure to perform (A) would give rise to the failure of a condition set forth
in Section 6.2(a) or (b), and (B) is incapable of being cured by Sports
Authority or is not cured within 45 days of written notice thereof;
(d) by Sports Authority, if Woolworth shall have breached or failed to
perform in any material respect any of its representations, warranties,
covenants or other agreements contained in this Agreement, which breach or
failure to perform (A) would give rise to the failure of a condition set forth
in Section 6.3(a) or (b), and (B) is incapable of being cured by Woolworth or is
not cured within 45 days of written notice thereof;
(e) prior to receipt of the Sports Authority Stockholder Approval, by
Sports Authority in accordance with Section 4.2(b); provided that, in order for
the termination of this Agreement pursuant to this paragraph (e) to be deemed
effective, Sports Authority shall have complied with all provisions of Section
4.2, including the notice provisions therein, and with applicable requirements,
including the payment of the Termination Fee, of Section 5.8; or
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(f) by Sports Authority, if the Woolworth Average Price for a Measuring
Period is $20.50 or less, Sports Authority has made an Election and Woolworth
has not made a Rescission.
SECTION 7.2 Effect of Termination. In the event of termination of this
Agreement by either Sports Authority or Woolworth as provided in Section 7.1,
this Agreement shall forthwith become void and have no effect, without any
liability or obligation on the part of Woolworth or Sports Authority, other than
the provisions of Section 3.1(o), Section 3.2(n), the last sentence of Section
5.4, Section 5.8, this Section 7.2 and Article VIII, which provisions survive
such termination, and except to the extent that such termination results from
the willful and material breach by a party of any of its representations,
warranties, covenants or agreements set forth in this Agreement.
SECTION 7.3 Amendment. This Agreement may be amended by the parties at
any time before or after the Sports Authority Stockholder Approval or the
Woolworth Stockholder Approval; provided, however, that after any such approval,
there shall not be made any amendment that by law requires further approval by
the stockholders of Sports Authority or Woolworth without the further approval
of such stockholders. This Agreement may not be amended except by an instrument
in writing signed on behalf of each of the parties.
SECTION 7.4 Extension; Waiver. At any time prior to the Effective Time, a
party may (a) extend the time for the performance of any of the obligations or
other acts of the other parties, (b) waive any inaccuracies in the
representations and warranties of the other parties contained in this Agreement
or in any document delivered pursuant to this Agreement or (c) subject to the
proviso of Section 7.3, waive compliance by the other party with any of the
agreements or conditions contained in this Agreement. Any agreement on the part
of a party to any such extension or waiver shall be valid only if set forth in
an instrument in writing signed on behalf of such party. The failure of any
party to this Agreement to assert any of its rights under this Agreement or
otherwise shall not constitute a waiver of such rights.
SECTION 7.5 Procedure for Termination, Amendment, Extension or Waiver. A
termination of this Agreement pursuant to Section 7.1, an amendment of this
Agreement pursuant to Section 7.3 or an extension or waiver pursuant to Section
7.4 shall, in order to be effective, require, in the case of Woolworth or Sports
Authority, action by its Board of Directors or, with respect to any amendment to
this Agreement, the duly authorized committee of its Board of Directors to the
extent permitted by law.
ARTICLE VIII
GENERAL PROVISIONS
SECTION 8.1 Nonsurvival of Representations and Warranties. None of the
representations and warranties in this Agreement or in any instrument delivered
pursuant to this Agreement shall survive the Effective Time. This Section 8.1
shall not limit any covenant or agreement of the parties which by its terms
contemplates performance after the Effective Time.
SECTION 8.2 Notices. All notices, requests, claims, demands and other
communications under this Agreement shall be in writing and shall be deemed
given if delivered personally, telecopied (which is confirmed) or sent by
overnight courier (providing proof of delivery) to the parties at the following
addresses (or at such other address for a party as shall be specified by like
notice):
(a) if to Woolworth or Sub, to:
Woolworth Corporation
233 Broadway
New York, New York 10279
Telecopy No.: (212) 553-2114
Attention: Gary M. Bahler, Esq.
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with a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, New York 10022
Telecopy No.: (212) 735-2000
Attention: Thomas H. Kennedy, Esq.
(b) if to Sports Authority, to:
The Sports Authority, Inc.
3383 North State Road 7
Fort Lauderdale, Florida 33319
Telecopy No.: (954) 730-4288
Attention: Frank W. Bubb, Esq.
with a copy to:
Morgan, Lewis & Bockius LLP
5300 First Union Financial Center
Miami, Florida 33131
Telecopy No.: (305) 579-0321
Attention: John S. Fletcher, Esq.
SECTION 8.3 Definitions. For purposes of this Agreement:
(a) except for purposes of Section 5.10, an "affiliate" of any person means
another person that directly or indirectly, through one or more intermediaries,
controls, is controlled by, or is under common control with, such first person,
where "control" means the possession, directly or indirectly, of the power to
direct or cause the direction of the management policies of a person, whether
through the ownership of voting securities, by contract, as trustee or executor,
or otherwise;
(b) "material adverse change" or "material adverse effect" means, when used
in connection with Sports Authority or Woolworth, any change, effect, event,
occurrence or state of facts that is, or would reasonably be expected to be,
materially adverse to the business, financial condition or results of operations
of such party and its subsidiaries taken as a whole, other than any change,
effect, event or occurrence constituting or relating to (i) the United States
economy or securities markets in general or (ii) this Agreement or the
transactions contemplated hereby or the announcement thereof. The terms
"material" and "materially" have correlative meanings;
(c) "person" means an individual, corporation, partnership, limited
liability company, joint venture, association, trust, unincorporated
organization or other entity;
(d) a "subsidiary" of any person means another person, an amount of the
voting securities, other voting ownership or voting partnership interests of
which is sufficient to elect at least a majority of its Board of Directors or
other governing body (or, if there are no such voting interests, 50% or more of
the equity interests of which) is owned directly or indirectly by such first
person; and
(e) "knowledge" of any person which is not an individual means the
knowledge of such person's executive officers or senior management of such
person's operating divisions and segments, in each case after reasonable
inquiry.
SECTION 8.4 Interpretation. When a reference is made in this Agreement to
an Article, Section or Exhibit, such reference shall be to an Article or Section
of, or an Exhibit to, this Agreement unless otherwise indicated. The table of
contents and headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement. Whenever the words "include", "includes" or "including" are used in
this Agreement, they shall be deemed to be followed by the words "without
limitation". The words "hereof", "herein" and "hereunder" and words of similar
import when used
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in this Agreement shall refer to this Agreement as a whole and not to any
particular provision of this Agreement. All terms defined in this Agreement
shall have the defined meanings when used in any certificate or other document
made or delivered pursuant hereto unless otherwise defined therein. The
definitions contained in this Agreement are applicable to the singular as well
as the plural forms of such terms and to the masculine as well as to the
feminine and neuter genders of such term. Any agreement, instrument or statute
defined or referred to herein or in any agreement or instrument that is referred
to herein means such agreement, instrument or statute as from time to time
amended, modified or supplemented, including (in the case of agreements or
instruments) by waiver or consent and (in the case of statutes) by succession of
comparable successor statutes and references to all attachments thereto and
instruments incorporated therein. References to a person are also to its
permitted successors and assigns.
SECTION 8.5 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties.
SECTION 8.6 Entire Agreement; No Third-Party Beneficiaries. This
Agreement (including the documents and instruments referred to herein) and the
Confidentiality Agreement (a) constitute the entire agreement, and supersede all
prior agreements and understandings, both written and oral, between the parties
with respect to the subject matter of this Agreement and (b) except for the
provisions of Article II and Section 5.6, are not intended to confer upon any
person other than the parties any rights or remedies.
SECTION 8.7 Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware, regardless of
the laws that might otherwise govern under applicable principles of conflict of
laws thereof.
SECTION 8.8 Assignment. Neither this Agreement nor any of the rights,
interests or obligations under this Agreement shall be assigned, in whole or in
part, by operation of law or otherwise by either of the parties hereto without
the prior written consent of the other party. Any assignment in violation of the
preceding sentence shall be void. Subject to the preceding two sentences, this
Agreement will be binding upon, inure to the benefit of, and be enforceable by,
the parties and their respective successors and assigns.
SECTION 8.9 Consent to Jurisdiction. Each of the parties hereto (a)
consents to submit itself to the personal jurisdiction of any federal court
located in the State of Delaware or any Delaware state court in the event any
dispute arises out of this Agreement or any of the transactions contemplated by
this Agreement, (b) agrees that it will not attempt to deny or defeat such
personal jurisdiction by motion or other request for leave from any such court,
and (c) agrees that it will not bring any action relating to this Agreement or
any of the transactions contemplated by this Agreement in any court other than a
federal court sitting in the State of Delaware or a Delaware state court.
SECTION 8.10 Headings. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
SECTION 8.11 Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect. Upon such determination that any
term or other provision is invalid, illegal or incapable of being enforced, the
parties hereto shall negotiate in good faith to modify this Agreement so as to
effect the original intent of the parties as closely as possible to the fullest
extent permitted by applicable law in an acceptable manner to the end that the
transactions contemplated hereby are fulfilled to the extent possible.
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IN WITNESS WHEREOF, Woolworth, Sub and Sports Authority have caused this
Agreement to be signed by their respective officers thereunto duly authorized,
all as of the date first written above.
WOOLWORTH CORPORATION
By /s/ DALE W. HILPERT
------------------------------------
Title: President
LIBERTY MERGER SUB INC.
By /s/ M. JEFFREY BRANMAN
------------------------------------
Title: Senior Vice President
THE SPORTS AUTHORITY, INC.
By /s/ JACK A. SMITH
------------------------------------
Title: Chairman and Chief Executive
Officer
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EXHIBIT A
FORM OF AFFILIATE LETTER FOR
AFFILIATES OF THE SPORTS AUTHORITY, INC.
Woolworth Corporation
233 Broadway
New York, NY 10279-0003
Attention of [ ]
Gentlemen:
I have been advised that as of the date of this letter I may be deemed to
be an "affiliate" of Sports Authority Inc., a Delaware corporation ("Sports
Authority"), as the term "affiliate" is (i) defined for purposes of paragraphs
(c) and (d) of Rule 145 of the rules and regulations (the "Rules and
Regulations") of the Securities and Exchange Commission (the "Commission") under
the Securities Act of 1933, as amended (the "Act"), and/or (ii) used in and for
purposes of Accounting Series Releases 130 and 135, as amended, of the
Commission. Pursuant to the terms of the Agreement and Plan of Merger dated as
of May 7, 1998 (the "Merger Agreement") among Woolworth Corporation, a New York
corporation ("Woolworth"), Liberty Merger Sub Inc., a Delaware corporation
("Sub"), and Sports Authority, Sub will be merged with and into Sports
Authority, with Sports Authority continuing as the Surviving Corporation (the
"Merger"). Capitalized terms used in this letter without definition shall have
the meanings assigned to them in the Merger Agreement.
As a result of the Merger, I may receive shares of common stock, par value
$.01 per share, of Woolworth (the "Woolworth Shares"). I would receive such
Woolworth Shares in exchange for shares (or upon exercise of options for shares)
owned by me of common stock, par value $.01 per share of Sports Authority (the
"Sports Authority Shares").
1. I hereby represent, warrant and covenant to Woolworth that in the event
I receive any Woolworth Shares as a result of the Merger:
1. I shall not make any sale, transfer or other disposition of the
Woolworth Shares in violation of the Act or the Rules and Regulations.
2. I have carefully read this letter and the Merger Agreement and
discussed the requirements of such documents and other applicable
limitations upon my ability to sell, transfer or otherwise dispose of the
Woolworth Shares, to the extent I felt necessary, with my counsel or
counsel for Sports Authority.
3. I have been advised that the issuance of the Woolworth Shares to me
pursuant to the Merger has been registered with the Commission under the
Act on a Registration Statement on Form S-4. However, I have also been
advised that, because at the time the Merger is submitted for a vote of the
stockholders of Sports Authority, (a) I may be deemed to be an affiliate of
Sports Authority and (b) the distribution by me of the Woolworth Shares has
not been registered under the Act, I may not sell, transfer or otherwise
dispose of the Woolworth Shares issued to me in the Merger unless (i) such
sale, transfer or other disposition is made in conformity with the volume
and other limitations of Rule 145 promulgated by the Commission under the
Act, (ii) such sale, transfer or other disposition has been registered
under the Act or (iii) in the opinion of counsel reasonably acceptable to
Woolworth, such sale, transfer or other disposition is otherwise exempt
from registration under the Act.
4. I understand that except as provided for in the Merger Agreement,
Woolworth is under no obligation to register the sale, transfer or other
disposition of the Woolworth Shares by me or on my behalf under the Act or,
except as provided in paragraph 2(A) below, to take any other action
necessary in order to make compliance with an exemption from such
registration available.
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5. I also understand that there will be placed on the certificates for
the Woolworth Shares issued to me, or any substitutions therefor, a legend
stating in substance:
"THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN A
TRANSACTION TO WHICH RULE 145 PROMULGATED UNDER THE SECURITIES ACT OF
1933 APPLIES. THE SHARES REPRESENTED BY THIS CERTIFICATE MAY ONLY BE
TRANSFERRED IN ACCORDANCE WITH THE TERMS OF AN AGREEMENT DATED
[ ], 1998 BETWEEN THE REGISTERED HOLDER HEREOF AND WOOLWORTH
CORPORATION, A COPY OF WHICH AGREEMENT IS ON FILE AT THE PRINCIPAL
OFFICES OF WOOLWORTH CORPORATION."
6. I also understand that unless a sale or transfer is made in
conformity with the provisions of Rule 145, or pursuant to a registration
statement, Woolworth reserves the right to put the following legend on the
certificates issued to my transferee:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 AND WERE ACQUIRED FROM A
PERSON WHO RECEIVED SUCH SHARES IN A TRANSACTION TO WHICH RULE 145
PROMULGATED UNDER THE SECURITIES ACT OF 1933 APPLIES. THE SHARES HAVE
BEEN ACQUIRED BY THE HOLDER NOT WITH A VIEW TO, OR FOR RESALE IN
CONNECTION WITH, ANY DISTRIBUTION THEREOF WITHIN THE MEANING OF THE
SECURITIES ACT OF 1933 AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE
TRANSFERRED EXCEPT IN ACCORDANCE WITH AN EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT OF 1933."
7. I further represent to, and covenant with, Woolworth that I will
not, during the 30 days prior to the Effective Time (as defined in the
Merger Agreement), sell, transfer or otherwise dispose of or reduce my risk
(as contemplated by the SEC Accounting Series Release No. 135) with respect
to Sports Authority Shares or shares of the capital stock of Woolworth that
I may hold, and, furthermore, that I will not sell, transfer or otherwise
dispose of or reduce my risk (as contemplated by SEC Accounting Series
Release No. 135) with respect to the Woolworth Shares received by me in the
Merger or any other shares of the capital stock of Woolworth until after
such time as results covering at least 30 days of combined operations of
Sports Authority and Woolworth have been published by Woolworth, in the
form of a quarterly earnings report, an effective registration statement
filed with the Commission, a report to the Commission on Form 10-K, 10-Q or
8-K, or any other public filing or announcement which includes the combined
results of operations (the period commencing 30 days prior to the Effective
Time and ending on the date of the publication of the post-Merger financial
results is referred herein as the "Pooling Period"). Woolworth shall notify
the "affiliates" of the publications of such results. Notwithstanding the
foregoing, I understand that during the aforementioned period, subject to
providing written notice to Woolworth, I will not be prohibited from
selling up to 10% of the Woolworth Shares (the "10% Shares") received by me
or Woolworth Shares owned by me or making charitable contributions or bona
fide gifts of the Woolworth Shares received by me or Sports Authority
Shares owned by me, subject to the same restrictions. The 10% Shares shall
be calculated in accordance with SEC Accounting Series Release 135 as
amended by Staff Accounting Bulletin No. 76. I covenant with Woolworth that
I will not sell, transfer or otherwise dispose of any 10% Shares during the
period commencing from the Effective Time and ending on the last day of the
Pooling Period except in compliance with Rule 145(d)(1) under the
Securities Act or pursuant to charitable contributions or bona fide gifts.
8. Execution of this letter should not be considered an admission on
my part that I am an "affiliate" of Sports Authority as described in the
first paragraph of this letter, nor as a waiver of any rights I may have to
object to any claim that I am such an affiliate on or after the date of
this letter.
2. By Woolworth's acceptance of this letter, Woolworth hereby agrees with
me as follows:
1. For so long as and to the extent necessary to permit me to sell the
Woolworth Shares pursuant to Rule 145 and, to the extent applicable, Rule
144 under the Act, Woolworth shall (a) use its reasonable
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best efforts to (i) file, on a timely basis, all reports and data required
to be filed with the Commission by it pursuant to Section 13 of the
Securities Exchange Act of 1934, as amended (the "1934 Act"), and (ii)
furnish to me upon request a written statement as to whether Woolworth has
complied with such reporting requirements during the 12 months preceding
any proposed sale of the Woolworth Shares by me under Rule 145, and (b)
otherwise use its reasonable efforts to permit such sales pursuant to Rule
145 and Rule 144. Woolworth has filed all reports required to be filed with
the Commission under Section 13 of the 1934 Act during the preceding 12
months.
2. It is understood and agreed that certificates with the legends set
forth in paragraphs E and F above will be substituted by delivery of
certificates without such legend if (i) one year shall have elapsed from
the date the undersigned acquired the Woolworth Shares received in the
Merger and the provisions of Rule 145 (d)(2) are then available to the
undersigned, (ii) two years shall have elapsed from the date the
undersigned acquired the Woolworth Shares received in the Merger and the
provisions of Rule 145(d)(3) are then applicable to the undersigned, or
(iii) Woolworth has received either an opinion of counsel, which opinion
and counsel shall be reasonably satisfactory to Woolworth, or a "no-action"
letter obtained by the undersigned from the staff of the Commission, to the
effect that the restrictions imposed by Rule 144 and Rule 145 under the Act
no longer apply to the undersigned.
Very truly yours,
--------------------------------------
Name:
Agreed and accepted this day
of [ ], 1998, by
WOOLWORTH CORPORATION
By:
- ----------------------------------------------------
Name:
Title:
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<PAGE> 120
EXHIBIT B
THE SPORTS AUTHORITY, INC.
3383 NORTH STATE ROAD 7
FORT LAUDERDALE, FLORIDA 33319
, 1998
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, New York 10022
Morgan, Lewis & Bockius LLP
101 Park Avenue
New York, New York 10178
Ladies and Gentlemen:
You have been requested to render an opinion (the "Opinion") regarding
certain United States federal income tax consequences of the merger (the
"Merger") of Liberty Merger Sub, Inc., a Delaware corporation ("Sub") and a
wholly owned subsidiary of Woolworth Corporation, a New York corporation
("Parent"), with and into The Sports Authority, Inc., a Delaware corporation
("Company"), with Company continuing as the surviving corporation, upon the
terms and conditions set forth in the Agreement and Plan of Merger (the "Merger
Agreement") dated as of May 7, 1998 among Parent, Sub and Company. Capitalized
terms not otherwise defined herein have the meaning specified in the Merger
Agreement.
In connection with the Merger, and recognizing that you will rely upon this
certificate in rendering the Opinion, the undersigned, an officer of Company,
after due inquiry and investigation, hereby certifies that, as of the Effective
Time:
1. The facts relating to the Merger, which facts are described in the
Joint Proxy Statement and Prospectus relating to the Merger dated
, 1998, insofar as such facts pertain to Company, are true,
correct and complete in all material respects, and insofar as such facts
pertain to Parent and Sub, the undersigned has no reason to believe that
such facts are not true, correct and complete in all material respects.
2. The aggregate fair market value of the Parent Common Stock,
(including any cash provided in lieu of fractional shares of Parent Common
Stock) received by holders of Company Shares in the Merger, will be
approximately equal to the fair market value of the Shares surrendered in
exchange therefor, as determined by arm's-length negotiations between the
managements of Parent and Company.
3. Prior to and in connection with the Merger, (i) Company has not
redeemed (and will not redeem) any Company stock and has not made (and will
not make) any extraordinary distributions with respect thereto and (ii) the
persons that are related to Company within the meaning of Temp. Treas. Reg.
sec.1.368-IT(e)(2)(ii), in the aggregate have not acquired (and will not
acquire) Company stock from any holder thereof in an amount in excess of 5%
of the outstanding Company Common Stock as of the Effective Time.
4. Following the Merger, Company will hold at least 90 percent of the
fair market value of its net assets and at least 70 percent of the fair
market value of its gross assets, and at least 90 percent of the fair
market value of Sub's net assets and at least 70 percent of the fair market
value of Sub's gross assets, held immediately prior to the Effective Time.
For purposes of this representation, amounts paid by Company or Sub to
shareholders who receive cash or other property pursuant to the Merger,
amounts paid by Company or Sub to pay reorganization expenses, and all
redemptions and distributions (except for regular, normal dividends) made
by Company or Sub immediately preceding the Effective Time, will be
included as assets of Company or Sub, respectively, immediately prior to
the Effective Time.
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5. Company has no plan or intention to issue additional shares of its
stock (or securities, options, warrants or instruments giving the holder
thereof the right to acquire Company Stock) that would (or if exercised
would) result in Parent losing control of Company within the meaning of
Section 368(c) of the Code.
6. Company will not assume any liabilities of Sub or acquire any
assets of Sub that are subject to liabilities.
7. Following the Merger, Company will continue its historic business
or use a significant portion of its historic business assets in a business.
8. Except as provided in the Merger Agreement, each of Company and
its shareholders will pay their respective expenses, if any, incurred in
connection with the Merger.
9. There is no intercorporate indebtedness existing between Parent
and Company, or between Sub and Company, that was issued, acquired or will
be settled at a discount.
10. In the Merger, shares of Company stock representing control of
Company, as defined in Section 368(c) of the Code, will be exchanged solely
for voting stock of Parent.
11. At the time of the Merger, Company will not have outstanding any
warrants, options, convertible securities, or any other type of right
pursuant to which any person could acquire stock in Company that, if
exercised or converted, would affect Parent's acquisition or retention of
control of Company, as defined in Section 368(c) of the Code.
12. Company is not an investment company as defined in Section
368(a)(2)(F)(iii) and (iv) of the Code.
13. On the date of the Merger, the fair market value of the assets of
Company will exceed the sum of its liabilities, plus the amount of
liabilities, if any, to which the assets are subject.
14. Company is not under the jurisdiction of a court in a Title 11 or
similar case within the meaning of Section 368(a)(3)(A) of the Code.
15. Parent will acquire Company stock solely in exchange for Parent
voting stock. No liabilities of Company or Company shareholders will be
assumed by Parent, nor will any of Company stock be subject to any
liabilities.
16. There will be no dissenters to the Merger.
17. The payment of cash in lieu of fractional shares of Parent Stock
is solely for the purpose of avoiding the expense and inconvenience to
Parent of issuing fractional shares and does not represent separately
bargained for consideration. Except for any case in which a Company
shareholder holds beneficial interest in shares of Company Common Stock
through more than one brokerage account and such multiple accounts cannot
be aggregated, either because the beneficial interests cannot be identified
or it would be impracticable to do so, the fractional share interests of
each Company shareholder will be aggregated, and no Company shareholder
will receive cash in an amount equal to or greater than the value of one
full share of Parent Common Stock.
18. None of the compensation received by any shareholder-employees of
Company attributable to periods on or prior to the Effective Time
represents separate consideration for, or is allocable to, any of their
Company Common Stock. None of the Parent Common Stock that will be received
by any of Company shareholders who are or will be employees of Company, Sub
or Parent represents separately bargained for consideration which is
allocable to any employment agreement or arrangement. The compensation paid
to any shareholder-employees of Company on or prior to the Effective Time
will be for services actually rendered and will be commensurate with
amounts paid to third parties bargaining at arm's-length for similar
services.
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The undersigned will promptly notify Skadden, Arps, Slate, Meagher & Flom
LLP and Morgan, Lewis & Bockius LLP if any of the above representations or
covenants cease to be accurate and complete.
THE SPORTS AUTHORITY, INC.
By:
--------------------------------------
Name:
--------------------------------------
Title:
--------------------------------------
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EXHIBIT C
WOOLWORTH CORPORATION
233 BROADWAY
NEW YORK, NEW YORK 10279
, 1998
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, New York 10022
Morgan, Lewis & Bockius LLP
101 Park Avenue
New York, New York 10178
Ladies and Gentlemen:
You have been requested to render an opinion (the "Opinion") regarding
certain United States Federal income tax consequences of the merger (the
"Merger") of Liberty Merger Sub, Inc., a Delaware corporation ("Sub") and a
wholly owned subsidiary of Woolworth Corporation, a New York corporation
("Parent"), with and into The Sports Authority, Inc., a Delaware corporation
("Company"), with Company continuing as the surviving corporation, upon the
terms and conditions set forth in the Agreement and Plan of Merger (the "Merger
Agreement") dated as of May 7, 1998 among Parent, Sub and Company. Capitalized
terms not otherwise defined herein have the meaning specified in the Merger
Agreement.
In connection with the Merger, and recognizing that you will rely upon this
certificate in rendering the Opinion, the undersigned, an officer of Parent,
after due inquiry and investigation, hereby certifies that, as of the Effective
Time:
1. The facts relating to the Merger, which facts are described in the
Joint Proxy Statement and Prospectus relating to the Merger dated
, 1998, insofar as such facts pertain to Parent and
Sub, are true, correct and complete in all material respects, and, insofar
as such facts pertain to Company, the undersigned has no reason to believe
that such facts are not true, correct and complete in all material
respects.
2. The aggregate fair market value of the Parent Common Stock,
(including any cash provided in lieu of fractional shares of Parent Common
Stock) received by holders of Company Shares in the Merger, will be
approximately equal to the fair market value of the Shares surrendered in
exchange therefor, as determined by arm's-length negotiations between the
managements of Parent and Company.
3. In connection with the Merger, Parent will transfer to Company at
least 90 percent of the fair market value of Sub's net assets and at least
70 percent of the fair market value of Sub's gross assets, held immediately
prior to the Effective Time. For purposes of this representation, amounts
paid by Sub to holders of shares who receive cash or other property
pursuant to the Merger, amounts paid by Sub to pay reorganization expenses
and all redemptions and distributions (except for regular, normal
dividends) made by Sub immediately preceding the Effective Time will be
included as assets of Sub immediately prior to the Effective Time.
4. Prior to the Effective Time, Parent will be in control of Sub
within the meaning of Section 368(c) of the Code. At no time prior to the
Effective Time has or will Sub conduct any business activities or
operations of any kind.
5. Parent has no plan or intention to cause Company to issue
additional shares of its stock (or securities, options, warrants or
instruments giving the holder thereof the right to acquire Company stock)
that would (or if exercised would) result in Parent losing control of
Company within the meaning of Section 368(c) of the Code.
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<PAGE> 124
6. Except for cash paid in lieu of fractional share interests of
Parent Common Stock pursuant to the Merger, neither Parent nor anyone
related to Parent within the meaning of Treasury Regulation Section
1.368-1(e)(3) has any plan or intention to purchase, redeem or otherwise
reacquire any of the shares of Parent Common Stock issued in the Merger.
Following the Merger, any acquisition of Parent Common Stock pursuant to
any stock repurchase plan of Parent initiated after the Effective Time will
be directed to Parent shareholders generally and will not be directed
specifically to Company shareholders who receive Parent Common Stock
pursuant to the Merger.
7. Parent currently has a stock repurchase program in effect. Parent
did not create the stock repurchase program in connection with the Merger,
nor will it modify such program in connection with the Merger.
8. Parent has no plan or intention to liquidate Company; to merge
Company with and into another entity; to sell or otherwise dispose of any
of the stock of Company; to contribute the stock of Company to any other
entity; or to cause Company to sell or otherwise dispose of any of its
assets or any of the assets of Sub acquired in the Merger, except for
dispositions made in the ordinary course of business or transfers described
in Section 368(a)(2)(C) of the Code, in which case the foregoing
representations shall be deemed to apply to any transferee.
9. Sub has no liabilities that will be assumed by Company, and will
not transfer to Company any assets subject to liabilities in the Merger.
10. Following the Merger, Parent will cause Company to continue its
historic business or use a significant portion of its historic business
assets in a business.
11. Except as provided in the Merger Agreement, each of Parent and Sub
will pay their respective expenses, if any, incurred in connection with the
Merger.
12. There is no intercorporate indebtedness existing between Parent
and Company, or between Sub and Company, that was issued, acquired or will
be settled at a discount.
13. In the Merger, shares of Company stock representing control of
Company, as defined in Section 368(c) of the Code, will be exchanged solely
for voting stock of Parent.
14. Parent does not own, directly or indirectly, nor has it owned
during the past five years, directly or indirectly, any stock of Company.
15. Neither Parent nor Sub is an investment company as defined in
Section 368(a)(2)(F)(iii) and (iv) of the Code.
16. Parent will acquire Company stock solely in exchange for Parent
voting stock. No liabilities of Company or the Company shareholders will be
assumed by Parent.
17. The payment of cash in lieu of fractional shares of Parent Stock
is solely for the purpose of avoiding the expense and inconvenience to
Parent of issuing fractional shares and does not represent separately
bargained for consideration. Except for any case in which a Company
shareholder holds beneficial interest in shares of Company Common Stock
through more than one brokerage account and such multiple accounts cannot
be aggregated, either because the beneficial interests cannot be identified
or it would be impracticable to do so, the fractional share interests of
each Company shareholder will be aggregated, and no Company shareholder
will receive cash in an amount equal to or greater than the value of one
full share of Parent Common Stock.
18. None of the compensation received by any shareholder-employees of
the Company attributable to periods after the Effective Time represents
separate consideration for, or is allocable to, any of their Company Common
Stock. None of the Parent Common Stock that will be received by any of the
Company shareholders who are or will be employees of the Company, Sub or
Parent represents separately bargained for consideration which is allocable
to any employment agreement or arrangement. The compensation paid to any
shareholder-employees of the Company after the Effective Time will be for
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<PAGE> 125
services actually rendered and will be commensurate with amounts paid to
third parties bargaining at arm's-length for similar services.
19. Parent will pay or assume only those expenses of Company that are
solely and directly related to the Merger in accordance with the guidelines
established in Rev. Rul. 73-54, 1973-1 C.B. 187.
The undersigned will promptly notify Skadden, Arps, Slate, Meagher & Flom
LLP and Morgan, Lewis & Bockius LLP if any of the above representations or
covenants cease to be accurate and complete.
WOOLWORTH CORPORATION
By:
--------------------------------------
Name:
--------------------------------------
Title:
--------------------------------------
A-48
<PAGE> 126
ANNEX B
Investment Banking
Corporate and Institutional
Client Group
World Financial Center
North Tower
New York, New York
10281-1330
(LOGO) 212 449 1000
May 7, 1998
Board of Directors
The Sports Authority, Inc.
3383 N. State Road 7
Ft. Lauderdale, FL 33319
Members of the Board of Directors:
The Sports Authority, Inc. (the "Company"), Woolworth Corporation (the
"Acquiror") and Liberty Merger Sub., Inc., a newly formed, wholly owned
subsidiary of the Acquiror (the "Acquisition Sub"), propose to enter into the
Agreement and Plan of Merger, dated as of May 7, 1998 (the "Agreement"),
pursuant to which the Acquisition Sub will be merged with and into the Company
in a transaction (the "Merger") in which each outstanding share of the Company's
common stock, par value $.01 per share (the "Company Shares"), other than shares
owned by the Acquiror or the Company, will be converted into the right to
receive 0.80 shares (the "Exchange Ratio") of the common stock of the Acquiror,
par value $.01 per share (the "Acquiror Shares").
You have asked us whether, in our opinion, the Exchange Ratio is fair from
a financial point of view to the holders of the Company Shares, other than the
Acquiror and its affiliates. In arriving at the opinion set forth below, we
have, among other things:
(1) Reviewed certain publicly available business and financial
information relating to the Company and the Acquiror that we
deemed to be relevant;
(2) Reviewed certain information, including financial forecasts,
relating to the business, earnings, cash flow, assets,
liabilities and prospects of the Company and the Acquiror, as
well as the amount and timing of the cost savings and related
expenses and synergies expected to result from the Merger (the
"Expected Synergies") furnished to us by the Company and the
Acquiror, respectively;
(3) Conducted discussions with members of senior management of the
Company and the Acquiror concerning the matters described in
clauses 1 and 2 above, as well as their respective businesses and
prospects before and after giving effect to the Merger and the
Expected Synergies;
(4) Reviewed the market prices and valuation multiples for the
Company Shares and the Acquiror Shares and compared them with
those of certain publicly traded companies that we deemed to be
relevant;
(5) Reviewed the results of operations of the Company and the
Acquiror and compared them with those of certain publicly traded
companies that we deemed to be relevant;
(6) Compared the proposed financial terms of the Merger with the
financial terms of certain other transactions that we deemed to
be relevant;
(7) Participated in certain discussions and negotiations among
representatives of the Company and the Acquiror and their
financial and legal advisors;
B-1
<PAGE> 127
(8) Reviewed the potential pro forma impact of the Merger;
(9) Reviewed the Agreement; and
(10) Reviewed such other financial studies and analyses and took into
account such other matters as we deemed necessary, including our
assessment of general economic, market and monetary conditions.
In preparing our opinion, we have assumed and relied on the accuracy and
completeness of all information supplied or otherwise made available to us,
discussed with or reviewed by or for us, or publicly available, and we have not
assumed any responsibility for independently verifying such information or
undertaken an independent evaluation or appraisal of any of the assets or
liabilities of the Company or the Acquiror or been furnished with any such
evaluation or appraisal. In addition, we have not assumed any obligation to
conduct any physical inspection of the properties or facilities of the Company
or the Acquiror. With respect to the financial forecast information and the
Expected Synergies furnished to or discussed with us by the Company or the
Acquiror, we have assumed that they have been reasonably prepared and reflect
the best currently available estimates and judgment of the Company's or the
Acquiror's management as to the expected future financial performance of the
Company or the Acquiror, as the case may be, and the Expected Synergies. We have
further assumed that the Merger will be accounted for as a pooling of interests
under generally accepted accounting principles and that it will qualify as a
tax-free reorganization for U.S. federal income tax purposes.
Our opinion is necessarily based upon market, economic and other conditions
as they exist and can be evaluated on, and on the information made available to
us as of, the date hereof. We have assumed that in the course of obtaining the
necessary regulatory or other consents or approvals (contractual or otherwise)
for the Merger, no restrictions, including any divestiture requirements or
amendments or modifications, will be imposed that will have a material adverse
effect on the contemplated benefits of the Merger.
In connection with the preparation of this opinion, we have not been
authorized by the Company or the Board of Directors to solicit, nor have we
solicited, third-party indications of interest for the acquisition of all or any
part of the Company.
We are acting as financial advisor to the Company in connection with the
Merger and will receive a fee from the Company for our services, a significant
portion of which is contingent upon the consummation of the Merger. In addition,
the Company has agreed to indemnify us for certain liabilities arising out of
our engagement. In the ordinary course of our business, we may actively trade
the Company Shares, as well as the Acquiror Shares, for our own account and for
the accounts of customers and, accordingly, may at any time hold a long or short
position in such securities.
This opinion is for the use and benefit of the Board of Directors of the
Company. Our opinion does not address the merits of the underlying decision by
the Company to engage in the Merger and does not constitute a recommendation to
any shareholder as to how such shareholder should vote on the proposed Merger or
any matter related thereto.
We are not expressing any opinion herein as to the prices at which the
Company Shares or the Acquiror Shares will trade following the announcement or
consummation of the Merger.
On the basis of and subject to the foregoing, we are of the opinion that,
as of the date hereof, the Exchange Ratio is fair from a financial point of view
to the holders of the Company Shares, other than the Acquiror and its
affiliates.
Very truly yours,
/s/ MERRILL LYNCH, PIERCE, FENNER &
SMITH
INCORPORATED
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
B-2
<PAGE> 128
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Pursuant to the statutes of the State of New York, a director or officer of
a corporation is entitled, under specified circumstances, to indemnification by
the corporation against reasonable expenses, including attorneys' fees, incurred
by him in connection with the defense of a civil or criminal proceeding to which
he has been made, or threatened to be made, a party by reason of the fact that
he was such director or officer. In certain circumstances, indemnity is provided
against judgments, fines and amounts paid in settlement. In general,
indemnification is available where the director or officer acted in good faith,
for a purpose such director or officer reasonably believed to be in the best
interests of the corporation. Specific court approval is required in some cases.
The foregoing statement is qualified in its entirety by reference to Sections
715, 717 and 721 through 725 of the New York Business Corporation Law ("NYBCL").
The by-laws of the Registrant provide that the Registrant is authorized, by
(i) a resolution of shareholders, (ii) a resolution of directors or (iii) an
agreement providing for such indemnification, to the fullest extent permitted by
applicable law, to provide indemnification and to advance expenses to its
directors and officers in respect of claims, actions, suits, or proceedings
based upon, arising from, relating to, or by reason of the fact that any such
director or officer serves or served in such capacity with the corporation or at
the request of the Registrant in any capacity with any other enterprise.
The Registrant has entered into contracts with its officers and directors,
pursuant to the provisions of NYBCL Section 721, by which it will be obligated
to indemnify such persons, to the fullest extent permitted by the NYBCL, against
expenses, fees, judgments, fines, and amounts paid in settlement in connection
with any present or future threatened, pending or completed action, suit or
proceeding based in any way upon or related to the fact that such person was an
officer or director of the Registrant or, at the request of the Registrant, an
officer, director or other partner, agent, employee, or trustee of another
enterprise. The contractual indemnification so provided will not extend to any
situation where a judgment or other final adjudication adverse to such person
establishes that his acts were committed in bad faith or were the result of
active and deliberate dishonesty or that there inured to such person a financial
profit or other advantage.
The directors and officers of the Registrant are covered by insurance
policies indemnifying them against certain liabilities, including certain
liabilities arising under the Securities Act, which might be incurred by them in
such capacities.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<C> <S>
2.1 Agreement and Plan of Merger, dated as of May 7, 1998, among
Woolworth Corporation, Liberty Merger Sub Inc., and The
Sports Authority, Inc. (included as Annex A to the Proxy
Statement/ Prospectus included in Part I of this
Registration Statement).
3.1 Certificate of Incorporation of the Registrant, as amended.*
3.2 By-Laws of the Registrant.*
**5.1 Opinion and Consent of Skadden, Arps, Slate, Meagher & Flom
LLP with respect to the legality of the securities to be
issued in the Merger.
***8.1 Opinion and Consent of Skadden, Arps, Slate, Meagher & Flom
LLP with respect to certain tax matters.
***8.2 Opinion of Morgan, Lewis & Bockius LLP with respect to
certain tax matters.
**23.1 Consent of KPMG Peat Marwick LLP.
**23.2 Consent of Price Waterhouse LLP.
23.3 Consent of Skadden, Arps, Slate, Meagher & Flom LLP
(contained in its opinion in Exhibit 5.1 of this
Registration Statement).
</TABLE>
II-1
<PAGE> 129
<TABLE>
<C> <S>
***23.4 Consent of Skadden, Arps, Slate, Meagher & Flom LLP
(contained in its opinion in Exhibit 8.1 of this
Registration Statement).
***23.5 Consent of Morgan, Lewis & Bockius LLP.
**24.1 Powers of Attorney (included on the signature page of this
Registration Statement).
99.1 Opinion of Merrill Lynch, Pierce, Fenner & Smith
Incorporated (included as Annex B to the Proxy
Statement/Prospectus).
**99.2 Form of Proxy solicited by the Board of Directors of Sports
Authority (relating to the special meeting of stockholders
of Sports Authority described in the Proxy
Statement/Prospectus included in Part I of this Registration
Statement).
**99.3 Consent of Merrill Lynch, Pierce, Fenner & Smith
Incorporated.
</TABLE>
- ---------------
* Incorporated by reference to the Registrant's Registration Statement on Form
S-1, filed with the Commission on April 7, 1989.
** Filed herewith.
*** To be filed by amendment.
ITEM 22. UNDERTAKINGS.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11 or 13 of this form, within one business day of receipt of such
request, and to send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in documents filed
subsequent to the effective date of the registration statement throughout the
date of responding to the request.
The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-2
<PAGE> 130
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York on June 9, 1998.
WOOLWORTH CORPORATION
By: /s/ ROGER N. FARAH
------------------------------------
Name: Roger N. Farah
Title: Chairman of the Board and Chief
Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
Dale W. Hilpert and Gary M. Bahler, and each of them, as their
attorneys-in-fact, with full power of substitution and resubstitution, for such
person and in such person's name, place and stead, in any and all capacities, to
execute one or more amendments (including post-effective amendments) to this
Registration Statement and to file any such amendment, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully and to all intents and
purposes as such person might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or their substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ ROGER N. FARAH Chairman of the Board June 9, 1998
- ------------------------------------------------ and Chief Executive Officer
Roger N. Farah
/s/ DALE W. HILPERT President and June 9, 1998
- ------------------------------------------------ Chief Operating Officer
Dale W. Hilpert
/s/ REID JOHNSON Senior Vice President June 9, 1998
- ------------------------------------------------ Chief Financial Officer
Reid Johnson
/s/ BRUCE L. HARTMAN Vice President and Controller June 9, 1998
- ------------------------------------------------
Bruce L. Hartman
/s/ J. CARTER BACOT Director June 9, 1998
- ------------------------------------------------
J. Carter Bacot
/s/ PURDY CRAWFORD Director June 9, 1998
- ------------------------------------------------
Purdy Crawford
/s/ PHILIP H. GEIER, JR. Director June 9, 1998
- ------------------------------------------------
Philip H. Geier, Jr.
</TABLE>
II-3
<PAGE> 131
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ JAROBIN GILBERT, JR. Director June 9, 1998
- ------------------------------------------------
Jarobin Gilbert, Jr.
/s/ ALLAN Z. LOREN Director June 9, 1998
- ------------------------------------------------
Allan Z. Loren
/s/ MARGARET P. MACKIMM Director June 9, 1998
- ------------------------------------------------
Margaret P. MacKimm
/s/ JOHN J. MACKOWSKI Director June 9, 1998
- ------------------------------------------------
John J. Mackowski
/s/ JAMES E. PRESTON Director June 9, 1998
- ------------------------------------------------
James E. Preston
/s/ CHRISTOPHER A. SINCLAIR Director June 9, 1998
- ------------------------------------------------
Christopher A. Sinclair
</TABLE>
II-4
<PAGE> 1
EXHIBIT 5.1
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
919 THIRD AVENUE
NEW YORK, NEW YORK 10022
TELEPHONE (212) 735-3000
FAX (212) 735-2000
June 9, 1998
Woolworth Corporation
233 Broadway
New York, New York 10279
Ladies and Gentlemen:
We have acted as special counsel to Woolworth Corporation, a New York
corporation ("Woolworth"), in connection with the preparation of a Registration
Statement on Form S-4 (the "Registration Statement") to be filed on the date
hereof by Woolworth with the Securities and Exchange Commission (the
"Commission") pursuant to the Securities Act of 1933, as amended (the
"Securities Act"). The Registration Statement relates to the proposed issuance
by Woolworth of shares (the "Shares") of its common stock, par value $.01 per
share (together with the related Preferred Stock Purchase Rights to purchase
shares of Series B Participating Preferred Stock, the "Common Stock"), pursuant
to the Agreement and Plan of Merger, dated as of May 7, 1998 (the "Merger
Agreement"), among Woolworth, Liberty Merger Sub Inc., a Delaware corporation
and a wholly-owned subsidiary of Woolworth ("Merger Sub"), and The Sports
Authority, Inc., a Delaware corporation ("Sports Authority"). The Merger
Agreement provides for the acquisition of Sports Authority by means of a merger
(the "Merger") of Merger Sub with and into Sports Authority, with Sports
Authority being the surviving corporation. The Registration Statement includes a
proxy statement/prospectus (the "Proxy Statement/Prospectus") to be furnished to
the securityholders of Sports Authority in connection with the approval of the
Merger Agreement.
This opinion is being furnished in accordance with the requirements of Item
601(b)(5) of Regulation S-K under the Securities Act.
In connection with rendering this opinion, we have examined and are
familiar with originals or copies, certified or otherwise identified to our
satisfaction, of such documents as we have deemed necessary or appropriate as a
basis for the opinion set forth herein, including: (i) the Registration
Statement (including the Proxy Statement/Prospectus); (ii) the Certificate of
Incorporation of Woolworth, as amended, as currently in effect; (iii) the
By-laws of Woolworth, as currently in effect; (iv) the Rights Agreement, dated
March 11, 1998, between Woolworth and First Chicago Trust Company of New York,
as Rights Agent; (v) the Merger Agreement; (vi) resolutions of the Board of
Directors of Woolworth relating to the transactions contemplated by the Merger
Agreement; (vii) a specimen certificate evidencing the Common Stock; and (viii)
such other certificates, instruments and documents as we considered necessary or
appropriate for the purposes of this opinion.
In our examination, we have assumed the genuineness of all signatures, the
legal capacity of natural persons, the authenticity of all documents submitted
to us as originals, the conformity to original documents of all documents
submitted to us as certified, conformed or photostatic copies and the
authenticity of the originals of such copies. In making our examination of
documents executed by parties other than Woolworth, we have assumed that such
parties had the power, corporate or other, to enter into and perform all
obligations thereunder and also have assumed the due authorization by all
requisite action, corporate or other, and execution and delivery by such parties
of such documents and the validity and binding effect thereof. As to any facts
material to the opinion expressed herein which we have not independently
established or verified, we have relied upon statements and representations of
officers and other representatives of Woolworth and others.
<PAGE> 2
Woolworth Corporation
June 9, 1998
Page 2
For purposes of this opinion, we have assumed that prior to the issuance of
the Shares (i) the Registration Statement, as finally amended (including all
necessary post-effective amendments), becomes effective; (ii) the Merger
Agreement will be approved by the affirmative vote of the holders of a majority
of outstanding shares of common stock, par value $.01 per share, of Sports
Authority entitled to vote thereon; (iii) the Certificate of Merger which will
give effect to the Merger will be duly filed with the Secretary of State of the
State of Delaware; and (iv) the certificates representing the Shares will be
manually signed by an authorized officer of the transfer agent for the Common
Stock and will be registered by the registrar for the Common Stock and will
conform to the specimen thereof examined by us.
Members of our firm are admitted to the Bar of the State of New York and we
express no opinion as to the laws of any other jurisdiction other than the
Delaware General Corporation Law.
Based upon and subject to the foregoing, we are of the opinion that the
Shares have been duly authorized for issuance and, when issued in accordance
with the terms and conditions of the Merger Agreement, will be validly issued,
fully paid and non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and the references to us under the caption "Legal
Matters" in the Proxy Statement/Prospectus forming a part of the Registration
Statement. In giving this consent, however, we do not hereby admit that we are
within the category of persons whose consent is required under Section 7 of the
Securities Act and the rules and regulations of the Commission thereunder.
Very truly yours,
/s/ SKADDEN, ARPS, SLATE, MEAGHER & FLOM
LLP
-----------------------------------------
Skadden, Arps, Slate, Meagher & Flom LLP
<PAGE> 1
Exhibit 23.1
CONSENT OF KPMG PEAT MARWICK LLP
Board of Directors
Woolworth Corporation
We hereby consent to the incorporation by reference in this registration
statement No. 333-xxx on Form S-4 of our report dated March 11, 1998 appearing
in the Form 10-K of Woolworth Corporation for the year ended January 31, 1998.
We also consent to the reference to our firm under the caption "Experts" in
this registration statement.
KPMG Peat Marwick LLP
New York, New York
June 9, 1998
<PAGE> 1
Exhibit 23.2
CONSENT OF PRICE WATERHOUSE LLP
We hereby consent to the incorporation by reference in the Proxy
Statement constituting part of this Registration Statement on Form S-4 of
Woolworth Corporation of our report dated March 5, 1998, appearing on page 21
of The Sports Authority, Inc. 1997 Annual Report to Shareholders, which is
incorporated by reference in its Annual Report on Form 10-K for the fiscal
year ended January 25, 1998. We also consent to the reference to us under the
heading "Experts."
Price Waterhouse LLP
June 9, 1998
<PAGE> 1
Exhibit 99.2
THE SPORTS AUTHORITY, INC.
PROXY
SPECIAL MEETING OF STOCKHOLDERS
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Jack A. Smith, Martin E. Hanaka, Richard
J. Lynch, Jr., and each of them, the true and lawful attorneys, agents for and
in the name of the undersigned with full power of substitution, for and in the
name of the undersigned to vote all shares of Common Stock the undersigned is
entitled to vote at the Special Meeting of Stockholders (the "Special Meeting")
of THE SPORTS AUTHORITY, INC. ("Sports Authority") to be held on , 1998
at a.m. at located at and
at any and all adjournments thereof on the following matters:
1. To approve and adopt the Agreement and Plan of Merger, dated as of May
7, 1998 (the "Merger Agreement"), among Sports Authority, Woolworth
Corporation, a New York corporation ("Woolworth"), and Liberty Merger
Sub Inc., a Delaware corporation and a wholly owned subsidiary of
Woolworth ("Merger Sub"), pursuant to which, among other things,
Merger Sub will be merged with and into Sports Authority (the
"Merger"), with Sports Authority as the surviving corporation, and
each issued and outstanding share of common stock, par value $.01 per
share, of Sports Authority will be converted into the right to receive
0.80 share of common stock, par value $.01 per share, of Woolworth
(the "Woolworth Common Stock"), other than shares owned directly or
indirectly by Woolworth or Sports Authority, and to approve the
transactions contemplated by the Merger Agreement, including the
Merger.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. To vote for adjournment of the Special Meeting for 30 days in the
event the Woolworth Average Price (as defined in the Merger Agreement)
is less than $20.50 and to vote on any subsequent adjournments in
accordance with the terms of the Merger Agreement.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. To vote on such other business which may properly come before this
meeting.
Unless otherwise specified, the shares will be voted "FOR" the approval
and adoption of the Merger Agreement and "FOR" the other proposals set forth
above. This Proxy also delegates discretionary authority to vote with respect
to any other business which may properly come before the meeting and any
adjournment or postponement thereof.
(SEE REVERSE SIDE)
<PAGE> 2
(CONTINUED FROM OTHER SIDE)
THIS PROXY, WHEN PROPERLY EXECUTED, WILL
BE VOTED IN THE MANNER DIRECTED HEREIN BY
THE UNDERSIGNED STOCKHOLDER. IF NO
DIRECTION IS GIVEN, THIS PROXY WILL BE
VOTED FOR ITEMS 1 AND 2 AND AT THE
DISCRETION OF THE PROXY HOLDERS AS TO ANY
OTHER BUSINESS THAT MAY PROPERLY COME
BEFORE THE SPECIAL MEETING.
DATED_____________________________, 1998
________________________________________
SIGNATURE
________________________________________
SIGNATURE
IMPORTANT: PLEASE SIGN EXACTLY AS YOUR NAME APPEARS HEREON. IF STOCK IS
REGISTERED IN MORE THAN ONE NAME, EACH HOLDER SHOULD SIGN. WHEN SIGNING AS AN
ATTORNEY, ADMINISTRATOR, EXECUTOR, GUARDIAN OR TRUSTEE, PLEASE ADD YOUR TITLE
AS SUCH. IF EXECUTED BY A CORPORATION OR PARTNERSHIP, THE PROXY SHOULD BE
SIGNED IN FULL CORPORATE OR PARTNERSHIP NAME BY A DULY AUTHORIZED OFFICER OR
PARTNER AS APPLICABLE.
<PAGE> 1
Exhibit 99.3
[MERRILL LYNCH LETTERHEAD]
We hereby consent to the use of our opinion letter dated May 7, 1998 to
the Board of Directors of the Sports Authority, Inc. included as Annex B to the
Proxy Statement/Prospectus which forms a part of the Registration on Form S-4
relating to the proposed merger of Liberty Merger Sub, Inc., a wholly-owned
subsidiary of Woolworth Corporation, with and into The Sports Authority and to
the references to such opinion in such Proxy Statement/ Prospectus. In giving
such consent, we do not admit that we come within the category of persons whose
consent is required under Section 7 of the Securities Act of 1933, as amended,
or the rules and regulations of the Securities and Exchange Commission
thereunder, nor do we thereby admit that we are experts with respect to any part
of such Registration Statement within the meaning of the term "experts" as used
in the Securities Act, as amended, or the rules and regulations of the
Securities and Exchange Commission thereunder.
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
By: /s/ Merrill Lynch, Pierce, Fenner & Smith Incorporated
------------------------------------------------------
June 9, 1998
