<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 26, 1997
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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PETSMART, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 94-3024325
(State of Incorporation) (I.R.S. Employer
Identification
No.)
</TABLE>
19601 N. 27TH AVENUE
PHOENIX, AZ 85027
(602) 580-6100
(Address, including zip code, and telephone number, including
area code of Registrant's principal executive offices)
SAMUEL J. PARKER
CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER
PETSMART, INC.
19601 N. 27TH AVENUE
PHOENIX, AZ 85027
(602) 580-6100
(Name, address, including zip code, and telephone number, including
area code, of agent for service)
------------------------
COPIES TO:
ALAN C. MENDELSON, ESQ.
ROBERT J. BRIGHAM, ESQ.
COOLEY GODWARD LLP
FIVE PALO ALTO SQUARE
3000 EL CAMINO REAL
PALO ALTO, CA 94306
(650) 843-5000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
FROM TIME TO TIME AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. /X/
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please 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(c)
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 delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
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<PAGE>
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CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF CLASS OF AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED SHARE(1) PRICE(1) REGISTRATION FEE
<S> <C> <C> <C> <C>
6 3/4% Convertible Subordinated Notes due 2004... $200,000,000 100% $200,000,000 $60,606.06
Common Stock, par value $.0001 per share(2)...... -- -- -- --
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(i) of the Securities Act of 1933 based upon the
proposed offering price of the convertible securities.
(2) Such currently indeterminate number of shares of Common Stock as shall be
issuable from time to time upon conversion of the 6-3/4% Convertible
Subordinated Notes due 2004 being registered hereby.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
<PAGE>
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 BE MADE OR ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THE 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 ACT.
<PAGE>
SUBJECT TO COMPLETION, DATED NOVEMBER 26, 1997
PROSPECTUS
$200,000,000
[LOGO]
6 3/4% CONVERTIBLE SUBORDINATED NOTES DUE 2004
This Prospectus relates to the public offering and sale from time to time by
the holders (the "Selling Securityholders") of (i) up to $200,000,000 aggregate
principal amount of 6 3/4% Convertible Subordinated Notes due 2004 (the "Notes")
of PETsMART, Inc., a Delaware corporation ("PETsMART" or the "Company") and (ii)
the shares of Common Stock, par value $0.0001 per share, of the Company (the
"Common Stock") into which the Notes are convertible (the "Conversion Shares").
Interest on the Notes is payable semi-annually in cash in arrears on May 1 and
November 1 of each year, commencing May 1, 1998. The Notes will mature on
November 1, 2004. The Notes are convertible at the option of the holder thereof
at any time prior to maturity, unless previously redeemed, into shares of Common
Stock at a conversion price of $8.75 per share (initially equivalent to a
conversion rate of 114.2857 shares per $1,000 principal amount of Notes),
subject to adjustment in certain events. On November 24, 1997, the last reported
sale price of the Common Stock on the Nasdaq National Market (symbol "PETM") was
$7.00 per share.
The Notes are redeemable at the option of the Company, in whole or in part,
at any time on or after November 1, 2000, at the redemption prices set forth
herein, plus accrued and unpaid interest and Liquidated Damages (as defined), if
any, to the date of redemption. The Notes do not provide for any sinking fund.
Upon the occurrence of a Change of Control (as defined), the Company will be
required to offer to purchase the Notes at a purchase price equal to 100% of the
aggregate principal amount thereof, plus accrued and unpaid interest and
Liquidated Damages, if any, to the date of purchase. See "Description of Notes."
The Notes are general subordinated obligations of the Company and are
subordinated in right of payment to all current and future Senior Indebtedness
(as defined) of the Company. In addition, the Notes are structurally
subordinated to all current and future liabilities of the Company's
subsidiaries. At August 3, 1997, after giving effect to the sale of $200,000,000
of the Notes in November 1997 and the application of the net proceeds therefrom,
the Company would have had approximately $67.9 million of Senior Indebtedness
outstanding and, excluding intercompany indebtedness, the Company's subsidiaries
would have had approximately $42.5 million of liabilities, primarily trade
payables, which would have effectively ranked senior to the Notes. The Indenture
(as defined) will permit the Company and its subsidiaries to incur additional
indebtedness, including Senior Indebtedness. See "Description of Notes."
Prior to this offering, there has been no public market for the Notes. The
Company does not intend to apply for listing of the Notes on any securities
exchange or for quotation through any automated quotation system. The Notes have
been designated as eligible for trading in the Private Offerings, Resale and
Trading through Automated Linkages ("PORTAL") market of the National Association
of Securities Dealers, Inc. upon issuance. The Notes are not expected to remain
eligible for trading on the PORTAL System. There can be no assurance that any
trading market will develop for the Notes.
The Notes were issued by the Company in November 1997 and were sold to
"qualified institutional buyers" (as defined) in transactions exempt from
registration under the Securities Act of 1933, as amended (the "Securities
Act"), and in sales outside the United States within the meaning of Regulation S
under the Securities Act.
The Selling Securityholders, directly or through agents, broker-dealers or
underwriters, may sell the Notes or the Conversion Shares offered hereby from
time to time on terms to be determined at the time of sale. Such Notes or
Conversion Shares may be sold at market prices prevailing at the time of sale or
at negotiated prices. The Selling Securityholders and any agents, broker-dealers
or underwriters that participate with the Selling Securityholders in the
distribution of the Notes or Conversion Shares may be deemed to be
"underwriters" within the meaning of the Securities Act, and any commission
received by them and any profit on the resale of the Common Stock purchased by
them may be deemed to be underwriting discounts or commissions under the
Securities Act. Each of the Selling Securityholders reserves the right to accept
and, together with their agents from time to time to reject, in whole or in
part, any proposed purchase of Notes or Conversion Shares to be made directly or
through agents. The Company will not receive any proceeds from the sale of Notes
or Conversion Shares by the Selling Securityholders. See "Selling
Securityholders" and "Plan of Distribution."
SEE "RISK FACTORS" BEGINNING ON PAGE 3 FOR A DISCUSSION OF CERTAIN MATTERS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS IN CONNECTION WITH AN
INVESTMENT IN THE NOTES OFFERED HEREBY.
The aggregate proceeds to the Selling Securityholders from the sale of the
Notes or Conversion Shares will be the purchase price of such Notes or
Conversion Shares sold less the aggregate agents' commissions and underwriters'
discounts. The Selling Securityholders are entitled to registration of their
Notes and Conversion Shares pursuant to a Registration Rights Agreement dated as
of November 7, 1997 (the "Registration Rights Agreement") and this offer is
intended to satisfy the rights granted by the Registration Rights Agreement. The
Company has agreed to pay substantially all of the expenses of the offering of
the Notes and the Conversion Shares by holders thereof other than underwriting
discounts and commissions, if any. The Company has agreed to indemnify the
Selling Securityholders and certain other persons against certain liabilities,
including liabilities under the Securities Act. See "Plan of Distribution."
THE 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 ON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is .
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the reporting requirements of the Exchange Act,
and in accordance therewith, files annual and quarterly reports, proxy
statements and other information with the Securities and Exchange Commission
(the "Commission"). Such reports, proxy statements and other information may be
inspected and copied at the Commission's Public Reference Section, 450 Fifth
Street, N.W., Room 1024, Washington, D.C. 20549, as well as at the Commission's
Regional Offices at 7 World Trade Center, 13th Floor, New York, New York 10048;
and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of
such material can be obtained at prescribed rates from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. The
Commission's Internet address is http://www.sec.gov. The Commission's Web site
also contains reports, proxy and information statements, and other information
regarding the Company that has been filed electronically with the Commission.
The Common Stock of the Company is quoted on the Nasdaq National Market. Reports
and other information concerning the Company may be inspected at the National
Association of Securities Dealers, Inc. at 1735 K Street, N.W. Washington, D.C.
20006.
The Company has agreed that if, at any time while the Notes or the Common
Stock issuable upon conversion of the Notes are "restricted securities" within
the meaning of the Securities Act, and the Company is not subject to the
reporting requirements of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), the Company will promptly furnish or cause to be furnished upon
request of a Holder of restricted securities and to qualified prospective
purchasers designated by such Holders, the information required to be delivered
pursuant to Rule 144(d)(4) under the Securities Act, to the extent required to
permit compliance with Rule 144A in connection with resales of Notes and such
Common Stock.
ADDITIONAL INFORMATION
A registration statement on Form S-3 with respect to the Notes and
Conversion Shares offered hereby (together with all amendments, exhibits and
schedules thereto, the "Registration Statement") has been filed with the
Commission under the Securities Act. This Prospectus does not contain all of the
information contained in such Registration Statement, certain portions of which
have been omitted pursuant to the rules and regulations of the Commission. For
further information with respect to the Company and the Notes and Conversion
Shares offered hereby, reference is made to the Registration Statement.
Statements contained in this Prospectus regarding the contents of any contract
or any other documents are not necessarily complete and, in each instance,
reference is hereby made to the copy of such contract or document filed as an
exhibit to the Registration Statement. The Registration Statement may be
inspected without charge at the Securities and Exchange Commission's principal
office in Washington, D.C., and copies of all or any part thereof may be
obtained from the Public Reference Section, Securities and Exchange Commission,
Washington, D.C., 20549, upon payment of the prescribed fees.
------------------------
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents of the Company, filed with the Commission under the
Exchange Act (File No. 0-21888), are hereby incorporated by reference into this
Prospectus:
(a) The Company's Annual Report on Form 10-K for the fiscal year ended
February 2, 1997, filed on April 28, 1997;
(b) The Company's Proxy Statement for its Annual Meeting of Stockholders,
filed on May 16, 1997, as amended May 19, 1997;
(c) The Company's Quarterly Report on Form 10-Q for the fiscal quarter ended
May 4, 1997, filed on June 11, 1997;
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(d) The Company's Quarterly Report on Form 10-Q for the fiscal quarter ended
August 3, 1997, filed on September 16, 1997;
(e) The Company's Current Report on Form 8-K dated August 4, 1997, filed on
August 21, 1997; and
(f) The Company's Current Report on Form 8-K dated October 27, 1997, filed
on November 12, 1997.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Prospectus and prior to the
termination of the offering shall be deemed to be incorporated by reference
herein and to be a part hereof from the date of filing of such documents. Any
statement contained in this Prospectus or in a document incorporated or deemed
to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any subsequently filed document which also is or is
deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person, including any
beneficial owner, to whom this Prospectus is delivered, upon written or oral
request of such person, a copy of any and all of the documents that have been
incorporated by reference herein (not including exhibits to such documents
unless such exhibits are specifically incorporated by reference herein or into
such documents). Such request may be directed to: Investor Relations, PETsMART,
Inc., 19601 North 27th Avenue, Phoenix, Arizona 85027.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
The discussion in this Prospectus contains forward-looking statements within
the meaning of Section 27A of the Securities Act and Section 21E of the Exchange
Act that involve risks and uncertainties. Those statements include words such as
"anticipate," "estimate," "project," "intend," and similar expressions which are
intended to identify forward-looking statements and appear throughout this
Prospectus and include statements regarding the intent, belief, or current
expectations of the Company, primarily with respect to the operations of the
Company or related industry developments. Prospective purchasers of the Notes
are cautioned that any such forward-looking statements are not guarantees of
future performance and involve risks and uncertainties, and that actual results
could differ materially from those discussed here and in the documents
incorporated by reference herein. Factors that could cause or contribute to such
differences include, but are not limited to, superstore performance, success of
implementing the Company's new management information system, risk of dependence
on certain product lines and on third-party vendors, seasonal fluctuations and
litigation risks, as well as those risks discussed elsewhere in this Prospectus
and in any documents incorporated herein by reference.
ii
<PAGE>
SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO, APPEARING
ELSEWHERE IN THIS PROSPECTUS OR INCORPORATED BY REFERENCE HEREIN. ALL REFERENCES
TO FISCAL YEARS IN THIS PROSPECTUS REFER TO THE FISCAL YEARS ENDING ON THE
SUNDAY CLOSEST TO JANUARY 31 OF THE FOLLOWING CALENDAR YEAR. REFERENCES TO THE
SECOND QUARTER 1996 AND SECOND QUARTER 1997 REFER TO THE 26 WEEKS ENDED JULY 28,
1996, AND AUGUST 3, 1997, RESPECTIVELY. UNLESS OTHERWISE STATED IN THIS
PROSPECTUS OR THE CONTEXT OTHERWISE REQUIRES, REFERENCES TO "PETSMART" OR THE
"COMPANY" ARE TO PETSMART, INC. AND ITS SUBSIDIARIES ON A CONSOLIDATED BASIS.
THE COMPANY
PETsMART is the largest operator of superstores specializing in pet food,
supplies and services in North America and the United Kingdom. At October 5,
1997, PETsMART operated 455 superstores, consisting of 371 superstores in the
United States, 74 superstores in the United Kingdom and 10 superstores in
Canada. PETsMART offers a complete assortment of pet products, at prices
typically below those offered by supermarkets, mass merchandisers and
traditional pet food and supply retailers, as well as a wide range of pet
services. PETsMART's superstores utilize a hybrid retail-warehouse format that
reinforces the image of warehouse shopping at discount prices, enhances
merchandise presentation and provides a fun shopping experience for customers
and their pets.
The pet food, supplies and services business, fueled by growth in pet
populations and the trend toward better pet care, generated U.S. sales of
approximately $31 billion in 1996. According to recent estimates, approximately
58 million U.S. households, or over half of all U.S. households, own at least
one pet and over half of pet-owning households own more than one pet. Pet food,
primarily dog and cat food, represents the largest volume category of
pet-related products, with 1996 U.S. sales estimated at approximately $9
billion. Of this amount, premium pet food accounted for approximately 25% of the
total and has represented an increasing share of the pet food market in recent
years. U.S. sales of pet supplies were approximately $3.3 billion in 1996. In
addition, 1996 U.S. sales of pet services, which include veterinary services,
grooming, boarding and obedience training, were estimated at approximately $11
billion.
The Company's U.S. prototype superstore carries approximately 12,000
pet-related items. PETsMART sells an extensive selection of pet food and treats,
including premium labels such as Science Diet and IAMS, other national brands
such as Purina, Alpo and Friskies, as well as PETsMART's own corporate brands.
PETsMART is the largest volume retailer in the world of premium pet foods.
PETsMART also offers a broad assortment of pet supplies including collars,
leashes, health and beauty aids, shampoos, medications, toys, animal carriers,
dog houses, cat furniture and equestrian supplies. In addition to pet food and
supplies, PETsMART sells fresh water tropical fish and, in certain superstores,
domestically bred birds, small animals and reptiles.
Unlike its principal competitors, PETsMART offers a wide range of services
for the pet owner, including on-site veterinary care and grooming in most
superstores, obedience classes and the Luv-A-Pet adoption program for dogs and
cats. At October 5, 1997, veterinary clinics were operating in 190 PETsMART
stores in North America. Veterinary clinics operated in PETsMART stores
generally offer routine examinations and vaccinations, dental care, pharmacy and
most surgical procedures. The Company's prototype 2,000 square foot in-store
clinic provides state-of-the-art operating and examining rooms, as well as
on-site X-ray machines and blood diagnostic equipment. These clinics offer
customers more sophisticated services than traditional veterinary competitors
typically provide. In addition, many PETsMART stores without these full-service
veterinary clinics offer routine vaccination and wellness services.
PETsMART's superstores are generally located in sites co-anchored by strong
consumables-oriented retailers or other destination superstores, typically in or
near major regional shopping centers. The Company's U.S. prototype superstore is
26,000 square feet in size. In addition, PETsMART is opening
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smaller 22,000 square foot superstores in Canada and 10,000 to 15,000 square
foot superstores in the United Kingdom, in each case using store formats
specifically adapted to meet the unique characteristics of those markets.
PETsMART has also opened hybrid pet/equine megastores of up to 40,000 square
feet to serve selected regional trade areas in the United States which have high
rates of horse ownership. Finally, the Company is experimenting with a 20,000
square foot superstore to allow it to effectively access smaller communities in
the United States. Of the Company's 371 superstores in the United States at
October 5, 1997, 280 were 26,000 square foot prototype superstores.
PETsMART Direct, the Company's catalog operation, is the leading direct-mail
retailer of pet-related and equine products in North America. PETsMART Direct
sells pet supplies through three catalogs: R.C. Steele, Pedigrees and Groomer
Direct. PETsMART Direct also offers discount brand tack, riding apparel and
equine supplies through four additional catalogs: State Line Tack Western, State
Line Tack English, Wiese Equine Supply and National Bridle Shop. In fiscal 1996,
PETsMART Direct circulated more than 37 million catalogs. PETsMART Direct's
proprietary customer database currently contains the names of approximately 1.2
million customers who have made a purchase from PETsMART Direct catalogs within
the past 24 months.
PETsMART's store base has grown rapidly since the Company's inception in
1986 through the opening of new stores and through the acquisitions of The
Weisheimer Companies, Inc. ("PETZAZZ") in March 1994, Petstuff, Inc.
("Petstuff") in June 1995, The Pet Food Giant, Inc. ("Pet Food Giant") in
September 1995, and Pet City Holdings plc ("Pet City") in December 1996. The
Company also acquired two leading catalog retailers, Sporting Dog Specialties,
Inc. ("Sporting Dog") in May 1995 and State Line Tack, Inc. ("State Line Tack")
in January 1996.
The Company's principal executive offices are located at 19601 North 27th
Avenue, Phoenix, Arizona 85027 and its telephone number is (602) 580-6100. The
Company's home page on the World Wide Web, which contains store locations and
other information about the Company, can be accessed at
http://www.petsmart.com.
RECENT DEVELOPMENTS
In November 1997, $200,000,000 of Notes were issued by the Company and sold
to "qualified institutional buyers" (as defined in Rule 144A of the Securities
Act) in transactions exempt from registration under the Securities Act, and in
sales outside the United States within the meaning of Regulation S under the
Securities Act. The net proceeds to PETsMART from the sale of the Notes were
approximately $193,250,000.
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RISK FACTORS
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER AND EVALUATE THE FOLLOWING
FACTORS RELATING TO THE COMPANY AND THE OFFERING OF THE NOTES AND THE CONVERSION
SHARES, TOGETHER WITH THE INFORMATION AND FINANCIAL DATA SET FORTH ELSEWHERE IN
THIS PROSPECTUS OR INCORPORATED BY REFERENCE HEREIN, BEFORE MAKING AN INVESTMENT
IN THE NOTES OR THE CONVERSION SHARES.
PERFORMANCE OF SUPERSTORES
PETsMART currently operates superstores in many of the major market areas of
North America and the United Kingdom. In North America, the Company's current
plans for fiscal 1998 include opening an aggregate of 50 superstores in existing
markets and 25 superstores in new markets, of which 17 are considered to be
single store markets. Additionally, the Company anticipates opening up to 20
superstores in the United Kingdom in fiscal 1998. It has been the Company's
experience that superstores opened in existing markets may result in some
cannibalization of the sales of other PETsMART superstores already in operation
in those markets. In addition, as a result of the Company's rapid expansion in
recent years, many of its superstores are still relatively immature.
Approximately one-third of the Company's North America superstores have been
opened since the beginning of fiscal 1996. As superstores reach maturity the
rate of comparable store sales increases tends to decline. The Company believes
that these factors have contributed to the decline in the rate of comparable
store sales increases which it has reported in recent years. PETsMART's
comparable store sales increases were 19.1% in fiscal 1994, 12.5% in fiscal
1995, 11.9% in fiscal 1996 and 5.1% for the first half of fiscal 1997. As a
result of new store openings in existing markets and because mature superstores
will represent an increasing proportion of the Company's store base over time,
it is likely that the Company's comparable store sales increases will continue
to be lower than historical levels. There can be no assurance that new or
existing superstores will perform in accordance with historical patterns or
current management expectations, or that any cannibalization of sales will not
be greater than historical experience or current management expectations.
Operating margins are also expected to be impacted by new superstore openings
because of the recognition of preopening expenses and the lower sales volumes
characteristic of immature stores. Compared to results achieved in other
regions, the Company has experienced lower comparable store sales increases and
levels of store contribution in certain North American geographic regions that
it has recently entered. In addition, certain operating costs, particularly
those related to occupancy, are expected to be higher than historical levels in
some of these newly-entered geographic regions and tight labor markets in
certain areas are expected to increase store personnel expenses more rapidly
than historical trends. As a result of the expected slower overall rate of
comparable store sales increases and the impact of these rising costs, the
Company expects its store contribution and operating margins to continue to be
lower than historical levels in future periods. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Overview."
NEW INFORMATION SYSTEM
The Company's existing information systems are not fully integrated on a
worldwide basis. PETsMART has completed the conceptual design of an integrated,
worldwide information system which will feature a common set of applications.
The Company is currently negotiating with various vendors with respect to the
hardware and software needs associated with this system. It is anticipated that
the development and implementation of the new system will require significant
capital expenditures, operating expense and management effort to complete. There
can be no assurance that the new system will be developed, tested and
implemented on a timely basis, or at all, or that it will deliver the
anticipated operational benefits in a reliable manner. Failure to complete the
new system, or to do so on a timely basis, could materially adversely affect the
Company's future operating results or its ability to expand. Costs of the new
system will be expensed as incurred or capitalized and expensed in future
periods. The new system will require significant financing, a portion of which
will be provided by the November 1997 Note offering. The Company estimates that
its costs in connection with the development and implementation of the new
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system, before giving consideration to any lease financing that may be
available, will be up to $20 million annually through fiscal 2000. The Company
believes that certain hardware and software components of the new system may be
leased, although there can be no assurance that such lease financing will be
available to the Company on acceptable terms. There also can be no assurance
that the actual costs for the new system will not exceed current estimates or
extend beyond fiscal year 2000. In the event that additional financing is
required to complete the Company's new information system, there can be no
assurance that such additional financing will be available to the Company on
acceptable terms.
INTERNATIONAL OPERATIONS
The Company entered the European market by acquiring Pet City in December
1996 and operated 74 superstores in the United Kingdom at October 5, 1997. The
Company also recently entered the Canadian market, where it operated ten
superstores at October 5, 1997. Operating these businesses requires significant
management and financial resources. In particular, international operations
require coordination of geographically separate management organizations, the
integration of personnel with disparate cultural and business backgrounds and an
understanding of the relevant differences in the legal and regulatory
environments. The Company had not previously operated stores outside of the
United States and there can be no assurance that PETsMART will be able to do so
successfully. As the Company's international operations expand, PETsMART's
results will be increasingly affected by the risks of such activities, including
fluctuations in currency exchange rates, changes in international regulatory
requirements, country-specific labelling requirements and customer preferences,
international staffing and employment issues, tariff and other trade barriers,
the burden of complying with foreign laws, including tax laws, and political and
economic instability and developments. Presently, the United Kingdom store
expansion program is, and is anticipated to continue to be, financed in large
part by North American operations and financing sources, including a portion of
the proceeds of the 1997 Note offering. There can be no assurance that the North
American operations will continue to be able to provide funding for the opening
of superstores in the United Kingdom or that adequate alternative sources of
capital could be obtained on acceptable terms. The Credit Facility contains
covenants restricting the amounts invested in certain foreign subsidiaries,
including Pet City. See "Description of Credit Facility."
THREATENED LITIGATION
A former Pet City affiliate has retained counsel in the United States and
made allegations claiming that the Company misled the shareholders of Pet City
at the time of the acquisition of Pet City concerning PETsMART's business,
finances and prospects. On September 30, 1997, shortly after the receipt of the
allegations by PETsMART, Richard Northcott, the former Chairman of Pet City,
resigned as a director of the Company. No litigation has been filed with respect
to this matter, and the Company believes that the allegations are without merit.
Nevertheless, there can be no assurance that one or more former Pet City
affiliates will not initiate litigation seeking monetary damages or an equitable
remedy.
EXPANSION PLANS
PETsMART has expanded since its inception in 1986 to 381 superstores in
North America and 74 superstores in the United Kingdom at October 5, 1997. For
the remainder of fiscal 1997, the Company currently anticipates opening an
additional eight superstores in North America and seven superstores in the
United Kingdom. In North America, the Company currently anticipates opening an
additional 75 superstores in fiscal 1998 and 55 superstores in fiscal 1999. The
Company also currently anticipates opening up to 20 new superstores annually in
the United Kingdom. The Company's ability to open additional superstores is
dependent on adequate sources of capital for leasehold improvements, fixtures
and inventory, preopening expenses, the training and retention of skilled
managers and personnel and other factors, some of which may be beyond the
Company's control. Presently, the Company's store expansion plans are expected
to be financed by cash flow from operations, lease financing, a portion of the
proceeds from the November 1997 Note offering and borrowing capacity under the
Credit Facility. To the
4
<PAGE>
extent the Company is unable to obtain adequate financing for new store growth
on acceptable terms, the Company's ability to open new superstores will be
negatively impacted. As a result, there can be no assurance that the Company
will be able to achieve its current plans for the opening of new superstores.
Any failure by PETsMART to expand its distribution capabilities or other
internal systems or procedures as required could also adversely affect its
ability to support its planned new store growth.
While the Company has no present plans with respect to future acquisitions
or disposition of assets, the Company may make additional acquisitions in the
future. Future acquisitions by the Company, if any, could result in potentially
dilutive issuances of securities, the incurrence of additional debt or
contingent liabilities, and amortization expenses related to goodwill and other
intangible assets, which could materially adversely affect the Company's
profitability. The Company's operating results also could be adversely affected
if it is unable to successfully integrate any future acquisition into its
operations.
PETsMART routinely evaluates its strategic alternatives with respect to each
of its superstores, the operations of PETsMART Direct and the Company's other
operating assets and investments. In connection with such evaluation, the
Company may elect to close superstores or to sell or otherwise dispose of
selected assets or investments. There can be no assurance that any such future
sale or disposition would be achieved on terms favorable to the Company.
Additionally, the Company has announced its intention to close 33 U.S.
superstores, including 31 of the smaller former Petstuff, Pet Food Giant and
PETZAZZ superstores, and to replace 24 of them with 26,000 square foot prototype
superstores. At October 5, 1997, seven of these superstores had been closed and
two replacement superstores had been opened.
RELIANCE ON VENDORS AND PRODUCT LINES
PETsMART does not have any long-term supply contracts with any of its
premium food or other product vendors. Sales of premium pet food for dogs and
cats, such as Science Diet and IAMS, make up a significant portion of PETsMART's
revenues. Currently, the major vendors of premium pet foods do not permit these
products to be sold in supermarkets, warehouse clubs or through other mass
merchandisers. The Company could be materially adversely affected were any of
these vendors to make their products available in supermarkets or through mass
merchandisers, or if the grocery brands currently available to such retailers
were to gain market share at the expense of the premium brands sold only through
specialty pet food and supply outlets.
PETsMART's principal vendors currently provide it with certain incentives,
such as trade discounts, cooperative advertising and market development funds. A
reduction or discontinuance of these incentives could have a material adverse
effect on the Company.
The Company purchases significant amounts of pet supplies from a number of
vendors with limited supply capabilities. There can be no assurance that
PETsMART's current pet supply vendors will be able to accommodate the Company's
anticipated growth. PETsMART is continually seeking to expand its base of pet
supply vendors and to identify new pet supply products. Additionally, the
Company purchases significant amounts of pet supplies from vendors outside of
the United States. There can be no assurance that the Company's overseas vendors
will be able to satisfy PETsMART's requirements, including timeliness of
delivery, acceptable product quality, packaging and labeling requirements, and
other requirements of the Company. An inability of PETsMART's existing vendors
to provide products in a timely or cost-effective manner could have a material
adverse effect on the Company. While the Company believes its vendor
relationships are satisfactory, any vendor could discontinue selling to the
Company at any time.
COMPETITION
The pet food and supply retailing industry is highly competitive. PETsMART
competes with supermarkets, warehouse clubs and mass merchandisers, many of
which are larger and have significantly greater resources than PETsMART.
PETsMART also competes with a number of pet supply warehouse or specialty
stores, smaller pet store chains and independent pet stores. The industry has
become increasingly competitive due to the entrance of other specialty retailers
into the pet food and supply market, some of
5
<PAGE>
which have developed store formats similar to PETsMART's. There can be no
assurance that the Company will not face greater competition from these or other
retailers in the future. In particular, if any of the Company's major
competitors seek to gain or retain market share by reducing prices, the Company
may reduce its prices in order to remain competitive, which could have a
material adverse effect on the Company.
QUARTERLY AND SEASONAL FLUCTUATIONS
The timing of new superstore openings may cause the Company's quarterly
results of operations to fluctuate. In addition, the Company's business is
subject to some seasonal fluctuation. PETsMART typically realizes a higher
portion of its net sales and operating profit during the fourth fiscal quarter.
In addition, sales of certain of the Company's products and services designed to
address pet health needs, such as flea and tick problems, have been and are
expected to continue to be negatively impacted by the introduction of
alternative pharmaceutical treatments, as well as by variations in weather
conditions. In addition, because PETsMART superstores typically draw customers
from a large trade area, sales may be impacted by adverse weather or travel
conditions.
SUBORDINATION OF NOTES
The Notes are general subordinated obligations of the Company and are
subordinated in right of payment to all current and future Senior Indebtedness.
In addition, the Notes are structurally subordinated to all current and future
liabilities of the Company's subsidiaries. By reason of such subordination, in
the event of the insolvency, bankruptcy, liquidation, reorganization,
dissolution or winding up of the business of the Company, the assets of the
Company will be available to pay the amounts due on the Notes only after all
Senior Indebtedness has been paid in full and, therefore, there may not be
sufficient assets remaining to pay amounts due on any or all of the Notes then
outstanding. At August 3, 1997, after giving effect to the sale of the Notes and
the application of the net proceeds therefrom, the Company would have had
approximately $67.9 million of Senior Indebtedness outstanding, and excluding
intercompany indebtedness, the Company's subsidiaries would have had
approximately $42.5 million of liabilities, principally trade payables, which
would have effectively ranked senior to the Notes. The Indenture will permit the
Company and its subsidiaries to incur additional indebtedness, including Senior
Indebtedness. Borrowings under the Credit Facility will constitute Senior
Indebtedness. The Credit Facility contains certain restrictions on the Company's
ability to incur additional indebtedness. In the event of a payment default with
respect to Senior Indebtedness, no payments may be made on account of the Notes
until such default has been cured or waived. In addition, under certain
circumstances, no payments with respect to the Notes may be made for a period of
up to 179 days if certain non-payment defaults exist with respect to Senior
Indebtedness of the Company. See "Description of Notes--Subordination," and
"Description of Credit Facility."
ANTI-TAKEOVER MEASURES
The PETsMART Restated Certificate of Incorporation, as amended (the
"Restated Certificate") and the PETsMART By-laws include provisions that may
delay, defer or prevent a change in management or control that holders of Notes
or stockholders might consider to be in their best interests. These provisions
include (i) a classified Board of Directors consisting of three classes, (ii)
the ability of the Board of Directors to issue without stockholder approval up
to 10,000,000 shares of preferred stock in one or more series with such rights,
obligations, and preferences as the Board of Directors may determine, (iii) no
right of stockholders to call special meetings of stockholders, (iv) no right of
stockholders to act by written consent and (v) certain advance notice procedures
for nominating candidates for election to the Board of Directors. In addition,
the Restated Certificate requires a 66 2/3% vote of stockholders to (i) alter or
amend the PETsMART By-laws, (ii) remove a director without cause, or (iii)
alter, amend or repeal certain provisions of the Restated Certificate. The
Restated Certificate does not permit cumulative voting. In August 1997, the
Company's Board of Directors adopted a Share Purchase Rights Plan, commonly
6
<PAGE>
referred to as a "poison pill." The Company is subject to the anti-takeover
provisions of Section 203 of the Delaware General Corporation Law, which
prohibits the Company from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which the person became an interested stockholder, unless the
business combination is approved in a prescribed manner. The application of
Section 203 could have the effect of delaying or preventing a change of control
of the Company. See "Description of Capital Stock."
POSSIBLE VOLATILITY OF STOCK PRICE; ABSENCE OF DIVIDENDS
Since the initial public offering of the Company's Common Stock in July
1993, the market value of the Company's Common Stock has been subject to
significant fluctuation. The market price of the Common Stock may continue to be
subject to significant fluctuations in response to operating results and other
factors. In addition, the stock market in recent years has experienced price and
volume fluctuations that often have been unrelated or disproportionate to the
operating performance of companies. These fluctuations, as well as general
economic and market conditions, may adversely affect the market price of the
Common Stock.
PETsMART has never paid any cash dividends on its Common Stock. The Company
currently intends to retain earnings for use in its business and therefore does
not anticipate paying cash dividends in the foreseeable future. In addition,
under the terms of the Credit Facility, the Company is prohibited from paying
any cash dividends without prior bank approval.
LIMITED PUBLIC MARKET FOR THE NOTES AND RESTRICTIONS ON TRANSFER
Prior to this offering, the Notes have been eligible for trading on the
PORTAL Market. The Notes sold pursuant to this Registration Statement of which
this Prospectus forms a part are not expected to remain eligible for trading on
the PORTAL system. The Notes are not listed on any national securities exchange
in the United States and are not quoted in the Nasdaq Stock Market. There can be
no assurance that any market for the Notes will develop or, if one does develop,
that it will be maintained. If an active market for the Notes fails to develop
or be sustained, the trading price of such Notes could be materially adversely
affected.
LIMITATIONS ON REPURCHASE OF NOTES UPON CHANGE OF CONTROL
Upon the occurrence of a Change of Control, the Company will be required to
offer to purchase the Notes. If a Change of Control were to occur, there can be
no assurance that the Company would have sufficient financial resources, or
would be able to arrange adequate financing on acceptable terms, to pay for the
repurchase of all Notes tendered by holders thereof. In addition, the Company's
repurchase of the Notes as a result of a Change of Control may be prohibited or
limited by, or create an event of default under, the terms of the Credit
Facility and other agreements related to borrowings which the Company may enter
into from time to time. Failure of the Company to purchase tendered Notes would
constitute an Event of Default under the Indenture. See "Description of
Notes--Repurchase of Notes at the Option of the Holder Upon a Change of
Control."
7
<PAGE>
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of the Notes and the
Conversion Shares by the Selling Securityholders in the offering.
PRICE RANGE OF COMMON STOCK
The Common Stock is traded on the Nasdaq National Market under the symbol
"PETM." Public trading of the Common Stock commenced on July 23, 1993. The
following table sets forth for the periods indicated the high and low price per
share of the Common Stock on the Nasdaq National Market, as adjusted for the
2-for-1 stock split effected as a stock dividend on July 19, 1996 and for the
3-for-2 stock split effected as a stock dividend on May 1, 1995. These prices
represent quotations among dealers without adjustments for retail mark-ups,
mark-downs or commissions, and may not represent actual transactions.
<TABLE>
<CAPTION>
FISCAL 1995 HIGH LOW
--------- ---------
<S> <C> <C>
First Quarter ended April 30, 1995.......................... $ 13.09 $ 10.42
Second Quarter ended July 30, 1995.......................... 15.75 10.88
Third Quarter ended October 29, 1995........................ 18.06 13.63
Fourth Quarter ended January 28, 1996....................... 18.00 12.63
<CAPTION>
FISCAL 1996
<S> <C> <C>
First Quarter ended April 28, 1996.......................... $ 22.50 $ 14.88
Second Quarter ended July 28, 1996.......................... 24.00 18.56
Third Quarter ended October 27, 1996........................ 29.88 22.38
Fourth Quarter ended February 2, 1997....................... 27.00 20.38
<CAPTION>
FISCAL 1997
<S> <C> <C>
First Quarter ended May 4, 1997............................. $ 23.00 $ 11.00
Second Quarter ended August 3, 1997......................... 12.75 9.81
Third Quarter ended November 2, 1997........................ 12.25 6.44
Fourth Quarter ending February 1, 1998 (through November
24)....................................................... 8.00 6.25
</TABLE>
On November 24, 1997, the closing sale price reported by the Nasdaq National
Market for the Common Stock was $7.00. At October 5, 1997, there were 5,247
holders of record of the Company's Common Stock.
DIVIDEND POLICY
PETsMART has never paid any cash dividends on its Common Stock. The Company
currently intends to retain earnings for use in its business and therefore does
not anticipate paying cash dividends in the foreseeable future. In addition,
under the terms of its Credit Facility, the Company is prohibited from paying
any cash dividends without prior bank approval.
8
<PAGE>
CAPITALIZATION
The following table sets forth at August 3, 1997, (i) the actual
capitalization of the Company and (ii) the capitalization of the Company as
adjusted to reflect the November 1997 sale of the Notes and the application of
the net proceeds therefrom.
<TABLE>
<CAPTION>
AT AUGUST 3, 1997
-----------------------
ACTUAL AS ADJUSTED
---------- -----------
(IN THOUSANDS, EXCEPT
SHARE AND PER SHARE
DATA)
<S> <C> <C>
Cash and cash equivalents........................................................... $ 34,511 $ 146,761
---------- -----------
---------- -----------
Short term debt:
Current portion of capital lease obligations...................................... $ 8,693 $ 8,693
Credit Facility(1)................................................................ 81,000 --
---------- -----------
Total short term debt........................................................... 89,693 8,693
---------- -----------
Long term debt:
Long term capital lease obligations(2)............................................ 59,216 59,216
6 3/4% Convertible Subordinated Notes due 2004.................................. -- 200,000
---------- -----------
Total long term debt............................................................ 59,216 259,216
---------- -----------
Stockholders' equity:
Preferred Stock, $0.0001 par value, 10,000,000 shares authorized; no shares issued
or outstanding.................................................................. -- --
Common Stock, $0.0001 par value, 250,000,000 shares authorized; 115,155,177 shares
issued and outstanding(3)....................................................... 11 11
Additional paid-in capital........................................................ 381,662 381,662
Cumulative foreign currency translation adjustments............................... 1,515 1,515
Accumulated deficit............................................................... (50,160) (50,160)
---------- -----------
Total stockholders' equity...................................................... 333,028 333,028
---------- -----------
Total capitalization.......................................................... $ 481,937 $ 600,937
---------- -----------
---------- -----------
</TABLE>
- --------------------------
(1) At August 3, 1997, in addition to the $81.0 million of borrowings
outstanding under the Credit Facility, an additional $6.6 million was
committed under the Credit Facility for letters of credit. At October 5,
1997, borrowings of $98.0 million were outstanding under the Credit
Facility. Upon the effectiveness of the Amendment, the Company's ability to
borrow under the Credit Facility will be subject to certain borrowing base
limitations. See "Description of Credit Facility."
(2) See Note 4 of Notes to Consolidated Financial Statements incorporated by
reference herein regarding operating leases.
(3) Excludes 12,608,067 shares of Common Stock reserved for issuance as of
August 3, 1997 upon the exercise of outstanding stock options. At such date,
the weighted average exercise price of outstanding options was $14.38 per
share.
9
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data presented below under the captions "Statement of
Operations Data" and "Balance Sheet Data" have been derived from the historical
financial statements of the Company. The selected financial data for the 26
weeks ended July 28, 1996 and August 3, 1997 have been derived from the
unaudited financial statements of the Company. The unaudited financial
statements include all adjustments, consisting only of normal recurring
adjustments, which the Company considers necessary for a fair presentation of
the financial position and results of operations for the unaudited interim
periods. The operating results for the 26 weeks ended August 3, 1997 are not
necessarily indicative of the results that may be expected for the full fiscal
year ending February 1, 1998. The as adjusted financial data presented below
give effect to the November 1997 Note offering and the application of the net
proceeds therefrom and certain adjustments as described in the accompanying
footnotes. Such data do not purport to represent what the Company's results of
operations or financial position would have been had the November 1997 Note
offering been consummated on the date specified or to project the Company's
results of operations or financial position for any future period or date. The
selected financial data should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Consolidated Financial Statements and notes thereto incorporated by
reference in this Prospectus.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED(1) 26 WEEKS ENDED
----------------------------------------------------- ------------------------
JAN. 31, JAN. 30, JAN. 29, JAN. 28, FEB. 2, JULY 28, AUG. 3,
1993 1994 1995 1996 1997(2) 1996 1997
--------- --------- --------- --------- --------- --------- -------------
(IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales................................. $ 319,627 $ 544,762 $ 924,199 $1,168,056 $1,501,017 $ 675,827 $ 838,514
Cost of sales............................. 223,564 395,689 678,420 859,819 1,074,666 484,427 640,386
Gross profit.............................. 96,063 149,073 245,779 308,237 426,351 191,400 198,128(3)
Store operating expenses.................. 69,315 118,013 195,222 228,046 289,622 135,254 164,396(3)
Store preopening expenses................. 3,448 7,583 7,750 5,388 10,907 5,511 6,009
General and administrative expenses....... 20,099 28,499 35,072 36,348 42,463 21,207 24,501(3)
Merger and business integration costs..... -- -- 14,100 47,129 40,714 20,364 54,522(4)
--------- --------- --------- --------- --------- --------- -------------
Operating income (loss)................... 3,201 (5,022) (6,365) (8,674) 42,645 9,064 (51,300)
Interest income........................... 763 2,124 3,594 2,731 1,057 754 113
Interest expense.......................... 3,052 4,298 7,587 8,934 9,450 4,218 6,116
--------- --------- --------- --------- --------- --------- -------------
Income (loss) before income taxes,
extraordinary credit and cumulative
effect of change in accounting
principle............................... 912 (7,196) (10,358) (14,877) 34,252 5,600 (57,303)
Income tax expense (benefit).............. 2,615 3,315 1,262 (9,441) 13,661 3,027 (20,841)
Net income (loss)(5)...................... $ (30) $ (10,301) $ (11,620) $ (5,436) $ 20,591 $ 2,573 $ (36,462)
Income (loss) per share before
extraordinary credit and cumulative
effect of change in accounting
principle(6)............................ $ (0.06) $ (0.14) $ (0.13) $ (0.06) $ 0.17 $ 0.02 $ (0.32)
Net income (loss) per share(6)............ $ (0.04) $ (0.13) $ (0.13) $ (0.06) $ 0.17 $ 0.02 $ (0.32)
Weighted average number of common and
common equivalent shares outstanding.... 70,814 89,015 105,443 108,387 118,226 116,672 114,475
Ratio of earnings to fixed charges(7)..... 1.1 -(8) -(8) -(8) 1.8 1.3 -(8)
AS ADJUSTED DATA:(9)
Interest expense, net..................... $ 19,704 $ 10,691
Net income (loss)......................... $ 13,691 $ (39,322)
Net income (loss) per share............... $ 0.12 $ (0.34)
Ratio of earnings to fixed charges(7)..... 1.4 --(10)
SELECTED OPERATING DATA:
Stores open at end of period.............. 103 192 269 297 376 342 440
Average square footage(11)................ 1,786,428 3,379,860 5,200,319 6,380,672 7,616,245 7,275,144 9,236,925
Net sales per square foot(12)............. $ 139.11 $ 131.97 $ 154.20 $ 163.62 $ 179.71 $ 83.89 $ 84.99
Net sales growth.......................... 79.5% 70.4% 69.7% 26.4% 28.5% 22.7% 24.1%
Increase in comparable North American
store sales(13)......................... 19.0% 19.8% 19.1% 12.5% 11.9% 12.0% 5.1%
BALANCE SHEET DATA:
Inventories............................... $ 59,726 $ 107,736 $ 171,344 $ 211,933 $ 300,892 $ 232,209 $ 284,980
Working capital........................... 45,250 185,765 155,356 146,236 158,182 155,318 128,426
Total assets.............................. 166,471 415,592 484,885 572,104 689,810 649,801 692,486
Capital lease obligations(14)............. 29,711 48,171 74,240 65,725 71,680 66,967 67,909
Total debt................................ 32,011 55,691 95,956 87,973 96,680 106,492 148,909
Stockholders' equity and
redeemable preferred stock.............. $ 81,142 $ 265,445 $ 266,216 $ 301,798 $ 361,045 $ 323,524 $ 333,028
</TABLE>
(FOOTNOTES ON FOLLOWING PAGE)
10
<PAGE>
- ------------------------------
(1) Reflects the historical financial data of PETsMART after restatement (except
as otherwise noted) for the acquisition of PETZAZZ in March 1994, Sporting
Dog in May 1995, Petstuff in June 1995, Pet Food Giant in September 1995,
State Line Tack in January 1996 and Pet City in December 1996, all of which
were accounted for under the pooling of interests method, the 3-for-2 stock
split effected in the form of a stock dividend paid May 1, 1995, and the
2-for-1 stock split effected in the form of a stock dividend paid July 19,
1996. Fiscal 1996 includes the results of operations of Pet City for the 53
weeks ended February 2, 1997. Fiscal 1995, fiscal 1994, fiscal 1993 and
fiscal 1992 include the financial results of Pet City for the 52 weeks ended
July 27, 1996, July 29, 1995, April 2, 1994 and April 3, 1993, respectively.
An adjustment of $682 was made to retained earnings at January 30, 1994 to
conform the fiscal year of Pet City and PETsMART.
(2) Fiscal 1996 consisted of 53 weeks; all other years reported consisted of 52
weeks.
(3) The Company recorded an aggregate $16,150 in restructuring expenses during
the 26 weeks ended August 3, 1997. Such costs have been recorded as
components of cost of sales, store operating expenses and general and
administrative expenses in the amounts of $9,450, $3,300 and $3,400,
respectively. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Recent Developments."
(4) Excludes the $16,150 of restructuring expenses discussed in footnote (3)
above.
(5) Includes an extraordinary credit of $1,673 for fiscal 1992 and a $210
benefit in fiscal 1993 for the cumulative effect of a change in accounting
principle.
(6) After accretion of redeemable preferred stock of $2,736, $1,521, $1,921 and
$1,582 for fiscal years 1992 through 1995, respectively. See Note 2 of Notes
to the Consolidated Financial Statements incorporated by reference herein.
(7) For purposes of computing the ratio of earnings to fixed charges, earnings
include income before income taxes, interest expense and one-third of rental
expense relating to operating leases (assumed to be the interest portion
thereof). Fixed charges consist of interest expense, capitalized interest
and one-third of rental expense relating to operating leases.
(8) Earnings were insufficient to cover fixed charges by $7,582, $10,648, and
$15,177 for fiscal 1993, 1994 and 1995, respectively. Earnings did not cover
fixed charges by $57,303 for the 26 weeks ended August 3, 1997.
(9) The as adjusted data for the year ended February 2, 1997 and the 26 weeks
ended August 3, 1997 give effect to the issuance of the Notes and the
application of the net proceeds therefrom as if such transactions had
occurred on January 29, 1996. Adjustments to historical net interest expense
represent: (a) the net increase in interest expense resulting from interest
on the Notes, plus (b) amortization of the estimated $6,750 capitalized debt
issuance costs over seven years, offset by (c) a decrease in interest
expense related to the repayment of outstanding borrowings under the Credit
Facility. Adjustments to historical net income represent the increase in net
interest expense described above offset by related tax effects calculated at
a statutory tax rate of 39%.
(10) Earnings were insufficient to cover fixed charges during the 26 weeks ended
August 3, 1997 on a pro forma basis by $61,991.
(11) Average square footage is the mathematical average of beginning of year
square footage and end of year square footage.
(12) Net sales per square foot is calculated by dividing net sales, excluding
sales of PETsMART Direct, by average square footage.
(13) Includes only North American superstores open at least 52 weeks. The
periods from fiscal 1992 through fiscal 1993 have not been restated to
reflect the acquisition of PETZAZZ in March 1994, and the periods from
fiscal 1992 through fiscal 1995 have not been restated for the acquisitions
of Petstuff and Pet Food Giant in 1995. No periods have been restated for
the Pet City acquisition in December 1996. Fiscal 1996 data has been
adjusted to reflect the first 52 weeks of the 53-week year.
(14) Includes portions related to current maturities.
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED HEREIN, THE FOLLOWING
DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD MATERIALLY DIFFER FROM THOSE
DISCUSSED HERE. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES
INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN THIS SECTION, AS WELL AS IN
THE SECTIONS ENTITLED PURCHASING AND DISTRIBUTION, COMPETITION, AND RISK FACTORS
IN THE COMPANY'S FORM 10-K FOR THE YEAR ENDED FEBRUARY 2, 1997, AND THE RISK
FACTORS SECTION CONTAINED ELSEWHERE IN THIS PROSPECTUS. SEE "DISCLOSURE
REGARDING FORWARD-LOOKING STATEMENTS."
OVERVIEW
PETsMART is the largest operator of superstores specializing in pet food,
supplies and services in North America and the United Kingdom. At October 5,
1997, PETsMART operated 455 superstores, consisting of 371 superstores in the
United States, 74 superstores in the United Kingdom and 10 superstores in
Canada. PETsMART's store base has grown rapidly since the Company's inception in
1986 through the opening of new stores and through the acquisitions of PETZAZZ
in March 1994, Petstuff in June 1995, Pet Food Giant in September 1995, and Pet
City in December 1996. The Company also acquired two leading catalog retailers,
Sporting Dog in May 1995 and State Line Tack in January 1996. All of these
transactions were accounted for as poolings of interest.
The Company expects that future increases in net sales and net income, if
any, will be dependent on the opening of additional superstores and the improved
performance of new and existing superstores. In view of the increasing maturity
of its superstore base, as well as the planned opening of additional superstores
in existing markets and single-store markets, the Company anticipates that its
comparable store sales increases may be less in future periods. As a result of
its expansion plans, the Company anticipates the timing of new superstore
openings, and related preopening expenses, and the amount of revenue contributed
by new and existing superstores may cause the Company's quarterly results of
operations to fluctuate. The Company has achieved less favorable operating
results in certain North American geographic regions it recently entered than it
has achieved historically in other regions. In addition, because new superstores
have higher payroll, advertising and other store level expenses as a percentage
of sales than mature superstores, the anticipated level of new superstore
openings will also contribute to lower store operating margins. The Company
charges preopening costs associated with each new superstore to earnings when
the superstore is opened. Therefore, the Company expects that the opening of
large numbers of new superstores in a given quarter will adversely impact its
quarterly results of operations for that period. See "Risk Factors--Performance
of Superstores" and "--Quarterly and Seasonal Fluctuations."
RECENT DEVELOPMENTS
For the first half of fiscal 1997, the Company reported disappointing
operating results due to a combination of reduced inventory levels, which led to
out-of-stock conditions in certain key categories, and lost sales momentum as a
result of a departure from the Company's historically more effective advertising
programs. In June 1997, the Company's Chairman, Samuel J. Parker, resumed his
former role as Chief Executive Officer. Since Mr. Parker resumed his operating
role, the Company has moved to implement a series of "Back to Basics"
initiatives intended to refocus the Company and improve its financial
performance. See "Business--The PETsMART Strategy: Back to Basics." In
connection with the implementation of these initiatives and other
considerations, PETsMART recorded restructuring expenses and a charge for merger
and business integration costs aggregating $61.0 million before tax benefits
($38.2 million or $0.33 per share after tax benefits) in the second quarter of
fiscal 1997, of which approximately $40.0 million represented a cash charge.
These charges consisted of $44.9 million in restructuring expenses related to
the closure and relocation of certain stores, the elimination of certain
departments within PETsMART superstores, and additional costs associated with
certain of the Company's prior acquisitions, and
12
<PAGE>
$16.1 million of other one-time charges which were recorded as components of
cost of goods sold, store operating expenses and general and administrative
expenses. In the first quarter of fiscal 1997, the Company had also recorded a
$9.6 million charge for merger and business integration costs, resulting in
total charges for merger and business integration costs of $54.5 million for the
26 weeks ended August 3, 1997.
The $16.1 million of other one-time restructuring expenses in the second
quarter of fiscal 1997 were comprised of the write-down or write-off of certain
discontinued merchandise and impaired assets, reserves for litigation and other
matters. Of these expenses, the $9.4 million that was reflected as a component
of cost of goods sold included the writedown of the Discovery Center inventory
from cost to net realizable value in connection with the discontinuance of that
department, as well as the writedown of certain non-Discovery Center inventory
from cost to net realizable value as a result of the decision to exit other
product categories. The Company expects to sell substantially all of its
discontinued inventory by the end of fiscal 1997. The $3.3 million of other
expenses reflected as a component of store operating expenses and the $3.4
million of one-time expenses reflected as general and administrative expenses
consist primarily of expenses related to certain costs of several litigation
matters, expenses related to the preliminary stages of a consulting project for
the new management information system, as well as expenses related to other
miscellaneous matters.
Of the $44.9 million in restructuring charges recorded in the second quarter
of fiscal 1997, approximately $30.0 million was related to the costs of closing
or relocating 33 stores, of which 31 were former PETZAZZ, Petstuff or Pet Food
Giant stores, approximately $8.5 million was related to the costs of
discontinuing the Discovery Center department in all superstores and the
write-down or write-off of related fixtures and approximately $4.1 million was
related to the Company's previous acquisitions. The remaining charges of $2.3
million included approximately $1.0 million of anticipated costs associated with
the Company's decision to complete the consolidation of the Ennis, Texas
distribution center into the Company's new Phoenix, Arizona facility and
approximately $1.3 million representing the write-off of the Company's
investments in certain long-term assets which were impaired as a result of the
Company's decision to exit certain departments within the PETsMART superstores.
As a result of the acquisition of Pet City, the Company recorded charges for
merger and business integration costs of $1.1 million during the second quarter
of fiscal 1997, and $9.6 million during the first quarter of fiscal 1997,
primarily related to reformatting, refixturing, and remerchandising the acquired
stores to the PETsMART superstore format and other costs of integration. The
Company expects to recognize additional charges for merger and business
integration costs of up to $4 million in the second half of fiscal 1997 relating
to the acquisition of Pet City. The Company also recorded charges of
approximately $3.0 million for merger and business integration costs during
second quarter 1997 as a result of additional real estate costs incurred in
connection with certain of its previous acquisitions.
In November 1997, $200,000,000 of Notes were issued by the Company and sold
to "qualified institutional buyers" (as defined in Rule 144A of the Securities
Act) in transactions exempt from registration under the Securities Act, and in
sales outside the United States within the meaning of Regulation S under the
Securities Act. The net proceeds to PETsMART from the sale of the Notes were
approximately $193,250,000.
13
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth the percentage relationship to net sales,
unless otherwise indicated, of certain items included in the Company's
statements of operations:
<TABLE>
<CAPTION>
26 WEEKS
FISCAL YEAR ENDED ENDED
------------------------------------- -----------
JAN. 29, JAN. 28, FEB. 2, JUL. 28,
1995 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales........................................................... 100.0% 100.0% 100.0% 100.0%
Cost of sales....................................................... 73.4 73.6 71.6 71.7
----- ----- ----- -----
Gross profit........................................................ 26.6 26.4 28.4 28.3
Store operating expenses............................................ 21.2 19.6 19.3 20.0
Store preopening expenses........................................... 0.8 0.5 0.7 0.8
General and administrative expenses................................. 3.8 3.1 2.8 3.1
Merger and business integration costs............................... 1.5 3.9 2.8 3.1
----- ----- ----- -----
Operating income (loss)............................................. (0.7) (0.7) 2.8 1.3
Interest income..................................................... 0.4 0.2 0.1 0.1
Interest expense.................................................... 0.8 0.8 0.6 0.6
----- ----- ----- -----
Income (loss) before income taxes................................... (1.1) (1.3) 2.3 0.8
Income tax expense (benefit)........................................ 0.1 (0.8) 0.9 0.4
----- ----- ----- -----
Net income (loss)................................................... (1.2)% (0.5)% 1.4% 0.4%
----- ----- ----- -----
----- ----- ----- -----
<CAPTION>
AUG. 3,
1997
-----------
<S> <C>
STATEMENT OF OPERATIONS DATA:
Net sales........................................................... 100.0%
Cost of sales....................................................... 76.4(1)
-----
Gross profit........................................................ 23.6(1)
Store operating expenses............................................ 19.6(1)
Store preopening expenses........................................... 0.7
General and administrative expenses................................. 2.9(1)
Merger and business integration costs............................... 6.5
-----
Operating income (loss)............................................. (6.1)
Interest income..................................................... 0.0
Interest expense.................................................... 0.7
-----
Income (loss) before income taxes................................... (6.8)
Income tax expense (benefit)........................................ (2.5)
-----
Net income (loss)................................................... (4.3)%
-----
-----
</TABLE>
- --------------------------
(1) Includes the $16,150 of restructuring expenses recorded in second quarter
1997.
TWENTY-SIX WEEKS ENDED AUGUST 3, 1997 COMPARED TO TWENTY-SIX WEEKS ENDED JULY
28, 1996
The following discussion of results of operations for the twenty-six week
periods ended August 3, 1997 and July 28, 1996 excludes the effect of the
restructuring, merger and business integration costs discussed above in "Recent
Developments."
Net sales increased 24.1% to $838.5 million for the twenty-six weeks ended
August 3, 1997 from $675.8 million for the twenty-six weeks ended July 28, 1996.
Comparable North American store sales increased 5.1% in the first half of 1997,
and comparable United Kingdom store sales increased 6.2% in the same period.
During the period, the Company opened 68 new superstores and closed four
superstores, all of which were replaced with new superstores in the same general
trade area. The Company had 440 superstores in operation at August 3, 1997
compared to 342 superstores open at July 28, 1996, after giving effect to its
recent mergers. The Company believes that the decline in comparable store sales
increases from historical levels is due to the negative effects of the inventory
management difficulties which resulted in out-of-stock conditions and lost
sales, as well as an ineffective advertising program. See "--Recent
Developments."
Gross profit, defined as net sales less cost of sales, including
distribution costs and store occupancy costs, decreased as a percentage of net
sales to 24.8% for 1997 year to date as compared to 28.3% for the same period of
1996. The decrease is primarily a result of higher occupancy costs in newer
locations, increased warehouse and distribution costs, and lower than
anticipated vendor moneys due to reduced purchasing activities.
Store operating expenses, which includes payroll and benefits, advertising
and other store level expenses, decreased as a percentage of net sales to 19.2%
for the period from 20.0% for the first half of
14
<PAGE>
last year. This decrease is primarily the result of improved expense leverage in
the United Kingdom superstores.
Store preopening expenses as a percentage of net sales decreased to 0.7% for
1997 compared to 0.8% for 1996, primarily as a result of the higher preopening
costs associated with the five 40,000 square foot hybrid pet/equine megastores
opened in Southern California in 1996. The Company opened 56 superstores in
North America and 12 superstores in the United Kingdom during the period, as
compared to 46 stores during the same period last year. Average preopening costs
for first half of 1997 remained consistent with prior periods at approximately
$100,000 per North American store, after excluding the costs associated with the
megastores opened in 1996.
General and administrative expenses decreased as a percentage of sales to
2.5% for the year to date 1997 from 3.1% for the comparable period of 1996.
These expenses reflected continued expense management in both North American and
United Kingdom operations.
The Company's operating income before charges for merger and business
integration costs decreased to $19.4 million for the twenty-six weeks ended
August 3, 1997 from $29.4 million for the comparable period of 1996. Operating
income before charges for merger and business integration costs as a percentage
of sales decreased to 2.4% for 1997 from 4.4% for 1996.
Interest income decreased to $0.1 million for 1997 from $0.8 million for
1996 principally due to the decrease in average cash balances in 1997 compared
to 1996. Interest expense increased to $6.1 million for 1997 from $4.2 million
for 1996 principally due to higher average borrowings during the twenty-six
weeks ended August 3, 1997.
The Company's income tax provision for both 1997 and 1996 reflects the
effects of the nondeductibility of certain of the restructuring expenses and
merger and business integration costs recorded in both years. Additionally, the
statutory reduction in the United Kingdom corporate tax rate enacted during
second quarter 1997 required a $0.6 million charge to reflect the decrease in
the deferred tax asset due to the rate reduction. After excluding the effects of
these items, the Company's effective income tax rate from operations was 38.5%
and 38% for the first half of 1997 and 1996, respectively.
Excluding the restructuring expenses and charges for merger and business
integration costs, and the related tax benefits, net income for the 1997 period,
decreased to $8.2 million (or $0.07 per share), a $7.9 million decrease from the
first half of fiscal 1996. Including the effect of the restructuring expenses
and charges for merger and business integration costs recorded in both years,
the Company reported a net loss of $36.5 million (or $0.32 per share) for the
twenty-six weeks ended August 3, 1997 compared to net income of $2.6 million (or
$0.02 per share) for the comparable 1996 period.
FISCAL 1996 COMPARED TO FISCAL 1995
Net sales increased 28.5% to approximately $1.5 billion for fiscal 1996 from
approximately $1.2 billion for fiscal 1995. Excluding the fifty-third week in
fiscal 1996, net sales increased 26.4% over fiscal 1995. Excluding the
fifty-third week in fiscal 1996, comparable North American store sales increased
11.9% as compared to an increase of 12.5% for fiscal 1995, excluding the
Petstuff and Pet Food Giant stores, some of which were closed for retrofitting
during the year. Due to the increasing maturity of its superstore base, as well
as the opening of additional superstores in existing markets, the Company
anticipates that its rate of comparable store sales growth may be lower in
future periods than previously reported. Comparable United Kingdom store sales
increased 9.2% for fiscal 1996. During fiscal 1996, the Company opened 82 new
superstores, including 21 in the United Kingdom, and relocated three
superstores. Net sales from the 82 superstores opened in fiscal 1996 contributed
$88.6 million or 26.6% of the total increase in net sales. Of the remainder of
the total net sales increase, $167.3 million or 50.3% was contributed by
superstores opened in fiscal 1995. The Company had 376 superstores in operation
at the end of fiscal 1996 as compared to 297 superstores open at the end of
fiscal 1995.
15
<PAGE>
Gross profit, defined as net sales less cost of sales, including
distribution costs and store occupancy costs, increased as a percentage of net
sales to 28.4% for fiscal 1996 as compared to 26.4% for fiscal 1995. The
increase in margin was principally due to a change in sales mix in retail
stores, improved margins in catalog operations, and the continued maturation of
the Company's store base.
Store operating expenses, which includes payroll and benefits, advertising
and other store level expenses, were 19.3% of net sales for fiscal 1996 versus
19.6% for fiscal 1995.
Store preopening expenses as a percentage of net sales increased to 0.7% for
fiscal 1996 compared to 0.5% for fiscal 1995. The average preopening expenses
for the 61 North American PETsMART superstores opened in fiscal 1996 increased
to $127,000 from $74,000 for the 42 PETsMART superstores opened during fiscal
1995. The increase in preopening expenses on a per unit basis reflected the
additional training and store setup costs incurred with the Company's initial
entry into Canada, which occurred in fourth quarter fiscal 1996, as well as the
impact of the Company's five 40,000 square foot hybrid pet/equine megastores
opened in Southern California.
General and administrative expenses were 2.8% of net sales for fiscal 1996
versus 3.1% for fiscal 1995, due primarily to the elimination of the duplicate
overhead costs related to the acquisitions in fiscal 1995 of Petstuff and Pet
Food Giant.
Charges for merger and business integration costs of $28.4 million related
to the State Line Tack and Pet City acquisitions were recorded in fiscal 1996.
These charges included legal, investment banking, and accounting fees ($8.8
million), costs associated with reformatting, refixturing and remerchandising
the acquired Pet City superstores to the format consistent with that of a
PETsMART prototype superstore ($11.0 million), a provision for the closure of a
redundant warehouse and other inadequate facilities ($5.5 million) and other
costs of consolidation ($3.1 million).
Also during fiscal 1996, the Company recorded charges for merger and
business integration costs of $12.3 million to reflect additional lease
termination costs anticipated to be incurred in connection with the settlement
of lease obligations for the 17 former Petstuff stores closed by the Company
immediately following the 1995 merger with Petstuff, along with the settlement
of obligations with respect to seven lease commitments for future Petstuff
locations that were either duplicate or inadequate facilities and therefore
abandoned.
The Company generated operating income of $42.6 million for fiscal 1996
compared to an operating loss of $8.7 million in fiscal 1995. However, excluding
the charges for merger and business integration costs recorded in both fiscal
1996 and fiscal 1995, operating income increased $44.9 million to $83.4 million
from $38.5 million for fiscal 1995. Excluding the charges for merger and related
business integration costs, operating income as a percentage of sales increased
to 5.6% for fiscal 1996 from 3.2% for fiscal 1995.
Interest income decreased to $1.1 million for fiscal 1996 from $2.7 million
for fiscal 1995, principally due to the decrease in average cash balances in
fiscal 1996 compared to fiscal 1995. Interest expense increased to $9.5 million
for fiscal 1996 from $8.9 million for fiscal 1995 principally due to higher
average borrowings outstanding during the period.
Income tax expense was $13.7 million for fiscal 1996 compared to a benefit
of $9.4 million for fiscal 1995. The Company's effective income tax rate for
fiscal 1996 was 38% compared to 35% for fiscal 1995, excluding the effect of
permanent differences within the merger and business integration charges
recorded in fiscal 1996 and fiscal 1995 and the effects of net operating loss
carryforwards recognized in both years. This increase was primarily due to an
increased federal rate due to the absence of targeted job tax credits, lower
tax-advantaged investments, and a higher effective state income tax rate.
As a result of the foregoing, the Company reported net income of $20.6
million (or $0.17 per share) for fiscal 1996 compared to a net loss, before
accretion of the Pet Food Giant and State Line Tack preferred stock, of $5.4
million (or $0.05 per share) for fiscal 1995. Excluding the charges for merger
and business integration costs and related tax benefits as well as the
recognition of net operating loss
16
<PAGE>
carryforwards recorded in both years, net income for fiscal 1996 increased $26.2
million to $46.5 million (or $0.39 per share) from $21.0 million (or $0.19 per
share) for fiscal 1995. The Company's North American operations, excluding
charges for merger and business integration costs and their related income tax
effects, reported net income of $0.44 per share for fiscal 1996 as compared to
net income of $0.22 per share for fiscal 1995.
FISCAL 1995 COMPARED TO FISCAL 1994
Net sales increased 26.4% to approximately $1.2 billion for fiscal 1995 from
approximately $924.2 million for fiscal 1994. Excluding the Petstuff and Pet
Food Giant stores which were closed for retrofitting during the year, comparable
North American store sales increased 12.5% for fiscal 1995, as compared to an
increase of 19.1%, for fiscal 1994. Comparable United Kingdom store sales
increased 6.9% for fiscal 1995. During fiscal 1995, the Company opened 42 North
American superstores and closed 22 superstores, including four relocated stores,
17 redundant and non-performing Petstuff superstores and one redundant Pet Food
Giant store. The Company opened eight superstores in the United Kingdom during
the year. Net sales from the 42 North American superstores opened in fiscal 1995
contributed $65.5 million or 28.2% of the total increase in net sales. Of the
remainder of the total net sales increase, $143 million or 30.3% was contributed
by North American superstores that opened during fiscal 1994. After giving
effect to its recent acquisitions, the Company had 297 superstores in operation
at the end of fiscal 1995 compared to 269 superstores open at the end of fiscal
1994.
Gross profit, defined as net sales less cost of sales including distribution
costs and store occupancy costs, decreased as a percentage of net sales to 26.4%
for fiscal 1995 as compared to 26.6% for fiscal 1994. This decrease was
primarily the result of higher occupancy costs, as a percentage of sales, in the
Petstuff and Pet Food Giant superstores during the year.
Store operating expenses, which include payroll and benefits, advertising
and other store level expenses, were 19.6% of net sales for fiscal 1995, versus
21.2% for fiscal 1994. This decrease as a percentage of net sales was due to
improved payroll expense management and reduced advertising expenditures,
primarily as the result of changing the PETsMART superstores' media mix from
direct mail to newspaper inserts and improved advertising leverage as the result
of the addition of new superstores in existing markets.
Store preopening expenses as a percentage of net sales decreased to 0.5% for
fiscal 1995, compared to 0.8% for fiscal 1994 primarily due to fewer store
openings in fiscal 1995 versus fiscal 1994. The average preopening expense for
the 42 North American PETsMART prototype superstores opened in fiscal 1995
decreased to $74,000 from a combined average of $87,000 for the 46 PETsMART
prototype superstores, 21 Petstuff-format superstores and four Pet Food Giant
superstores opened during fiscal 1994. This decrease was the result of
management efforts to improve efficiency in shortening the time required to open
new superstores, as well as the lower cost to open a PETsMART prototype
superstore compared to Petstuff or Pet Food Giant-format superstores.
General and administrative expenses were 3.1% of net sales for fiscal 1995
versus 3.8% for fiscal 1994. This decrease reflected continued expense
management, along with the elimination of duplicate overhead costs related to
the PETZAZZ, Petstuff and Pet Food Giant acquisitions.
Charges for merger and business integration costs of $47.1 million related
to the Petstuff, Sporting Dog and Pet Food Giant acquisitions were recorded in
fiscal 1995. This charge included legal, investment banking, and accounting fees
($6.2 million), costs associated with reformatting, refixturing and
remerchandising the acquired superstores to the format consistent with that of a
PETsMART prototype superstore ($14.1 million), a provision for the closure of
redundant superstores and other facilities ($18.9 million) and other costs of
consolidation, including employee severance, relocation costs and early
termination fees on the credit facility of an acquired entity ($7.9 million).
17
<PAGE>
As a result of the above charges for merger and business integration costs,
the Company incurred an operating loss of $8.7 million for fiscal 1995 compared
to an operating loss of $6.4 million in fiscal 1994. However, excluding these
charges for merger and business integration costs recorded both in fiscal 1995
and fiscal 1994, operating income increased $30.8 million, from $7.7 million in
fiscal 1994 to $38.5 million in fiscal 1995. Excluding the merger and related
non-recurring costs, operating income as a percentage of sales increased to 3.3%
for fiscal 1995 from 0.8% for fiscal 1994.
Interest income decreased to $2.7 million for fiscal 1995, from $3.6 million
for fiscal 1994, principally due to the decrease in average cash balances in
fiscal 1995 compared to fiscal 1994. Interest expense increased to $8.9 million
for fiscal 1995, from $7.6 million for fiscal 1994, principally due to higher
outstanding borrowings during the period.
Income tax benefit of $9.4 million was recorded for fiscal 1995, compared to
income tax expense of $1.3 million for fiscal 1994. Excluding the effect of
permanent differences within the charges for merger and business integration
costs recorded in fiscal 1995 and fiscal 1994 and the effects of net operating
loss carryforwards recognized in both years PETsMART's effective income tax rate
for fiscal 1995 was 35% compared to 34% for fiscal year 1994. This increase was
primarily due to an increased federal rate due to the absence of targeted job
tax credits, lower tax-advantaged investments, and a higher effective state
income tax rate.
As a result of the foregoing, PETsMART recorded a net loss, before accretion
of the Pet Food Giant and State Line Tack preferred stock, of $5.4 million (or
$0.05 per share) for fiscal 1995, compared to a net loss, before accretion of
the Pet Food Giant and State Line Tack preferred stock, of $11.6 million (or
$0.11 per share) for fiscal 1994. Excluding charges for merger and business
integration costs and related tax benefits and the recognition of net operating
loss carryforwards recorded in both years, net income for fiscal 1995, on a
comparable basis and before the Pet Food Giant and State Line Tack accretion,
increased $17.8 million to $20.3 million (or $0.19 per share) in fiscal 1995,
from $2.5 million (or $0.02 per share) in fiscal 1994. The Company's North
American operations, excluding charges for merger and business integration costs
and related income tax effects, reported net income of $0.22 per share for
fiscal 1995 as compared to net income of $0.03 per share for fiscal 1994.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations and expansion program to date
principally through cash flows from operations, the sale of equity securities,
lease financing and borrowings under the Credit Facility. Additional sources of
financing include vendor terms on inventory purchases.
At August 3, 1997, total assets were $692.5 million, of which $412.4 million
were current assets. Cash and cash equivalents were $34.5 million (after the
reclassification of a $41.4 million book balance cash overdraft, representing
uncleared checks in excess of cash balances in bank accounts). Such overdraft
amounts are included in accounts payable.
Cash used in operations was $47.0 million for the twenty-six weeks ended
August 3, 1997, compared to cash used in operations of $29.6 million for the
same period of the prior year. Approximately $10.8 million of the net cash used
in operations during the twenty-six weeks ended August 3, 1997 related to the
timing of inventory purchases on account and payment of those accounts during
the second quarter. Merchandise accounts payable leveraging (the percentage of
merchandise inventory financed by vendor credit terms, e.g. accounts payable
divided by merchandise inventory), decreased to 39.4% at August 3, 1997,
compared to 46.2% at February 2, 1997. Inventory balances were approximately
$285.0 million at August 3, 1997, and $300.9 million at February 2, 1997.
Average North American store inventory, which excludes the inventory of PETsMART
Direct, decreased 16% to $673,000 per store at August 3, 1997, from
approximately $800,000 at February 2, 1997, due to management's efforts to
improve inventory turns. The initial reduction during first quarter 1997 was in
excess of management's plans and the Company believes sales were lost due to
out-of-stock conditions in certain categories and locations. Management
currently
18
<PAGE>
anticipates that inventory balances, in the aggregate, will increase moderately
over the remainder of fiscal 1997.
Due to the increase in the provision for accrued merger and restructuring
costs, cash used in operations was reduced by $32.2 million. Future cash uses
for restructuring costs will be partially offset by cash inflows from the
liquidation of inventory and the related tax benefits associated with the
discontinuation of certain departments within all superstores and the closing of
certain superstores. The Company estimates an approximate $12.0 million to $13.0
million positive net cash flow from the restructuring activities over the next
two years.
The Company has used cash in investing activities since inception to
purchase leaseholds, fixtures and equipment for new superstores and, to a lesser
extent, to purchase equipment and computer software in support of its
administrative functions. The Company has lease arrangements with leasing
companies that the Company uses to finance certain store and warehouse fixtures
and equipment, point-of-sale equipment and management information systems. The
Company has also used cash to purchase properties for sale and leaseback. Net
cash used in investing activities was $17.7 million for the twenty-six weeks
ended August 3, 1997. See "Business--Properties."
Net cash flow from financing activities, primarily borrowings and repayments
under the Company's Credit Facility and proceeds from the exercise of employee
stock options, was $58.8 million for the twenty-six weeks ended August 3, 1997.
During the second quarter of 1997, the Company amended certain covenants,
interest rates, fees and definitions in the Credit Facility, which expires in
April 2000. Borrowings under the Credit Facility are unsecured (except for the
pledge of 65% of the outstanding voting shares of two of the Company's foreign
subsidiaries) and bear interest, at PETsMART's option, at either the bank's
prime rate or LIBOR plus an applicable margin. The Credit Facility contains
certain restrictive covenants relating to net worth, leverage and debt to equity
ratios, capital expenditures and minimum fixed charge coverage. At August 3,
1997, $81.0 million was outstanding under the Credit Facility. In connection
with the Offering, the Company has entered into an amendment with respect to
certain terms of its Credit Facility. Upon the effectiveness of the Amendment,
the Credit Facility will provide for revolving borrowings in a maximum amount of
up to $125.0 million, but not to exceed, together with amounts outstanding under
the Construction Facility (as defined) and outstanding letters of credit, 50% of
the Company's working capital (as defined therein). The Construction Facility
provides for borrowings of up to $60.0 million. See "Description of Credit
Facility."
The Company's primary long-term capital requirement is for opening new
superstores, restructuring expenses, merger and business integration costs,
corporate investment including costs associated with the development and
implementation of the Company's new information system and for working capital.
All of the Company's superstores are leased facilities. The Company
estimates that the cash requirements after lease financing to open each new U.S.
prototype superstore, including store fixtures and equipment, leasehold
improvements, preopening costs and inventory is approximately $600,000. This
amount will include an average of approximately $50,000 for leasehold
improvements (an average of approximately $200,000 if the superstore site is a
rehabilitated unit), approximately $100,000 for preopening costs, and
approximately $450,000 for inventory, net of accounts payable. Approximately
$400,000 is required for store fixtures and equipment, which is typically fully
funded through lease financing.
Based upon the Company's current plan to open approximately 20 additional
North American superstores and eighteen United Kingdom superstores in the second
half of fiscal 1997, approximately $28.2 million will be needed to finance these
new superstores, prior to related lease financing proceeds of approximately
$16.0 million, a portion of which may not be received until fiscal 1998.
PETsMART is in the initial phases of developing and implementing an
integrated worldwide information system which will feature a common set of
applications. There can be no assurance that the new system can be developed,
tested and implemented on a timely basis, or at all, or that it will deliver the
19
<PAGE>
anticipated operational benefits in a reliable manner. Failure to complete the
new system, or to complete the new system on a timely basis, could materially
adversely affect the Company's future operating results or its ability to
expand. The new system will require significant financing. The Company estimates
that its costs in connection with the development and implementation of the new
system, before giving consideration to any lease financing that may be
available, will be up to $20 million annually through fiscal 2000. The Company
believes that certain hardware and software components of the new system may be
financed through lease transactions, although there can be no assurance that
such lease financing will be available to the Company on acceptable terms. There
can be no assurance that the actual costs for the new system will not exceed
current estimates. In the event that additional financing is required to
complete the Company's new information system, there can be no assurance that
such additional financing will be available to the Company on acceptable terms.
See "Risk Factors--New Information System."
The Company expects that capital expenditures, net of construction
allowances, during the second half of fiscal 1997 and during fiscal 1998 will be
approximately $23.0 million and $65.0 million, respectively, primarily to fund
the opening a total of 95 superstores in North America and a total of 38
superstores in the United Kingdom, the development and implementation of the
Company's new information system and the remodel and maintenance of the
Company's existing superstores. See "Business--PETsMART Superstores."
The Company incurred additional indebtedness as a result of the November
1997 offering of $200 million of Notes. On a pro forma basis, after giving
effect to such offering and application of the net proceeds therefrom, the
Company would have had approximately $267.9 million of indebtedness outstanding
at August 3, 1997 as compared to historical indebtedness outstanding of $148.9
million at August 3, 1997.
Management believes that proceeds from the November 1997 Note offering,
together with cash flow from operations, borrowing capacity under the Credit
Facility, and available lease financing will provide adequate funds for the
Company's foreseeable working capital needs, planned capital expenditures and
debt service obligations. The Company's ability to fund its operations and to
make planned capital expenditures and scheduled debt payments, to refinance
indebtedness and to remain in compliance with all of the financial covenants
under its debt agreements depends on its future operating performance and cash
flow, which in turn are subject to prevailing economic conditions and to
financial, business and other factors, some of which are beyond the Company's
control. See "Risk Factors."
SEASONALITY AND INFLATION
The Company's business is subject to some seasonal fluctuation and it
typically realizes a higher portion of its net sales and operating profits
during the fourth fiscal quarter. In addition, sales of certain of the Company's
products and services designed to address pet health needs, such as flea and
tick problems, have been and may continue to be negatively impacted by the
introduction of alternative treatments, as well as by variations in weather
conditions. In addition, because PETsMART's superstores typically draw customers
from a large trade area, sales may be impacted by adverse weather or travel
conditions.
The Company's results of operations and financial position are presented
based upon historical cost. Although the Company cannot accurately anticipate
the effect of inflation on its operations, it does not believe inflation is
likely to have a material adverse effect on its net sales or results of
operations.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131 (SFAS 131), "Disclosures about Segments
of an Enterprise and Related Information," which will be effective for fiscal
years beginning after December 15, 1997. SFAS 131 redefines how operating
segments are determined and requires expanded quantitative and qualitative
disclosures relating
20
<PAGE>
to an entity's operating segments. The Company has not yet completed its
analysis of how it will comply with this pronouncement.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130 (SFAS 130), "Reporting Comprehensive
Income," which will be effective for the Company's fiscal year ending January
31, 1999. Under SFAS 130, companies are required to report comprehensive income
as a measure of overall performance. Comprehensive income includes all changes
in equity during a period except those resulting from investments by owners and
distributions to owners. The Company will be required to report net income
(loss) and foreign currency translation adjustments as the components of
comprehensive income. The Company has not yet completed its analysis of how it
will comply with this pronouncement.
21
<PAGE>
BUSINESS
PETsMART is the largest operator of superstores specializing in pet food,
supplies, and services in North America and the United Kingdom. At October 5,
1997, the Company operated 455 superstores, consisting of 371 superstores in the
United States, 74 superstores in the United Kingdom and 10 superstores in
Canada. PETsMART offers a complete assortment of pet products at prices
typically below those offered by supermarkets, mass merchandisers, and
traditional pet food and supply retailers, as well as a wide range of pet
services. PETsMART's superstores utilize a hybrid retail-warehouse format that
reinforces the image of warehouse shopping at discount prices, enhances
merchandise presentation, and provides a fun shopping experience for customers
and their pets.
THE PET FOOD AND PET SUPPLY INDUSTRY
The pet food, supplies and services business, fueled by growth in pet
populations and the trend toward better pet care, generated U.S. sales of
approximately $31 billion in 1996. According to recent estimates, approximately
58 million U.S. households, or over half of all U.S. households, owned at least
one pet and over half of pet-owning households owned more than one pet. There
were an estimated 57 million dogs, 70 million cats and 11 million horses in the
United States in 1996. Demand for pets is primarily influenced by family
formation; most pets are owned by families with children between ages five and
19.
Pet food, primarily dog and cat food, represents the largest volume category
of pet-related products, with 1996 U.S. sales estimated at approximately $9
billion. Supermarket pet food brands, such as Purina, Alpo, Friskies and Kal Kan
accounted for approximately 75% of U.S. pet food sales in 1996. In recent years,
supermarkets' share of total pet food sales has steadily decreased as a result
of increased competition from superstores, warehouse clubs, mass merchandisers
and specialty pet stores as well as the growing proportion of pet food sales
accounted for by premium foods. Premium pet foods brands such as Science Diet
and IAMS, which offer higher levels of nutrition than non-premium brands,
accounted for approximately 25% of total pet food sales in 1996. These premium
pet foods currently are not sold through supermarkets, warehouse clubs and mass
merchandisers due to manufacturers' restrictions but are sold primarily through
superstores such as PETsMART, specialty pet stores, veterinarians and farm and
feed stores.
U.S. sales of pet supplies, consisting of items such as dog and cat toys,
collars and leashes, cages and habitats, books, vitamins and supplements,
shampoos, flea and tick control products and aquatic supplies, were
approximately $3.3 billion in 1996. Pet supplies are sold by many types of
retailers, including supermarkets, discount stores and other mass merchandisers,
superstores, specialty pet stores, catalog retailers and veterinarians. The
channels of distribution for pet supplies are highly fragmented, with
superstores and discount stores estimated to account for over 50% of U.S. sales
volume.
The Company estimates that U.S. sales of equine food, tack, riding apparel
and related supplies and equipment were approximately $8 billion in 1996.
U.S. sales of pet services were estimated at approximately $11 billion in
1996. Major pet-related services include veterinary care, grooming, boarding and
obedience training. The Company considers the pet services industry also to be
highly fragmented and significantly under-served; many pet owners do not
regularly use pet services due to inconvenience, a lack of awareness or the cost
of the services provided.
22
<PAGE>
MERCHANDISE
Merchandise, which represented approximately 94.8% of PETsMART's North
American retail revenues in fiscal 1996, generally falls into three main
categories:
- PET FOOD, TREATS AND LITTER. PETsMART emphasizes premium dog and cat
foods, which currently are not available in supermarkets, warehouse clubs
or mass merchandisers, as well as quality national grocery brands
traditionally found in supermarkets and pet stores. PETsMART also offers a
wide selection of its own corporate brand food products including
"Authority-Registered Trademark-" premium dog and cat food and treats,
"SophistaCat-Registered Trademark-" cat food and "Grreat
Choice-Registered Trademark-" dog food. The sale of pet food, treats and
litter comprised approximately 49.3% of PETsMART's North American retail
revenues in fiscal 1996.
- PET SUPPLIES. PETsMART's broad assortment of pet supplies includes
collars, leashes, health and beauty aids, shampoos and conditioners,
medications, toys, animal carriers, dog houses, cat furniture and
equestrian supplies. The Company also offers a complete line of supplies
for fish, birds and small animals, including aquariums, filters, bird
cages and small animal supplies. Corporate brand pet supplies include "Top
Paw-Registered Trademark-", "Top Fin-Registered Trademark-" and "Top
Wing-Registered Trademark-." PETsMART also has an equine department in
certain superstores serving trade areas which have high rates of horse
ownership. The sale of pet supplies comprised approximately 42.3% of
PETsMART's North American retail revenues in fiscal 1996.
- LIVESTOCK AND OTHER GOODS. PETsMART superstores feature fresh water
tropical fish and, in certain superstores, domestically bred birds,
reptiles and small animals. In addition, PETsMART actively supports the
activities of local humane organizations through its in-store Luv-A-Pet
pet adoption centers. Livestock and other non-pet supply goods comprised
approximately 3.2% of the Company's North American retail revenues in
fiscal 1996.
PET SERVICES
Unlike its principal competitors, PETsMART offers a wide range of services
for the pet owner. Services comprised approximately 5.2% of the Company's North
American retail revenues in fiscal 1996. Approximately one-half of PETsMART's
North American superstores include veterinary clinics. In most superstores,
PETsMART also offers on-site grooming and conducts obedience classes.
Veterinary clinics operated in PETsMART stores generally offer routine
examinations and vaccinations, dental care, pharmacy and most surgical
procedures. The availability of comprehensive veterinary care further
differentiates PETsMART and reflects the Company's overall commitment to animal
care. The Company's prototype 2,000 square foot in-store clinic provides
state-of-the-art operating and examining rooms as well as on-site X-ray machines
and blood diagnostic equipment. These clinics offer customers more sophisticated
services than traditional veterinary competitors typically provide. In addition,
many PETsMART stores without these in-store clinics offer routine vaccination
and wellness services. At October 5, 1997, veterinary clinics were operating
within 190 PETsMART stores in North America. Of these, 91 were operated directly
by PETsMART and 84 were leased to and operated by Medical Management
International, Inc., a third party operator of veterinary clinics. An additional
15 veterinary clinics were leased to and operated by independent veterinarians.
23
<PAGE>
THE PETSMART STRATEGY: BACK-TO-BASICS
For the first half of fiscal 1997, the Company reported disappointing
operating results due to a combination of reduced inventory levels, which led to
out-of-stock conditions in certain key categories, and lost sales momentum as a
result of a departure from the Company's historically more effective advertising
programs. In June 1997, Samuel J. Parker, the Company's Chairman, resumed his
former role as Chief Executive Officer of the Company. Since Mr. Parker resumed
his operating role, the Company has moved to implement a series of "Back to
Basics" initiatives intended to refocus the Company and to improve financial
performance. The "Back to Basics" initiatives consist of:
- PROVIDING CUSTOMERS WITH VALUE THROUGH A FIRM COMMITMENT TO EVERYDAY LOW
PRICING. PETsMART endeavors to be the low-price leader in each of the
markets it serves for each product that it offers. The Company reinforces
customers' expectations of savings by offering a "double-the-difference"
price guarantee on all of its products. The Company regularly checks
prices at competitors' stores to ensure that PETsMART's prices are
competitive within each market.
- MAINTAINING A BROAD PRODUCT ASSORTMENT. PETsMART's strategy is to offer
the most complete assortment of pet-related products and services in the
marketplace. PETsMART U.S. prototype superstores typically carry
approximately 12,000 pet related items.
- ENSURING A HIGH IN-STOCK POSITION ON KEY ITEMS WHILE IMPROVING INVENTORY
TURNS. The Company's inventory management systems are designed to maintain
inventory levels that provide optimum in-stock positions. The Company is
focused on ensuring that factors which led to widespread out-of-stock
conditions in the first half of fiscal 1997 are not repeated in the
future. Also, in August 1997, the Company decided to discontinue the
Discovery Center department within all of its stores, to eliminate or
reduce certain other merchandise categories and to expand other offerings.
The elimination of the Discovery Center in particular will allow the
central "drive" aisle of PETsMART stores to be remerchandised to enhance
store productivity. In addition, the elimination of the Discovery Center
and other slower-moving merchandise is expected over time to improve
inventory turnover rates.
- REEMPHASIZING EMPLOYEE TRAINING TO ENSURE A HIGH LEVEL OF CUSTOMER
SERVICE. The Company has renewed its emphasis on training and personnel
development. PETsMART views the quality of its customers' interaction with
its associates as critical to its continued success in building and
enhancing customer confidence and loyalty. PETsMART strives to provide
customers with personalized service and a friendly shopping atmosphere. To
enhance the stores' fun environment, customers are encouraged to bring
their pets into PETsMART superstores while they shop.
- REINSTATING PROVEN MARKETING AND ADVERTISING PROGRAMS TO REBUILD SALES
MOMENTUM. In the first half of fiscal 1997, the Company experimented with
alternative marketing programs. Due to disappointing results, the Company
has returned to its historically more successful strategy of using
circular, radio and television advertising that focuses on specific buying
opportunities to encourage customers to shop at PETsMART.
- CLOSING OR RELOCATING CERTAIN UNDERPERFORMING SUPERSTORES. The Company has
decided to accelerate the closing of approximately 33 underperforming or
redundant superstores which had been slated for closing over the next two
years, of which 31 were acquired superstores. Twenty-four of the 33
superstores are being replaced by superstores to be opened in the same
trade area. At October 5, 1997, seven of these 33 superstores had been
closed, and two replacement superstores had been opened.
24
<PAGE>
PETSMART SUPERSTORES
At October 5, 1997, PETsMART operated 455 superstores, consisting of 371
superstores in the United States, 74 superstores in the United Kingdom and 10
superstores in Canada. PETsMART's superstores are generally located in sites
co-anchored by strong consumables-oriented retailers and other destination
superstores, typically in or near major regional shopping centers. The map below
illustrates the locations of the 381 PETsMART superstores operated in North
America at October 5, 1997.
[LOGO]
The table below describes the recent historical and forecast changes in the
Company's North American store base (square footage in thousands):
<TABLE>
<CAPTION>
FORECAST
STORE
HISTORICAL STORE ACTIVITY ACTIVITY
-------------------------------------------------------------------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
AUG 3-
FISCAL FISCAL FISCAL Q1 Q2 OCT 5 Q3
1994 1995 1996 1997 1997 1997 1997
----------- ----------- ----------- --------- ----------- ----------- ---------
Superstores open at beginning of
period................................ 178 242 262 320 351 373 381
New superstores opened.................. 71 38 58 32 22 11 --
Relocated superstores opened............ -- 4 3 -- 2 1 --
Superstores closed...................... (7) (22) (3) (1) (2) (4) (1)
----- ----- ----- --------- ----- ----- ---------
Superstores open at end of period....... 242 262 320 351 373 381 380
----- ----- ----- --------- ----- ----- ---------
----- ----- ----- --------- ----- ----- ---------
Total square footage at end of period... 5,745 6,362 7,910 8,650 9,232 9,444 9,426
<CAPTION>
<S> <C> <C>
Q4 FISCAL
1997 1998
--------- ---------
Superstores open at beginning of
period................................ 380 382
New superstores opened.................. 6 60
Relocated superstores opened............ 2 15
Superstores closed...................... (6) (15)
--------- ---------
Superstores open at end of period....... 382 442
--------- ---------
--------- ---------
Total square footage at end of period... 9,518 10,916
</TABLE>
The Company's expansion strategy is to increase its market share in existing
markets and to penetrate new markets with a goal of establishing a leading
position in each market it serves and to achieve operating efficiencies and
economies in advertising, distribution and management. By the end of fiscal
1997, PETsMART currently expects to operate 382 superstores in North America and
85 superstores in the United Kingdom. PETsMART believes that there is a
potential for an aggregate of 900 to 1,000 PETsMART superstores in North America
and up to 250 PETsMART superstores in the United Kingdom. See "Risk
Factors--Expansion Plans."
25
<PAGE>
PETSMART DIRECT
PETsMART Direct, the Company's catalog operation, is the leading direct mail
retailer of pet-related and equine products in North America. PETsMART Direct
sells pet supplies through three catalogs: R.C. Steele, Pedigrees and Groomer
Direct. PETsMART Direct also offers discount brand name tack, riding apparel and
equine supplies through four additional catalogs: State Line Tack Western, State
Line Tack English, Wiese Equine Supply and National Bridle Shop. In fiscal 1996,
PETsMART Direct circulated more than 37 million catalogs. PETsMART Direct's
marketing and customer database management is designed to attract new customers
and to generate additional sales from existing catalog or retail customers.
PETsMART Direct's proprietary customer database currently contains the names of
approximately 1.2 million customers who have made a purchase from PETsMART
Direct catalogs within the past 24 months. In fiscal 1996, PETsMART Direct's
average transaction was approximately $90.
DISTRIBUTION
PETsMART is committed to pursuing distribution strategies which the Company
believes minimize delivered cost on the merchandise that it sells. The Company
buys from approximately 700 vendors worldwide, the two largest of which account
for approximately 21% of total purchases. The Company employs a hybrid
distribution system including, as appropriate, full truckload shipments to
individual superstores, the splitting of full truckloads among several closely
located superstores, consolidation centers to service regional clusters of
superstores, and central distribution centers. The Company operates a 300,000
square foot distribution center in Columbus, Ohio, and a 430,000 square foot
distribution center in Phoenix, Arizona. The Company's 230,000 square foot
distribution center in Ennis, Texas is in the process of being consolidated into
PETsMART's Phoenix facility. These centers primarily handle small, light and
easy to handle products. The Company also currently operates 13 regional
consolidation centers in the United States and operates a 110,000 square foot
distribution center in Gloucester, England. In addition, PETsMART Direct
operates a 200,000 square foot catalog fulfillment and equine distribution
center in Brockport, New York.
INFORMATION SYSTEMS
The Company is committed to making ongoing investments in its information
systems to increase operating efficiency, provide superior customer service and
support its anticipated growth. The Company has made, and continues to make,
significant investments in information systems to support point of sale
applications, inventory replenishment, merchandising, inventory control,
warehousing and distribution, financial controls and reporting. PETsMART has
completed the conceptual design of an integrated, worldwide information system
which will feature a common set of applications. The Company estimates that its
costs in connection with the development of the new system, before giving
consideration to any lease financing that may be available, will be up to $20
million annually through fiscal 2000. The Company believes that certain hardware
and software components of the new system can be financed through lease
transactions, although there can be no assurance that adequate financing will be
available to the Company on acceptable terms. When complete, it is anticipated
that the system will provide the Company with a significant competitive
advantage in better serving its customers and improving its business operations.
There can be no assurance that the actual costs for the new system will not
exceed current estimates or extend beyond fiscal year 2000. In the event that
additional financing is required to complete the Company's new information
system, there can be no assurance that such additional financing will be
available to the Company on acceptable terms. See "Risk Factors--New Information
System" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources."
26
<PAGE>
COMPETITION
Based on total sales, the Company is the largest retailer of pet food,
supplies and services in North America and the United Kingdom. The pet food and
supply business is highly competitive and can be categorized into three
different segments: (i) supermarkets, warehouse clubs and other mass
merchandisers, (ii) specialty pet supply chains and pet supply superstores and
(iii) independent pet stores. The Company believes that the principal
competitive factors influencing the Company's business are product selection and
quality, convenience of store locations, customer service and price. In this
regard, the major premium pet food brands offered by the Company, such as
Science Diet and IAMS, are not currently available to grocery stores, warehouse
clubs or other mass merchandisers due to manufacturers' restrictions. PETsMART
believes that it competes effectively within its various markets; however, some
of the Company's competitors are larger in terms of overall sales volume and
have access to greater capital and management resources than the Company. See
"Risk Factors--Competition."
GOVERNMENT REGULATION
The Company is subject to laws governing its relationship with employees,
including minimum wage requirements, overtime, working conditions and
citizenship requirements. In certain locations, PETsMART leases space to
independent veterinary operators. Statutes and regulations in certain states or
Canadian provinces or abroad affecting the ownership of veterinary practices or
the operation of veterinary clinics within retail stores or the operation of
superstores may impact the Company's ability to operate veterinary clinics
within certain of its facilities.
The laws of many states prohibit veterinarians from splitting fees with
non-veterinarians and prohibit business corporations from providing, or holding
themselves out as providers of, veterinary medical care. These laws vary from
state to state and are enforced by the courts and by regulatory authorities with
broad discretion. While the Company seeks to structure its operations to comply
with the corporate practice of veterinary medicine laws of each state in which
it operates, there can be no assurance that, given varying and uncertain
interpretations of such laws, the Company would be found to be in compliance
with restrictions on the corporate practice of veterinary medicine in all
states. A determination that the Company is in violation of applicable
restrictions on the practice of veterinary medicine in any state in which it
operates could require the Company to restructure its operations to comply with
the requirements of such states, or render it unable to operate veterinary
clinics in those states.
TRADEMARKS
The Company owns several service marks and trademarks registered with the
United States Patent and Trademark Office ("USPTO"), including
"PETsMART-Registered Trademark-," "Santa Claws-Registered Trademark-," "Grreat
Choice-Registered Trademark-," "SophistaCat-Registered Trademark-,"
"Authority-Registered Trademark-," "Top Paw-Registered Trademark-," "Top
Wing-Registered Trademark-," "Top Fin-Registered Trademark-," "Where Pets Are
Family-Registered Trademark-" and the PETsMART logos. PETsMART also has several
applications pending with the USPTO for additional trademarks and anticipates
filing additional applications in the future. The Company believes its
trademarks and logos have become important components in its merchandising and
marketing strategy. The Company believes it has all the licenses necessary to
conduct its business.
EMPLOYEES
As of October 5, 1997, the Company employed approximately 18,200 associates
worldwide, approximately 8,200 of whom were employed full time. PETsMART's
associates receive wages and benefits competitive with those of the local retail
community. The Company is not subject to any collective bargaining agreements
and has not experienced any work stoppages. The Company considers its
relationship with its associates to be good.
27
<PAGE>
PROPERTIES
The following table summarizes the locations of the superstores operated by
PETsMART by country and in the United States by state at October 5, 1997:
<TABLE>
<CAPTION>
NUMBER OF
SUPERSTORES
---------------
<S> <C>
NORTH AMERICAN SUPERSTORES
United States:
Arizona.......................................................................... 14
Arkansas......................................................................... 2
California....................................................................... 51
Colorado......................................................................... 13
Florida.......................................................................... 27
Georgia.......................................................................... 15
Idaho............................................................................ 1
Illinois......................................................................... 26
Indiana.......................................................................... 8
Iowa............................................................................. 1
Kansas........................................................................... 3
Kentucky......................................................................... 1
Maryland......................................................................... 15
Massachusetts.................................................................... 3
Michigan......................................................................... 13
Minnesota........................................................................ 10
Mississippi...................................................................... 1
Missouri......................................................................... 9
Nebraska......................................................................... 2
Nevada........................................................................... 6
New Hampshire.................................................................... 1
New Jersey....................................................................... 12
New Mexico....................................................................... 2
New York......................................................................... 9
North Carolina................................................................... 5
Ohio............................................................................. 23
Oklahoma......................................................................... 5
Oregon........................................................................... 5
Pennsylvania..................................................................... 10
Rhode Island..................................................................... 1
South Carolina................................................................... 2
Tennessee........................................................................ 6
Texas............................................................................ 34
Utah............................................................................. 5
Virginia......................................................................... 15
Washington....................................................................... 11
---
Total United States PETsMART superstores......................................... 367
State Line Tack (Delaware, New Hampshire and Texas).............................. 4
---
Total United States superstores.................................................. 371
Canada........................................................................... 10
---
Total North America superstores.................................................. 381
UNITED KINGDOM SUPERSTORES
England.......................................................................... 60
Scotland......................................................................... 8
Wales............................................................................ 3
Northern Ireland................................................................. 3
---
Total United Kingdom superstores................................................. 74
---
TOTAL WORLDWIDE SUPERSTORES...................................................... 455
---
---
</TABLE>
28
<PAGE>
PETsMART leases substantially all of its superstores, retail distribution
centers and corporate offices under noncancellable operating leases. The terms
of the superstore leases, other than leases under its Structured Lease
Facilities, as described below, generally range from 10 to 20 years and
typically allow the Company to renew for three to five additional five year
terms. Superstore leases, excluding renewal options, expire at various dates
through 2015. Certain leases require payment of property taxes, utilities,
common area maintenance and insurance and, if annual sales at certain
superstores exceed specified amounts, provide for additional rents. To date, no
additional rents have been paid by the Company pursuant to such leases.
The Company has entered into lease agreements for certain of its superstores
as part of structured lease financing facilities (the "Structured Lease
Facilities"). The Structured Lease Facilities provide a special purpose entity
(not affiliated with the Company) with the necessary financing to complete the
acquisition and construction of new PETsMART superstores. Once construction has
been completed, another special purpose entity (also not affiliated with the
Company) leases the completed superstores to the Company for a five-year term.
See "Description of Credit Facility."
The Company's corporate offices cover approximately 165,000 square feet. Its
lease for this space expires in 2012. PETsMART's distribution center in
Columbus, Ohio covers 300,000 square feet. The lease on this distribution center
expires in 2008. The Company operates 13 regional consolidation centers in
public warehouse facilities. In addition, the Company has opened a new 430,000
square foot small goods distribution center in Phoenix, Arizona, the lease on
which expires in April 2002. PETsMART also operates a 110,000 square foot
break-bulk center outside of Gloucester, England, the lease on which expires in
2001.
PETsMART Direct operates a catalog fulfillment and equine distribution
center in Brockport, New York, which covers approximately 200,000 square feet.
The Company has a purchase option on approximately seven acres of
industrial-zoned land adjacent to this facility.
LITIGATION
The Company is not a party to any material legal proceedings. However, a
former Pet City affiliate has retained counsel in the United States and made
allegations claiming that the Company misled the shareholders of Pet City at the
time of the acquisition of Pet City concerning PETsMART's business, finances and
prospects. On September 30, 1997, shortly after the receipt of the allegations
by PETsMART, Richard Northcott, the former Chairman of Pet City, resigned as a
director of the Company. No litigation has been filed with respect to this
matter, and the Company believes that the allegations are without merit.
Nevertheless, there can be no assurance that one or more former Pet City
affiliates will not initiate litigation seeking monetary damages or an equitable
remedy.
29
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company and their ages and
positions at December 1, 1997 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Samuel J. Parker....................... 55 Chairman of the Board and Chief Executive Officer
Donna R. Ecton......................... 50 Chief Operating Officer and Director
C. Donald Dorsey....................... 55 Executive Vice President
Ronald H. Butler....................... 48 Executive Vice President, Marketing
C. Giles Clarke........................ 44 Executive Vice President, Europe
Susan C. Schnabel...................... 35 Senior Vice President, Chief Financial Officer
Ronald E. Brown........................ 50 Senior Vice President, Store Operations
J. Patrick Johnston.................... 54 Senior Vice President, Human Resources
H. Jake Mendelsohn..................... 41 Senior Vice President, Chief Information Officer
Marcia R. Meyer........................ 48 President, PETsMART International Supply Company
James D. Nelson........................ 44 Senior Vice President, Logistics and Distribution
Denis L. Defforey...................... 72 Director
Philip L. Francis(1)................... 51 Director
Richard M. Kovacevich(1)(3)............ 54 Director
Lawrence S. Phillips(2)................ 70 Director
Walter J. Salmon(3).................... 67 Director
Thomas G. Stemberg(2)(3)............... 48 Director
</TABLE>
- --------------------------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
(3) Member of the Corporate Governance Committee.
Samuel J. Parker joined the Company in 1989 as President and Chief Executive
Officer. Mr. Parker served as President and Chief Executive Officer until 1993,
when he was elected Chairman. Effective with the annual meeting of stockholders
in 1995, Mr. Parker resigned as Chief Executive Officer but remained as Chairman
of the Board. Effective January 1997, Mr. Parker resigned as an employee of the
Company and became non-executive Chairman of the Board. In June 1997, following
the resignation of the Chief Executive Officer, Mr. Parker again became Chief
Executive Officer of the Company.
Donna R. Ecton has been a director of the Company since 1994 and joined the
Company as Chief Operating Officer of the Company in December 1996. From 1995
until December 1996, Ms. Ecton was Chairman, President and Chief Executive
Officer of Business Mail Express, Inc., a business services company. From 1991
to 1994, she served as the President and Chief Executive Officer of Van Houten
North America, Inc. and Andes Candies, Inc., manufacturers of confectionery
products. Ms. Ecton also serves as a director of the Barnes Group Inc., Vencor,
Inc. and H&R Block, Inc.
30
<PAGE>
C. Donald Dorsey joined the Company in 1989 as Senior Vice President and
Chief Financial Officer. He was elected Executive Vice President in 1994 and
remained Chief Financial Officer until February 1997.
Ronald H. Butler joined the Company in 1995 as Executive Vice President,
Marketing. From 1991 to 1995, Mr. Butler held several senior management
positions with Payless Cashways, Inc., a home improvement center operation,
including Senior Vice President and General Merchandise Manager and Senior Vice
President, Store Operations.
C. Giles Clarke was named Executive Vice President, Europe in 1996 following
the Company's merger with Pet City, of which he had been Deputy Chairman and
Chief Executive Officer since 1993. Mr. Clarke co-founded Pet City in 1989 and
served as its President until 1993.
Susan C. Schnabel joined the Company in February 1997 as Senior Vice
President and Chief Financial Officer. From 1991 to January 1997 she was with
Donaldson, Lufkin & Jenrette Securities Corporation in various capacities, most
recently serving as a Managing Director in the firm's Investment Banking
Division. Ms. Schnabel also serves as a director of Dick's Clothing and Sporting
Goods.
Ronald E. Brown joined the Company in 1995 as Senior Vice President of Store
Operations. From 1986 through 1994, Mr. Brown held several senior management
positions with Kash-N-Karry, a Florida-based supermarket operation, including
Vice President of General Merchandise, Vice President of Warehousing and
Distribution, Senior Vice President of Perishables and Senior Vice President of
Store Services.
J. Patrick Johnston joined the Company in June 1997 as Senior Vice President
of Human Resources. From 1985 to 1997, Mr. Johnston was Vice President of Human
Resources for American Drug Stores, a division of American Stores Company.
H. Jake Mendelsohn joined the Company in 1996 as Senior Vice President,
Chief Information Officer. Mr. Mendelsohn, had been associated with PETsMART in
a consulting capacity since 1989, and was a principal of the Windsor Park Group
from 1987 to 1996.
Marcia R. Meyer joined the Company in 1990 as Vice President and General
Merchandise Manager. In March 1997, she was promoted to President of PETsMART
International Supply Company, a unit of PETsMART. From 1985 to 1989, Ms. Meyer
held various executive positions with Broadway Southwest, a division of Carter
Hawley Hale Stores, Inc., most recently as Senior Vice President and General
Merchandise Manager.
James D. Nelson joined the Company in October 1997 as Senior Vice President,
Logistics and Distribution. Prior to joining PETsMART, from 1996 to 1997, Mr.
Nelson was Vice President of Logistics Administration at K-Mart Corporation.
From 1995 to 1996, Mr. Nelson was a Senior Manager at Ernst & Young LLP. From
1994 to 1995, he was Director of Logistics (North and Latin America) at Compaq
Computer Corporation, and from 1990 to 1994, he was Vice President of Retail
Distribution for Sears Logistics Services, a wholly-owned subsidiary of Sears
Roebuck & Co.
Denis L. Defforey has been a director of the Company since 1991. Mr.
Defforey, retired Chairman of Carrefour, S.A, a discount retailing company, has
served that company in various capacities since 1959.
Philip L. Francis has been a director of the Company since 1989. Since 1991,
Mr. Francis has been President of, and since 1993, Chief Executive Officer of
Shaw's Supermarkets Inc., a subsidiary of J. Sainsbury plc, a supermarket
operator. From 1991 to 1993, Mr. Francis served as Chief Operating Officer of
Shaw's.
Richard M. Kovacevich has been a director of the Company since 1996. Mr.
Kovacevich has served as the Chairman since 1995, as Chief Executive Officer
since 1993, President since 1989, and as a Director since March 1986, of Norwest
Corporation. Mr. Kovacevich served as Vice Chairman and Chief Operating
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Officer of Norwest Corporation from 1986 to 1989. Mr. Kovacevich also serves as
a director of Dayton Hudson Corporation, Northern States Power Company and
ReliaStar Financial Corp.
Lawrence S. Phillips has been a director of the Company since 1993. Mr.
Phillips also served as a director of the Company from 1987 to 1991. Mr.
Phillips has served as Chairman of Phillips-Van Heusen Corporation, an apparel
manufacturer and retail company, from 1987 to 1994, as Chief Executive Officer
from 1969 to 1993, and as a director from 1951 to 1995.
Walter J. Salmon has been a director of the Company since June 1997. Mr.
Salmon has been the Stanley Roth, Sr., Professor of Retailing at the Harvard
Business School since 1980. Mr. Salmon also serves as a director of Circuit City
Stores, Inc., Hannaford Bros. Company, Harrah's Entertainment, Inc., Luby's
Cafeterias, Inc., The Neiman Marcus Group, and the Quaker Oats Company.
Thomas G. Stemberg has been a director of the Company since 1988. Mr.
Stemberg has served as Chairman of the Board of Directors and Chief Executive
Officer of Staples, Inc., an office supply superstore retailer, since 1988 and
as President from 1986 to 1988.
The terms of office of the Board of Directors are divided into three
classes: Class I, Class II and Class III. The terms of office of the respective
classes of directors will be as follows: Class II will expire at the annual
meeting of stockholders to be held in 1998, Class III will expire at the annual
meeting of stockholders to be held in 1999 and Class I will expire at the annual
meeting of stockholders to be held in 2000. At each annual meeting of
stockholders, the successors to directors whose terms will then expire are
elected to serve from the time of election and qualification until the third
annual meeting following election and until successors will have been duly
elected and will have qualified. In addition, the Company's Restated Certificate
provides that the authorized number of directors may be changed only by
resolution of the Board of Directors. Although directors of the Company may be
removed for cause by the affirmative vote of the holders of a majority of the
Common Stock, the Company's Restated Certificate provides that holders of
66 2/3% of the Common Stock must vote to approve the removal of a director
without cause.
Each officer serves at the discretion of the Board of Directors. There are
no family relationships between any of the directors or executive officers of
the Company.
BOARD COMMITTEES
The Board's Audit Committee consists of Messrs. Francis and Kovacevich. The
Audit Committee, which meets periodically with management and the Company's
independent accountants, reviews the results and scope of the audit and other
services provided by the Company's independent accountants and the need for
internal auditing procedures and the adequacy of internal controls.
The Compensation Committee consists of Messrs. Phillips and Stemberg. The
Compensation Committee establishes salaries, incentives and other forms of
compensation for officers and other employees, administers the various incentive
compensation and benefit plans, including the Company's 1995 Equity Incentive
Plan, and recommends policies relating to such plan.
In 1997, the Company established a Corporate Governance Committee, which
consists of Messrs. Kovacevich, Salmon and Stemberg. The Corporate Governance
Committee oversees administrative matters related to the Board and Board
Committees and selects nominees to the Board and members for Board Committees.
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<PAGE>
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company's By-laws provide that the Company will indemnify its directors
and executive officers and may indemnify its other officers, employees and other
agents to the fullest extent permitted by Delaware law. The Company is also
empowered under its By-laws to enter into indemnification agreements with its
directors and officers and to purchase insurance on behalf of any person whom it
is required or permitted to indemnify. Pursuant to this provision, the Company
has entered into indemnity agreements with each of its directors and executive
officers.
In addition, the Company's Restated Certificate provides that, to the
fullest extent permitted by Delaware law, the Company's directors will not be
liable for monetary damages for breach of a director's fiduciary duty of care to
the Company and its stockholders. This provision in the Restated Certificate
does not eliminate the duty of care, and in appropriate circumstances equitable
remedies such as an injunction or other forms of non-monetary relief would
remain available under Delaware law. The Restated Certificate also restricts the
liability of the Company's directors to the Company or its stockholders for
money damages for any breach of fiduciary duty as a director. Each director will
continue to be subject to liability for breach of the director's duty of loyalty
to the Company, for acts or omissions not in good faith or involving intentional
misconduct or knowing violations of law, for acts or omissions that the director
believes to be contrary to the best interests of the Company or its
stockholders, for any transaction from which the director derived an improper
personal benefit.
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DESCRIPTION OF NOTES
Set forth below is a summary of certain provisions of the Notes. The Notes
were issued in November 1997 pursuant to an indenture (the "Indenture") dated as
of November 7, 1997, by and between the Company and Norwest Bank Minnesota,
N.A., as trustee (the "Trustee"). The following summary of the Notes, the
Indenture and the Registration Rights Agreement does not purport to be complete
and is subject to, and is qualified in its entirety by reference to, all of the
provisions of the Indenture and the Registration Rights Agreement, including the
definitions therein. Copies of the Indenture and the Registration Rights
Agreement can be obtained from the Company upon request. The terms of the Notes
include those stated in the Indenture and those made part of the Indenture by
reference to the Trust Indenture Act of 1939, as amended (the "Trust Indenture
Act"). The definitions of certain terms used in the following summary are set
forth below under "--Certain Definitions." As used in this section, the
"Company" refers to PETsMART, Inc., exclusive of its subsidiaries. Capitalized
terms used herein without definition have the meanings ascribed to them in the
Indenture or the Registration Rights Agreement, as applicable.
GENERAL
The Notes are general subordinated obligations of the Company and are
limited to the aggregate principal amount of $200,000,000. The Notes are
subordinated in right of payment to all current and future Senior Indebtedness
of the Company, as described under "--Subordination" below. The Notes have been
issued in registered form, without coupons, and in denominations of $1,000 and
integral multiples thereof.
The Notes will mature on November 1, 2004. The Notes bear interest at 6 3/4%
per annum from their date of issuance or from the most recent Interest Payment
Date to which interest has been paid or provided for, payable semi-annually in
cash in arrears on May 1 and November 1 of each year, commencing May 1, 1998, to
the persons in whose names such Notes are registered at the close of business on
the April 15 and October 15 immediately preceding such Interest Payment Date.
Principal of, premium, if any, and interest on, and Liquidated Damages with
respect to, the Notes will be payable, the Notes will be convertible and the
Notes may be presented for registration of transfer or exchange, at the office
or agency of the Company maintained for such purpose, which office or agency
shall be maintained in the Borough of Manhattan, The City of New York. Interest
will be calculated on the basis of a 360-day year comprised of twelve 30-day
months.
No service charge will be made for any registration of transfer or exchange
of Notes, but the Company may require payment of a sum sufficient to cover any
tax or other governmental charge payable in connection therewith. Until
otherwise designated by the Company, the Company's office or agency will be the
corporate trust office of the Trustee presently located in New York City.
The Indenture does not contain any financial covenants or restrictions on
the payment of dividends, the issuance or repurchase of securities of the
Company or the incurrence of Indebtedness or Senior Indebtedness. The Indenture
contains no covenants or other provisions affording protection to Holders of
Notes in the event of a highly leveraged transaction or a change in control of
the Company, except to the extent described under "--Repurchase of Notes at the
Option of Holders Upon a Change of Control."
CONVERSION RIGHTS
Each Holder of Notes has the right at any time prior to maturity of the
Notes, unless previously redeemed or repurchased, at the Holder's option, to
convert such Notes, or any portion thereof which is an integral multiple of
$1,000, into shares of Common Stock of the Company, at the conversion price
stated on the cover page of this Offering Memorandum (which is initially
equivalent to a conversion rate of 114.2857 shares per $1,000 principal amount
of Notes), subject to adjustment as described below (the "Conversion Price").
The right to convert Notes called for redemption or delivered for repurchase and
not withdrawn will terminate at the close of business on the Business Day
immediately preceding the
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<PAGE>
Redemption Date or Repurchase Date for such Notes, unless the Company
subsequently fails to pay the applicable Redemption Price or Repurchase Price,
as the case may be.
In the case of any Note that has been converted into Common Stock after any
Record Date, but on or before the next Interest Payment Date, interest, the
stated due date of which is on such Interest Payment Date, shall be payable on
such Interest Payment Date notwithstanding such conversion, and such interest
shall be paid to the Holder of such Note who is a Holder on such Record Date.
Any Note converted after any Record Date but before the next Interest Payment
Date (other than Notes called for redemption) must be accompanied by payment of
an amount equal to the interest payable on such Interest Payment Date on the
principal amount of Notes being surrendered for conversion. No fractional shares
of Common Stock will be issued upon conversion but, in lieu thereof, an
appropriate amount will be paid in cash by the Company based on the market price
of Common Stock (determined in accordance with the Indenture) at the close of
business on the day of conversion.
The Conversion Price will be subject to adjustment upon the occurrence of
certain events, including: (i) the issuance of shares of Common Stock as a
dividend or distribution on the Common Stock; (ii) the subdivision, combination
or reclassification of the outstanding Common Stock; (iii) the issuance to all
holders of Common Stock of rights, warrants or options to subscribe for or
purchase Common Stock (or securities convertible into Common Stock) at a price
per share less than the then current market price per share, as defined in the
Indenture; (iv) the distribution of shares of Capital Stock of the Company
(other than Common Stock), evidences of indebtedness or other assets (excluding
dividends payable exclusively in cash) to all holders of Common Stock; (v) the
issuance of Common Stock for a price per share less than the current market
price per share (determined as set forth in the Indenture) on the date the
Company fixes the offering price of such additional shares (other than issuances
of Common Stock under certain employee benefit plans of the Company and certain
other issuances described in the Indenture and other than issuances of shares in
connection with any acquisition by the Company with an aggregate purchase price
of $15 million or less); (vi) the distribution, by dividend or otherwise, of
cash (excluding any cash portion of a distribution resulting in an adjustment
pursuant to clause (iv) above) to all holders of Common Stock in an aggregate
amount that, combined together with (A) all other distributions of cash that did
not trigger a Conversion Price adjustment to all holders of Common Stock within
the 12 months preceding the date fixed for determining the shareholders entitled
to such distribution plus (B) any cash and the fair market value of
consideration that did not trigger a Conversion Price adjustment payable in
respect of any tender offer by the Company or any of its subsidiaries for Common
Stock (as described in clause (vii) below) consummated within the 12 months
preceding the date fixed for determining the shareholders entitled to such
distribution, exceeds 15% of the product of the current market price per share
(determined as set forth below) on the date fixed for the determination of
shareholders entitled to receive such distribution multiplied by the number of
shares of Common Stock outstanding on such date; and (vii) the completion of a
tender offer made by the Company or any of its subsidiaries for Common Stock
involving an aggregate consideration that, together with (A) any cash and the
fair market value of any consideration that did not trigger a Conversion Price
adjustment paid or payable in respect of any previous tender offer by the
Company or any of its subsidiaries for Common Stock consummated with the 12
months preceding the consummation of such tender offer plus (B) the aggregate
amount of any distribution of cash that did not trigger a Conversion Price
adjustment (as described in clause (vi) above) to all holders of Common Stock
within the 12 months preceding the consummation of such tender offer, exceeds
15% of the product of the current market price per share (determined as set
forth in the Indenture) immediately prior to the expiration of such offer times
the number of shares of Common Stock outstanding at the expiration of such
offer. In the event of a distribution to all or substantially all holders of
Common Stock of rights to subscribe for additional shares of the Company's
Capital Stock (other than those referred to in clause (iii) above), the Company
may, instead of making an adjustment in the Conversion Price, make proper
provisions so that each Holder of a Note who converts such Note after the record
date for such distribution and prior to the expiration or redemption of such
rights shall be entitled to receive upon such conversion, in addition to shares
of Common Stock, an appropriate number of such
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<PAGE>
rights. No adjustment of the Conversion Price will be made until cumulative
adjustments amount to one percent or more of the Conversion Price as last
adjusted.
The Company, from time to time and to the extent permitted by law, may
reduce the Conversion Price by any amount for any period of at least 20 Business
Days, in which case the Company shall give at least 15 days notice of such
reduction, if the Board of Directors has made a determination that such
reduction would be in the best interests of the Company, which determination
shall be conclusive. The Company may, at its option, make such reductions in the
Conversion Price, in addition to those set forth above, as the Board of
Directors deems advisable to avoid or diminish any income tax to holders of
Common Stock resulting from any dividend or distribution of stock (or rights to
acquire stock) or from any event treated as such for United States federal
income tax purposes. See "Certain Federal Income Tax Considerations."
In case of any consolidation or merger of the Company with or into any other
corporation, or in the case of any consolidation or merger of another
corporation into the Company in which the Company is the surviving corporation,
involving in either case a reclassification, conversion, exchange or
cancellation of shares of Common Stock, or any sale or transfer of all or
substantially all of the assets of the Company, the Holder of each Note shall,
after such consolidation, merger, sale or transfer, have the right to convert
such Note into the kind and amount of securities or other property, which may
include cash, which such Holder would have been entitled to receive upon such
consolidation, merger, sale or transfer if such Holder had held the Common Stock
issuable upon the conversion of such Note immediately prior to the effective
date of such consolidation, merger, sale or transfer.
The Company will cause all registrations to be made with, and will obtain
any approvals by, any governmental authority under any Federal or state law of
the United States that may be required on the part of the Company in connection
with the conversion of the Notes into Common Stock. If, prior to the second
anniversary of the date of the original issuance of the Notes a registration
statement under the Securities Act covering the resale of the shares of Common
Stock issuable upon conversion of the Notes is not effective or is otherwise
unavailable for effecting resales of such shares, shares of Common Stock issued
upon conversion of the Notes ("Restricted Shares") may not be sold or otherwise
transferred except in accordance with or pursuant to an exemption from, or
otherwise in a transaction not subject to, the registration requirements of the
Securities Act, and, if a registration statement under the Securities Act is not
effective or is otherwise unavailable for effecting resales of such shares at
the time of a conversion, the Restricted Shares will bear a legend to that
effect. The transfer agent for the Common Stock will not be required to accept
for registration of transfer any Restricted Shares, except upon presentation of
satisfactory evidence that these restrictions on transfer have been complied
with, all in accordance with such reasonable regulations as the Company may from
time to time agree with the Transfer Agent. Under certain circumstances, the
holders of the Restricted Securities will be entitled to Liquidated Damages
during such period. See "--Registration Rights; Liquidated Damages."
SUBORDINATION
The payment of principal, premium, if any, interest and Liquidated Damages,
if any, on the Notes is subordinated in right of payment, as set forth in the
Indenture, to the prior payment in full of all Senior Indebtedness, whether
outstanding on the date of the Indenture or thereafter incurred. Upon any
distribution to the creditors of the Company in a liquidation or dissolution of
the Company or in a bankruptcy, reorganization, insolvency, receivership or
other similar proceeding relating to the Company or its property, an assignment
for the benefit of creditors or any marshalling of the Company's assets and
liabilities, the holders of the Senior Indebtedness will be entitled to receive
payment in full of all obligations in respect of such Senior Indebtedness before
the Holders will be entitled to receive any payment with respect to the Notes
(other than Junior Securities).
In the event of any acceleration of the Notes because of an Event of
Default, the holders of any Senior Indebtedness then outstanding would be
entitled to payment in full of all obligations then due and payable
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<PAGE>
in respect of such Senior Indebtedness before the Holders are entitled to
receive any payment or distribution in respect of the Notes (other than Junior
Securities). The Indenture further requires that the Company promptly notify
holders of Senior Indebtedness if payment of the Notes is accelerated because of
an Event of Default.
The Company also may not make any payment upon or in respect of the Notes
(other than with Junior Securities) if (i) a default in the payment of the
principal of, premium, if any, interest, rent or other Obligations in respect of
Designated Senior Indebtedness occurs and is continuing beyond any applicable
period of grace or (ii) any other default occurs and is continuing with respect
to Designated Senior Indebtedness that permits holders of the Designated Senior
Indebtedness as to which such default relates to accelerate its maturity and the
Trustee receives a notice of such default (a "Payment Blockage Notice") from any
person permitted to give such notice under the Indenture. Payments on the Notes
may and shall be resumed (a) in the case of a payment default, upon the date on
which such default is cured or waived and (b) in the case of a nonpayment
default, the earlier of the date on which such nonpayment default is cured or
waived or 179 days after the date on which the applicable Payment Blockage
Notice is received by the Trustee. No new period of payment blockage may be
commenced unless and until (i) 365 days shall have elapsed since the
effectiveness of the immediately prior Payment Blockage Notice and (ii) all
scheduled payments of principal, premium, if any, and interest on the Notes that
have come due have been paid in full in cash. No nonpayment default that existed
or was continuing on the date of delivery of any Payment Blockage Notice to the
Trustee shall be, or be made, the basis of a subsequent Payment Blockage Notice
unless such default shall have been cured or waived for a period of not less
than 90 days.
By reason of the subordination provisions described above, in the event of
the Company's liquidation or insolvency, holders of Senior Indebtedness may
receive more, ratably, and Holders of the Notes may receive less, ratably, than
the other creditors of the Company. Such subordination will not prevent the
occurrences of any Event of Default under the Indenture.
The Notes are obligations exclusively of the Company. Because certain
operations of the Company are conducted through its subsidiaries, the cash flow
and the consequent ability to service debt of the Company, including the Notes,
may depend, in part, upon the earnings of its subsidiaries and their ability to
distribute cash to the Company. The payment of dividends and the making of loans
and advances to the Company by its subsidiaries may be subject to statutory or
contractual restrictions, are dependent upon the earnings of those Subsidiaries
and are subject to various business considerations. Any right of the Company to
receive assets of any of its subsidiaries upon their liquidation or
reorganization (and the consequent right of the Holders of the Notes to
participate in those assets) will be effectively subordinated to the claims of
that subsidiary's creditors (including trade creditors), except to the extent
that the Company is itself recognized as a creditor of such subsidiary, in which
case the claims of the Company would still be subordinate to any security
interests in the assets of such subsidiary and any indebtedness of such
subsidiary senior to that held by the Company.
At August 3, 1997, after giving effect to the November 1997 Note offering
and the application of the net proceeds therefrom, the Company had approximately
$67.9 million of Indebtedness outstanding would have constituted Senior
Indebtedness and, excluding intercompany liabilities, approximately $42.5
million of liabilities, primarily trade payables, which would have effectively
ranked senior to the Notes. The Indenture does not limit the amount of
additional Indebtedness, including Senior Indebtedness, which the Company is
permitted to create, incur, assume or guarantee, nor does the Indenture limit
the amount of Indebtedness and other liabilities that any subsidiary is
permitted to create, incur, assume or guarantee.
In the event that, notwithstanding the foregoing, the Trustee or any Holder
receives any payment or distribution of assets of the Company of any kind in
contravention of any of the terms of the Indenture, whether in cash, property or
securities, including, without limitation, by way of set-off or otherwise, in
respect of the Notes before all Senior Indebtedness is paid in full, then such
payment or distribution will be held by the recipient in trust for the benefit
of holders of Senior Indebtedness, and will be immediately
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<PAGE>
paid over or delivered to the holders of Senior Indebtedness or their
representative or representatives to the extent necessary to make payment in
full of all Senior Indebtedness remaining unpaid, after giving effect to any
concurrent payment or distribution, or provision therefor, to or for the holders
of Senior Indebtedness.
OPTIONAL REDEMPTION BY THE COMPANY
The Notes are not redeemable at the Company's option prior to November 1,
2000. Thereafter, the Notes are subject to redemption at the option of the
Company, in whole or in part (in any integral multiple of $1,000), upon not less
than 20 nor more than 60 days' notice at the following redemption prices
(expressed as percentages of principal amount), if redeemed during the 12-month
period beginning on November 1 of the years indicated in each case together with
accrued but unpaid interest and Liquidated Damages, if any, to the redemption
date (subject to the right of Holders of record on the relevant record date to
receive interest due on an Interest Payment Date that is on or prior to the
Redemption Date):
<TABLE>
<CAPTION>
YEAR PERCENTAGE
<S> <C>
2000.............................................................................. 103.857%
2001.............................................................................. 102.893
2002.............................................................................. 101.929
2003.............................................................................. 100.964
</TABLE>
If less than all of the Notes are to be redeemed at any time, selection of
Notes for redemption will be made by the Trustee in compliance with the
requirements of the principal national securities exchange or national market
system, if any, on which the Notes are listed, or, if the Notes are not so
listed, on a pro rata basis, by lot or by such other method as the Trustee shall
deem fair and appropriate; provided that no Notes of $1,000 principal amount or
less shall be redeemed in part. Notice of any redemption will be sent, by
first-class mail, at least 20 days and not more than 60 days prior to the date
fixed for redemption, to the Holder of each Note to be redeemed to such Holder's
last address as then shown upon the registry books of the Registrar. The notice
of redemption must state the Redemption Date, the Redemption Price and the
amount of accrued interest to be paid. Any notice that relates to a Note to be
redeemed in part only must state the portion of the principal amount equal to
the unredeemed portion thereof and must state that on and after the Redemption
Date, upon surrender of such Note, a new Note or Notes in principal amount equal
to the unredeemed portion thereof will be issued. On and after the Redemption
Date, interest will cease to accrue on the Notes or portion thereof called for
redemption, unless the Company defaults in its obligations with respect thereto.
The Notes will not have the benefit of any sinking fund.
REPURCHASE OF NOTES AT THE OPTION OF HOLDERS UPON A CHANGE OF CONTROL
The Indenture provides that in the event that a Change of Control (as
defined below) has occurred, each Holder will have the right, at such Holder's
option, pursuant to an irrevocable and unconditional offer by the Company (the
"Repurchase Offer"), to require the Company to repurchase all or any part of
such Holder's Notes (provided, that the principal amount of such Notes must be
$1,000 or an integral multiple thereof) on the date (the "Repurchase Date") that
is no later than 60 days after the occurrence of such Change of Control at a
cash price equal to 100% of the principal amount thereof, together with accrued
and unpaid interest and Liquidated Damages, if any, to the Repurchase Date (the
"Repurchase Price"). The Repurchase Offer shall be made within 30 days following
a Change of Control and shall remain open for a period specified by the Company
but not less than 20 Business Days following its commencement (the "Repurchase
Offer Period"). Upon expiration of the Repurchase Offer Period, the Company
shall purchase all Notes tendered in response to the Repurchase Offer in the
manner described below. If required by applicable law, the Repurchase Date and
the Repurchase Offer Period may be extended to the extent required; however, if
so extended, it shall nevertheless constitute an Event of Default if the
Repurchase Date does not occur within 90 days of the Change of Control.
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<PAGE>
The Indenture provides that a "Change of Control" will be deemed to have
occurred when: (i) any "person" or "group," is or becomes the "beneficial
owner," directly or indirectly, of shares representing more than 50% of the
combined total voting power of the then outstanding securities entitled to vote
generally in elections of directors of the Company ("Voting Stock"), (ii) the
Company consolidates with or merges into any other person or conveys, transfers
or leases, whether directly or indirectly, all or substantially all of its
assets to any person, or any other person merges into the Company, and, in the
case of any such transaction, the outstanding Common Stock of the Company is
changed or exchanged as a result, unless the shareholders of the Company
immediately before such transaction own, directly or indirectly immediately
following such transaction, at least a majority of the combined voting power of
the outstanding voting securities of the corporation resulting from such
transaction in substantially the same proportion INTER SE as their ownership of
the Voting Stock immediately before such transaction, (iii) at any time the
Continuing Directors (as defined below) do not constitute the majority of the
Board of Directors of the Company (or, if applicable, a successor corporation to
the Company), or (iv) the Common Stock of the Company (or other common stock
into which the Notes are then convertible) is neither listed for trading on a
United States national securities exchange or approved for trading on an
established automatic over-the-counter trading market in the United States.
"Continuing Directors" means, as of any date of determination, any member of the
Board of Directors of the Company who (i) was a member of the Board of Directors
on the date of the Indenture or (ii) was nominated for election or elected to
such Board of Directors with the approval of a majority of the Continuing
Directors who were members of the Board of Directors at the time of such
nomination or election.
On or before the Repurchase Date, the Company will (i) accept for payment
Notes or portions thereof properly tendered pursuant to the Repurchase Offer,
(ii) deposit with the Paying Agent cash sufficient to pay the Repurchase Price
of all Notes so tendered and (iii) deliver to the Trustee Notes so accepted,
together with an Officers' Certificate listing the Notes or portions thereof
being purchased by the Company. The Paying Agent will promptly pay for Notes so
accepted an amount equal to the Repurchase Price (together with accrued and
unpaid interest and Liquidated Damages, if any), and the Trustee will promptly
authenticate and mail or deliver to such Holders a new Note or Notes equal in
principal amount to any unpurchased portion of the Notes surrendered. Any Notes
not so accepted will be promptly mailed or delivered by the Company to the
Holder thereof. The Company will publicly announce the results of the Repurchase
Offer on or as soon as practicable after the Repurchase Date.
The phrase "all or substantially all" of the assets of the Company is likely
to be interpreted by reference to applicable state law at the relevant time, and
will be dependent on the facts and circumstances existing at such time. As a
result, there may be a degree of uncertainty in ascertaining whether a sale or
transfer of "all or substantially all" of the assets of the Company has
occurred.
For purposes of the definition of Change of Control, (i) the terms "person"
and "group" shall have the meaning used for purposes of Rules 13d-3 and 13d-5 of
the Exchange Act as in effect on the Issuance Date, whether or not applicable;
and (ii) the term "beneficial owner" shall have the meaning used in Rules 13d-3
and 13d-5 under the Exchange Act as in effect on the Issuance Date, whether or
not applicable, except that a "person" shall be deemed to have "beneficial
ownership" of all shares that any such person has the right to acquire, whether
such right is exercisable immediately or only after the passage of time or upon
the occurrence of certain events.
The Change of Control purchase feature of the Notes may make more difficult
or discourage a takeover of the Company, and, thus, the removal of incumbent
management. The Change of Control purchase feature resulted from negotiations
between the Company and the Initial Purchasers.
The provisions of the Indenture relating to a Change of Control may not
afford the Holders protection in the event of a highly leveraged transaction,
reorganization, restructuring, merger, spin-off or similar transaction that may
adversely affect Holders, if such transaction does not constitute a Change of
Control, as set forth above. In addition, the Company may not have sufficient
financial resources available
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to fulfill its obligation to repurchase the Notes upon a Change of Control or to
repurchase other debt securities of the Company or its Subsidiaries providing
similar rights to the holders thereof.
To the extent applicable and if required by law, the Company will comply
with Section 14 of the Exchange Act and the provisions of Regulation 14E and any
other tender offer rules under the Exchange Act and any other securities laws,
rules and regulations that may then be applicable to any offer by the Company to
purchase the Notes at the option of Holders upon a Change of Control.
The right to require the Company to repurchase Notes as a result of the
occurrence of a Change of Control could create an event of default under Senior
Indebtedness as a result of which any repurchase could, absent a waiver, be
blocked by the subordination provisions of the Notes. See "--Subordination."
Failure of the Company to repurchase the Notes when required would result in an
Event of Default with respect to the Notes whether or not such repurchase is
permitted by the subordination provisions.
LIMITATION ON MERGER, SALE OR CONSOLIDATION
The Indenture provides that the Company may not consolidate or merge with or
into, or sell, assign, transfer, lease, convey or otherwise dispose of all or
substantially all of its properties or assets in one or more related
transactions, to another corporation, person or entity unless (i) the Company is
the surviving corporation or the person or entity formed by or surviving any
such consolidation or merger (if other than the Company) or to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made is a corporation organized or existing under the laws of the United States,
any state thereof or the District of Columbia; (ii) the entity or Person formed
by or surviving any such consolidation or merger (if other than the Company) or
the entity or Person to which such sale, assignment, transfer, lease, conveyance
or other disposition shall have been made assumes all the obligations of the
Company under the Notes and the Indenture pursuant to a supplemental indenture
in a form reasonably satisfactory to the Trustee; and (iii) immediately after
such transaction no Default or Event of Default exists.
REPORTS
The Indenture provides that, whether or not required by the rules and
regulations of the Commission, so long as any Notes are outstanding, the Company
will furnish to the Trustee (i) all quarterly and annual financial information
that would be required to be contained in a filing with the Commission on Forms
10-Q and 10-K if the Company were required to file such Forms, including a
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and, with respect to the annual information only, an audit report
thereon by the Company's certified independent accountants and (ii) all current
reports that would be required to be filed with the Commission on Form 8-K if
the Company were required to file such reports. In addition, whether or not
required by the rules and regulations of the Commission, the Company will file a
copy of all such information and reports with the Commission for public
availability (unless the Commission will not accept such a filing).
EVENTS OF DEFAULT AND REMEDIES
The Indenture provides that each of the following constitutes an Event of
Default: (i) default for 30 days in the payment when due of interest on, or
Liquidated Damages with respect to, the Notes (whether or not prohibited by the
subordination provisions of the Indenture) or failure to perform any conversion
of the Securities and the continuance of such failure for a period of 30 days;
(ii) default in payment when due of the principal of or premium, if any, on the
Notes (whether or not prohibited by the subordination provisions of the
Indenture); (iii) failure by the Company to comply with the provisions described
under the caption "--Repurchase of Notes at the Option of Holders Upon a Change
of Control"; (iv) failure by the Company for 60 days after notice to comply with
any of its other agreements in the Indenture or the Notes; (v) default under any
mortgage, indenture or instrument under which there is issued or by which there
is secured or evidenced any indebtedness for money borrowed by the Company or
any of its
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Subsidiaries (or the payment of which is guaranteed by the Company or any of its
Subsidiaries) whether such indebtedness or guarantee now exists, or is created
after the date of the Indenture, which default (a) is caused by a failure to pay
principal of or premium, if any, or interest on such indebtedness prior to the
expiration of the grace period provided in such indebtedness on the date of such
default (a "Payment Default") or (b) results in the acceleration of such
indebtedness prior to its express maturity and, in each case, the principal
amount of any such indebtedness, together with the principal amount of any other
such indebtedness under which there has been a Payment Default or the maturity
of which has been so accelerated, is an amount which, in the aggregate, is equal
to or greater than $20 million; (vi) failure by the Company or any of its
Subsidiaries to pay final judgments in an amount which, in the aggregate,
exceeds $20 million and which judgments are not paid, discharged, bonded or
stayed within 60 days after their entry; and (vii) certain events of bankruptcy
or insolvency with respect to the Company or any of its Significant
Subsidiaries.
If any Event of Default occurs and is continuing, the Trustee or the Holders
of at least 25% in principal amount of the then outstanding Notes may declare
all the Notes to be due and payable immediately. Notwithstanding the foregoing,
in the case of an Event of Default arising from certain events of bankruptcy or
insolvency, with respect to the Company, any Significant Subsidiary or any group
of Subsidiaries that, taken together, would constitute a Significant Subsidiary,
all outstanding Notes will become due and payable without further action or
notice. Holders of the Notes may not enforce the Indenture or the Notes except
as provided in the Indenture. Subject to certain limitations, Holders of a
majority in principal amount of the then outstanding Notes may direct the
Trustee in its exercise of any trust or power. The Trustee may withhold from
Holders of the Notes notice of any continuing Default or Event of Default
(except a Default or Event of Default relating to the payment of principal or
interest) if it determines that withholding notice is in their interest.
The Holders of a majority in aggregate principal amount of the Notes then
outstanding, by notice to the Trustee, may on behalf of all Holders waive any
existing Default or Event of Default and its consequences under the Indenture
except a continuing Default or Event of Default in the payment of interest on,
or the principal of, the Notes.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Company is required upon
becoming aware of any Default or Event of Default, to deliver to the Trustee a
statement specifying such Default or Event of Default.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the Indenture or
the Notes may be amended or supplemented with the consent of the Holders of at
least a majority in principal amount of the Notes then outstanding (including,
without limitation, consents obtained in connection with a purchase of, or
tender offer or exchange offer for, the Notes), and any existing default or
compliance with any provision of the Indenture or the Notes may be waived with
the consent of the Holders of a majority in principal amount of the then
outstanding Notes (including consents obtained in connection with a tender
offeror exchange offer for Notes).
Without the consent of each Holder affected, an amendment or waiver may not
(with respect to any Notes held by a non-consenting Holder): (i) reduce the
principal amount of Notes whose Holders must consent to an amendment, supplement
or waiver, (ii) reduce the principal of or change the fixed maturity of any Note
or alter the provisions with respect to the redemption or repurchase of the
Notes, (iii) reduce the rate of or change the time for payment of interest on
any Note, (iv) waive a Default or Event of Default in the payment of principal
of or premium, if any, or interest or Liquidated Damages, if any, on the Notes
(except a rescission of acceleration of the Notes by the Holders of at least a
majority in aggregate principal amount of the Notes and a waiver of the payment
default that resulted from such acceleration), (v) make any Note payable in
money other than that stated in the Notes, (vi) make any
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change in the provisions of the Indenture relating to waivers of past Defaults
or the rights of Holders of Notes to receive payments of principal of, premium,
if any, interest or Liquidated Damages, if any, on the Notes, (vii) modify the
conversion or subordination provisions of the Indenture in a manner adverse to
the Holders of the Notes or (viii) make any change in the foregoing amendment
and waiver provisions.
Notwithstanding the foregoing, without the consent of any Holder, the
Company and the Trustee may amend or supplement the Indenture or the Notes to
cure any ambiguity, defect or inconsistency, to provide for uncertificated Notes
in addition to or in place of certificated Notes, to provide for the assumption
of the Company's obligations to Holders in the case of a merger or
consolidation, to make any change that would provide any additional rights or
benefits to the Holders or that does not adversely affect the legal rights under
the Indenture of any such Holder, or to comply with requirements of the
Commission in order to effect or maintain the qualification of the Indenture
under the Trust Indenture Act.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND SHAREHOLDERS
No director, officer, employee, incorporator or shareholder of the Company,
as such, shall have any liability for any obligations of the Company under the
Notes or the Indenture or for any claim based on, in respect of, or by reason
of, such obligations or their creation. Each Holder, by accepting a Note, waives
and releases all such liability. The waiver and release are part of the
consideration for issuance of the Notes. Such waiver may not be effective to
waive liabilities under the federal securities laws and it is the view of the
Commission that such a waiver is against public policy.
BOOK-ENTRY; DELIVERY; FORM AND TRANSFER
The Notes sold within the United States to "qualified institutional buyers"
(as defined in Rule 144A under the Securities Act) ("Qualified Institutional
Buyers") were initially issued in the form of one or more registered global
notes without interest coupons (collectively, the "U.S. Global Notes"). Upon
issuance, the U.S. Global Notes were deposited with the Trustee, as custodian
for DTC, in New York, New York, and registered in the name of DTC or its
nominee, in each case for credit to the accounts of DTC's Direct and Indirect
Participants (as defined below). The Notes sold in offshore transactions in
reliance on Regulation S were initially issued in the form of one or more
registered, global book-entry notes without interest coupons (the "Reg S Global
Notes"). The Reg S Global Notes were deposited with the Trustee, as custodian
for DTC, in New York, New York, and registered in the name of a nominee of DTC
(a "Nominee") for credit to the accounts of Indirect Participants at Euroclear
and Cedel. During the 40-day period commencing on the day after the original
Issuance Date of a Note (the "40-Day Restricted Period"), beneficial interests
in the Reg S Global Note may be held only through Euroclear or Cedel, and,
pursuant to DTC's procedures, Indirect Participants that hold a beneficial
interest in the Reg S Global Note will not be able to transfer such interest to
a person that takes delivery thereof in the form of an interest in the U.S.
Global Notes. After the 40 Day Restricted Period, (i) beneficial interests in
the Reg S Global Notes may be transferred to a person that takes delivery in the
form of an interest in the U.S. Global Notes and (ii) beneficial interests in
the U.S. Global Notes may be transferred to a person that takes delivery in the
form of an interest in the Reg S Global Notes, provided, in each case, that the
certification requirements described below are complied with. See "--Transfers
of Interests in One Global Note for Interests in Another Global Note." All
registered global notes are referred to herein collectively "Global Notes."
Beneficial interests in all Global Notes and all Certificated Notes (as
defined below), if any, will be subject to certain restrictions on transfer and
will bear a restrictive legend. In addition, transfer of beneficial interests in
any Global Notes will be subject to the applicable rules and procedures of DTC
and its Direct or Indirect Participants (including, if applicable, those of
Euroclear and Cedel), which may change from time to time.
The Global Notes may be transferred, in whole and not in part, only to
another nominee of DTC or to a successor of DTC or its nominee in certain
limited circumstances. Beneficial interests in the Global
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Notes may be exchanged for Notes in certificated form in certain limited
circumstances. See "--Transfer of Interests in Global Notes for Certificated
Notes."
Initially, the Trustee will act as Paying Agent and Registrar. The Notes may
be presented for registration of transfer and exchange at the offices of the
Registrar.
DEPOSITARY PROCEDURES
DTC has advised the Company that DTC is a limited-purpose trust company
created to hold securities for its participating organizations (collectively,
the "Direct Participants") and to facilitate the clearance and settlement of
transactions in those securities between Direct Participants through electronic
book-entry changes in accounts of Participants. The Direct Participants include
securities brokers and dealers (including the Initial Purchasers), banks, trust
companies, clearing corporations and certain other organizations, including
Euroclear and Cedel. Access to DTC's system is also available to other entities
that clear through or maintain a direct or indirect, custodial relationship with
a Direct Participant (collectively, the "Indirect Participants"). DTC may hold
securities beneficially owned by other persons only through the Direct
Participants or Indirect Participants and such other persons' ownership interest
and transfer of ownership interest will be recorded only on the records of the
Direct Participant and/or Indirect Participant, and not on the records
maintained by DTC.
DTC has also advised the Company that, pursuant to DTC's procedures, (i)
upon deposit of the Global Notes, DTC will credit the accounts of the Direct
Participants designated by the Initial Purchasers with portions of the principal
amount of the Global Notes allocated by the Initial Purchasers to such Direct
Participants, and (ii) DTC will maintain records of the ownership interests of
such Direct Participants in the Global Notes and the transfer of ownership
interests by and between Direct Participants. DTC will not maintain records of
the ownership interests of, or the transfer of ownership interests by and
between, Indirect Participants or other owners of beneficial interests in the
Global Notes. Direct Participants and Indirect Participants must maintain their
own records of the ownership interests of, and the transfer of ownership
interests by and between, Indirect Participants and other owners of beneficial
interests in the Global Notes.
Investors in the U.S. Global Notes may hold their interests therein directly
through DTC if they are Direct Participants in DTC or indirectly through
organizations that are Direct Participants in DTC. Investors in the Reg S Global
Notes may hold their interests therein directly through Euroclear or Cedel or
indirectly through organizations that are participants in Euroclear or Cedel.
After the expiration of the 40-Day Restricted Period (but not earlier),
investors may also hold interests in the Reg S Global Notes through
organizations other than Euroclear and Cedel that are Direct Participants in the
DTC system. Morgan Guaranty Trust Company of New York, Brussels office is the
operator and depository of Euroclear and Citibank, N.A. is the operator and
depository of Cedel (each a "Nominee" of Euroclear and Cedel, respectively).
Therefore, they will each be recorded on DTC's records as the holders of all
ownership interests held by them on behalf of Euroclear and Cedel, respectively.
Euroclear and Cedel will maintain on their records the ownership interests, and
transfers of ownership interests by and between, their own customer's securities
accounts. DTC will not maintain records of the ownership interests of, or the
transfer of ownership interests by and between, customers of Euroclear or Cedel.
All ownership interests in any Global Notes, including those of customers'
securities accounts held through Euroclear or Cedel, may be subject to the
procedures and requirements of DTC.
The laws of some states require that certain persons take physical delivery
in definitive, certificated form, of securities that they own. This may limit or
curtail the ability to transfer beneficial interests in a Global Note to such
persons. Because DTC can act only on behalf of Direct Participants, which in
turn act on behalf of Indirect Participants and others, the ability of a person
having a beneficial interest in a Global Note to pledge such interest to persons
or entities that are not Direct Participants in DTC, or to otherwise take
actions in respect of such interests, may be affected by the lack of physical
certificates evidencing such
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interests. For certain other restrictions on the transferability of the Notes
see and "--Transfers of Interests in Global Notes for Certificated Notes."
EXCEPT AS DESCRIBED IN "TRANSFERS OF INTERESTS IN GLOBAL NOTES FOR
CERTIFICATED NOTES", OWNERS OF BENEFICIAL INTERESTS IN THE GLOBAL NOTES WILL NOT
HAVE NOTES REGISTERED IN THEIR NAMES, WILL NOT RECEIVE PHYSICAL DELIVERY OF
NOTES IN CERTIFICATED FORM AND WILL NOT BE CONSIDERED THE REGISTERED OWNERS OR
HOLDERS THEREOF UNDER THE INDENTURE FOR ANY PURPOSE.
Under the terms of the Indenture, the Company and the Trustee will treat the
persons in whose names the Notes are registered (including Notes represented by
Global Notes) as the owners thereof for the purpose of receiving payments and
for any and all other purposes whatsoever. Payments in respect of the principal,
premium, Liquidated Damages, if any, and interest on Global Notes registered in
the name of DTC or its nominee will be payable by the Trustee to DTC or its
nominee as the registered holder under the Indenture. Consequently, neither the
Company, the Trustee nor any agent of the Company or the Trustee has or will
have any responsibility or liability for (i) any aspect of DTC's records or any
Direct Participant's or Indirect Participant's records relating to or payments
made on account of beneficial ownership interests in the Global Notes or for
maintaining, supervising or reviewing any of DTC's records or any Direct
Participant's or Indirect Participant's records relating to the beneficial
ownership interests in any Global Note or (ii) any other matter relating to the
actions and practices of DTC or any of its Direct Participants or Indirect
Participants.
DTC has advised the Company that its current payment practice (for payments
of principal, interest and the like) with respect to securities such as the
Notes is to credit the accounts of the relevant Direct Participants with such
payment on the payment date in amounts proportionate to such Direct
Participant's respective ownership interests in the Global Notes as shown on
DTC's records. Payments by Direct Participants and Indirect Participants to the
beneficial owners of the Notes will be governed by standing instructions and
customary practices between them and will not be the responsibility of DTC, the
Trustee, or the Company. Neither the Company nor the Trustee will be liable for
any delay by DTC or its Direct Participants or Indirect Participants in
identifying the beneficial owners of the Notes, and the Company and the Trustee
may conclusively rely on and will be protected in relying on instructions from
DTC or its nominee as the registered owner of the Notes for all purposes.
The Global Notes will trade in DTC's Same-Day Funds Settlement System and,
therefore, transfers between Direct Participants in DTC will be effected in
accordance with DTC's procedures, and will be settled in immediately available
funds. Transfers between Indirect Participants (other than Indirect Participants
who hold an interest in the Notes through Euroclear or Cedel) who hold an
interest through a Direct Participant will be effected in accordance with the
procedures of such Direct Participant but generally will settle in immediately
available funds. Transfers between and among Indirect Participants who hold
interests in the Notes through Euroclear and Cedel will be effected in the
ordinary way in accordance with their respective rules and operating procedures.
Subject to compliance with the transfer restrictions applicable to the Notes
described herein, cross-market transfers between Direct Participants in DTC, on
the one hand, and Indirect Participants who hold interests in the Notes through
Euroclear or Cedel, on the other hand, will be effected by Euroclear or Cedel's
respective Nominee through DTC in accordance with DTC's rules on behalf of
Euroclear or Cedel; HOWEVER, delivery of instructions relating to crossmarket
transactions must be made directly to Euroclear or Cedel, as the case may be, by
the counterparty in accordance with the rules and procedures of Euroclear or
Cedel and within their established deadlines (Brussels time for Euroclear and UK
time for Cedel). Indirect Participants who hold interest in the Notes through
Euroclear and Cedel may not deliver instructions directly to Euroclear's or
Cedel's Nominee. Euroclear or Cedel will, if the transaction meets its
settlement requirements, deliver instructions to its respective Nominee to
deliver or receive interests on Euroclear's or Cedel's behalf in the relevant
Global Note in DTC, and make or receive payment in accordance with normal
procedures for same-day fund settlement applicable to DTC.
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Because of time zone differences, the securities accounts of an Indirect
Participant who holds an interest in the Notes through Euroclear or Cedel
purchasing an interest in a Global Note from a Direct Participant in DTC will be
credited, and any such crediting will be reported to Euroclear or Cedel during
the European business day immediately following the settlement date of DTC in
New York. Although recorded in DTC's accounting records as of DTC's settlement
date in New York, Euroclear and Cedel customers will not have access to the cash
amount credited to their accounts as a result of a sale of an interest in a Reg
S Global Note to a DTC Participant until the European business day for Euroclear
or Cedel immediately following DTC's settlement date.
DTC has advised the Company that it will take any action permitted to be
taken by a holder of Notes only at the direction of one or more Direct
Participants to whose account interests in the Global Notes are credited and
only in respect of such portion of the aggregate principal amount of the Notes
as to which such Direct Participant or Direct Participants has or have given
direction. However, if there is an Event of Default under the Notes, DTC
reserves the right to exchange Global Notes (without the direction of one or
more of its Direct Participants) for legended Notes in certificated form, and to
distribute such certificated forms of Notes to its Direct Participants. See
"Transfers of Interests in Global Notes for Certificated Notes."
Beneficial owners of Notes who desire to convert their Notes into Common
Stock pursuant to the terms of the Indenture should contact their brokers or
other Direct or Indirect Participants to obtain information on procedures,
including proper forms and cut-off times, for submitting such requests.
Although DTC, Euroclear and Cedel have agreed to the foregoing procedures to
facilitate transfers of interests in the Reg S Global Notes and in the U.S.
Global Notes among Direct Participants, Euroclear and Cedel, they are under no
obligation to perform or to continue to perform such procedures, and such
procedures may be discontinued at any time. None of the Company, the Initial
Purchasers or the Trustee will have any responsibility for the performance by
DTC, Euroclear or Cedel or their respective Direct and Indirect Participants of
their respective obligations under the rules and procedures governing any of
their operations.
The information in this section concerning DTC, Euroclear and Cedel and
their book-entry systems has been obtained from sources that the Company
believes to be reliable, but the Company takes no responsibility for the
accuracy thereof.
TRANSFERS OF INTERESTS IN ONE GLOBAL NOTE FOR INTERESTS IN ANOTHER GLOBAL NOTE
Prior to the expiration of the 40-Day Restricted Period, an Indirect
Participant who holds an interest in the Reg S Global Note through Euroclear or
Cedel will not be permitted to transfer its interest to a U.S. Person who takes
delivery in the form of an interest in U.S. Global Notes. After the expiration
of the 40-Day Restricted Period, an Indirect Participant who holds an interest
in Reg S Global Notes will be permitted to transfer its interest to a U.S.
Person who takes delivery in the form of an interest in U.S. Global Notes only
upon receipt by the Trustee of a written certification from the transferor to
the effect that such transfer is being made in accordance with the restrictions
on transfer set forth in the legend printed on the Reg S Global Notes.
Prior to the expiration of the 40-Day Restricted Period, a Direct or
Indirect Participant who holds an interest in the U.S. Global Note will not be
permitted to transfer its interests to any person that takes delivery thereof in
the form of an interest in the Reg S Global Notes. After the expiration of the
40-Day Restricted Period, a Direct or Indirect Participant who holds an interest
in U.S. Global Notes may transfer its interests to a person who takes delivery
in the form of an interest in Reg S Global Notes only upon receipt by the
Trustee of a written certification from the transferor to the effect that such
transfer is being made in accordance with Rule 904 of Regulation S.
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Transfers involving an exchange of a beneficial interest in Reg S Global
Notes for a beneficial interest in U.S. Global Notes or vice versa will be
effected by DTC by means of an instruction originated by the Trustee through
DTC/Deposit Withdraw at Custodian (DWAC) system. Accordingly, in connection with
such transfer, appropriate adjustments will be made to reflect a decrease in the
principal amount of the one Global Note and a corresponding increase in the
principal amount of the other Global Note, as applicable. Any beneficial
interest in the one Global Note that is transferred to a person who takes
delivery in the form of the other Global Note will, upon transfer, cease to be
an interest in such first Global Note and become an interest in such other
Global Note and, accordingly, will thereafter be subject to all transfer
restrictions and other procedures applicable to beneficial interests in such
other Global Note for as long as it remains such an interest.
TRANSFERS OF INTERESTS IN GLOBAL NOTES FOR CERTIFICATED NOTES
An entire Global Note may be exchanged for definitive Notes in registered,
certificated form without interest coupons ("Certificated Notes") if (i) DTC (x)
notifies the Company that it is unwilling or unable to continue as depositary
for the Global Notes and the Company thereupon fails to appoint a successor
depositary within 90 days or (y) has ceased to be a clearing agency registered
under the Exchange Act, (ii) the Company, at its option, notifies the Trustee in
writing that it elects to cause the issuance of Certificated Notes or (iii)
there shall have occurred and be continuing a Default or an Event of Default
with respect to the Notes. In any such case, the Company will notify the Trustee
in writing that, upon surrender by the Direct and Indirect Participants of their
interest in such Global Note, Certificated Notes will be issued to each person
that such Direct and Indirect Participants and the DTC identify as being the
beneficial owner of the related Notes.
Beneficial interests in Global Notes held by any Direct or Indirect
Participant may be exchanged for Certificated Notes upon request to DTC, by such
Direct Participant (for itself or on behalf of an Indirect Participant), to the
Trustee in accordance with customary DTC procedures. Certificated Notes
delivered in exchange for any beneficial interest in any Global Note will be
registered in the names, and issued in any approved denominations, requested by
DTC on behalf of such Direct or Indirect Participants (in accordance with DTC's
customary procedures).
In all cases described herein, such Certificated Notes will bear a
restrictive legend unless the Company determines otherwise in compliance with
applicable law.
Neither the Company nor the Trustee will be liable for any delay by the
holder of the Global Notes or the DTC in identifying the beneficial owners of
Notes, and the Company and the Trustee may conclusively rely on, and will be
protected in relying on, instructions from the holder of the Global Note or the
DTC for all purposes.
TRANSFERS OF CERTIFICATED NOTES FOR INTERESTS IN GLOBAL NOTES
Certificated Notes may only be transferred if the transferor first delivers
to the Trustee a written certificate (and in certain circumstances, an opinion
of counsel) confirming that, in connection with such transfer, it has complied
with the applicable restrictions on transfer.
SAME DAY SETTLEMENT AND PAYMENT
The Indenture will require that payments in respect of the Notes represented
by the Global Notes (including principal, premium, if any, interest and
Liquidated Damages, if any) be made by wire transfer of immediately available
same day funds to the accounts specified by the holder of interests in such
Global Note. With respect to Certificated Notes, the Company will make all
payments of principal, premium, if any, interest and Liquidated Damages, if any,
by wire transfer of immediately available same day funds to the accounts
specified by the holders thereof or, if no such account is specified, by mailing
a check to each
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such holder's registered address. The Company expects that secondary trading in
the Certificated Notes will also be settled in immediately available funds.
TRANSFER AND EXCHANGE IN ACCORDANCE WITH INDENTURE
A Holder may transfer or exchange Notes in accordance with the Indenture.
The Registrar and the Trustee may require a Holder, among other things, to
furnish appropriate endorsements and transfer documents and the Company may
require a Holder to pay any taxes and fees required by law or permitted by the
Indenture. The Company is not required to transfer or exchange any Note selected
for redemption. Also, the Company is not required to transfer or exchange any
Note for a period of 15 days before a selection of Notes to be redeemed. The
registered Holder of a Note is treated as the owner of the Note for all
purposes.
REGISTRATION RIGHTS; LIQUIDATED DAMAGES
Pursuant to the Registration Rights Agreement, the Company has agreed for
the benefit of the Holders, that (i) it will, at its cost, within 90 days after
the closing of the Offering (the "Closing"), file a shelf registration statement
(the "Shelf Registration Statement") with the Commission to register the public
offer and resale of the Notes and the Conversion Shares (as defined below) under
the Securities Act, (ii) it will use its best efforts to cause such Shelf
Registration Statement to be declared effective by the Commission within 180
days after the Closing, and (iii) it will use its best efforts to keep such
Shelf Registration Statement continuously effective under the Securities Act,
subject to certain exceptions specified in the Registration Rights Agreement,
for two years. The Company is permitted to suspend use of the Prospectus forming
a part of the Shelf Registration Statement during certain periods of time and in
certain circumstances relating to pending corporate developments and similar
events. If (a) the Company fails to file the Shelf Registration Statement on or
before the date specified for such filing in the Registration Rights Agreement,
(b) the Shelf Registration Statement is not declared effective by the Commission
on or prior to the date specified for such effectiveness in the Registration
Rights Agreement or (c) the Shelf Registration Statement ceases to be effective
or usable (other than for certain limited periods specified in the Registration
Rights Agreement including up to 90 days in the aggregate during any 365-day
period in connection with certain pending corporate developments) in connection
with resales of Transfer Restricted Securities (as defined below) (each such
event a "Registration Default"), then the Company is required to pay damages
("Liquidated Damages") to each Holder of Transfer Restricted Securities, with
respect to the first 90-day period immediately following the occurrence of such
Registration Default in an amount equal to $.05 per week per $1,000 aggregate
principal amount of the Notes, or, if applicable, an equivalent amount per week
per share (subject to adjustment as set forth above) of Common Stock,
constituting Transfer Restricted Securities, held by such Holder. The amount of
the Liquidated Damages will increase by an additional $.05 per week per $1,000
aggregate principal amount of the Notes held by each Holder (or shares of Common
Stock, as noted above) with respect to each subsequent 90-day period until all
Registration Defaults have been cured, up to a maximum amount of Liquidated
Damages of $.50 per week per $1,000 aggregate principal amount of the Notes (or
shares of Common Stock, as noted above) held by each Holder. All accrued
Liquidated Damages will be paid by the Company on each Interest Payment Date in
cash. Such payment will be made to Holders as set forth under "--Same Day
Settlement and Payment." Following the cure of all Registration Defaults, the
accrual of Liquidated Damages will cease.
For purposes of the foregoing, "Transfer Restricted Securities" means the
Notes and the shares of Common Stock into which the Notes are convertible (the
"Conversion Shares") until (i) the date on which such Transfer Restricted
Securities have been effectively registered under the Securities Act and
disposed of in accordance with the Shelf Registration Statement, (ii) the date
on which such Transfer Restricted Securities are distributed to the public
pursuant to Rule 144 under the Securities Act (or any similar provision then in
effect) or are saleable pursuant to Rule 144(k) under the Securities Act and all
legends
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relating to transfer restrictions have been removed or (iii) the date on which
such Transfer Restricted Securities cease to be outstanding.
Holders of Notes will be required to deliver information to be used in
connection with the Shelf Registration Statement within the time periods set
forth in the Registration Rights Agreement in order to have their Transfer
Restricted Securities included in the Shelf Registration Statement and benefit
from the provisions regarding Liquidated Damages set forth above.
If the Company determines that it is permissible to do so under applicable
law, in lieu of filing or maintaining the effectiveness of the shelf
registration statement with respect to Notes, the Company may, at its option,
file with the Commission a registration statement with respect to an issue of
notes identical in all material respects to the Notes (the "New Notes") except
as to transfer restrictions and, upon such registration statement becoming
effective, offer the holders of the Notes the opportunity to exchange their
Notes for the New Notes. The Company has not determined that any such registered
exchange offer is permissible under applicable law, and there can be no
assurance that it will do so in the future.
The Company will provide to each registered holder of the Transfer
Restricted Securities, who is named in the prospectus and who so requests in
writing, copies of the prospectus which will be a part of the Shelf Registration
Statement, notify each such holder when the Shelf Registration Statement for the
Transfer Restricted Securities has become effective and take certain other
actions as are required to permit unrestricted resales of the Transfer
Restricted Securities. A holder of Transfer Restricted Securities that sells
such securities pursuant to a Shelf Registration Statement generally will be
required to be named as a selling security holder in the related prospectus and
to deliver a prospectus to purchasers, will be subject to certain of the civil
liability provisions under the Securities Act in connection with such sales and
will be bound by the provisions of the Registration Rights Agreement which are
applicable to such a holder (including certain indemnification and contribution
rights and obligations).
THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any such
claim as security or otherwise. The Trustee is permitted to engage in other
transactions; however, if it acquires any conflicting interest it must eliminate
such conflict within 90 days, apply to the Commission for permission to
continue, or resign.
The Holders of a majority in principal amount of the then outstanding Notes
have the right to direct the time, method and place of conducting any proceeding
for exercising any remedy available to the Trustee, subject to certain
exceptions. The Indenture provides that in case an Event of Default shall occur
(which shall not be cured), the Trustee will be required, in the exercise of its
power, to use the degree of care of a prudent man in the conduct of his own
affairs. Subject to such provisions, the Trustee is under no obligation to
exercise any of its rights or powers under the Indenture at the request of any
Holder, unless such Holder shall have offered to the Trustee security and
indemnity satisfactory to it against any loss, liability or expense.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or
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indirectly, of the power to direct or cause the direction of the management or
policies of such Person, whether through the ownership of voting securities, by
agreement or otherwise.
"Capital Stock" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership, partnership interests
(whether general or limited) and (iv) any other interest or participation that
confers on a Person the right to receive a share of the profits and losses of,
or distributions of assets of, the issuing Person.
"Credit Facility" means that certain Third Amended and Restated Credit
Agreement among PETsMART, certain lenders and NationsBank of Texas, N.A. as
administrative lender, dated as of April 18, 1997, as amended.
"Default" means any event that is, or with the passage of time or the giving
of notice or both would be, an Event of Default.
"Designated Senior Indebtedness" means (i) all outstanding Indebtedness
under the Credit Facility and (ii) any other Senior Indebtedness which (a) at
the time of determination has an outstanding principal amount or commitment in
excess of $20 million and (b) is specifically designated in the instrument
creating or evidencing the same or the assumption or guarantee thereof (or
related agreements or documents to which the Company is a party) as "Designated
Senior Indebtedness" for purposes of the Indenture (provided that such
instrument, agreement or other document may place limitations and conditions on
the right of such Senior Indebtedness to exercise the rights of Designated
Senior Indebtedness.) For purposes of this definition, the term "Credit
Facility" shall include any agreement governing Indebtedness incurred to refund,
replace or refinance borrowings under the Credit Facility, or any subsequent
replacement or refinancing thereof.
"Disqualified Capital Stock" means, with respect to the Company, Capital
Stock of the Company that, by its terms or by the terms of any security into
which it is convertible, exercisable or exchangeable, is, or upon the happening
of an event or the passage of time would be, required to be redeemed or
repurchased (including at the option of the holder thereof) by the Company, in
whole or in part, on or prior to the Stated Maturity of the Notes, provided that
only the portion of such Capital Stock which is so convertible, exercisable,
exchangeable or redeemable or subject to repurchase prior to such Stated
Maturity shall be deemed to be Disqualified Capital Stock.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect from time to time.
"Global Notes" means U.S. Global Notes and Reg S Global Notes.
"Indebtedness" means, with respect to any person, all obligations, whether
or not contingent, of such person (i)(a) for borrowed money (including, but not
limited to, any indebtedness secured by a security interest, mortgage or other
lien on the assets of the Company which is (1) given to secure all or part of
the purchase price of property subject thereto, whether given to the vendor of
such property or to another, or (2) existing on property at the time of
acquisition thereof), (b) evidenced by a note, debenture, bond or other written
instrument, (c) under a lease required to be capitalized on the balance sheet of
the lessee under GAAP, (d) in respect of letters of credit, bank guarantees or
bankers' acceptances (including reimbursement obligations with respect to any of
the foregoing), (e) with respect to Indebtedness secured by a mortgage, pledge,
lien, encumbrance, charge or adverse claim affecting title or resulting in an
encumbrance to which the property or assets of such person are subject, whether
or not the obligation secured thereby shall have been assumed by or shall
otherwise be such person's legal liability, (f) in respect of the balance of
deferred and unpaid purchase price of any property or assets or (g) under
interest rate or currency swap agreements, cap, floor and collar agreements,
spot and forward contracts and similar agreements and arrangements; (ii) with
respect to any obligation of others of the type described in the
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preceding clause (i) or under clause (iii) below assumed by or guaranteed in any
manner by such person, contingent or otherwise (and, without duplication, the
obligations of such person under any such assumptions, guarantees or other such
arrangements); and (iii) any and all deferrals, renewals, extensions,
refinancings and refundings of, or amendments, modifications or supplements to,
any of the foregoing.
"Issuance Date" means the date on which the Notes are originally issued and
authenticated under the Indenture.
"Junior Securities" means any Qualified Capital Stock and any Indebtedness
of the Company that is fully subordinated in right of payment to Senior
Indebtedness to the same extent as the Notes and has no scheduled installment of
principal due, by redemption, sinking fund payment or otherwise, on or prior to
the Stated Maturity of the Notes.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"person" or "Person" means any individual, corporation, limited liability
company, partnership, joint venture, association, joint stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
"Qualified Capital Stock" means any Capital Stock of the Company that is not
Disqualified Capital Stock.
"Regulation S" means Regulation S promulgated under the Securities Act.
"Rule 144A" means Rule 144A promulgated under the Securities Act.
"Senior Indebtedness" means the principal of, premium, if any, and interest
on, rent under, and any other amounts payable on or in respect of the Credit
Facility and any other Indebtedness of the Company (including, without
limitation, any Obligations in respect of such Indebtedness and, in the case of
Designated Senior Indebtedness, any interest accruing after the filing of a
petition by or against the Company under any Bankruptcy Law, whether or not
allowed as a claim after such filing in any proceeding under such Bankruptcy
Law), whether outstanding on the date of this Indenture or thereafter created,
incurred, assumed, guaranteed or in effect guaranteed by the Company (including
all deferrals, renewals, extensions or refundings of, or amendments,
modifications or supplements to the foregoing); provided, however, that Senior
Indebtedness does not include (v) Indebtedness evidenced by the Notes, (w) any
liability for federal, state, local or other taxes owed or owing by the Company,
(x) Indebtedness of the Company to any of its Subsidiaries, (y) trade payables
of the Company, and (z) any particular Indebtedness in which the instrument
creating or evidencing the same or the assumption or guarantee thereof (or
related agreements or documents to which the Company is a party) expressly
provides that such Indebtedness shall not be senior in right of payment to, or
is pari passu with, or is subordinated or junior to, the Notes.
"Significant Subsidiary" means any subsidiary of the Company that would be a
"significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X,
promulgated pursuant to the Securities Act and the Exchange Act, as such
Regulation is in effect on the date of the Indenture.
"Stated Maturity" when used with respect to the Notes, means November 1,
2004.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person or one or more of the other Subsidiaries of that Person (or a combination
thereof) and (ii) any partnership (a) the sole general partner or the managing
general partner of which is such Person or a Subsidiary of such Person or (b)
the only general partners of which are such Person or of one or more
Subsidiaries of such Person (or any combination thereof).
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DESCRIPTION OF CREDIT FACILITY
In connection with the initial offering of the Notes, the Company negotiated
an amendment (the "Amendment") to its existing Credit Facility. The Amendment
permitted the Company to issue the Notes and otherwise modified the terms of the
Credit Facility as set forth below.
The following summary of the Credit Facility does not purport to be complete
and is subject to the detailed provisions thereof and various related documents
entered into in connection with the Credit Facility.
The Credit Facility provides for revolving borrowings in a maximum amount of
up to $125.0 million, subject to borrowing base limitations as set forth below,
and matures on April 17, 2000. Up to $15.0 million of the Credit Facility is
available for issuances of standby and commercial letters of credit. Borrowings
under the Credit Facility are unsecured except for the pledge of 65% of the
outstanding voting shares of two of the Company's foreign subsidiaries and are
guaranteed by substantially all of the Company's North American subsidiaries.
Borrowings under the Credit Facility are available for working capital and
general corporate purposes. Under the Amendment, borrowings under the Credit
Facility, together with amounts outstanding under the Construction Facility (as
defined below) and outstanding letters of credit, may not exceed 50% of the
Company's working capital (as defined therein).
Borrowings under the Credit Facility bear interest, at the option of the
Company, at either (i) LIBOR plus an applicable margin or (ii) the Base Rate (as
defined therein). The applicable margin over LIBOR is set quarterly based on (i)
the Company's rating, if any, by Standard & Poor's Rating Group or Moody's
Investors Service, and (ii) the Company's fixed charges coverage ratio (as
defined therein). The Company is required to pay certain fees in connection with
the Credit Facility, including a commitment fee payable quarterly ranging from
0.200% to 0.400% of the unused portion of the Credit Facility.
The Credit Facility contains certain financial covenants which require the
Company to maintain a specified fixed charge coverage ratio, total debt to
capitalization ratio, debt ratio and net worth. The Credit Facility contains
customary representations and warranties and requires compliance by the Company
with certain other covenants, including, without limitation, covenants limiting
(i) capital expenditures, (ii) other indebtedness, (iii) liens on the Company's
assets, (iv) mergers and consolidations, (v) the payment of dividends and other
distributions and (vi) acquisitions. The Credit Facility also contains customary
events of default, including, without limitation, (a) the failure to pay
interest, principal or other amounts payable in connection with the Credit
Facility when due, (b) the material inaccuracy of representations or warranties,
(c) insolvency, bankruptcy proceedings or material judgments, and (d) the
occurrence of a change of control (as defined therein) of the Company.
Additionally, the Credit Facility contains cross-default provisions to certain
other indebtedness of the Company, and specifically to obligations of the
Company under agreements for the lease of certain of its retail stores (the
"Lease Agreements").
The Company has entered into the Lease Agreements in connection with the
structured lease financing of certain of its retail stores (the "Structured
Lease Facilities"). The Structured Lease Facilities currently include a $60
million facility, up to $10 million of which may be used by a special purpose
entity (not affiliated with the Company) to acquire and hold undeveloped land,
and the balance of which may be used by such entity for the construction of new
stores (the "Construction Facility"). Under the Structured Lease Facilities,
another special purpose entity (not affiliated with the Company) leases the
completed stores to the Company. The Structured Lease Facilities have initial
maturities ranging from April 17, 1999 to April 17, 2002 and contains certain
options for renewal. The Company does not hold title at any time to any of the
properties covered by the Lease Agreements, but may elect to purchase the
properties at specified dates during the lease term. At the end of the lease
term or upon the occurrence of an event of default, the Company is required to
either purchase the properties at a specified price or arrange for the sale of
the properties to a third party and thereby guarantee a minimum residual value
of the leased property to the lessor. The lease rates under Structured Lease
Facilities are reflective of the landlord's cost of financing, and the Company
believes such lease rates to be the best available alternative for the occupancy
of its retail stores. Each of the Lease Agreements contain financial covenants
substantially
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identical to those contained in the Credit Facility and a cross-default
provision to the Credit Facility, among other provisions.
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 250,000,000 shares
of Common Stock, $.0001 par value, and 10,000,000 shares of preferred stock,
$.0001 par value (the "Preferred Stock"). As of November 19, 1997, there were
115,294,485 shares of Common Stock and no shares of Preferred Stock outstanding.
COMMON STOCK
The holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders. The holders of
Common Stock are not entitled to cumulative voting rights with respect to the
election of directors, and as a consequence, minority stockholders will not be
able to elect directors on the basis of their votes alone. Subject to
preferences that may be applicable to any then outstanding Preferred Stock,
holders of Common Stock are entitled to receive ratably such dividends as may be
declared by the Board of Directors out of funds legally available therefor. In
the event of a liquidation, dissolution or winding up of the Company, holders of
the Common Stock are entitled to share ratably in all assets remaining after
payment of liabilities and the liquidation preference of any then outstanding
Preferred Stock. Holders of Common Stock have no preemptive rights and no right
to convert their Common Stock into any other securities. There are no redemption
or sinking fund provisions applicable to the Common Stock. All outstanding
shares of Common Stock are fully paid and nonassessable.
AUTHORIZED BUT UNISSUED PREFERRED STOCK
The Board of Directors has the authority, without further action by the
stockholders, to issue up to 10,000,000 shares of Preferred Stock in one or more
series and to fix the rights, preferences, privileges and restrictions thereof,
including dividend rights, conversion rights, voting rights, terms of
redemption, liquidation preferences, sinking fund terms and the number of shares
constituting any series or the designation of such series. The issuance of
Preferred Stock could adversely affect the voting power of holders of Common
Stock and the likelihood that such holders will receive dividend payments and
payments upon liquidation and could have the effect of delaying, deferring or
preventing a change in control of the Company. The Company has no present plan
to issue any shares of Preferred Stock.
SHARE PURCHASE RIGHTS PLAN
In August 1997, the Company's Board of Directors adopted a Share Purchase
Rights Plan, commonly known as a "poison pill." The Share Purchase Rights Plan
provides for the distribution of certain rights to acquire shares of the
Company's Series A Junior Participating Preferred Stock (the "Rights") as a
dividend for each share of Common Stock held of record as of August 29, 1997.
The Rights are triggered and become potentially exercisable upon the occurrence
of either the (i) acquisition of 15% or more (20% or more in certain instances)
beneficial ownership of the Company's Common Stock by a person or group, or (ii)
ten days (or such later time as may be set by the Board of Directors) after a
public announcement of a tender or exchange offer for 15% or more beneficial
ownership of the Company's Common Stock by a person or group. If triggered and
certain other conditions are met, each Right effectively provides its holder,
other than holders who are "Acquiring Persons," the right to purchase shares of
Common Stock at a 50% discount from the market price at that time, upon payment
of an exercise price of $65 per Right. In addition, in the event of certain
business combinations, the Rights permit the purchase of shares of common stock
of an acquirer at a 50% discount from the market price at that time. The Board
of Directors has the right to redeem the Rights at a price of $0.001 per Right
at any time prior to the close of business on the day of the first public
announcement that a person has become an "Acquiring Person." If the Rights are
triggered the Board of Directors may elect to exchange each Right (other than
Rights held by Acquiring Persons) for one share of Common Stock. The Rights have
no voting privileges and are attached to and trade with Company's Common Stock.
The Board of Directors also generally may amend the terms
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of the Rights without the consent of the holders of the Rights. The Rights
expire on August 28, 2007. These provisions may have the effect of deterring
hostile takeovers or delaying changes in control or management of the Company.
TRANSFER AGENT
The transfer agent for the Company's Common Stock is Norwest Bank Minnesota,
N.A.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following is a general discussion of certain United States federal
income tax consequences of the acquisition, ownership and disposition of Notes.
This discussion is based upon the United States federal tax law now in effect,
which is subject to change, possibly retroactively. The tax treatment of holders
of the Notes may vary depending upon their particular situations. Certain
holders (including insurance companies, tax exempt organizations, financial
institutions, subsequent purchasers of Notes and broker-dealers) may be subject
to special rules not discussed below. In addition, this discussion does not
describe any tax consequences arising under the laws of any state, locality or
taxing jurisdiction other than the United States federal government. In general,
this discussion assumes that a holder acquires a Note at original issuance and
holds such Note as a capital asset and not as part of a "hedge," "straddle,"
"conversion transaction," "synthetic security" or other integrated investment.
Prospective investors are urged to consult their tax advisors regarding the
United States federal tax consequences of acquiring, holding and disposing of
Notes, as well as any tax consequences that may arise under the laws of any
foreign, state, local or other taxing jurisdiction.
As used herein, the term "United States Holder" means a beneficial owner of
a Note that is, for United States federal income tax purposes, a citizen or
resident of the United States, a corporation, partnership or other entity
created or organized in the United States or under the law of the United States
or of any political subdivision thereof, an estate whose income is includible in
gross income for United States federal income tax purposes regardless of its
source or a trust, if a United States court is able to exercise primary
supervision over the administration of the trust and one or more United States
fiduciaries have the authority to control all substantial decisions of the
trust.
UNITED STATES HOLDERS
STATED INTEREST
Stated interest on a Note will be taxable to a United States Holder as
ordinary interest income at the time that such interest accrues or is received,
in accordance with the United States Holder's regular method of accounting for
federal income tax purposes. The Company expects that the Notes will not be
considered to be issued with original issue discount for federal income tax
purposes.
PAYMENTS ON REGISTRATION DEFAULT
The treatment of interest as described above with respect to the Notes is
based in part on the assumption that as of the date of issuance of the Notes,
the possibility that Liquidated Damages would be paid to United States Holders
of the Notes pursuant to a Registration Default was remote. The Internal Revenue
Service (the "IRS") may take a different position, which could affect the timing
and character of interest income by United States Holders of the Notes. While
not free from doubt, if Liquidated Damages are in fact paid, the Company
believes that each United States Holder will be required to include the
Liquidated Damages in income in accordance with such United States Holder's
method of accounting as ordinary income.
CONVERSION OF NOTES INTO COMMON STOCK
In general, no gain or loss will be recognized for income tax purposes on a
conversion of the Notes into shares of Common Stock. However, cash paid in lieu
of a fractional share of Common Stock will result in taxable gain (or loss),
which will be capital gain (or loss) to the extent that the amount of such cash
exceeds (or is exceeded by) the portion of the adjusted basis of the Note
allocable to such fractional share.
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The adjusted basis of shares of Common Stock received on conversion will equal
the adjusted basis of the Note converted, reduced by the portion of adjusted
basis allocated to any fractional share of Common Stock exchanged for cash. The
holding period of an investor in the Common Stock received on conversion will
include the period during which the converted Notes were held.
The conversion price of the Notes is subject to adjustment under certain
circumstances. See "Description of Notes--Conversion Rights." Section 305 of the
Code and the Treasury Regulations issued thereunder may treat the holders of the
Notes as having received a constructive distribution, resulting in ordinary
income to the extent of the Company's current and accumulated earnings and
profits if and to the extent that certain adjustments in the conversion price
that may occur in limited circumstances (particularly an adjustment to reflect a
taxable dividend to holders of Common Stock) increase the proportionate interest
of a holder of Notes in the fully diluted Common Stock, whether or not such
holder ever exercises its conversion privilege. Moreover, if there is not a full
adjustment to the conversion price of the Notes to reflect a stock dividend or
other event increasing the proportionate interest of the holders of outstanding
Common Stock in the assets or earnings and profits of the Company, then such
increase in the proportionate interest of the holders of the Common Stock
generally will be treated as a distribution to such holders, taxable as ordinary
income to the extent of the Company's current and accumulated earnings and
profits.
MARKET DISCOUNT
Investors acquiring Notes should note that the resale of Notes may be
adversely affected by the market discount provisions of Sections 1276 through
1278 of the Code. Under the market discount rules, if a holder of a Note
purchases it at market discount (I.E., at a price below its stated redemption
price at maturity) in excess of a statutorily-defined DE MINIMIS amount and
thereafter recognizes gain upon a disposition or retirement of the Note, then
the lesser of the gain recognized or the portion of the market discount that
accrued on a ratable basis (or, if elected, on a constant interest rate basis)
generally will be treated as ordinary income at the time of the disposition.
Moreover, any market discount on a Note may be taxable to an investor to the
extent of appreciation at the time of certain otherwise non-taxable transactions
(E.G., gifts). Any accrued market discount not previously taken into income
prior to a conversion of a Note, however, should (under Treasury Regulations not
yet issued) carry over to the Common Stock received on conversion and be treated
as ordinary income upon a subsequent disposition of such Common Stock to the
extent of any gain recognized on such disposition. In addition, absent an
election to include market discount in income as it accrues, a holder of a
market discount debt instrument may be required to defer a portion of any
interest expense that otherwise may be deductible on any indebtedness incurred
or maintained to purchase or carry such debt instrument until the holder
disposes of the debt instrument in a taxable transaction.
SALE, EXCHANGE OR RETIREMENT OF THE NOTES
Except as described above under "--Conversion of Notes into Common Stock,"
upon the sale, exchange, redemption, retirement at maturity or other disposition
of a Note, a United States Holder will generally recognize taxable gain or loss
equal to the difference between the sum of cash plus the fair market value of
all other property received on such disposition (except to the extent such cash
or property is attributable to accrued interest which will be taxable as
ordinary income) and such holder's adjusted tax basis in the Note. Each United
States Holder of Common Stock into which the Notes are converted will generally
recognize gain or loss upon the sale, exchange, redemption or other disposition
of the Common Stock measured under rules similar to those described in the
preceding sentence for the Notes. Gain or loss recognized on the disposition of
a Note or Common Stock generally will be capital gain or loss (subject to the
market discount rules described above under "--Market Discount." Pursuant to the
recently enacted Taxpayer Relief Act of 1997, long-term capital gains tax rates
will apply to dispositions by individuals of capital assets (such as the Notes
or Common Stock) held for more than 18 months. The maximum long-term capital
gains tax rate applicable to individuals is currently 20% (10% for individuals
in
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the 15% tax bracket). Mid-term capital gains tax rates will apply to
dispositions by individuals of capital assets held for more than one year but
not more than 18 months. The maximum mid-term capital gains tax rate applicable
to individuals is currently 28% (15% for individuals in the 15% tax bracket).
Corporate taxpayers continue to be subject to a maximum regular tax rate of 35%
on all capital gains and ordinary income.
The exchange of a Note by a United States Holder for a new Note should not
constitute a taxable exchange of the Note. As a result, a United States Holder
should not recognize taxable gain or loss upon receipt of a new Note, a United
States Holder's holding period for a new Note should generally include the
holding period for the Note so exchanged and such holder's adjusted tax basis in
a new Note should generally be the same as such holder's adjusted tax basis in
the Note so exchanged.
BACKUP WITHHOLDING AND INFORMATION REPORTING
A United States Holder of a Note, or of Common Stock issued upon conversion
of a Note, may be subject to information reporting and possibly backup
withholding. If applicable, backup withholding would apply at a rate of 31% with
respect to dividends or interest on, or the proceeds of a sale, exchange,
redemption, retirement, or other disposition of, such Note or Common Stock, as
the case may be, unless (i) such United States Holder is a corporation or comes
within certain other exempt categories and, when required, demonstrates this
fact, or (ii) provides a taxpayer identification number, certifies as to no loss
of exemption from backup withholding, and otherwise complies with applicable
backup withholding rules. Amounts withheld under the backup withholding rules
from a payment to a United States Holder will be allowed as a credit against
such United States Holder's United States federal income tax and may entitle the
United States Holder to a refund, provided that the required information is
provided to the IRS.
Recently issued Treasury regulations (the "Final Withholding Regulations"),
which are generally effective with respect to payments made after December 31,
1998, modify the currently effective information reporting and backup
withholding procedures and requirements, and provide certain presumptions
regarding the status of holders when payments to the holders cannot be reliably
associated with appropriate documentation provided to the payer. To avoid backup
withholding with respect to payments made after December 31, 1998, initial
United States Holders will be required to provide certification, if applicable,
that conforms to the requirements of the Final Withholding Regulations, subject
to certain transitional rules which may apply to extend until December 31, 1999
a certification given in accordance with prior Treasury Regulations. Because the
application of the Final Withholding Regulations will vary depending on the
United States Holder's particular circumstances, United States Holders are urged
to consult their tax advisors regarding the application of the Final Withholding
Regulations.
NON-UNITED STATES HOLDERS
NOTES
Interest paid by the Company to any beneficial owner of a Note that is not a
United States Holder (a "Non-United States Holder") will generally not be
subject to United States federal withholding tax if (i) the interest is not
effectively connected with the conduct of a trade or business within the United
States, (ii) the Non-United States Holder does not actually or constructively
own 10% or more of the total combined voting power of all classes of stock of
the Company entitled to vote, (iii) the Non-United States Holder is not a
controlled foreign corporation that is related to the Company actually or
constructively through stock ownership and (iv) either (A) the beneficial owner
of the Note certifies to the Company or its agent, under penalties of perjury,
that it is not a United States Holder and provides its name and address on
United States Treasury Form W-8 (or on a suitable substitute form) or (B) a
securities clearing organization, bank or other financial institution that holds
customers' securities in the ordinary course of its trade or business (a
"financial institution") and holds the Note, certifies under penalties of
perjury that such a Form W-8 (or suitable substitute form) has been received
from the beneficial owner by it or by a financial institution between it and the
beneficial owner and furnishes the payer with a copy thereof.
55
<PAGE>
Payments to a Non-United States Holder not described in clauses (ii) through
(iv), above, will be subject to withholding at a rate of 30% on the gross amount
of such payment, unless the rate of withholding is reduced or eliminated by an
applicable income tax treaty and the Non-United States Holder provides the
Company with a properly completed Form 1001 certifying to its exemption from
withholding under such treaty. For a Non-United States Holder for which payments
on the Notes constitute income effectively connected with a United States trade
or business of such Holder, such Holder must provide a properly executed Form
4224 (or such successor forms as the IRS designates) in order to avoid
imposition of withholding tax at a rate of 30% (and, in the case of corporate
Holders, the branch profits tax). Non-United States Holders providing such
certification instead will be subject to United States net income taxation at
regular graduated rates on such effectively connected income. The Final
Withholding Regulations consolidate and modify the current certification
requirements and means by which a Non-United States Holder may claim exemption
from United States federal income tax withholding. A Non-United States Holder
must provide certification that complies with the procedures in the Final
Withholding Regulation, where required, by the first payment date after the
effective date of those regulations, subject to certain transitional rules which
may extend certifications previously provided by such Non-United States Holder
in accordance with the currently effective Treasury Regulations until December
31, 1999. Non-United States Holders claiming benefits under an income tax treaty
may be required to obtain a taxpayer identification number and to certify its
eligibility under the applicable treaty's limitations on benefits article in
order to comply with the Final Withholding Regulations' certification
requirements. All Non-United States Holders should consult their tax advisors
regarding the application of the Final Withholding Regulations, which are
generally effective with respect to payments made after December 31, 1998.
A Non-United States Holder generally will not be subject to United States
federal income tax on any capital gain realized in connection with the sale,
exchange, retirement, or other disposition of a Note, including the exchange of
a Note for Common Stock, provided (i) such gain is not effectively connected
with the conduct by such holder of a trade or business in the United States, and
(ii) in the case of a Non-United States Holder that is an individual, such
holder is not present in the United States for 183 days or more in the taxable
year of the disposition.
A Note held directly by an individual who, at the time of death, is not a
citizen or resident of the United States should not be includible in such
individual's gross estate for United States estate tax purposes as a result of
such individual's death if the individual does not actually or constructively
own 10% or more of the total combined voting power of all classes of stock of
the Company entitled to vote and, at the time of the individual's death, if
payments with respect to such Note would not have been effectively connected
with the conduct by such individual of a trade or business in the United States.
Even if the Note was includible in the gross estate under the foregoing rules,
the Note may be excluded under the provisions of an applicable estate tax
treaty.
COMMON STOCK
In general, dividends paid to a Non-United States Holder of the Common Stock
will be subject to United States federal income tax withholding at a 30% rate
unless such rate is reduced by an applicable income tax treaty. Dividends that
are effectively connected with such Non-United States Holder's conduct of a
trade or business in the United States or, if a tax treaty applies, attributable
to a permanent establishment, or, in the case of an individual, a "fixed base,"
in the United States ("United States trade or business income") are generally
subject to United States federal income tax at regular rates, but are not
generally subject to the 30% withholding tax if the Non-United States Holder
files the appropriate form with the payer. Any United States trade or business
income received by a Non-United States Holder that is a corporation may also,
under certain circumstances, be subject to an additional "branch profits tax" at
a 30% rate or such lower rate as may be applicable under an income tax treaty.
Dividends paid to an address in a foreign country are presumed (absent
actual knowledge to the contrary) to be paid to a resident of such country for
purposes of the withholding tax discussed above and, under current Treasury
Regulations, for purposes of determining the applicability of a tax treaty rate.
56
<PAGE>
Under the Final Withholding Regulations, which are generally effective with
respect to payments made after December 31, 1998, a Non-United States Holder of
the Common Stock who wishes to claim the benefit of an applicable tax treaty
rate would be required to satisfy applicable certification and other
requirements, which might include filing a Form W-8 that contains the Non-United
States Holder's name and address and a certification that such Holder is
eligible for the benefits of such treaty under its Limitations on Benefits
Article.
A Non-United States Holder of the Common Stock generally will not be subject
to United States income or withholding tax on capital gain realized on the sale,
exchange or redemption of such stock, provided (i) such gain is not effectively
connected with the conduct by such holder of a trade or business in the United
States, and (ii) in the case of a Non-United States Holder that is an
individual, such individual is not present in the United States for 183 days or
more in the taxable year of the disposition. Common Stock held directly by an
individual who at the time of death is not a citizen or resident of the United
States will nevertheless generally be includible in the gross estate of such
individual for United States estate tax purposes, subject to contrary provisions
of an applicable estate tax treaty.
BACKUP WITHHOLDING AND INFORMATION REPORTING
Payments on the Notes made by the Company or any paying agent of the Company
to Non-United States Holders generally should not be subject to information
reporting and backup withholding at the rate of 31% if the certification
described under "--The Notes" above is received and the payer does not have
actual knowledge that the Holder is a United States Holder. If paid to an
address outside the United States, dividends on Common Stock held by Non-United
States Holders will generally not be subject to information reporting and backup
withholding, provided that the payer does not have actual knowledge that the
Holder is a United States person. However, under the Final Withholding
Regulations, which will not be effective prior to January 1, 1999, dividend
payments will be subject to information reporting and backup withholding unless
applicable certification requirements are satisfied.
Payment of proceeds from a sale of a Note or the Common Stock to or through
the United States office of a broker is subject to information reporting and
backup withholding unless the Non-United States Holder certifies as to its
Non-United States Holder status or otherwise establishes an exemption from
information reporting and backup withholding. Payment outside the United States
of the proceeds of the sale of a Note or the Common Stock to or through a
foreign office of a "broker" (as defined in applicable United States Treasury
Regulations) should not be subject to information reporting or backup
withholding, except that if the broker is a United States person, a controlled
foreign corporation for United States federal income tax purposes or a foreign
person 50% or more of whose gross income is from a United State trade or
business, information reporting should apply to such payment unless the broker
has documentary evidence in its records that the beneficial owner is not a
United States Holder and certain other conditions are not met or the beneficial
owner otherwise establishes an exemption.
All Non-United States Holders are urged to consult their tax advisors
regarding the possible application of information reporting and backup
withholding in light of their particular circumstances under the Final
Withholding Regulations.
57
<PAGE>
SELLING SECURITYHOLDERS
The following table sets forth the names of the Selling Securityholders, the
number of shares of Common Stock owned by each of them as of December , 1997
and the principal amount of Notes and number of Conversion Shares which may be
offered pursuant to this Prospectus. This information is based upon information
provided by Norwest Bank Minnesota, N.A., trustee under the Indenture, and by or
on behalf of the Selling Securityholders. The Selling Securityholders may offer
all, some or none of their Notes or Conversion Shares.
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT COMMON STOCK
OF NOTES OWNED PRINCIPAL AMOUNT OF OWNED PRIOR
PRIOR TO NOTES TO COMMON STOCK
NAME OFFERING(1) OFFERED HEREBY OFFERING(1)(2) OFFERED HEREBY
- ----------------------------------------- ------------------ ------------------- --------------- --------------
<S> <C> <C> <C> <C>
*
</TABLE>
- ------------------------
* The Registrant will amend the Registration Statement prior to effectiveness
to provide a current list of Selling Securityholders.
(1) Beneficial ownership is determined in accordance with the Rules of the SEC
and generally includes voting or investment power with respect to
securities. Except as otherwise indicated by footnote, and subject to
community property laws where applicable, the persons named in the table
have sole voting and investment power with respect to all shares of Common
Stock shown as beneficially owned by them.
(2) Includes Conversion Shares based on a conversion price of $8.75 per share
and a cash payment in lieu of any fractional interest.
Because the Selling Securityholders may offer all or some of the Notes that
they hold and/or Conversion Shares pursuant to the offering contemplated by this
Prospectus, and because there are currently no agreements, arrangements or
understandings with respect to the sale of any of the Notes or Conversion Shares
by the Selling Securityholders, no estimate can be given as to the principal
amount of Notes or Conversion Shares that will be held by the Selling
Securityholders after completion of this offering.
58
<PAGE>
PLAN OF DISTRIBUTION
The Notes and the Conversion Shares offered hereby may be sold from time to
time by the Selling Securityholders to purchasers directly by any of the Selling
Securityholders in one or more transactions at a fixed price, which may be
changed, or at varying prices determined at the time of sale or at negotiated
prices. Such prices will be determined by the holders of such securities or by
agreement between such holders and underwriters or dealers who may receive fees
or commissions in connection therewith.
Any of the Selling Securityholders may from time to time offer the Notes or
Conversion Shares beneficially owned by them through underwriters, dealers or
agents, who may receive compensation in the form of underwriting discounts,
commissions or concessions from the Selling Securityholders and the purchasers
of the Notes or Conversion Shares for whom they may act as agent. Each Selling
Securityholder will be responsible for payment of commissions, concessions and
discounts of underwriters, dealers or agents. The aggregate proceeds to the
Selling Securityholders from the sale of the Notes or Conversion Shares offered
by them hereby will be the purchase price of such Notes or Conversion Shares
less discounts and commissions, if any. Each of the Selling Securityholders
reserves the right to accept and, together with their agents from time to time
to reject, in whole or in part, any proposed purchase of Notes or Conversion
Shares to be made directly or through agents. The Company will not receive any
of the proceeds from this offering. Alternatively, the Selling Securityholders
may sell all or a portion of the Notes and the Conversion Shares beneficially
owned by them and offered hereby from time to time on any exchange on which the
securities are listed on terms to be determined at the times of such sales. The
Selling Securityholders may also make private sales directly or through a broker
or brokers.
The Company's outstanding Common Stock is listed for trading on Nasdaq.
Prior to this offering, the Notes were eligible for trading on the PORTAL
market. The Notes sold pursuant to the Registration Statement of which this
Prospectus forms a part are not expected to remain eligible for trading on the
PORTAL system. The Company does not intend to list the Notes for trading on any
national securities exchange or on the Nasdaq Stock Market. Accordingly, no
assurance can be given as to the development of any trading market for the
Notes. See "Risk Factors--Limited Public Market for the Notes; Possible
Volatility of Stock Price; Absence of Dividends."
In order to comply with the securities laws of certain states, if
applicable, the Notes and Conversion Shares may be sold in such jurisdictions
only through registered or licensed brokers or dealers. In addition, in certain
states the Notes and Conversion Shares may not be sold unless it has been
registered or qualified for sale or an exemption from registration or
qualification requirements is available and is complied with.
The Selling Securityholders and any underwriters, dealers or agents that
participate in the distribution of the Notes and Conversion Shares offered
hereby may be deemed to be underwriters within the meaning of the Securities
Act, and any discounts, commissions or concessions received by them and any
provided pursuant to the sale of shares by them might be deemed to be
underwriting discounts and commissions under the Securities Act.
In addition, any securities covered by this Prospectus which qualify for
sale pursuant to Rule 144 or Rule 144A of the Securities Act may be sold under
Rule 144 or Rule 144A rather than pursuant to this Prospectus. There is no
assurance that any Selling Securityholder will sell any or all of the Notes or
Conversion Shares described herein, and any Selling Securityholder may transfer,
devise or gift such securities by other means not described herein.
To the extent required, the specific Notes or Conversion Shares to be sold,
the names of the Selling Securityholders, the respective purchase prices and
public offering prices, the names of any agent, dealer or underwriter, and any
applicable commissions or discounts with respect to a particular offer will be
set forth in an accompanying Prospectus Supplement or, if appropriate, a
post-effective amendment to the Registration Statement of which this Prospectus
is a part. The Company entered into a Registration Rights Agreement for the
benefit of holders of the Notes to register their Notes and Conversion Shares
under
59
<PAGE>
applicable federal and state securities laws under certain circumstances and at
certain times. The Registration Rights Agreement provides for
cross-indemnification of the Selling Securityholders and the Company and their
respective directors, officers and controlling persons against certain
liabilities in connection with the offer and sale of the Notes and the
Conversion Shares, including liabilities under the Securities Act of 1933, as
amended, and to contribute to payments the parties may be required to make in
respect thereof.
The Company will pay substantially all of the expenses incurred by the
Selling Securityholders and the Company incident to the offering and sale of the
Notes and the Conversion Shares excluding any underwriting discounts or
commissions.
LEGAL MATTERS
The validity of the Notes and the Conversion Shares offered hereby will be
passed upon for the Company by Cooley Godward LLP, Palo Alto, California. As of
the date of this Prospectus certain attorneys with such firm beneficially owned
approximately 31,000 shares of Common Stock of the Company.
EXPERTS
The consolidated financial statements of PETsMART, Inc. as of February 2,
1997 and January 28, 1996 and for each of the three years in the period ended
February 2, 1997 incorporated in this Prospectus by reference to the Company's
Annual Report on Form 10-K, except as they relate to Petstuff, Inc. and
subsidiaries ("Petstuff"), Sporting Dog Specialties, Inc. and affiliates
("Sporting Dog"), The Pet Food Giant, Inc. ("Pet Food Giant"), State Line Tack,
Inc. and subsidiaries ("State Line Tack") and Pet City Holdings Plc and
subsidiaries ("Pet City"), have been audited by Price Waterhouse LLP,
independent accountants, and, insofar as they relate to the financial statements
of Petstuff for the year ended January 29, 1995, not included separately herein,
by Deloitte & Touche LLP, and insofar as they relate to the financial statements
of Sporting Dog as of January 31, 1995 and for the year then ended, not included
separately herein, by Davie, Kaplan & Braverman, P.C., and insofar as they
relate to the financial statements of Pet Food Giant, for the year ended
December 31, 1994, not included separately herein, by Coopers & Lybrand L.L.P.,
and insofar as they relate to the financial statements of State Line Tack as of
December 31, 1994 and 1995 and for each of the three years in the period ended
December 31, 1995, not included separately herein, by Arthur Andersen LLP, and
insofar as they relate to the financial statements of Pet City as of July 27,
1996 and July 29, 1995 and for each of the 52 weeks then ended, not included
separately herein, by Grant Thornton, whose reports thereon are incorporated in
this Prospectus by reference to the Company's Annual Report on Form 10-K. Such
financial statements have been so incorporated in reliance on the reports of
such independent accountants given on the authority of said firms as experts in
auditing and accounting.
The consolidated statements of operations, shareholders' equity, and cash
flows of Petstuff for the year ended January 29, 1995, not separately presented
in this Prospectus, have been audited by Deloitte & Touche LLP, independent
auditors, whose report thereon is incorporated in this Prospectus by reference
to the Company's Annual Report on Form 10-K (which report expresses an
unqualified opinion and includes an explanatory paragraph regarding a certain
complaint). Such financial statements, to the extent they have been included in
the consolidated financial statements of PETsMART, Inc., have been so
incorporated in reliance on their report given on the authority of said firm as
experts in accounting and auditing.
The combined balance sheet of Sporting Dog as of January 31, 1995, and the
related combined statements of income, retained earnings and cash flows for the
year then ended, not separately presented in this Prospectus, have been audited
by Davie, Kaplan & Braverman, P.C., independent auditors, whose report thereon
is incorporated in this Prospectus by reference to the Company's Annual Report
on Form 10-K. Such financial statements, to the extent they have been included
in the consolidated financial
60
<PAGE>
statements of PETsMART, Inc., have been so incorporated in reliance on their
report given on the authority of said firm as experts in accounting and
auditing.
The statements of operation and cash flows of Pet Food Giant for the fiscal
year ended December 31, 1994, not separately presented in this Prospectus, have
been audited by Coopers & Lybrand L.L.P., independent accountants, whose report
thereon is incorporated in this Prospectus by reference to the Company's Annual
Report on Form 10-K. Such financial statements, to the extent they have been
included in the consolidated financial statements of PETsMART, Inc., have been
so incorporated in reliance on their report given on the authority of said firm
as experts in accounting and auditing.
The consolidated balance sheets of State Line Tack as of December 31, 1994
and 1995, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended December
31, 1995, not separately presented in this Prospectus, have been audited by
Arthur Andersen LLP, independent public accountants, whose report thereon is
incorporated in this Prospectus by reference to the Company's Annual Report on
Form 10-K. Such financial statements, to the extent they have been included in
the consolidated financial statements of PETsMART, Inc., have been so
incorporated in reliance on their report given on the authority of said firm as
experts in accounting and auditing.
The consolidated balance sheets of Pet City as of July 27, 1996 and July 29,
1995 and the related consolidated statements of operations, shareholders' equity
and cash flows for each of the 52 weeks then ended, not separately presented in
this Prospectus, have been audited by Grant Thornton, independent chartered
accountants, whose report thereon is incorporated in this Prospectus by
reference to the Company's Annual Report on Form 10-K. Such financial
statements, to the extent they have been included in the consolidated financial
statements of PETsMART, Inc., have been so incorporated in reliance on their
report given on the authority of said firm as experts in accounting and
auditing.
61
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALES PERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY SECURITY
OTHER THAN THE NOTES OR CONVERSION SHARES OFFERED HEREBY, NOR DOES IT CONSTITUTE
AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE NOTES OR
CONVERSION SHARES TO ANYONE IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM,
IT WOULD BE UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION. NEITHER THE DELIVERY
OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE
COMPANY SINCE THE DATE HEREOF OR IMPLY THAT INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
-------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Available Information...................................................................................... i
Incorporation of Certain Documents by Reference............................................................ i
Disclosure Regarding Forward-Looking Statements............................................................ ii
Summary.................................................................................................... 1
Risk Factors............................................................................................... 3
Use of Proceeds............................................................................................ 8
Price Range of Common Stock................................................................................ 8
Dividend Policy............................................................................................ 8
Capitalization............................................................................................. 9
Selected Financial Data.................................................................................... 10
Management's Discussion and Analysis of Financial Condition and Results of Operations...................... 12
Business................................................................................................... 22
Management................................................................................................. 30
Description of Notes....................................................................................... 34
Description of Credit Facility............................................................................. 51
Description of Capital Stock............................................................................... 52
Certain Federal Income Tax Considerations.................................................................. 53
Selling Securityholders.................................................................................... 58
Plan of Distribution....................................................................................... 59
Legal Matters.............................................................................................. 60
Experts.................................................................................................... 60
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth all expenses, other than the underwriting
discounts and commissions, payable by the Registrant in connection with the sale
of the Common Stock being registered. All the amounts shown are estimates except
for the registration fee and the NASD filing fee.
<TABLE>
<S> <C>
Registration fee.................................................. $ 60,606
NASD filing fee................................................... --
Nasdaq listing fee................................................ 17,500
Blue sky qualification fees and expenses.......................... --
Printing and engraving expenses................................... 10,000
Legal fees and expenses........................................... 20,000
Accounting fees and expenses...................................... 15,000
Transfer agent and registrar fees................................. --
Miscellaneous..................................................... 1,894
---------
Total............................................................. $ 125,000
---------
---------
</TABLE>
ITEM 15. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
Under Section 145 of the Delaware General Corporation Law, the Registrant
has broad powers to indemnify its directors and officers against liabilities
they may incur in such capacities, including liabilities under the Securities
Act of 1933, as amended ("Securities Act"). The Registrant's Bylaws also provide
that the Registrant will indemnify its directors and executive officers and may
indemnify its other officers, employees and other agents to the fullest extent
permitted by Delaware law.
The Registrant's Restated Certificate of Incorporation ("Restated
Certificate") provides that the liability of its directors for monetary damages
shall be eliminated to the fullest extent permissible under Delaware law.
Pursuant to Delaware law, this includes elimination of liability for monetary
damages for breach of the directors' fiduciary duty of care to the Registrant
and its stockholders. These provisions do not eliminate the directors' duty of
care and, in appropriate circumstances, equitable remedies such as injunctive or
other forms of non-monetary relief will remain available under Delaware law. In
addition, each director will continue to be subject to liability for breach of
the director's duty of loyalty to the Registrant, for act or omissions not in
good faith or involving intentional misconduct, for knowing violations of law,
for any transaction from which the director derived an improper personal
benefit, and for payment of dividends or approval of stock repurchases or
redemptions that are unlawful under Delaware law. The provision also does not
affect a director's responsibilities under any other laws, such as the federal
securities laws or state or federal environmental laws.
The Registrant has entered into agreements with its directors and officers
that require the Company to indemnify such persons to the fullest extent
authorized or permitted by the provisions of the Restated Certificate and
Delaware law against expenses, judgements, fines, settlements and other amounts
actually and responsibly incurred (including expenses of a derivative action) in
connection with any proceeding, whether actual or threatened, to which any such
person may be made a party by reason of the fact that such person is or was a
director, officer, employee or other agent of the Registrant or any of its
affiliated enterprise. Delaware law permits such indemnification, provided such
person acted in good faith and in a manner such person reasonably believed to be
in or not opposed to the best interest of the Registrant and, with respect to
any criminal proceeding, had no reasonable cause to believe his or her conduct
was unlawful. The indemnification agreements also set forth certain procedures
that will apply in the event of a claim for indemnification thereunder.
II-1
<PAGE>
At present, there is no pending litigation or proceeding involving a
director or officer of the Registrant as to which indemnification is being
sought nor is the Registrant aware of any threatened litigation that may result
in claims for indemnification by any officer or director.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ----------- ------------------------------------------------------------------------------------------------
<C> <S> <C>
2.1 Agreement and Plan of Reorganization by and among PETsMART, PETsMART Acquisition Corp. and
Petstuff, Inc., dated February 7, 1995, as amended.(5)
2.2 Agreement and Plan of Reorganization between PETsMART and The Weisheimer Companies, Inc., dated
January 28, 1994.(2)
2.3 Agreement and Plan of Reorganization between PETsMART, Remington Acquisition Corp., Sporting Dog
Specialties, Inc. and certain individual shareholders named therein, dated as of April 3, 1995
(the Sporting Dog Agreement).(3)
2.4 Form of First Amendment to the Sporting Dog Agreement, dated as of April 18, 1995.(3)
2.5 Agreement and Plan of Reorganization and Plan of Merger by and among PETsMART, Turnpike
Acquisition Corp., and The Pet Food Giant, Inc., dated as of August 17, 1995.(5)
2.6 Agreement and Plan of Reorganization by and among PETsMART, Stallion Acquisition Corp., and
State Line Tack, Inc., dated as of December 20, 1995.(6)
2.7 Merger Agreement by and among PETsMART and Pet City Holdings plc, dated as of October 24,
1996.(9)
3.1 Restated Certificate of Incorporation of PETsMART.(1)
3.2 By-laws of PETsMART.(1)
3.3 Certificate of Amendment of Restated Certificate of Incorporation of PETsMART.(7)
4.1 Reference is made to Exhibits 3.1, 3.2 and 3.3.
4.2 Restated Registration and First Refusal Rights Agreement, among PETsMART and the parties named
therein, dated October 30, 1992.(1)
4.3 Series H Preferred Stock Purchase Agreement between PETsMART and the other parties named
therein, dated as of September 8,1991.(1)
4.4 Indenture between PETsMART and Norwest Bank Minnesota, N.A., as Trustee dated as of November 7,
1997.
4.5 Purchase Agreement by and among PETsMART, Donaldson, Lufkin & Jenrette Securities Corporation,
and NationsBanc Montgomery Securities, Inc., dated as of November 4, 1997.
4.6 Registration Rights Agreement by and among PETsMART, Donaldson, Lufkin & Jenrette Securities
Corporation, and NationsBanc Montgomery Securities, Inc., dated as of November 7, 1997.
5.1 Opinion of Cooley Godward LLP.
10.1 Form of Indemnity Agreement entered into between PETsMART and its directors and officers, with
related schedules.(1)
10.2* PETsMART's 1995 Equity Incentive Plan (the Incentive Plan)(an amendment and restatement of the
Registrant's 1988 Stock Option Plan).(4)
10.3* Form of Incentive Stock Option Grant under the Incentive Plan.(4)
10.4* Form of Non-qualified Stock Option Grant under the Incentive Plan.(4)
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ----------- ------------------------------------------------------------------------------------------------
<C> <S> <C>
10.5* PETsMART's 1992 Non-Employee Director's Stock Option Plan (the Director's Plan).(1)
10.6* PETsMART's Employee Stock Purchase Plan.(1)
10.12* Employment Agreement between Giles Clarke, PETsMART and Pet City Holdings plc, dated as of
October 23, 1996.(8)
10.13 Third Amended and Restated Credit Agreement among PETsMART, certain lenders, and NationsBank of
Texas, N.A. as Administrative Lender, dated as of April 18, 1997.(9)
10.14 First Amendment, dated as of August 6, 1997, to Third Amended and Restated Credit Agreement
among PETsMART, certain lenders, and NationsBank of Texas, N.A. as Administrative Lender.(10)
10.15 Second Amendment, dated as of October 29, 1997, to Third Amended and Restated Credit Agreement
among PETsMART, certain lenders, and NationsBank of Texas, N.A. as Administrative Lender.
12.1 Computation of Ratio of Earnings to Fixed Charges.
23.1 Consent of Price Waterhouse LLP.
23.2 Consent of Coopers & Lybrand L.L.P.
23.3 Consent of Deloitte & Touche LLP.
23.4 Consent of Davie, Kaplan & Braverman, P.C.
23.5 Consent of Arthur Andersen LLP.
23.6 Consent of Grant Thornton.
23.7 Consent of Cooley Godward LLP. Reference is made to Exhibit 5.1.
25.1 Statement of Eligibility of Indenture Trustee on Form T-1.
</TABLE>
- ------------------------
* Management Contract or Compensatory Plan or Agreement
(1) Incorporated by reference to the indicated exhibit to PETsMART's
Registration Statement on Form S-1 (File No. 33-63912).
(2) Incorporated by reference to the indicated exhibit to PETsMART's Current
Report on Form 8-K (File No. 0-21888), filed April 8, 1994.
(3) Incorporated by reference to the indicated exhibit to PETsMART's
Registration Statement on Form S-4 (File No. 33-91356), as amended.
(4) Incorporated by reference to Exhibits 10.1 and 10.2 to PETsMART's Quarterly
Report on Form 10-Q (File No. 0-21888), filed June 8, 1995.
(5) Incorporated by reference to Exhibit 2.1 to PETsMART's Current Report on
Form 8-K (File No. 0-21888), filed September 28, 1995.
(6) Incorporated by reference to Exhibit 10.1 to PETsMART's Current Report on
Form 8-K (File No. 0-21888), filed February 13, 1996.
(7) Incorporated by reference to Exhibit 3.1 to PETsMART's Current Report on
Form 8-K (File No. 0-21888), filed September 11, 1996.
(8) Incorporated by reference to Exhibits 2.1 and 10.1 to PETsMART's Current
Report on Form 8-K (File No. 0-21888), filed on December 31, 1996, as
amended by PETsMART's Current Report on Form 8-K/A (File No. 0-21888), filed
February 14, 1997.
(9) Incorporated by reference to Exhibit 10.13 to PETsMART's Quarterly Report on
Form 10-Q for the quarter ended May 4, 1997 (File No. 0-21888), filed June
11, 1997.
II-3
<PAGE>
(10) Incorporated by reference to Exhibit 10.13 to PETsMART's Quarterly Report
on Form 10-Q for the quarter ended August 3, 1997 (File No. 0-21888), filed
September 16, 1997.
(B) SCHEDULES.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") (and, where applicable,
each filing of an employee benefit plan's annual report pursuant to Section
15(d) of the Exchange Act) that is incorporated by reference in 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.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of periodic
report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act") containing information required to be included
in a post-effective amendment 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.
The undersigned Registrant hereby undertakes to file, during any period in
which offers or sales are being made, a post-effective amendment to this
Registration Statement to include any material information with respect to the
plan of distribution not previously disclosed in the Registration Statement or
any material change to such information in the Registration Statement.
The undersigned Registrant hereby undertakes to remove from registration by
mean of a post-effective amendment any of the securities being registered which
remain unsold at the termination of the offering.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers, and controlling persons of the
Registrant pursuant to the provisions described in Item 14 or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer, or controlling
person of the Registrant in the successful defense of any action, suit, or
proceeding) is asserted 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 undertakes that: (1) for purposes of determining
any liability under the Securities Act, the information omitted from the form of
prospectus as filed as part of the registration statement in reliance upon Rule
430A and contained in the form of prospectus filed by the Registrant pursuant to
Rule 424(b) (1) or (4) or 497(h) under the Securities Act shall be deemed to be
part of the registration statement as of the time it was declared effective, and
(2) for the purpose of determining any liability under the Securities Act, each
post-effective amendment that contained a form of prospectus 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.
The undersigned Registrant hereby undertakes to file an application for the
purpose of determining the eligibility of the trustee to act under Subsection
(a) of Section 310 of the Trust Indenture Act in accordance with the rules and
regulations prescribed by the Commission under Section 305(b)(2) of the Trust
Indenture Act.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Phoenix, State of Arizona, on the 25th day of
November, 1997.
<TABLE>
<S> <C> <C>
PETSMART, INC.
By: /s/ SAMUEL J. PARKER
------------------------------------------
Samuel J. Parker
CHAIRMAN OF THE BOARD OF DIRECTORS AND
CHIEF EXECUTIVE OFFICER
</TABLE>
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Samuel J. Parker and Susan C. Schnabel, and each
or any one of them, his true and lawful attorney-in-fact and agent, with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments and registration statements filed pursuant to Rule
462) to this Registration Statement, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in connection therewith, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, or their
or his substitutes or substitute, 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 below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------------------ --------------------------------------------------- ----------------------
<C> <S> <C>
/s/ SAMUEL J. PARKER
------------------------------------------- Chairman of the Board of Directors and Chief November 25, 1997
Samuel J. Parker Executive Officer (PRINCIPAL EXECUTIVE OFFICER)
/s/ SUSAN C. SCHNABEL
------------------------------------------- Senior Vice President, Chief Financial Officer November 25, 1997
Susan C. Schnabel (PRINCIPAL FINANCIAL OFFICER)
/s/ KENNETH A. CONWAY
------------------------------------------- Vice-President, Controller (PRINCIPAL ACCOUNTING November 25, 1997
Kenneth A. Conway OFFICER)
/s/ DONNA R. ECTON
------------------------------------------- Chief Operating Officer and Director November 25, 1997
Donna R. Ecton
------------------------------------------- Director
Denis L. Defforey
/s/ PHILIP L. FRANCIS
------------------------------------------- Director November 25, 1997
Philip L. Francis
/s/ RICHARD M. KOVACEVICH
------------------------------------------- Director November 25, 1997
Richard M. Kovacevich
/s/ LAWRENCE S. PHILIPS
------------------------------------------- Director November 25, 1997
Lawrence S. Philips
/s/ WALTER J. SALMON
------------------------------------------- Director November 25, 1997
Walter J. Salmon
/s/ THOMAS G. STEMBERG
------------------------------------------- Director November 25, 1997
Thomas G. Stemberg
</TABLE>
II-5
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ----------- ------------------------------------------------------------------------------------------------
<C> <S> <C>
2.1 Agreement and Plan of Reorganization by and among PETsMART, PETsMART Acquisition Corp. and
Petstuff, Inc., dated February 7, 1995, as amended.(5)
2.2 Agreement and Plan of Reorganization between PETsMART and The Weisheimer Companies, Inc., dated
January 28, 1994.(2)
2.3 Agreement and Plan of Reorganization between PETsMART, Remington Acquisition Corp., Sporting Dog
Specialties, Inc. and certain individual shareholders named therein, dated as of April 3, 1995
(the Sporting Dog Agreement).(3)
2.4 Form of First Amendment to the Sporting Dog Agreement, dated as of April 18, 1995.(3)
2.5 Agreement and Plan of Reorganization and Plan of Merger by and among PETsMART, Turnpike
Acquisition Corp., and The Pet Food Giant, Inc., dated as of August 17, 1995.(5)
2.6 Agreement and Plan of Reorganization by and among PETsMART, Stallion Acquisition Corp., and
State Line Tack, Inc., dated as of December 20, 1995.(6)
2.7 Merger Agreement by and among PETsMART and Pet City Holdings plc, dated as of October 24,
1996.(9)
3.1 Restated Certificate of Incorporation of PETsMART.(1)
3.2 By-laws of PETsMART.(1)
3.3 Certificate of Amendment of Restated Certificate of Incorporation of PETsMART.(7)
4.1 Reference is made to Exhibits 3.1, 3.2 and 3.3.
4.2 Restated Registration and First Refusal Rights Agreement, among PETsMART and the parties named
therein, dated October 30, 1992.(1)
4.3 Series H Preferred Stock Purchase Agreement between PETsMART and the other parties named
therein, dated as of September 8,1991.(1)
4.4 Indenture between PETsMART and Norwest Bank Minnesota, N.A., as Trustee dated as of November 7,
1997.
4.5 Purchase Agreement by and among PETsMART, Donaldson, Lufkin & Jenrette Securities Corporation,
and NationsBanc Montgomery Securities, Inc., dated as of November 4, 1997.
4.6 Registration Rights Agreement by and among PETsMART, Donaldson, Lufkin & Jenrette Securities
Corporation, and NationsBanc Montgomery Securities, Inc., dated as of November 7, 1997.
5.1 Opinion of Cooley Godward LLP.
10.1 Form of Indemnity Agreement entered into between PETsMART and its directors and officers, with
related schedules.(1)
10.2* PETsMART's 1995 Equity Incentive Plan (the Incentive Plan)(an amendment and restatement of the
Registrant's 1988 Stock Option Plan).(4)
10.3* Form of Incentive Stock Option Grant under the Incentive Plan.(4)
10.4* Form of Non-qualified Stock Option Grant under the Incentive Plan.(4)
10.5* PETsMART's 1992 Non-Employee Director's Stock Option Plan (the Director's Plan).(1)
10.6* PETsMART's Employee Stock Purchase Plan.(1)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ----------- ------------------------------------------------------------------------------------------------
<C> <S> <C>
10.12* Employment Agreement between Giles Clarke, PETsMART and Pet City Holdings plc, dated as of
October 23, 1996.(8)
10.13 Third Amended and Restated Credit Agreement among PETsMART, certain lenders, and NationsBank of
Texas, N.A. as Administrative Lender, dated as of April 18, 1997.(9)
10.14 First Amendment, dated as of August 6, 1997, to Third Amended and Restated Credit Agreement
among PETsMART, certain lenders, and NationsBank of Texas, N.A. as Administrative Lender.(10)
10.15 Second Amendment, dated as of October 29, 1997, to Third Amended and Restated Credit Agreement
among PETsMART, certain lenders, and NationsBank of Texas, N.A. as Administrative Lender.
12.1 Computation of Ratio of Earnings to Fixed Charges.
23.1 Consent of Price Waterhouse LLP.
23.2 Consent of Coopers & Lybrand L.L.P.
23.3 Consent of Deloitte & Touche LLP.
23.4 Consent of Davie, Kaplan & Braverman, P.C.
23.5 Consent of Arthur Andersen LLP.
23.6 Consent of Grant Thornton.
23.7 Consent of Cooley Godward LLP. Reference is made to Exhibit 5.1.
25.1 Statement of Eligibility of Indenture Trustee on Form T-1.
</TABLE>
- ------------------------
* Management Contract or Compensatory Plan or Agreement
(1) Incorporated by reference to the indicated exhibit to PETsMART's
Registration Statement on Form S-1 (File No. 33-63912).
(2) Incorporated by reference to the indicated exhibit to PETsMART's Current
Report on Form 8-K (File No. 0-21888), filed April 8, 1994.
(3) Incorporated by reference to the indicated exhibit to PETsMART's
Registration Statement on Form S-4 (File No. 33-91356), as amended.
(4) Incorporated by reference to Exhibits 10.1 and 10.2 to PETsMART's Quarterly
Report on Form 10-Q (File No. 0-21888), filed June 8, 1995.
(5) Incorporated by reference to Exhibit 2.1 to PETsMART's Current Report on
Form 8-K (File No. 0-21888), filed September 28, 1995.
(6) Incorporated by reference to Exhibit 10.1 to PETsMART's Current Report on
Form 8-K (File No. 0-21888), filed February 13, 1996.
(7) Incorporated by reference to Exhibit 3.1 to PETsMART's Current Report on
Form 8-K (File No. 0-21888), filed September 11, 1996.
(8) Incorporated by reference to Exhibits 2.1 and 10.1 to PETsMART's Current
Report on Form 8-K (File No. 0-21888), filed on December 31, 1996, as
amended by PETsMART's Current Report on Form 8-K/A (File No. 0-21888), filed
February 14, 1997.
(9) Incorporated by reference to Exhibit 10.13 to PETsMART's Quarterly Report on
Form 10-Q for the quarter ended May 4, 1997 (File No. 0-21888), filed June
11, 1997.
(10) Incorporated by reference to Exhibit 10.13 to PETsMART's Quarterly Report
on Form 10-Q for the quarter ended August 3, 1997 (File No. 0-21888), filed
September 16, 1997.
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PETSMART, INC.
ISSUER,
and
NORWEST BANK MINNESOTA, N.A.
TRUSTEE
----------------------------------
INDENTURE
Dated as of November 7, 1997
----------------------------------
$175,000,000*
6 3/4% Convertible Subordinated Notes due 2004
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
* Subject to increase up to $201,250,000
<PAGE>
TABLE OF CONTENTS
PAGE
----
ARTICLE I DEFINITIONS AND INCORPORATION BY REFERENCE. . . . . . . . . . . 1
SECTION 1.1. Definitions. . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.2. Other Definitions. . . . . . . . . . . . . . . . . . . 7
SECTION 1.3. Incorporation by Reference of TIA. . . . . . . . . . . 8
SECTION 1.4. Rules of Construction. . . . . . . . . . . . . . . . . 8
ARTICLE II THE SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . 9
SECTION 2.1. Form and Dating. . . . . . . . . . . . . . . . . . . . 9
SECTION 2.2. Execution and Authentication . . . . . . . . . . . . . 10
SECTION 2.3. Registrar and Paying Agent . . . . . . . . . . . . . . 11
SECTION 2.4. Paying Agent to Hold Assets in Trust . . . . . . . . . 12
SECTION 2.5. Securityholder Lists . . . . . . . . . . . . . . . . . 12
SECTION 2.6. Transfer and Exchange. . . . . . . . . . . . . . . . . 12
SECTION 2.7. Replacement Securities . . . . . . . . . . . . . . . . 19
SECTION 2.8. Outstanding Securities . . . . . . . . . . . . . . . . 19
SECTION 2.9. Treasury Securities. . . . . . . . . . . . . . . . . . 20
SECTION 2.10. Temporary Securities . . . . . . . . . . . . . . . . . 20
SECTION 2.11. Cancellation . . . . . . . . . . . . . . . . . . . . . 20
SECTION 2.12. Defaulted Interest . . . . . . . . . . . . . . . . . . 20
ARTICLE III REDEMPTION. . . . . . . . . . . . . . . . . . . . . . . . . . 21
SECTION 3.1. Right of Redemption. . . . . . . . . . . . . . . . . . 21
SECTION 3.2. Notices to Trustee . . . . . . . . . . . . . . . . . . 21
SECTION 3.3. Selection of Securities to Be Redeemed . . . . . . . . 22
SECTION 3.4. Notice of Redemption . . . . . . . . . . . . . . . . . 22
SECTION 3.5. Effect of Notice of Redemption . . . . . . . . . . . . 23
SECTION 3.6. Deposit of Redemption Price. . . . . . . . . . . . . . 23
SECTION 3.7. Securities Redeemed in Part. . . . . . . . . . . . . . 24
SECTION 3.8. Conversion Arrangement on Call For Redemption. . . . . 24
ARTICLE IV COVENANTS. . . . . . . . . . . . . . . . . . . . . . . . . . . 24
SECTION 4.1. Payment of Principal and Interest on Securities. . . . 24
SECTION 4.2. Maintenance of Office or Agency. . . . . . . . . . . . 25
SECTION 4.3. Corporate Existence. . . . . . . . . . . . . . . . . . 25
SECTION 4.4. Payment of Taxes and Other Claims. . . . . . . . . . . 25
SECTION 4.5. Maintenance of Properties and Insurance. . . . . . . . 26
SECTION 4.6. Compliance Certificate; Notice of Default. . . . . . . 26
SECTION 4.7. Reports. . . . . . . . . . . . . . . . . . . . . . . . 27
SECTION 4.8. Limitation on Status as Investment Company . . . . . . 27
SECTION 4.9. Waiver of Stay, Extension or Usury Laws. . . . . . . . 27
SECTION 4.10. Rule 144A Information Requirement. . . . . . . . . . . 27
ARTICLE V SUCCESSOR CORPORATION . . . . . . . . . . . . . . . . . . . . . 28
SECTION 5.1. Limitation on Merger, Sale or Consolidation. . . . . . 28
SECTION 5.2. Successor Corporation Substituted. . . . . . . . . . . 28
i
<PAGE>
ARTICLE VI EVENTS OF DEFAULT AND REMEDIES . . . . . . . . . . . . . . . . 28
SECTION 6.1. Events of Default. . . . . . . . . . . . . . . . . . . 28
SECTION 6.2. Acceleration of Maturity Date; Rescission and
Annulment. . . . . . . . . . . . . . . . . . . . . . . 30
SECTION 6.3. Collection of Indebtedness and Suits for Enforcement
by Trustee . . . . . . . . . . . . . . . . . . . . . . 31
SECTION 6.4. Trustee May File Proofs of Claim . . . . . . . . . . . 31
SECTION 6.5. Trustee May Enforce Claims Without Possession of
Securities . . . . . . . . . . . . . . . . . . . . . . 32
SECTION 6.6. Priorities . . . . . . . . . . . . . . . . . . . . . . 32
SECTION 6.7. Limitation on Suits. . . . . . . . . . . . . . . . . . 33
SECTION 6.8. Unconditional Right of Holders to Receive Principal,
Premium, Interest and Liquidated Damages . . . . . . . 33
SECTION 6.9. Rights and Remedies Cumulative . . . . . . . . . . . . 33
SECTION 6.10. Delay or Omission Not Waiver . . . . . . . . . . . . . 34
SECTION 6.11. Control by Holders . . . . . . . . . . . . . . . . . . 34
SECTION 6.12. Waiver of Past Default . . . . . . . . . . . . . . . . 34
SECTION 6.13. Undertaking for Costs. . . . . . . . . . . . . . . . . 35
SECTION 6.14. Restoration of Rights and Remedies . . . . . . . . . . 35
ARTICLE VII TRUSTEE . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
SECTION 7.1. Duties of Trustee. . . . . . . . . . . . . . . . . . . 35
SECTION 7.2. Rights of Trustee. . . . . . . . . . . . . . . . . . . 36
SECTION 7.3. Individual Rights of Trustee . . . . . . . . . . . . . 37
SECTION 7.4. Trustee's Disclaimer . . . . . . . . . . . . . . . . . 37
SECTION 7.5. Notice of Default. . . . . . . . . . . . . . . . . . . 37
SECTION 7.6. Reports by Trustee to Holders. . . . . . . . . . . . . 37
SECTION 7.7. Compensation and Indemnity . . . . . . . . . . . . . . 39
SECTION 7.8. Replacement of Trustee . . . . . . . . . . . . . . . . 40
SECTION 7.9. Successor Trustee by Merger, Etc.. . . . . . . . . . . 40
SECTION 7.10. Eligibility; Disqualification. . . . . . . . . . . . . 41
SECTION 7.11. Preferential Collection of Claims Against Company. . . 41
ARTICLE VIII SATISFACTION AND DISCHARGE . . . . . . . . . . . . . . . . . 41
SECTION 8.1. Satisfaction and Discharge of Indenture. . . . . . . . 41
SECTION 8.2. Repayment to the Company . . . . . . . . . . . . . . . 41
ARTICLE IX AMENDMENTS, SUPPLEMENTS AND WAIVERS. . . . . . . . . . . . . . 42
SECTION 9.1. Supplemental Indentures Without Consent of Holders . . 42
SECTION 9.2. Amendments, Supplemental Indentures and Waivers with
Consent of Holders . . . . . . . . . . . . . . . . . . 42
SECTION 9.3. Compliance with TIA. . . . . . . . . . . . . . . . . . 44
SECTION 9.4. Revocation and Effect of Consents. . . . . . . . . . . 44
SECTION 9.5. Notation on or Exchange of Securities. . . . . . . . . 44
SECTION 9.6. Trustee to Sign Amendments, Etc. . . . . . . . . . . . 45
ARTICLE X RIGHT TO REQUIRE REPURCHASE UPON A CHANGE OF CONTROL. . . . . . 45
SECTION 10.1. Repurchase of Securities at Option of the Holder Upon
a Change of Control. . . . . . . . . . . . . . . . . . 45
ARTICLE XI SUBORDINATION . . . . . . . . . . . . . . . . . . . . . . . . . 47
SECTION 11.1. Agreement to Subordinate . . . . . . . . . . . . . . . 47
SECTION 11.2. Liquidation; Dissolution; Bankruptcy . . . . . . . . . 47
ii
<PAGE>
SECTION 11.3. Default on Designated Senior Indebtedness. . . . . . . 47
SECTION 11.4. Acceleration of Securities . . . . . . . . . . . . . . 48
SECTION 11.5. When Distribution Must Be Paid Over. . . . . . . . . . 48
SECTION 11.6. Notice by the Company. . . . . . . . . . . . . . . . . 49
SECTION 11.7. Subrogation. . . . . . . . . . . . . . . . . . . . . . 49
SECTION 11.8. Relative Rights. . . . . . . . . . . . . . . . . . . . 49
SECTION 11.9. Subordination May Not Be Impaired by the Company . . . 49
SECTION 11.10. Distribution or Notice to Representative . . . . . . . 49
SECTION 11.11. Rights of Trustee and Paying Agent . . . . . . . . . . 50
SECTION 11.12. Authorization to Effect Subordination. . . . . . . . . 50
ARTICLE XII CONVERSION OF SECURITIES. . . . . . . . . . . . . . . . . . . 50
SECTION 12.1. Conversion Privilege . . . . . . . . . . . . . . . . . 50
SECTION 12.2. Exercise of Conversion Privilege . . . . . . . . . . . 51
SECTION 12.3. Fractional Interests . . . . . . . . . . . . . . . . . 52
SECTION 12.4. Conversion Price . . . . . . . . . . . . . . . . . . . 52
SECTION 12.5. Adjustment of Conversion Price . . . . . . . . . . . . 52
SECTION 12.6. Continuation of Conversion Privilege in Case of
Reclassification, Change, Merger, Consolidation or
Sale of Assets . . . . . . . . . . . . . . . . . . . . 57
SECTION 12.7. Notice of Certain Events . . . . . . . . . . . . . . . 58
SECTION 12.8. Taxes on Conversion. . . . . . . . . . . . . . . . . . 59
SECTION 12.9. Company to Provide Stock . . . . . . . . . . . . . . . 59
SECTION 12.10. Disclaimer of Responsibility for Certain Matters . . . 60
SECTION 12.11. Return of Funds Deposited for Redemption of Converted
Securities . . . . . . . . . . . . . . . . . . . . . . 60
ARTICLE XIII MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . 60
SECTION 13.1. TIA Controls . . . . . . . . . . . . . . . . . . . . . 60
SECTION 13.2. Notices. . . . . . . . . . . . . . . . . . . . . . . . 60
SECTION 13.3. Communications by Holders with Other Holders . . . . . 61
SECTION 13.4. Certificate and Opinion as to Conditions Precedent . . 61
SECTION 13.5. Statements Required in Certificate or Opinion. . . . . 62
SECTION 13.6. Rules by Trustee, Paying Agent, Registrar. . . . . . . 62
SECTION 13.7. Legal Holidays . . . . . . . . . . . . . . . . . . . . 62
SECTION 13.8. Governing Law. . . . . . . . . . . . . . . . . . . . . 62
SECTION 13.9. No Adverse Interpretation of Other Agreements. . . . . 62
SECTION 13.10. No Recourse Against Others . . . . . . . . . . . . . . 62
SECTION 13.11. Successors . . . . . . . . . . . . . . . . . . . . . . 63
SECTION 13.12. Duplicate Originals. . . . . . . . . . . . . . . . . . 63
SECTION 13.13. Severability . . . . . . . . . . . . . . . . . . . . . 63
SECTION 13.14. Table of Contents, Headings, Etc.. . . . . . . . . . . 63
SECTION 13.15. Qualification of Indenture . . . . . . . . . . . . . . 63
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Exhibit A FORM OF SECURITY . . . . . . . . . . . . . . . . . . . A-1
Exhibit B-1 FORM OF CERTIFICATE FOR EXCHANGE OR REGISTRATION OF
TRANSFER FROM RULE 144A GLOBAL SECURITY TO REGULATION
S GLOBAL SECURITY. . . . . . . . . . . . . . . . . . .B-1-1
iii
<PAGE>
Exhibit B-2 FORM OF CERTIFICATE FOR EXCHANGE OR REGISTRATION OF
TRANSFER FROM REGULATION S GLOBAL SECURITY TO RULE
144A GLOBAL SECURITY . . . . . . . . . . . . . . . . .B-2-1
Exhibit B-3 FORM OF CERTIFICATE FOR EXCHANGE OR REGISTRATION OF
TRANSFER OF DEFINITIVE SECURITIES. . . . . . . . . . .B-3-1
Exhibit B-4 FORM OF CERTIFICATE FOR EXCHANGE OR REGISTRATION OF
TRANSFER FROM RULE 144A GLOBAL SECURITY OR
REGULATION S GLOBAL SECURITY TO DEFINITIVE SECURITY. .B-4-1
Exhibit C FORM OF CERTIFICATE FROM ACQUIRING INSTITUTIONAL
ACCREDITED INVESTOR. . . . . . . . . . . . . . . . . . C-1
iv
<PAGE>
CROSS-REFERENCE TABLE
TIA INDENTURE
SECTION SECTION
------- -------
310(a)(1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.10
(a)(2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.10
(a)(3). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(a)(4).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(a)(5).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.10
(b). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.8;
7.10;
(c). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
311(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.11
(b). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.11
(c). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
312(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.5
(b). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.3
(c). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.3
313(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.6
(b)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(b)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.6
(c). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.6;
13.2
(d). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.6
314(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.6;
13.2
(b). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(c)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.2;
7.2;
13.4
(c)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.2;
14.4
(c)(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(d). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(e). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.5
(f). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
315(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.1(b)
(b). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.5;
7.6;
13.2
(c). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.1(a)
(d). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.8;
6.11;
7.1(b)(c)
(e). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.14
316(a)(last sentence). . . . . . . . . . . . . . . . . . . . . . . . . 2.9
(a)(1)(A). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.11
v
<PAGE>
TIA INDENTURE
SECTION SECTION
------- -------
(a)(1)(B). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.12
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(b). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.12;
6.7
317(a)(1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.3
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.4
(b). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.4
318(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.1
__________
N.A. means Not Applicable.
Note: This Cross-Reference Table shall not, for any purpose, be deemed to be a
part of the Indenture.
vi
<PAGE>
INDENTURE, dated as of November 7, 1997, between PETsMART, Inc., a
Delaware corporation (the "Company"), and Norwest Bank Minnesota, N.A., as
Trustee.
Each party hereto agrees as follows for the benefit of each other
party and for the equal and ratable benefit of the Holders of the Company's
6 3/4% Convertible Subordinated Notes due 2004:
ARTICLE I
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.1. DEFINITIONS.
"AFFILIATE" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise.
"AGENT" means any Registrar, Paying Agent or co-Registrar.
"APPLICABLE PROCEDURES" means, with respect to any transfer or
exchange of beneficial interests in a Global Security, or any conversion of
beneficial interests in a Global Security into Common Stock pursuant to Article
XII, the rules and procedures of the Depositary that apply to such transfer,
exchange or conversion.
"BANKRUPTCY LAW" means Title 11, U.S. Code, or any similar Federal,
state or foreign law for the relief of debtors.
"BENEFICIAL OWNER" for purposes of the definition of Change of Control
has the meaning attributed to it in Rules 13d-3 and 13d-5 under the Exchange Act
(as in effect on the Issuance Date), whether or not applicable, except that a
"person" shall be deemed to have "beneficial ownership" of all shares that any
such person has the right to acquire, whether such right is exercisable
immediately or only after the passage of time or upon the occurrence of certain
events.
"BOARD OF DIRECTORS" means, with respect to any person, the Board of
Directors of such person or any committee of the Board of Directors of such
person authorized, with respect to any particular matter, to exercise the power
of the Board of Directors of such person.
"BOARD RESOLUTION" means, with respect to any person, a duly adopted
resolution of the Board of Directors of such person.
"BUSINESS DAY" means a day that is not a Legal Holiday.
"CAPITAL STOCK" means (i) in the case of a corporation, corporate
stock, (ii) in the case of an association or business entity, any and all
shares, interests, participations, rights or other equivalents (however
designated) of corporate stock, (iii) in the case of a partnership, partnership
interests (whether general or limited) and (iv) any other interest or
participation that confers on a Person the right to receive a share of the
profits and losses of, or distributions of assets of, the issuing Person.
<PAGE>
"CASH" means such coin or currency of the United States of America as
at the time of payment shall be legal tender for the payment of public and
private debts.
"CHANGE OF CONTROL" occurs when (i) any "person" or "group" is or
becomes the "beneficial owner," directly or indirectly, of shares representing
more than 50% of the combined total voting power of the then outstanding
securities entitled to vote generally in elections of directors of the Company
("Voting Stock"), (ii) the Company consolidates with or merges into any other
person or conveys, transfers or leases, whether directly or indirectly, all or
substantially all of its assets to any person, or any other person merges into
the Company, and, in the case of any such transaction, the outstanding Common
Stock of the Company is changed or exchanged as a result, unless the
shareholders of the Company immediately before such transaction own, directly or
indirectly, immediately following such transaction, at least a majority of the
combined voting power of the outstanding voting securities of the corporation
resulting from such transaction in substantially the same proportion INTER SE as
their ownership of the Voting Stock immediately before such transaction, (iii)
at any time the Continuing Directors do not constitute the majority of the Board
of Directors of the Company, or (iv) the Common Stock of the Company (or other
common stock into which the Securities are then convertible) is neither listed
for trading on a United States national securities exchange or approved for
trading on an established automatic over-the-counter trading market in the
United States. For purposes of this definition, the terms "person" and "group"
shall have the meanings used for purposes of Rules 13d-3 and 13d-5 of the
Exchange Act as in effect on the Issuance Date, whether or not applicable.
"COMMON STOCK" means the Company's common stock, par value $.0001 per
share, or as such stock may be reconstituted from time to time.
"COMPANY" means the party named as such in this Indenture until a
successor replaces it pursuant to the Indenture, and thereafter means such
successor.
"CONTINUING DIRECTORS" means, as of any date of determination, any
member of the Board of Directors of the Company who (i) was a member of the
Board of Directors on the date of this Indenture or (ii) was nominated for
election or elected to such Board of Directors with the approval of a majority
of the Continuing Directors who were members of the Board of Directors at the
time of such nomination or election.
"CREDIT FACILITY" means that certain Third Amended and Restated Credit
Agreement among the Company, certain lenders and NationsBank of Texas, N.A. as
administrative lender, dated as of April 18,1997, as amended.
"CUSTODIAN" means any receiver, trustee, assignee, liquidator,
sequestrator or similar official under any Bankruptcy Law.
"DEFAULT" means any event that is, or with the passage of time or the
giving of notice or both would be, an Event of Default.
"DEFINITIVE SECURITIES" means Securities that are in the form of
Security attached hereto as Exhibit A that do not include the information called
for by footnote 1 thereof.
"DEPOSITARY" means, with respect to the Securities issuable or issued
in whole or in part in global form, the person specified in Section 2.3 as the
Depositary with respect to the Securities, until a successor shall have been
appointed and become such pursuant to the applicable provision of this
Indenture, and, thereafter, "Depositary" shall mean or include such successor.
2
<PAGE>
"DESIGNATED SENIOR INDEBTEDNESS" means (i) all outstanding
Indebtedness under the Credit Facility and (ii) any other Senior Indebtedness
which (a) at the time of determination has an outstanding principal amount or
commitment in excess of $20,000,000 and (b) is specifically designated in the
instrument creating or evidencing the same or the assumption or guarantee
thereof (or related agreements or documents to which the Company is a party) as
"Designated Senior Indebtedness" for purposes of this Indenture (PROVIDED that
such instrument, agreement or other document may place limitations and
conditions on the right of such Senior Indebtedness to exercise the rights of
Designated Senior Indebtedness). For purposes of this definition, the term
"Credit Facility" shall include any agreement governing Indebtedness incurred to
refund, replace or refinance borrowings under the Credit Facility, or any such
subsequent replacement or refinancing thereof.
"DISQUALIFIED CAPITAL STOCK" means, with respect to the Company,
Capital Stock of the Company that, by its terms or by the terms of any security
into which it is convertible, exercisable or exchangeable, is, or upon the
happening of an event or the passage of time would be, required to be redeemed
or repurchased (including at the option of the holder thereof) by the Company,
in whole or in part, on or prior to the Stated Maturity of the Securities,
provided that only the portion of such Capital Stock which is so convertible,
exercisable, exchangeable or redeemable or subject to repurchase prior to such
Stated Maturity shall be deemed to be Disqualified Capital Stock.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated by the SEC thereunder.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect from time to time.
"HOLDER" or "SECURITYHOLDER" means the person in whose name a Security
is registered on the Registrar's books.
"INDEBTEDNESS" means, with respect to any person, all obligations,
whether or not contingent, of such person (i)(a) for borrowed money (including,
but not limited to, any indebtedness secured by a security interest, mortgage or
other lien on the assets of the Company which is (1) given to secure all or part
of the purchase price of property subject thereto, whether given to the vendor
of such property or to another, or (2) existing on property at the time of
acquisition thereof), (b) evidenced by a note, debenture, bond or other written
instrument, (c) under a lease required to be capitalized on the balance sheet of
the lessee under GAAP, (d) in respect of letters of credit, bank guarantees or
bankers' acceptances (including reimbursement obligations with respect to any of
the foregoing), (e) with respect to Indebtedness secured by a mortgage, pledge,
lien, encumbrance, charge or adverse claim affecting title or resulting in an
encumbrance to which the property or assets of such person are subject, whether
or not the obligation secured thereby shall have been assumed by or shall
otherwise be such person's legal liability, (f) in respect of the balance of
deferred and unpaid purchase price of any property or assets or (g) under
interest rate or currency swap agreements, cap, floor and collar agreements,
spot and forward contracts and similar agreements and arrangements; (ii) with
respect to any obligation of others of the type described in the preceding
clause (i) or under clause (iii) below assumed by or guaranteed in any manner by
such person, contingent or otherwise (and, without duplication, the obligations
of such person under any such assumptions, guarantees or other such
arrangements); and (iii) any and all deferrals, renewals, extensions,
refinancings and refundings of, or amendments, modifications or supplements to,
any of the foregoing.
3
<PAGE>
"INDENTURE" means this Indenture, as amended or supplemented from time
to time in accordance with the terms hereof.
"INITIAL PURCHASERS" means Donaldson, Lufkin & Jenrette Securities
Corporation and NationsBanc Montgomery Securities, Inc.
"INSOLVENCY OR LIQUIDATION PROCEEDINGS" means (i) any insolvency or
bankruptcy case or proceeding, or any receivership, liquidation, reorganization
or other similar case or proceeding, relative to the Company or to the creditors
of the Company, as such, or to the assets of the Company or (ii) any
liquidation, dissolution, reorganization or winding up of the Company, whether
voluntary or involuntary and involving insolvency or bankruptcy, or (iii) any
assignment for the benefit of creditors or any other marshalling of assets and
liabilities of the Company.
"INTEREST PAYMENT DATE" means the stated due date of an installment of
interest on the Securities.
"ISSUANCE DATE" means the date on which the Securities are originally
issued and authenticated under the Indenture.
"JUNIOR SECURITIES" means any Qualified Capital Stock and any
Indebtedness of the Company that is fully subordinated in right of payment to
Senior Indebtedness to the same extent as the Securities and has no scheduled
installment of principal due, by redemption, sinking fund payment or otherwise,
on or prior to the Stated Maturity of the Securities.
"LIEN" means any mortgage, lien, pledge, charge, security interest or
other encumbrance of any kind, whether or not filed, recorded or otherwise
perfected under applicable law (including any conditional sale or other title
retention agreement and any lease deemed to constitute a security interest and
any option or other agreement to give any security interest).
"LIQUIDATED DAMAGES" means liquidated damages payable by the Company
with respect to the Securities pursuant to the Registration Rights Agreement.
"OBLIGATIONS" means any principal, premium, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"OFFICER" means, with respect to the Company, the Chief Executive
Officer, the Chief Operating Officer, an Executive Vice President, the Senior
Vice President and Chief Financial Officer, the Secretary, Assistant Secretary
or the Treasurer of the Company.
"OFFICERS' CERTIFICATE" means, with respect to the Company, a
certificate signed by two Officers or by an Officer and an Assistant Secretary
of the Company and otherwise complying with the requirements of Sections 13.4
and 13.5.
"OPINION OF COUNSEL" means a written opinion from legal counsel (who
may be an employee of the Company) who is reasonably acceptable to the Trustee
and which complies with the requirements of Sections 13.4 and 13.5.
4
<PAGE>
"PERSON" or "PERSON" means any individual, corporation, limited
liability company, partnership, joint venture, association, joint stock company,
trust, unincorporated organization or government or any agency or political
subdivision thereof.
"PRINCIPAL" of any Indebtedness means the principal of such
Indebtedness.
"PROPERTY" means any right or interest in or to property or assets of
any kind whatsoever, whether real, personal or mixed and whether tangible or
intangible.
"PURCHASE AGREEMENT" means that certain Purchase Agreement, dated as
of November 4, 1997, by and between the Company and the Initial Purchasers, as
such agreement may be amended, modified or supplemented from time to time in
accordance with the terms thereof.
"QUALIFIED CAPITAL STOCK" means any Capital Stock of the Company that
is not Disqualified Capital Stock.
"RECORD DATE" means a Record Date specified in the Securities whether
or not such Record Date is a Business Day.
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights
Agreement, dated as of November 7, 1997, by and among the Company and the
Initial Purchasers.
"REDEMPTION DATE," when used with respect to any Security to be
redeemed, means the date fixed for such redemption pursuant to Article III of
this Indenture and Paragraph 5 in the form of Security.
"REDEMPTION PRICE," when used with respect to any Security to be
redeemed, means the redemption price for such redemption pursuant to Paragraph 5
in the form of Security.
"SEC" means the Securities and Exchange Commission.
"SECURITIES" means, collectively, the 6 3/4% Convertible Subordinated
Notes due 2004, as supplemented from time to time in accordance with the terms
hereof, issued under this Indenture.
"SECURITIES ACT" means the Securities Act of 1933, as amended, and the
rules and regulations of the SEC promulgated thereunder.
"SECURITIES CUSTODIAN" means the Trustee, as custodian with respect to
the Securities in global form, or any successor entity thereto.
"SENIOR INDEBTEDNESS" means the principal of, premium, if any, and
interest on, rent under, and any other amounts payable on or in respect of the
Credit Facility and any other Indebtedness of the Company (including, without
limitation, any Obligations in respect of such Indebtedness and, in the case of
Designated Senior Indebtedness, any interest accruing after the filing of a
petition by or against the Company under any Bankruptcy Law, whether or not
allowed as a claim after such filing in any proceeding under such Bankruptcy
Law), whether outstanding on the date of this Indenture or thereafter created,
incurred, assumed, guaranteed or in effect guaranteed by the Company (including
all deferrals, renewals, extensions or refundings of, or amendments,
modifications or supplements to the foregoing); PROVIDED, HOWEVER, that Senior
Indebtedness does not include (v) Indebtedness evidenced by the Securities, (w)
any liability for federal, state, local or other taxes owed or owing by the
Company,
5
<PAGE>
(x) Indebtedness of the Company to any of its Subsidiaries, (y) trade payables
of the Company, and (z) any particular Indebtedness in which the instrument
creating or evidencing the same or the assumption or guarantee thereof (or
related agreements or documents to which the Company is a party) expressly
provides that such Indebtedness shall not be senior in right of payment to, or
is PARI PASSU with, or is subordinated or junior to, the Securities.
"SERIES A JUNIOR PARTICIPATING PREFERRED STOCK RIGHTS" means the
rights to purchase Series A Junior Participating Preferred Stock of the Company
pursuant to the Company's Share Purchase Rights Plan.
"SHELF REGISTRATION STATEMENT" shall have the meaning specified in the
Registration Rights Agreement.
"SIGNIFICANT SUBSIDIARY" means any subsidiary of the Company that
would be a "significant subsidiary" as defined in Article 1, Rule 1-02 of
Regulation S-X, promulgated pursuant to the Securities Act and the Exchange Act,
as such Regulation is in effect on the date of the Indenture.
"SPECIAL RECORD DATE" for payment of any Defaulted Interest means a
date fixed by the Trustee pursuant to Section 2.12.
"STATED MATURITY," when used with respect to any Security means
November 1, 2004.
"SUBSIDIARY" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of the Capital Stock entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or trustees thereof
is at the time owned or controlled, directly or indirectly, by such Person or
one or more of the other Subsidiaries of that Person (or a combination thereof)
and (ii) any partnership (a) the sole general partner or the managing general
partner of which is such Person or a Subsidiary of such Person or (b) the only
general partners of which are such Person or of one or more Subsidiaries of such
Person (or any combination thereof).
"TIA" means the Trust Indenture Act of 1939 (15 U.S. Code Sections
77aaa-77bbbb) as in effect on the date of the execution of this Indenture.
"TRADING DAY" means each Monday, Tuesday, Wednesday, Thursday and
Friday, other than any day on which securities are not traded on the Nasdaq
National Market.
"TRANSFER RESTRICTED SECURITIES" means Securities (or beneficial
interests therein) and shares of Common Stock issuable upon the conversion
thereof (or beneficial interests therein) that bear or are required to bear the
Restricted Securities Legend.
"TRUSTEE" means the party named as such in this Indenture until a
successor replaces it in accordance with the provisions of this Indenture and
thereafter means such successor.
"TRUST OFFICER" means any officer within the corporate trust division
(or any successor group) of the Trustee or any other officer of the Trustee
customarily performing functions similar to those performed by the Persons who
at that time shall be such officers, and also means, with respect to a
particular corporate trust matter, any other officer of the Trustee to whom such
trust matter is referred because of his knowledge of and familiarity with the
particular subject.
6
<PAGE>
"U.S. GOVERNMENT OBLIGATIONS" means direct non-callable obligations
of, or noncallable obligations guaranteed by, the United States of America for
the payment of which obligation or guarantee the full faith and credit of the
United States of America is pledged.
SECTION 1.2. OTHER DEFINITIONS.
Defined in
Term Section
- ---- ----------
"Acceleration Notice". . . . . . . . . . . . . . . . . . . . . . . . . .6.2
"Called Securities". . . . . . . . . . . . . . . . . . . . . . . . . . .3.8
"Company". . . . . . . . . . . . . . . . . . . . . . . . . . . . . Recitals
"Conversion Price" . . . . . . . . . . . . . . . . . . . . . . . . . . 12.5
"Conversion Shares". . . . . . . . . . . . . . . . . . . . . . . . .12.5(l)
"Date of Conversion" . . . . . . . . . . . . . . . . . . . . . . . . . 12.2
"Defaulted Interest" . . . . . . . . . . . . . . . . . . . . . . . . . 2.12
"Definitive Securities". . . . . . . . . . . . . . . . . . . . . . . 2.6(b)
"Direct Participants". . . . . . . . . . . . . . . . . . . . . . . . 2.1(a)
"Distribution Date". . . . . . . . . . . . . . . . . . . . . . . . . . 12.5
"DTC". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2.3
"40-Day Restricted Period" . . . . . . . . . . . . . . . . . . . . . 2.1(a)
"Global Securities". . . . . . . . . . . . . . . . . . . . . . . . . 2.1(a)
"Equity Interests" . . . . . . . . . . . . . . . . . . . . . . . . .12.5(f)
"Event of Default" . . . . . . . . . . . . . . . . . . . . . . . . . . .6.1
"Expiration Time". . . . . . . . . . . . . . . . . . . . . . . . . . . 12.5
"Indirect Participants". . . . . . . . . . . . . . . . . . . . . . . 2.1(a)
"Last Sale Price". . . . . . . . . . . . . . . . . . . . . . . . . . . 12.3
"Legal Holiday". . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.7
"non-electing share" . . . . . . . . . . . . . . . . . . . . . . . . . 12.6
"Notice of Default". . . . . . . . . . . . . . . . . . . . . . . . . 6.1(3)
"Offer". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.5
"Paying Agent" . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2.3
"Payment Blockage Notice". . . . . . . . . . . . . . . . . . . . . . . 11.2
"Payment Event". . . . . . . . . . . . . . . . . . . . . . . . . . . . .6.1
"Payment Notice" . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.2
"Purchased Shares" . . . . . . . . . . . . . . . . . . . . . . . . .12.5(e)
"QIBs" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.1(a)
"Registrar". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2.3
"Regulation S Global Securities" . . . . . . . . . . . . . . . . . . 2.1(a)
"Representative" . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.5
"Repurchase Date". . . . . . . . . . . . . . . . . . . . . . . . . . . 10.1
"Repurchase Offer" . . . . . . . . . . . . . . . . . . . . . . . . . . 10.1
"Repurchase Offer Period". . . . . . . . . . . . . . . . . . . . . .10.1(b)
"Repurchase Price" . . . . . . . . . . . . . . . . . . . . . . . . . . 10.1
"Repurchase Put Date". . . . . . . . . . . . . . . . . . . . . . . . . 10.1
"Restricted Securities Legend" . . . . . . . . . . . . . . . . . . . 2.6(g)
"Rule 144A Global Securities". . . . . . . . . . . . . . . . . . . . 2.1(a)
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SECTION 1.3. INCORPORATION BY REFERENCE OF TIA.
Whenever this Indenture refers to a provision of the TIA, such
provision is incorporated by reference in and made a part of this Indenture.
The following TIA terms used in this Indenture have the following meanings:
"COMMISSION" means the SEC.
"INDENTURE SECURITIES" means the Securities.
"INDENTURE SECURITYHOLDER" means a Holder or a Securityholder.
"INDENTURE TO BE QUALIFIED" means this Indenture.
"INDENTURE TRUSTEE" or "INSTITUTIONAL TRUSTEE" means the Trustee.
"OBLIGOR" on the indenture securities means the Company and any other
obligor on the Securities.
All other TIA terms used in this Indenture that are defined by the
TIA, defined by TIA reference to another statute or defined by SEC rule and not
otherwise defined herein have the meanings assigned to them thereby.
SECTION 1.4. RULES OF CONSTRUCTION.
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning
assigned to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and words in the
plural include the singular;
(5) provisions apply to successive events and transactions;
(6) "herein," "hereof" and other words of similar import refer
to this Indenture as a whole and not to any particular Article, Section or
other subdivision; and
(7) references to Sections or Articles means reference to such
Section or Article in this Indenture, unless stated otherwise.
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ARTICLE II
THE SECURITIES
SECTION 2.1. FORM AND DATING.
The Securities and the Trustee's certificate of authentication, in
respect thereof, shall be substantially in the form of Exhibit A hereto, which
Exhibit is part of this Indenture. The Securities may have notations, legends
or endorsements required by law, stock exchange rule or usage. The Company
shall approve the form of the Securities and any notation, legend or endorsement
on them. Any such notations, legends or endorsements not contained in the form
of Security attached as Exhibit A hereto shall be delivered in writing to the
Trustee. Each Security shall be dated the date of its authentication.
The terms and provisions contained in the form of Securities shall
constitute, and are hereby expressly made, a part of this Indenture and, to the
extent applicable, the Company and the Trustee, by their execution and delivery
of this Indenture, expressly agree to such terms and provisions and to be bound
thereby.
(a) GLOBAL SECURITIES. Securities offered and sold to "qualified
institutional buyers" (as defined in Rule 144A under the Securities Act)
("QIBs") in reliance on Rule 144A under the Securities Act shall be issued
initially in the form of one or more registered global Securities without
interest coupons (collectively, the "Rule 144A Global Securities") which shall
be deposited on behalf of the purchasers of the Securities represented thereby
with the Trustee, as custodian for the Depositary, and registered in the name of
the Depositary or a nominee of the Depositary for credit to the accounts of
participating organizations (collectively, "Direct Participants") and other
entities that clear through or maintain a direct or indirect custodial
relationship with a Direct Participant (collectively, "Indirect Participants"),
duly executed by the Company and authenticated by the Trustee as hereinafter
provided. The aggregate principal amount of the Rule 144A Global Securities may
from time to time be increased or decreased by adjustments made on the records
of the Trustee and the Depositary or its nominee, as the case may be, in
connection with transfers of interest as hereinafter provided.
Securities offered and sold in reliance on Regulation S under the
Securities Act shall be issued initially in the form of one or more registered,
global book-entry Securities without interest coupons (collectively, the
"Regulation S Global Securities" and, together with the Rule 144A Global
Securities, the "Global Securities"), which shall be deposited on behalf of the
purchasers of the Securities represented thereby with the Trustee, as custodian
for the Depositary, and registered in the name of the Depositary or the nominee
of the Depositary for the accounts of designated agents holding on behalf of
Euroclear or Cedel, duly executed by the Company and authenticated by the
Trustee as hereinafter provided. During the 40-day period commencing on the day
after the later of the offering date and the Issuance Date (the "40-day
Restricted Period"), beneficial interests in the Regulation S Global Securities
may be held only through Euroclear or Cedel and, pursuant to the Depositary's
procedures, Indirect Participants that hold a beneficial interest in the
Regulation S Global Securities will not be able to transfer such interest to a
person that takes delivery thereof in the form of an interest in the Rule 144A
Global Securities. After the 40-Day Restricted Period, (i) beneficial interests
in the Regulation S Global Securities may be transferred to a person that takes
delivery in the form of an interest in the Rule 144A Global Securities and (ii)
beneficial interests in the Rule 144A Global Securities may be transferred to a
person that takes delivery in the form of an interest in the Regulation S Global
Securities, PROVIDED, in each case, that the certification requirements set
forth in Section 2.6 are complied with. The aggregate principal amount of the
Regulation S Global Securities from time to time be increased or decreased by
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adjustments made on the records of the Trustee and the Depositary or its
nominee, as the case may be, in connection with transfers of interest as
hereinafter provided.
Each Global Security shall represent such of the outstanding
Securities as shall be specified therein and each shall provide that it shall
represent the aggregate amount of outstanding Securities from time to time
endorsed thereon and that the aggregate amount of outstanding Securities
represented thereby may from time to time be reduced or increased, as
appropriate, to reflect exchanges, redemptions and transfers of interests. Any
endorsement of a Global Security to reflect the amount of any increase or
decrease in the amount of outstanding Securities represented thereby shall be
made by the Trustee at the direction of the Trustee, in accordance with
instructions given by the Holder thereof as required by Section 2.6 hereof.
The provisions of the "Operating Procedures of the Euroclear System"
and "Terms and Conditions Governing Use of Euroclear" and the "Management
Regulations" and "Instructions to Participants" of Cedel shall be applicable to
interests in the Regulation S Global Securities that are held by Participants
through Euroclear or Cedel. The Trustee shall have no obligation to notify
Holders of any such procedures or to monitor or enforce compliance with the
same.
Except as set forth in Section 2.6 hereof, the Global Securities may
be transferred, in whole and not in part, only to another nominee of the
Depositary or to a successor of the Depositary or its nominee.
(b) BOOK-ENTRY PROVISIONS. This Section 2.1(b) shall apply only to
Rule 144A Global Securities and Regulation S Global Securities deposited with or
on behalf of the Depositary.
The Company shall execute and the Trustee shall, in accordance with
this Section 2.1(b) and Section 2.2, authenticate and deliver the Global
Securities that (i) shall be registered in the name of the Depositary or the
nominee of the Depositary and (ii) shall be delivered by the Trustee to the
Depositary or pursuant to the Depositary's instructions or held by the Trustee
as custodian for the Depositary.
Participants shall have no rights either under this Indenture with
respect to any Global Security held on their behalf by the Depositary or by the
Trustee, as custodian for the Depositary, or under such Global Security, and the
Depositary may be treated by the Company, the Trustee and any agent of the
Company or the Trustee as the absolute owner of such Global Security for all
purposes whatsoever. Notwithstanding the foregoing, nothing herein shall
prevent the Company, the Trustee or any agent of the Company or the Trustee from
giving effect to any written certification, proxy or other authorization
furnished by the Depositary or impair, as between the Depositary and its
Participants, the operation of customary practices of such Depositary governing
the exercise of the rights of an owner of a beneficial interest in any Global
Security.
(c) DEFINITIVE SECURITIES. Securities issued in certificated form
shall be substantially in the form of Exhibit A attached hereto (but without
including the text referred to in footnote 1 thereto).
SECTION 2.2. EXECUTION AND AUTHENTICATION.
Two Officers shall sign, or one Officer shall sign and one Officer
shall attest to, the Security for the Company by manual or facsimile signature.
The Company's seal shall be impressed, affixed, imprinted or reproduced on the
Securities and may be in facsimile form.
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If an Officer whose signature is on a Security was an Officer at the
time of such execution but no longer holds that office at the time the Trustee
authenticates the Security, the Security shall be valid nevertheless and the
Company shall nevertheless be bound by the terms of the Securities and this
Indenture.
A Security shall not be entitled to any benefit under this Indenture
or be valid or obligatory for any purpose until an authorized signatory of the
Trustee manually signs the certificate of authentication on the Security but
such signature shall be conclusive evidence, and the only evidence, that the
Security has been authenticated pursuant to the terms of this Indenture.
The Trustee shall authenticate the Securities for original issue in
the aggregate principal amount of up to $201,250,000 upon a written order of the
Company in the form of an Officers' Certificate. The Officers' Certificate
shall specify the amount of Securities to be authenticated and the date on which
the Securities are to be authenticated. The aggregate principal amount of
Securities outstanding at any time may not exceed $201,250,000 except as
provided in Section 2.7; PROVIDED, that Securities in excess of $175,000,000
shall not be issued other than pursuant to the over-allotment option granted by
the Company to the Initial Purchasers as provided in the Purchase Agreement.
Upon the written order of the Company in the form of an Officers' Certificate,
the Trustee shall authenticate Securities in substitution of Securities
originally issued to reflect any name change of the Company.
The Trustee may appoint an authenticating agent acceptable to the
Company to authenticate Securities. Unless otherwise provided in the
appointment, an authenticating agent may authenticate Securities whenever the
Trustee may do so. Each reference in this Indenture to authentication by the
Trustee includes authentication by such agent. An authenticating agent has the
same rights as an Agent to deal with the Company, any Affiliate of the Company,
or any of their respective Subsidiaries.
Securities shall be issuable only in registered form without coupons
in denominations of $1,000 and any integral multiple thereof.
SECTION 2.3. REGISTRAR AND PAYING AGENT.
The Company shall maintain an office or agency in the Borough of
Manhattan, The City of New York, where Securities may be presented for
registration of transfer or for exchange ("Registrar") and an office or agency
where Securities may be presented for payment ("Paying Agent") and where notices
and demands to or upon the Company in respect of the Securities may be served.
The Company may act as Registrar or Paying Agent, except that, for the purposes
of Articles III, VIII and X and as otherwise specified in the Indenture, neither
the Company nor any Affiliate of the Company shall act as Paying Agent. The
Registrar shall keep a register of the Securities and of their transfer and
exchange. The Company may have one or more co-Registrars and one or more
additional Paying Agents. The term "Paying Agent" includes any additional
Paying Agent. The Company hereby initially appoints the Trustee as Registrar
and Paying Agent, and the Trustee hereby initially agrees so to act.
The Company shall enter into an appropriate written agency agreement
with any Agent not a party to this Indenture, which agreement shall implement
the provisions of this Indenture that relate to such Agent. The Company shall
promptly notify the Trustee in writing of the name and address of any such
Agent. If the Company fails to maintain a Registrar or Paying Agent, the
Trustee shall act as such.
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The Company initially appoints The Depository Trust Company ("DTC") to
act as Depositary with respect to the Global Securities.
The Company initially appoints the Trustee to act as Securities
Custodian with respect to the Global Securities.
SECTION 2.4. PAYING AGENT TO HOLD ASSETS IN TRUST.
The Company shall require each Paying Agent other than the Trustee to
agree in writing that each Paying Agent shall hold in trust for the benefit of
Holders or the Trustee all assets held by the Paying Agent for the payment of
principal of, premium, if any, interest and Liquidated Damages, if any, on, the
Securities (whether such assets have been distributed to it by the Company or
any other obligor on the Securities), and shall notify the Trustee in writing of
any Default in making any such payment. If either of the Company or a
Subsidiary of the Company acts as Paying Agent, it shall segregate such assets
and hold them as a separate trust fund for the benefit of the Holders or the
Trustee. The Company at any time may require a Paying Agent to distribute all
assets held by it to the Trustee and account for any assets disbursed and the
Trustee may at any time during the continuance of any Payment Event, upon
written request to a Paying Agent, require such Paying Agent to distribute all
assets held by it to the Trustee and to account for any assets distributed.
Upon distribution to the Trustee of all assets that shall have been delivered by
the Company to the Paying Agent, the Paying Agent (if other than the Company or
an Affiliate of the Company) shall have no further liability for such assets.
SECTION 2.5. SECURITYHOLDER LISTS.
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
Holders. If the Trustee is not the Registrar, the Company shall furnish to the
Trustee on or before the third Business Day preceding each Interest Payment Date
and at such other times as the Trustee may request in writing a list in such
form and as of such date as the Trustee reasonably may require of the names and
addresses of Holders.
SECTION 2.6. TRANSFER AND EXCHANGE.
(a) TRANSFER AND EXCHANGE OF GLOBAL SECURITIES. The transfer and
exchange of Global Securities or beneficial interests therein shall be effected
through the Depositary, in accordance with this Indenture and the procedures of
the Depositary therefor, which shall include restrictions on transfer comparable
to those set forth herein to the extent required by the Securities Act.
Beneficial interests in a Global Security may be transferred to Persons who take
delivery thereof in the form of a beneficial interest in the same Global
Security in accordance with the transfer restrictions set forth in the legend in
Section 2.6(g). Transfers of beneficial interests in the Global Securities to
Persons required to take delivery thereof in the form of an interest in another
Global Security shall be permitted as follows:
(i) RULE 144A GLOBAL SECURITY TO REGULATION S GLOBAL SECURITY.
Prior to the expiration of the 40-Day Restricted Period, an owner of a
beneficial interest in a Rule 144A Global Security will not be permitted to
transfer its interest to a Person who takes delivery thereof in the form of an
interest in a Regulation S Global Security. If, at any time after the
expiration of the 40-Day Restricted Period, an owner of a beneficial interest in
a Rule 144A Global Security deposited with the Depositary (or the Trustee as
custodian for the Depositary) wishes to transfer its beneficial interest in such
Rule 144A Global Security to a Person who is required or permitted to take
delivery thereof in the form of an interest in a Regulation S Global Security,
such owner shall, subject to the Applicable Procedures, exchange or cause the
exchange of such interest for an equivalent beneficial interest in a
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Regulation S Global Security as provided in this Section 2.6(a)(i). Upon
receipt by the Trustee of (1) instructions given in accordance with the
Applicable Procedures from a Participant directing the Trustee to credit or
cause to be credited a beneficial interest in the Regulation S Global Security
in an amount equal to the beneficial interest in the Rule 144A Global Security
to be exchanged, (2) a written order given in accordance with the Applicable
Procedures containing information regarding the Participant account of the
Depositary and the Euroclear or Cedel account to be credited with such increase,
and (3) a certificate in the form of Exhibit B-1 hereto given by the owner of
such beneficial interest stating that the transfer of such interest has been
made in compliance with the transfer restrictions applicable to the Global
Securities and pursuant to, and in accordance with, Rule 903 or Rule 904 of
Regulation S, then the Trustee, as Registrar, shall instruct the Depositary to
reduce or cause to be reduced the aggregate principal amount at maturity of the
applicable Rule 144A Global Security and to increase or cause to be increased
the aggregate principal amount at maturity of the applicable Regulation S Global
Security by the principal amount at maturity of the beneficial interest in the
Rule 144A Global Security to be exchanged or transferred, to credit or cause to
be credited to the account of the Person specified in such instructions, a
beneficial interest in the Regulation S Global Security equal to the reduction
in the aggregate principal amount at maturity of the Rule 144A Global Security,
and to debit, or cause to be debited, from the account of the Person making such
exchange or transfer the beneficial interest in the Rule 144A Global Security
that is being exchanged or transferred.
(ii) REGULATION S GLOBAL SECURITY TO RULE 144A GLOBAL SECURITY.
Prior to the expiration of the 40-Day Restricted Period, an owner of a
beneficial interest in a Regulation S Global Security will not be permitted to
transfer its interest to a U.S. Person who takes delivery thereof in the form of
an interest in a Rule 144A Global Security. If, at any time after the
expiration of the 40-Day Restricted Period, an owner of a beneficial interest in
a Regulation S Global Security deposited with the Depositary or with the Trustee
as custodian for the Depositary wishes to transfer its beneficial interest in
such Regulation S Global Security to a Person who is required or permitted to
take delivery thereof in the form of an interest in a Rule 144A Global Security,
such owner shall, subject to the Applicable Procedures, exchange or cause the
exchange of such interest for an equivalent beneficial interest in a Rule 144A
Global Security as provided in this Section 2.6(a)(ii). Upon receipt by the
Trustee of (1) instructions from Euroclear or Cedel, if applicable, and the
Depositary, directing the Trustee, as Registrar, to credit or cause to be
credited a beneficial interest in the Rule 144A Global Security equal to the
beneficial interest in the Regulation S Global Security to be exchanged, such
instructions to contain information regarding the Participant account with the
Depositary to be credited with such increase, (2) a written order given in
accordance with the Applicable Procedures containing information regarding the
participant account of the Depositary and (3) a certificate in the form of
Exhibit B-2 attached hereto given by the owner of such beneficial interest
stating (A) if the transfer is pursuant to Rule 144A, that the Person
transferring such interest in a Regulation S Global Security reasonably believes
that the Person acquiring such interest in a Rule 144A Global Security is a QIB
and is obtaining such beneficial interest in a transaction meeting the
requirements of Rule 144A and any applicable blue sky or securities laws of any
state of the United States, (B) that the transfer complies with the requirements
of Rule 144 under the Securities Act, (C) if the transfer is pursuant to any
other exemption from the registration requirements of the Securities Act, that
the transfer of such interest has been made in compliance with the transfer
restrictions applicable to the Global Securities and pursuant to and in
accordance with the requirements of the exemption claimed, such statement to be
supported by an Opinion of Counsel from the transferee or the transferor in form
reasonably acceptable to the Company and to the Registrar and, in each case, in
accordance with any applicable securities laws of any state of the United States
or any other applicable jurisdiction, then the Trustee, as Registrar, shall
instruct the Depositary to reduce or cause to be reduced the aggregate principal
amount at maturity of such Regulation S Global Security and to increase or cause
to be increased the aggregate principal amount at maturity of the applicable
Rule 144A Global Security by the principal amount at maturity of the beneficial
interest in the Regulation S
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Global Security to be exchanged or transferred, and the Trustee, as Registrar,
shall instruct the Depositary, concurrently with such reduction, to credit or
cause to be credited to the account of the Person specified in such instructions
a beneficial interest in the applicable Rule 144A Global Security equal to the
reduction in the aggregate principal amount at maturity of such Regulation S
Global Security and to debit or cause to be debited from the account of the
Person making such transfer the beneficial interest in the Regulation S Global
Security that is being exchanged or transferred.
(b) TRANSFER AND EXCHANGE OF DEFINITIVE SECURITIES. When Definitive
Securities are presented by a Holder to the Registrar with a request to register
the transfer of the Definitive Securities or to exchange such Definitive
Securities for an equal principal amount of Definitive Securities of other
authorized denominations, the Registrar shall register the transfer or make the
exchange as requested only if the Definitive Securities are presented or
surrendered for registration of transfer or exchange, are endorsed and contain a
signature guarantee or accompanied by a written instrument of transfer in form
satisfactory to the Registrar duly executed by such Holder or by his attorney
and contains a signature guarantee, duly authorized in writing and the Registrar
received the following documentation (all of which may be submitted by
facsimile):
(i) in the case of Definitive Securities that are Transfer
Restricted Securities, such request shall be accompanied by the following
additional information and documents, as applicable:
(A) if such Transfer Restricted Security is being
delivered to the Registrar by a Holder for registration in the name of such
Holder, without transfer, or such Transfer Restricted Security is being
transferred to the Company or any of its Subsidiaries, a certification to that
effect from such Holder (in substantially the form of Exhibit B-3 hereto); or
(B) if such Transfer Restricted Security is being
transferred to a QIB in accordance with Rule 144A under the Securities Act or
pursuant to an exemption from registration in accordance with Rule 144 under the
Securities Act or pursuant to an effective registration statement under the
Securities Act, a certification to that effect from such Holder (in
substantially the form of Exhibit B-3 hereto); or
(C) if such Transfer Restricted Security is being
transferred to a Non-U.S. Person in an offshore transaction in accordance with
Rule 904 under the Securities Act, a certification to that effect from such
Holder (in substantially the form of Exhibit B-3 hereto);
(D) if such Transfer Restricted Security is being
transferred to an Institutional Accredited Investor in reliance on an exemption
from the registration requirements of the Securities Act other than those listed
in subparagraphs (B) and (C) above, a certification to that effect from such
Holder (in substantially the form of Exhibit B-3 hereto), a certification
substantially in the form of Exhibit C hereto, and, if the Company so requests,
an Opinion of Counsel acceptable to the Company that such transfer is in
compliance with the Securities Act and such transfer complies with any
applicable blue sky securities laws of any State of the United States; or
(E) if such Transfer Restricted Security is being
transferred in reliance on any other exemption from the registration
requirements of the Securities Act, a certification to that effect from such
Holder (in substantially the form of Exhibit B-3 hereto) and an Opinion of
Counsel from such Holder or the transferee reasonably acceptable to the Company
and to the Registrar to the effect that such transfer is in compliance with the
Securities Act.
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(c) TRANSFER OF A BENEFICIAL INTEREST IN A RULE 144A GLOBAL SECURITY
OR REGULATION S GLOBAL SECURITY FOR A DEFINITIVE SECURITY.
(i) Any Person having a beneficial interest in a Rule 144A
Global Security or Regulation S Global Security, after expiration of the 40-day
Restricted Period, may upon request, subject to the Applicable Procedures,
exchange such beneficial interest for a Definitive Security. Upon receipt by
the Trustee of written instructions or such other form of instructions as is
customary for the Depositary (or Euroclear or Cedel, if applicable), from the
Depositary or its nominee on behalf of any Person having a beneficial interest
in a Rule 144A Global Security or Regulation S Global Security, and, in the case
of a Transfer Restricted Security, the following additional information and
documents (all of which may be submitted by facsimile):
(A) if such beneficial interest is being transferred to
the Person designated by the Depositary as being the beneficial owner, a
certification to that effect from such Person (in substantially the form of
Exhibit B-4 hereto);
(B) if such beneficial interest is being transferred to
a QIB in accordance with Rule 144A under the Securities Act or pursuant to an
exemption from registration in accordance with Rule 144 under the Securities Act
or pursuant to an effective registration statement under the Securities Act, a
certification to that effect from the transferor (in substantially the form of
Exhibit B-4 hereto);
(C) if such beneficial interest is being transferred to
an Institutional Accredited Investor, pursuant to a private placement exemption
from the registration requirements of the Securities Act (and based on an
opinion of counsel if the Company so requests), a certification to that effect
from such Holder (in substantially the form of Exhibit B-4 hereto) and a
certificate from the applicable transferee (in substantially the form of
Exhibit C hereto); or
(D) if such beneficial interest is being transferred in
reliance on any other exemption from the registration requirements of the
Securities Act, a certification to that effect from the transferor (in
substantially the form of Exhibit B-4 hereto) and an Opinion of Counsel from the
transferee or the transferor reasonably acceptable to the Company and to the
Registrar to the effect that such transfer is in compliance with the Securities
Act, in which case the Trustee or the Securities Custodian, at the direction of
the Trustee, shall, in accordance with the standing instructions and procedures
existing between the Depositary and the Securities Custodian, cause the
aggregate principal amount of Rule 144A Global Securities or Regulation S Global
Securities, as applicable, to be reduced accordingly and, following such
reduction, the Company shall execute and, the Trustee shall authenticate and
deliver to the transferee a Definitive Security in the appropriate principal
amount.
(ii) Definitive Securities issued in exchange for a beneficial
interest in a Rule 144A Global Security or Regulation S Global Security, as
applicable, pursuant to this Section 2.6(c) shall be registered in such names
and in such authorized denominations as the Depositary, pursuant to instructions
from its direct or Indirect Participants or otherwise, shall instruct the
Trustee. The Trustee shall deliver such Definitive Securities to the Persons in
whose names such Securities are so registered. Following any such issuance of
Definitive Securities, the Trustee, as Registrar, shall instruct the Depositary
to reduce or cause to be reduced the aggregate principal amount at maturity of
the applicable Global Security to reflect the transfer.
(d) RESTRICTIONS ON TRANSFER AND EXCHANGE OF GLOBAL SECURITIES.
Notwithstanding any other provision of this Indenture (other than the provisions
set forth in Section 2.6(g)), a Global Security
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may not be transferred as a whole except by the Depositary to a nominee of the
Depositary or by a nominee of the Depositary to the Depositary or another
nominee of the Depositary or by the Depositary or any such nominee to a
successor Depositary or a nominee of such successor Depositary.
(e) TRANSFER AND EXCHANGE OF A DEFINITIVE SECURITY FOR A BENEFICIAL
INTEREST IN A GLOBAL SECURITY. A Definitive Security may be transferred or
exchanged for a beneficial interest in a Global Security; PROVIDED that the
transferor delivers to the Trustee a written certificate and if the Company so
requests, an Opinion of Counsel, confirming that in connection with such
transfer, it has complied with the restrictions on transfer contained herein.
(f) AUTHENTICATION OF DEFINITIVE SECURITIES IN ABSENCE OF DEPOSITARY.
If at any time:
(i) the Depositary for the Securities (x) notifies the Company
that the Depositary is unwilling or unable to continue as Depositary for the
Global Securities and a successor Depositary for the Global Securities is not
appointed by the Company within 90 days after delivery of such notice or (y) has
ceased to be a clearing agency registered under the Exchange Act;
(ii) the Company, at its sole discretion, notifies the Trustee
in writing that it elects to cause the issuance of Definitive Securities under
this Indenture; or
(iii) there shall have occurred and be continuing a Default or
an Event of Default with respect to the Securities,
then the Company shall execute, and the Trustee shall, upon receipt of an
authentication order in accordance with Section 2.2 hereof, authenticate and
deliver, Definitive Securities in an aggregate principal amount equal to the
principal amount of the Global Securities in exchange for such Global
Securities.
(g) LEGENDS.
(i) Except as permitted by the following paragraphs (ii),
(iii) and (iv), each Security certificate evidencing Global Securities and
Definitive Securities (and all securities issued in exchange therefor or
substitution thereof) shall bear the legend (the "Restricted Securities Legend")
in substantially the following form:
"THIS SECURITY (OR ITS PREDECESSOR) HAS NOT BEEN REGISTERED UNDER THE U.S.
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND,
ACCORDINGLY, MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED
WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S.
PERSONS, EXCEPT AS SET FORTH BELOW. EACH PURCHASER OF THE SECURITY
EVIDENCED HEREBY IS HEREBY NOTIFIED THAT THE SELLER MAY BE RELYING ON THE
EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED
BY RULE 144A THEREUNDER. BY ITS ACQUISITION HEREOF OR OF A BENEFICIAL
INTEREST HEREIN, THE HOLDER (1) AGREES, FOR THE BENEFIT OF PETSMART, INC.,
THAT IT WILL NOT, RESELL OR OTHERWISE TRANSFER THIS SECURITY EXCEPT (A) TO
THE COMPANY OR ANY OF ITS SUBSIDIARIES, (B) TO A PERSON WHOM THE SELLER
REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN
RULE 144A UNDER THE SECURITIES ACT) (A "QIB") PURCHASING FOR ITS OWN
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ACCOUNT OR FOR THE ACCOUNT OF A QIB IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 144A, (C) IN AN OFFSHORE TRANSACTION MEETING THE
REQUIREMENTS OF RULE 904 OF THE SECURITIES ACT, (D) IN A TRANSACTION
MEETING THE REQUIREMENTS OF RULE 144 UNDER THE SECURITIES ACT, (E) TO AN
INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(A) (1), (2),
(3) OR (7) OF REGULATION D UNDER THE SECURITIES ACT THAT, PRIOR TO SUCH
TRANSFER, FURNISHES THE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN
REPRESENTATIONS AND AGREEMENTS RELATING TO THE TRANSFER OF THIS SECURITY
(THE FORM OF WHICH CAN BE OBTAINED FROM THE TRUSTEE) AND, IF THE COMPANY SO
REQUESTS, AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY THAT SUCH
TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT, (F) IN ACCORDANCE WITH
ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT
(AND BASED UPON AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY) OR (G)
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AND, IN EACH CASE, IN
ACCORDANCE WITH THE APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED
STATES OR ANY OTHER APPLICABLE JURISDICTION AND (2) AGREES THAT IT WILL
DELIVER TO EACH PERSON TO WHOM THIS SECURITY OR AN INTEREST HEREIN IS
TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. AS USED
HEREIN, THE TERMS "OFFSHORE TRANSACTION" AND "UNITED STATES" HAVE THE
MEANINGS GIVEN TO THEM BY RULE 902 OF REGULATION S UNDER THE SECURITIES
ACT. THE INDENTURE CONTAINS A PROVISION REQUIRING THE TRUSTEE TO REFUSE TO
REGISTER ANY TRANSFER OF THIS SECURITY IN VIOLATION OF THE FOREGOING."
(ii) Upon any sale or transfer of a Transfer Restricted
Security (including any Transfer Restricted Security represented by a Global
Security) pursuant to Rule 144 under the Securities Act (other than to an
Affiliate of the Company) or pursuant to an effective registration statement
under the Securities Act:
(A) in the case of any Transfer Restricted Security that
is a Definitive Security, the Registrar shall permit the Holder thereof to
exchange such Transfer Restricted Security for a Definitive Security that does
not bear the legend set forth in (i) above and rescind any restriction on the
transfer of such Transfer Restricted Security upon receipt of a certification
from the transferring holder substantially in the form of Exhibit B-4 hereto;
and
(B) in the case of any Transfer Restricted Security
represented by a Global Security, such Transfer Restricted Security shall not be
required to bear the legend set forth in (i) above, but shall continue to be
subject to the provisions of Section 2.6(a) and (b) hereof; PROVIDED, HOWEVER,
that with respect to any request for an exchange of a Transfer Restricted
Security that is represented by a Global Security for a Definitive Security that
does not bear the legend set forth in (i) above, which request is made in
reliance upon Rule 144, the Holder thereof shall certify in writing to the
Registrar that such request is being made pursuant to Rule 144 (such
certification to be substantially in the form of Exhibit B-4 hereto).
(iii) Upon any sale or transfer of a Transfer Restricted
Security (including any Transfer Restricted Security represented by a Global
Security) in reliance on any exemption from the registration requirements of the
Securities Act (other than exemptions pursuant to Rule 144A or Rule 144
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under the Securities Act) in which the Holder or the transferee provides an
Opinion of Counsel to the Company and the Registrar in form and substance
reasonably acceptable to the Company and the Registrar (which Opinion of Counsel
shall also state that the transfer restrictions contained in the legend are no
longer applicable):
(A) in the case of any Transfer Restricted Security that
is a Definitive Security, the Registrar shall permit the Holder thereof to
exchange such Transfer Restricted Security for a Definitive Security that does
not bear the legend set forth in (i) above and rescind any restriction on the
transfer of such Transfer Restricted Security; and
(B) in the case of any Transfer Restricted Security
represented by a Global Security, such Transfer Restricted Security shall not be
required to bear the legend set forth in (i) above, but shall continue to be
subject to the provisions of Section 2.6(a) and (b) hereof.
(h) CANCELLATION AND/OR ADJUSTMENT OF GLOBAL SECURITIES. At such
time as all beneficial interests in Global Securities have been exchanged for
Definitive Securities, redeemed, repurchased or cancelled, all Global Securities
shall be returned to or retained and cancelled by the Trustee in accordance with
Section 2.11 hereof. At any time prior to such cancellation, if any beneficial
interest in a Global Security is exchanged for Definitive Securities, redeemed,
repurchased or cancelled, the principal amount of Securities represented by such
Global Security shall be reduced accordingly and an endorsement may be made on
such Global Security, by the Trustee or the Securities Custodian, at the
direction of the Trustee, to reflect such reduction but any failure to make such
an endorsement shall not affect the reductions.
(i) GENERAL PROVISIONS RELATING TO TRANSFERS AND EXCHANGES.
(i) To permit registrations of transfers and exchanges, the
Company shall execute and the Trustee shall authenticate Global Securities and
Definitive Securities at the Registrar's request.
(ii) No service charge shall be made to a Holder for any
registration of transfer or exchange, but the Company may require payment of a
sum sufficient to cover any stamp or transfer tax or similar governmental charge
payable in connection therewith (other than any such stamp or transfer taxes or
similar governmental charge payable upon exchange or transfer pursuant to
Sections 2.10, 3.7, 10.1 and 12.8).
(iii) All Global Securities and Definitive Securities issued
upon any registration of transfer or exchange of Global Securities or Definitive
Securities shall be the valid obligations of the Company, evidencing the same
debt, and entitled to the same benefits under this Indenture, as the Global
Securities or Definitive Securities surrendered upon such registration of
transfer or exchange.
(iv) The Company and the Registrar shall not be required:
(A) to issue, to register the transfer of or to exchange Securities during a
period beginning at the opening of fifteen (15) Business Days before the day of
any selection of Securities for redemption under Section 3.3 hereof and ending
at the close of business on the day of selection, (B) to register the transfer
of or to exchange any Security so selected for redemption in whole or in part,
except the unredeemed portion of any Security being redeemed in part, (C) to
issue, to register the transfer of or to exchange any Securities in respect of
which a form entitled "Option of Holder to Elect Purchase" has been given to the
Paying Agent and not withdrawn by the Holder thereof in accordance with Section
10.1, or (D) to register the transfer of or to exchange a Security between a
record date and the next succeeding interest payment date.
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(v) Prior to due presentment for the registration of a
transfer of any Security, the Trustee, any Agent and the Company may deem and
treat the Person in whose name any Security is registered as the absolute owner
of such Security for the purpose of receiving payment of principal of and
interest on such Securities and for all other purposes, and neither the Trustee,
any Agent nor the Company shall be affected by notice to the contrary.
(vi) The Trustee shall authenticate Global Securities and
Definitive Securities in accordance with the provisions of Section 2.2 hereof.
(vii) If the Trustee receives a request for any transfer for
which the Company may require an Opinion of Counsel pursuant to the terms of
this Article II, the Trustee shall promptly notify the Company of such request.
SECTION 2.7. REPLACEMENT SECURITIES.
If a mutilated Security is surrendered to the Company or the Trustee
or if the Holder of a Security claims and submits an affidavit or other
evidence, satisfactory to the Company and the Trustee, to the Company or the
Trustee to the effect that the Security has been lost, destroyed or wrongfully
taken, then in the absence of actual notice to the Company or the Trustee that
such Security has been acquired by a bona fide purchaser, the Company shall
issue and the Trustee shall authenticate a replacement Security if the Trustee's
and the Company's requirements are met. If required by the Trustee or the
Company, such Holder must provide an indemnity bond or other indemnity,
sufficient in the judgment of both the Company and the Trustee, to protect the
Company, the Trustee or any Agent from any loss which any of them may suffer if
a Security is replaced. The Company may require payment of a sum sufficient to
cover any tax or other governmental charge that may be imposed in connection
therewith and may charge such Holder for its reasonable, out-of-pocket expenses
in replacing a Security.
Every replacement Security is an additional obligation of the Company.
SECTION 2.8. OUTSTANDING SECURITIES.
Securities outstanding at any time are all the Securities that have
been authenticated by the Trustee (including any Security represented by a
Global Security) except those cancelled by it, those delivered to it for
cancellation, those reductions in the interest in a Global Security effected by
the Trustee hereunder and those described in this Section 2.8 as not
outstanding. A Security does not cease to be outstanding because the Company or
an Affiliate of the Company holds the Security, except as provided in Section
2.9.
If a Security is replaced pursuant to Section 2.7 (other than a
mutilated Security surrendered for replacement), it ceases to be outstanding
unless the Trustee receives proof satisfactory to it that the replaced Security
is held by a BONA FIDE purchaser. A mutilated Security ceases to be outstanding
upon surrender of such Security and replacement thereof pursuant to Section 2.7.
Except as otherwise set forth herein, if on a Redemption Date (or on
the maturity date of the Securities) the Paying Agent (other than the Company or
an Affiliate of the Company) holds Cash or U.S. Government Obligations
sufficient to pay all of the principal and interest due on the Securities
payable on that date in accordance with the provisions of this Indenture and
such payment is not otherwise prohibited pursuant to Article XI hereof or
otherwise, then on and after that date such Securities cease to be outstanding
and interest on them ceases to accrue.
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SECTION 2.9. TREASURY SECURITIES.
In determining whether the Holders of the required principal amount of
Securities have concurred in any direction, amendment, supplement, waiver or
consent, Securities owned by the Company or an Affiliate of the Company shall be
disregarded, except that, for the purposes of determining whether the Trustee
shall be protected in relying on any such direction, amendment, supplement,
waiver or consent, only Securities that the Trustee knows are so owned shall be
disregarded.
SECTION 2.10. TEMPORARY SECURITIES.
Until Definitive Securities are ready for delivery, the Company may
prepare and the Trustee shall authenticate temporary Securities. Temporary
Securities shall be substantially in the form of Definitive Securities but may
have variations that the Company reasonably and in good faith considers
appropriate for temporary Securities. Without unreasonable delay, the Company
shall prepare and the Trustee shall authenticate Definitive Securities in
exchange for temporary Securities. Until so exchanged, the temporary Securities
shall in all respects be entitled to the same benefits under this Indenture as
permanent Definitive Securities authenticated and delivered hereunder.
SECTION 2.11. CANCELLATION.
All Securities surrendered for payment, redemption, conversion,
repurchase, registration of transfer or exchange shall, if surrendered to any
person other than the Trustee, be delivered to the Trustee and promptly
cancelled by it. The Company at any time may deliver Securities to the Trustee
for cancellation. The Registrar and the Paying Agent shall forward to the
Trustee any Securities surrendered to them for transfer, exchange or payment.
The Trustee, or at the direction of the Trustee, the Registrar or the Paying
Agent (other than the Company or an Affiliate of the Company), and no one else,
shall cancel and, at the written direction of the Company, shall dispose of all
Securities surrendered for transfer, exchange, payment or cancellation. Subject
to Section 2.7, the Company may not issue new Securities to replace Securities
that have been paid or delivered to the Trustee for cancellation. No Securities
shall be authenticated in lieu of or in exchange for any Securities cancelled as
provided in this Section 2.11, except as expressly permitted in the form of
Securities and as permitted by this Indenture.
SECTION 2.12. DEFAULTED INTEREST.
Interest on any Security which is payable, and is punctually paid or
duly provided for, on any Interest Payment Date shall be paid to the person in
whose name that Security (or one or more predecessor Securities) is registered
at the close of business on the Record Date for such interest.
Any interest on any Security which is payable, but is not punctually
paid or duly provided for, on any Interest Payment Date plus, to the extent
lawful, any interest payable on the defaulted interest (herein called "Defaulted
Interest") shall forthwith cease to be payable to the registered holder on the
relevant Record Date, and such Defaulted Interest may be paid by the Company, at
its election in each case, as provided in clause (1) or (2) below:
(1) The Company may elect to make payment of any Defaulted
Interest to the persons in whose names the Securities (or their respective
predecessor Securities) are registered at the close of business on a
Special Record Date for the payment of such Defaulted Interest, which shall
be fixed in the following manner. The Company shall notify the Trustee in
writing of the amount of Defaulted Interest proposed to be paid on each
Security and the date of the proposed payment, and at the same time
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the Company shall deposit with the Trustee an amount of Cash equal to the
aggregate amount proposed to be paid in respect of such Defaulted Interest
or shall make arrangements satisfactory to the Trustee for such deposit
prior to the date of the proposed payment, such Cash when deposited to be
held in trust for the benefit of the persons entitled to such Defaulted
Interest as provided in this clause (1). Thereupon the Trustee shall fix a
Special Record Date for the payment of such Defaulted Interest which shall
be not more than 15 days and not less than 10 days prior to the date of the
proposed payment and not less than 10 days after the receipt by the Trustee
of the notice of the proposed payment. The Trustee shall promptly notify
the Company of such Special Record Date and, in the name and at the expense
of the Company, shall cause notice of the proposed payment of such
Defaulted Interest and the Special Record Date therefor to be mailed,
first-class postage prepaid, to each Holder at his address as it appears in
the Security register not less than 10 days prior to such Special Record
Date. Notice of the proposed payment of such Defaulted Interest and the
Special Record Date therefor having been mailed as aforesaid, such
Defaulted Interest shall be paid to the persons in whose names the
Securities (or their respective predecessor Securities) are registered on
such Special Record Date and shall no longer be payable pursuant to the
following clause (2).
(2) The Company may make payment of any Defaulted Interest in
any other practical and lawful manner not inconsistent with the
requirements of any securities exchange on which the Securities may be
listed, and upon such notice as may be required by such exchange, by so
notifying the Trustee at least fifteen days prior to such payment (or such
shorter period as may be acceptable to the Trustee or permitted in
accordance with the rules of any applicable securities exchange).
Subject to the foregoing provisions of this Section 2.12, each
Security delivered under this Indenture upon transfer of or in exchange for or
in lieu of any other Security shall carry the rights to interest accrued and
unpaid, and to accrue, which were carried by such other Security.
ARTICLE III
REDEMPTION
SECTION 3.1. RIGHT OF REDEMPTION.
Redemption of Securities at the Company's option shall be made in
accordance with Paragraph 5 of the Securities and this Article III.
SECTION 3.2. NOTICES TO TRUSTEE.
If the Company elects to redeem Securities pursuant to Paragraph 5 of
the Securities, it shall notify the Trustee in writing of the Redemption Date
and the principal amount of Securities to be redeemed and whether it wants the
Trustee to give notice of redemption to the Holders.
If the Company elects to reduce the principal amount of Securities to
be redeemed pursuant to Paragraph 5 of the Securities by crediting against any
such redemption Securities it has not previously delivered to the Trustee for
cancellation, it shall so notify the Trustee of the amount of the reduction and
deliver such Securities with such notice.
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The Company shall give each notice to the Trustee provided for in this
Section 3.2 at least 45 days before the Redemption Date (unless a shorter notice
shall be satisfactory to the Trustee). Any such notice may be cancelled at any
time prior to notice of such redemption being mailed to any Holder and shall
thereby be void and of no effect.
SECTION 3.3. SELECTION OF SECURITIES TO BE REDEEMED.
If less than all of the Securities are to be redeemed pursuant to
Paragraph 5 thereof, the Trustee shall select the Securities to be redeemed, on
a pro rata basis, by lot or by such other method as the Trustee shall determine
to be fair and appropriate and in such manner as complies with any applicable
depositary and legal requirements and in compliance with the requirements of the
principal national securities exchange or national market system, if any, on
which the Securities are listed.
The Trustee shall make the selection from the Securities outstanding
and not previously called for redemption and shall promptly notify the Company
in writing of the Securities selected for redemption and, in the case of any
Security selected for partial redemption, the principal amount thereof to be
redeemed. Securities in denominations of $1,000 may be redeemed only in whole.
The Trustee may select for redemption portions (equal to $1,000 or any integral
multiple thereof) of the principal of Securities that have denominations larger
than $1,000. Provisions of this Indenture that apply to Securities called for
redemption also apply to portions of Securities called for redemption.
SECTION 3.4. NOTICE OF REDEMPTION.
At least 20 days but not more than 60 days before a Redemption Date,
the Company shall mail a notice of redemption by first-class mail, postage
prepaid, to the Trustee and each Holder whose Securities are to be redeemed. At
the Company's written request to the Trustee not less than 45 days prior to the
Redemption Date (unless a shorter notice shall be satisfactory to the Trustee),
the Trustee shall give the notice of redemption in the Company's name and at the
Company's expense. Each notice for redemption shall identify the Securities to
be redeemed and shall state:
(1) the Redemption Date, and that the Securities called for
redemption may not be converted after the Business Day prior to the
Redemption Date;
(2) the Redemption Price, including the amount of accrued and
unpaid interest and Liquidated Damages, if any, to the Redemption Date, to
be paid upon such redemption;
(3) the name and address of the Paying Agent;
(4) that Securities called for redemption must be surrendered
to the Paying Agent at the address specified in such notice to collect the
Redemption Price, including accrued and unpaid interest and Liquidated
Damages, if any, to the Redemption Date;
(5) that, unless (a) the Company defaults in its obligation to
deposit Cash with the Paying Agent in accordance with Section 3.6 hereof or
(b) such redemption payment is prohibited pursuant to Article XII hereof or
otherwise, interest on Securities called for redemption ceases to accrue on
and after the Redemption Date and the only remaining right of the Holders
of such Securities is to receive payment of the Redemption Price, including
accrued and unpaid interest and Liquidated Damages, if any, to the
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Redemption Date, upon surrender to the Paying Agent of the Securities
called for redemption and to be redeemed;
(6) if any Security is being redeemed in part, the portion of
the principal amount, equal to $1,000 or any integral multiple thereof, of
such Security to be redeemed and that, after the Redemption Date, and upon
surrender of such Security, a new Security or Securities in aggregate
principal amount equal to the unredeemed portion thereof will be issued;
(7) if less than all the Securities are to be redeemed, the
identification of the particular Securities (or portion thereof) to be
redeemed, as well as the aggregate principal amount of such Securities to
be redeemed and the aggregate principal amount of Securities to be
outstanding after such partial redemption;
(8) the CUSIP number of the Securities to be redeemed; and
(9) that the notice is being sent pursuant to this Section 3.4
and pursuant to the redemption provisions of Paragraph 5 of the Securities.
SECTION 3.5. EFFECT OF NOTICE OF REDEMPTION.
Once notice of redemption is mailed in accordance with Section 3.4,
Securities called for redemption (except for Securities that are converted in
accordance with the terms of the Indenture) become due and payable on the
Redemption Date and at the Redemption Price, including accrued and unpaid
interest and Liquidated Damages, if any, to the Redemption Date. Upon surrender
to the Trustee or Paying Agent, such Securities called for redemption shall be
paid at the Redemption Price, including accrued and unpaid interest and
Liquidated Damages, if any, to the Redemption Date; PROVIDED that if the
Redemption Date is after a regular Record Date and on or prior to the
corresponding Interest Payment Date, the accrued interest, if any, shall be
payable to the Holder of the redeemed Securities registered on the relevant
Record Date; and PROVIDED FURTHER that if a Redemption Date is a Legal Holiday,
payment shall be made on the next succeeding Business Day and no interest shall
accrue for the period from such Redemption Date to such succeeding Business Day.
SECTION 3.6. DEPOSIT OF REDEMPTION PRICE.
On or prior to the Redemption Date, the Company shall deposit with the
Paying Agent (other than the Company or an Affiliate of the Company) Cash
sufficient to pay the Redemption Price of, including accrued and unpaid interest
and Liquidated Damages, if any, on, all Securities to be redeemed on such
Redemption Date (other than Securities or portions thereof called for redemption
on that date that have been delivered by the Company to the Trustee for
cancellation). The Paying Agent shall promptly return to the Company any Cash
so deposited which is not required for that purpose upon the written request of
the Company.
If the Company complies with the preceding paragraph and the other
provisions of this Article III and payment of the Securities called for
redemption is not prohibited under Article XII or otherwise, interest on the
Securities to be redeemed will cease to accrue on the applicable Redemption
Date, whether or not such Securities are presented for payment. Notwithstanding
anything herein to the contrary, if any Security surrendered for redemption in
the manner provided in the Securities shall not be so paid upon surrender for
redemption because of the failure of the Company to comply with the preceding
paragraph, interest shall continue to accrue and be paid from the Redemption
Date until such
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payment is made on the unpaid principal, and, to the extent lawful, on any
interest and Liquidated Damages not paid on such unpaid principal, in each case
at the rate and in the manner provided in Section 4.1 hereof and the Security.
SECTION 3.7. SECURITIES REDEEMED IN PART.
Upon surrender of a Security that is to be redeemed in part, the
Company shall execute and the Trustee shall authenticate and deliver to the
Holder, without service charge to the Holder, a new Security or Securities equal
in principal amount to the unredeemed portion of the Security surrendered.
SECTION 3.8. CONVERSION ARRANGEMENT ON CALL FOR REDEMPTION.
Notwithstanding anything to the contrary contained in this Indenture,
in connection with any redemption of Securities, the Company, by an agreement
with one or more investment bankers or other purchasers, may arrange for such
purchasers to purchase all Securities called for redemption (the "Called
Securities") which are either (i) surrendered for redemption or (ii) not duly
surrendered for redemption or conversion prior to the close of business on the
Redemption Date, and to convert the same into shares of Common Stock, by the
purchasers' depositing with the Trustee (acting as Paying Agent with respect to
the deposit of such amount and as conversion agent with respect to the
conversion of such Called Securities), in trust for the Holders of the Called
Securities, on or prior to the Redemption Date in the manner agreed to by the
Company and such purchasers, an amount sufficient to pay the Redemption Price,
including accrued and unpaid interest and Liquidated Damages, if any, payable by
the Company on redemption of such Called Securities. In connection with any
such arrangement for purchase and conversion, the Trustee as Paying Agent shall
pay on or after the Redemption Date such amounts so deposited by the purchasers
in exchange for Called Securities surrendered for redemption prior to the close
of business on the Redemption Date and for all Called Securities surrendered
after such Redemption Date. Notwithstanding anything to the contrary contained
in this Article Three, the obligation of the Company to pay the Redemption
Price, including accrued and unpaid interest and Liquidated Damages, if any, of
such Called Securities shall be satisfied and discharged to the extent such
amount is so paid by such purchasers, provided, however, that nothing in this
Section 3.8 shall in any way relieve the Company of the obligation to pay such
Redemption Price, including accrued and unpaid interest and Liquidated Damages,
if any, on all Called Securities to the extent such amount is not so paid by
said purchasers. For all purposes of this Indenture, any Called Securities
surrendered by Holders for redemption, and any Called Securities not duly
surrendered for redemption or conversion prior to the close of business on the
Redemption Date, shall be deemed acquired by such purchasers from such Holders
and surrendered by such purchasers for conversion and shall in all respects be
deemed to have been converted, all as of immediately prior to the close of
business on the Redemption Date, subject to the deposit by the purchasers of the
above amount as aforesaid. Nothing in this Section shall in any way limit the
right of any Holder of a Security to convert his Security pursuant to the terms
of this Indenture any time prior to the close of business on the Redemption
Date.
ARTICLE IV
COVENANTS
SECTION 4.1. PAYMENT OF PRINCIPAL AND INTEREST ON SECURITIES.
The Company shall pay the principal of, premium, if any, interest on,
and Liquidated Damages with respect to, the Securities on the dates and in
the manner provided in the Securities. An installment of principal of or
interest or Liquidated Damages, if any, on, or other payments with respect
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to, the Securities shall be considered paid on the date it is due if the
Trustee or Paying Agent (other than the Company or an Affiliate of the
Company) holds for the benefit of the Holders, on or before 10:00 a.m. New
York City time on that date, Cash deposited and designated for and sufficient
to pay the installment or other payment.
The Company shall pay interest on overdue principal, premium, if any,
installments of interest and Liquidated Damages at the rate specified in the
Securities compounded semi-annually, to the extent lawful.
SECTION 4.2. MAINTENANCE OF OFFICE OR AGENCY.
The Company shall maintain in the Borough of Manhattan, The City of
New York, an office or agency where Securities may be presented or surrendered
for payment, where Securities may be surrendered for registration of transfer or
exchange and for conversion and where notices and demands to or upon the Company
in respect of the Securities and this Indenture may be served. The Company
shall give prompt written notice to the Trustee of the location, and any change
in the location, of such office or agency. If at any time the Company shall
fail to maintain any such required office or agency or shall fail to furnish the
Trustee with the address thereof, such presentations, surrenders, notices and
demands may be made or served at the address of the Trustee set forth in Section
13.2.
The Company may also from time to time designate one or more other
offices or agencies where the Securities may be presented or surrendered for any
or all such purposes and may from time to time rescind such designations;
PROVIDED, HOWEVER, that no such designation or rescission shall in any manner
relieve the Company of its obligation to maintain an office or agency in the
Borough of Manhattan, The City of New York, for such purposes. The Company
shall give prompt written notice to the Trustee of any such designation or
rescission and of any change in the location of any such other office or agency.
The Company hereby initially designates the corporate trust office of the
Trustee as such office.
SECTION 4.3. CORPORATE EXISTENCE.
Subject to Article V, the Company shall do or cause to be done all
things necessary to preserve and keep in full force and effect its corporate
existence and the corporate or other existence of each of its Subsidiaries in
accordance with the respective organizational documents of each of them and the
rights (charter and statutory) and corporate franchises of the Company and each
of its Subsidiaries; PROVIDED, HOWEVER, that the Company shall not be required
to preserve, with respect to itself, any right or franchise, and with respect to
any of its Subsidiaries, any such existence, right or franchise, if (a) the
Company shall determine that the preservation thereof is no longer desirable in
the conduct of the business of such entity and (b) the loss thereof is not
disadvantageous in any material respect to the Holders.
SECTION 4.4. PAYMENT OF TAXES AND OTHER CLAIMS.
Except with respect to immaterial items, the Company shall, and shall
cause each of its Subsidiaries to, pay or discharge or cause to be paid or
discharged, before the same shall become delinquent, (i) all taxes, assessments
and governmental charges (including withholding taxes and any penalties,
interest and additions to taxes) levied or imposed upon the Company or any of
its Subsidiaries or any of their respective properties and assets and (ii) all
lawful claims, whether for labor, materials, supplies, services or anything
else, which have become due and payable and which by law have or may become a
Lien upon the property and assets of the Company or any of its Subsidiaries;
PROVIDED, HOWEVER, that neither the Company nor any Subsidiary shall be required
to pay or discharge or cause to be paid or dis-
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charged any such tax, assessment, charge or claim whose amount, applicability or
validity is being contested in good faith by appropriate proceedings and for
which such disputed amounts the need for adequate reserves have been reviewed in
accordance with GAAP.
SECTION 4.5. MAINTENANCE OF PROPERTIES AND INSURANCE.
The Company shall cause all material properties used or useful to the
conduct of its business and the business of each of its Subsidiaries to be
maintained and kept in good condition, repair and working order (reasonable wear
and tear excepted) and supplied with all necessary equipment and shall cause to
be made all necessary repairs, renewals, replacements, betterments and
improvements thereof, all as in their reasonable judgment may be necessary, so
that the business carried on in connection therewith may be properly conducted
at all times; PROVIDED, HOWEVER, that nothing in this Section 4.5 shall prevent
the Company or any Subsidiary from discontinuing any operation or maintenance of
any of such properties, or disposing of any of them, if such discontinuance or
disposal is (a), in the judgment of the Company, desirable in the conduct of the
business of such entity and (b) not disadvantageous in any material respect to
the Holders.
The Company shall provide, or cause to be provided, for itself and
each of its Subsidiaries, insurance (including appropriate self-insurance)
against loss or damage of the kinds that, in the reasonable, good faith opinion
of the Company is adequate and appropriate for the conduct of the business of
the Company and such Subsidiaries in a prudent manner, with (except for self-
insurance) reputable insurers or with the government of the United States of
America or an agency or instrumentality thereof, in such amounts, with such
deductibles, and by such methods as shall be customary, in the reasonable, good
faith opinion of the Company and adequate and appropriate for the conduct of the
business of the Company and such Subsidiaries in a prudent manner for entities
similarly situated in the industry, unless failure to provide such insurance
(together with all other such failures) would not have a material adverse effect
on the financial condition or results of operations of the Company or such
Subsidiary.
SECTION 4.6. COMPLIANCE CERTIFICATE; NOTICE OF DEFAULT.
(a) The Company shall deliver to the Trustee within 120 days after
the end of its fiscal year an Officers' Certificate complying with Section
314(a)(4) of the TIA and stating that a review of its activities and the
activities of its Subsidiaries during the preceding fiscal year has been made
under the supervision of the signing Officers with a view to determining whether
the Company has kept, observed, performed and fulfilled its obligations under
this Indenture and further stating, as to each such Officer signing such
certificate, whether or not the signer knows of any failure by the Company or
any Subsidiary of the Company to comply with any conditions or covenants in this
Indenture and, if such signer does know of such a failure to comply, the
certificate shall describe such failure with particularity. The Officers'
Certificate shall also notify the Trustee should the relevant fiscal year end on
any date other than the current fiscal year end date.
(b) The Company shall, so long as any of the Securities are
outstanding, deliver to the Trustee, promptly upon becoming aware of any
Default, Event of Default or fact which would prohibit the making of any payment
to or by the Trustee in respect of the Securities, an Officers' Certificate
specifying such Default, Event of Default or fact and what action the Company is
taking or proposes to take with respect thereto. The Trustee shall not be
deemed to have knowledge of any Default, any Event of Default or any such fact
unless one of its Trust Officers receives notice thereof from the Company or any
of the Holders.
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SECTION 4.7. REPORTS.
Whether or not the Company is subject to the reporting requirements of
Section 13 or 15(d) of the Exchange Act, the Company shall deliver to the
Trustee, within 15 days after it is or would have been required to file such
with the SEC, (a) annual and quarterly consolidated financial statements
substantially equivalent to financial statements that would have been included
in reports filed with the SEC if the Company was subject to the requirements of
Section 13 or 15(d) of the Exchange Act, including, with respect to annual
information only, a report thereon by the Company's certified independent public
accountants as such would be required in such reports to the SEC and, in each
case, together with a management's discussion and analysis of financial
condition and results of operations which would be so required and (b) all
current reports that would be required to be filed with the SEC on Form 8-K if
the Company were required to file such reports. In addition, whether or not
required by the rules and regulations of the SEC, the Company will file a copy
of all such information and reports with the SEC for public availability (unless
the SEC will not accept such a filing).
SECTION 4.8. LIMITATION ON STATUS AS INVESTMENT COMPANY.
The Company shall not become an "investment company" (as that term is
defined in the Investment Company Act of 1940, as amended), or otherwise become
subject to regulation under the Investment Company Act.
SECTION 4.9. WAIVER OF STAY, EXTENSION OR USURY LAWS.
The Company covenants (to the extent that it may lawfully do so) that
it will not at any time insist upon, plead, or in any manner whatsoever claim or
take the benefit or advantage of, any stay or extension law or any usury law or
other law which would prohibit or forgive the Company from paying all or any
portion of the principal of, premium of, interest on, or Liquidated Damages with
respect to the Securities as contemplated herein, wherever enacted, now or at
any time hereafter in force, or which may affect the covenants or the
performance of this Indenture; and (to the extent that it may lawfully do so)
the Company hereby expressly waives all benefit or advantage of any such law,
and covenants that it will not hinder, delay or impede the execution of any
power herein granted to the Trustee, but will suffer and permit the execution of
every such power as though no such law had been enacted.
SECTION 4.10. RULE 144A INFORMATION REQUIREMENT.
If at any time there are Transfer Restricted Securities outstanding
and the Company shall cease to have a class of equity securities registered
under Section 12(b) of the Exchange Act or shall cease to be subject to Section
15(d) of the Exchange Act, the Company shall furnish, within a reasonable period
of time, to the Holders or beneficial holders of the Securities or the
underlying Common Stock and prospective purchasers of Securities or the
underlying Common Stock designated by the Holders of Transfer Restricted
Securities, upon their written request, the information required to be delivered
pursuant to Rule 144A(d)(4) under the Securities Act until such time as the
Shelf Registration Statement has become effective under the Securities Act. The
Company shall also furnish such information during the pendency of any
suspension of effectiveness of the Shelf Registration Statement.
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ARTICLE V
SUCCESSOR CORPORATION
SECTION 5.1. LIMITATION ON MERGER, SALE OR CONSOLIDATION.
(a) The Company shall not, directly or indirectly, consolidate with
or merge with or into another Person or sell, assign, lease, convey, transfer or
otherwise dispose of all or substantially all of its properties or assets
(computed on a consolidated basis), whether in a single transaction or a series
of related transactions, to another Person or group of affiliated Persons,
unless (i) either (a) in the case of a merger or consolidation, the Company is
the surviving entity or (b) the resulting, surviving or transferee entity is a
corporation organized under the laws of the United States, any state thereof or
the District of Columbia and expressly assumes by supplemental indenture all of
the obligations of the Company under the Securities and the Indenture; (ii) no
Default or Event of Default shall exist or shall occur immediately after giving
effect on a PRO FORMA basis to such transaction; and (iii) the Company has
delivered to the Trustee an Officers' Certificate and an Opinion of Counsel,
each stating that such consolidation, merger or transfer and, if a supplemental
indenture is required, such supplemental indenture, comply with the Indenture
and that all conditions precedent relating to such transactions have been
satisfied.
(b) For purposes of clause (a) of this Section 5.1, the sale, lease,
conveyance, assignment, transfer, or other disposition of all or substantially
all of the properties and assets of one or more Subsidiaries of the Company,
which properties and assets, if held by the Company instead of such
Subsidiaries, would constitute all or substantially all of the properties and
assets of the Company on a consolidated basis, shall be deemed to be the
transfer of all or substantially all of the properties and assets of
the Company.
SECTION 5.2. SUCCESSOR CORPORATION SUBSTITUTED.
Upon any consolidation or merger or any sale, lease, conveyance or
transfer of all or substantially all of the assets of the Company in accordance
with the foregoing, the successor corporation formed by such consolidation or
into which the Company is merged or to which such sale, lease, conveyance or
transfer is made, shall succeed to, and be substituted for, and may exercise
every right and power of, the Company under the Indenture with the same effect
as if such successor corporation had been named therein as the Company, and when
a successor corporation duly assumes all of the obligations of the Company
pursuant hereto and pursuant to the Securities, the predecessor shall be
released from such obligations (except with respect to any obligations that
arise from or as a result of such transaction).
ARTICLE VI
EVENTS OF DEFAULT AND REMEDIES
SECTION 6.1. EVENTS OF DEFAULT.
"Event of Default," wherever used herein, means any one of the
following events (whatever the reason for such Event of Default and whether it
shall be caused voluntarily or involuntarily or effected, without limitation, by
operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body):
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(1) failure by the Company to pay any installment of interest
or Liquidated Damages, if any, on the Securities as and when due and
payable, whether or not such payment is prohibited by Article XI, or
failure by the Company to perform any conversion of the Securities required
under this Indenture, and the continuance of such failure for a period of
30 days;
(2) failure by the Company to pay all or any part of the
principal of, or premium, if any, on the Securities when and as the same
become due and payable at maturity, redemption, by acceleration or
otherwise, whether or not such payment is prohibited by Article XI;
(3) failure by the Company to comply with the provisions of
Article X;
(4) failure by the Company to observe or perform any covenant
or agreement contained in the Securities or this Indenture (other than a
default in the performance of any covenant or agreement which is
specifically dealt with elsewhere in this Section 6.1), and continuance of
such failure for a period of 60 days after there has been given, by
registered or certified mail, to the Company by the Trustee, or to the
Company and the Trustee by Holders of at least 25% in aggregate principal
amount of the then outstanding Securities, a written notice specifying such
default or breach, requesting it to be remedied and stating that such
notice is a "Notice of Default" hereunder;
(5) default under any mortgage, indenture or instrument under
which there is issued or by which there is secured or evidenced any
indebtedness for money borrowed by the Company or any of its Subsidiaries
(or the payment of which is guaranteed by the Company or any of its
Subsidiaries) whether such indebtedness or guarantee now exists, or is
created after the date of this Indenture, which default (a) is caused by a
failure to pay principal of or premium, if any, or interest on such
indebtedness prior to the expiration of the grace period provided in such
indebtedness on the date of such default (a "Payment Event") or (b) results
in the acceleration of such indebtedness prior to its express maturity and,
in each case, the principal amount of any such indebtedness, together with
the principal amount of any other such indebtedness under which there has
been a Payment Event or the maturity of which has been so accelerated, is
an amount which, in the aggregate, is equal to or greater than $20,000,000;
(6) a decree, judgment, or order by a court of competent
jurisdiction shall have been entered adjudging the Company or any of its
Significant Subsidiaries as bankrupt or insolvent, or approving as properly
filed a petition seeking reorganization of the Company or any of its
Significant Subsidiaries under any bankruptcy or similar law, and such
decree or order shall have continued undischarged and unstayed for a period
of 75 days; or a decree or order of a court of competent jurisdiction over
the appointment of a receiver, liquidator, trustee, or assignee in
bankruptcy or insolvency of the Company, any of its Significant
Subsidiaries, or of the property of any such Person, or for the winding up
or liquidation of the affairs of any such Person, shall have been entered,
and such decree, judgment, or order shall have remained in force
undischarged and unstayed for a period of 60 days;
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(7) the Company or any of its Significant Subsidiaries shall
institute proceedings to be adjudicated a voluntary bankrupt, or shall
consent to the filing of a bankruptcy proceeding against it, or shall file
a petition or answer or consent seeking reorganization under any bankruptcy
or similar law or similar statute, or shall consent to the filing of any
such petition, or shall consent to the appointment of a Custodian,
receiver, liquidator, trustee, or assignee in bankruptcy or insolvency of
it or any of its assets or property, or shall make a general assignment for
the benefit of creditors, or shall admit in writing its inability to pay
its debts generally as they become due, or shall, within the meaning of any
Bankruptcy Law, become insolvent, fail generally to pay its debts as they
become due, or take any corporate action in furtherance of or to
facilitate, conditionally or otherwise, any of the foregoing; or
(8) final unsatisfied judgments aggregating in excess of
$20,000,000, at any one time shall have been rendered against the Company
or any of its Subsidiaries and not have been paid, stayed, bonded or
discharged within 60 days after their entry.
If a Default occurs and is continuing, the Trustee shall, within 90
days after the occurrence of such default, give to the Holders notice of such
default.
SECTION 6.2. ACCELERATION OF MATURITY DATE; RESCISSION AND
ANNULMENT.
If an Event of Default (other than an Event of Default specified in
Section 6.1(6) or (7) relating to the Company or any of its Subsidiaries) occurs
and is continuing, then, and in every such case, unless the principal of all of
the Securities shall have already become due and payable, either the Trustee or
the Holders of not less than 25% in aggregate principal amount of then
outstanding Securities, by a notice in writing to the Company (and to the
Trustee if given by Holders) (an "Acceleration Notice"), may declare all of the
principal of the Securities (or the Repurchase Price if the Event of Default
includes failure to pay the Repurchase Price, determined as set forth below),
including in each case accrued interest and Liquidated Damages, if any, thereon,
to be due and payable immediately. If an Event of Default specified in Section
6.1(6) or (7) relating to the Company or any Significant Subsidiary occurs, all
of the principal of all outstanding Securities and accrued interest thereon will
be immediately due and payable without any declaration or other act on the part
of the Trustee or the Holders.
At any time after such a declaration of acceleration has been made and
before a judgment or decree for payment of the money due has been obtained by
the Trustee as hereinafter provided in this Article VI, the Holders of no less
than a majority in aggregate principal amount of then outstanding Securities, by
written notice to the Company and the Trustee, may rescind, on behalf of all
Holders, any such declaration of acceleration if:
(1) the Company has paid or deposited with the Trustee Cash
sufficient to pay
(A) all overdue interest on all Securities,
(B) the principal of (and premium, if any, applicable
to) any Securities which would then be due otherwise than by such
declaration of acceleration, and interest thereon at the rate borne by the
Securities and Liquidated Damages, if any thereof,
(C) to the extent that payment of such interest is
lawful, interest upon overdue interest and Liquidated Damages, if any, at
the rate borne by the Securities,
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(D) all sums paid or advanced by the Trustee hereunder
and the compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel; and
(2) all Events of Default, other than the non-payment of the
principal of, premium, if any, interest and Liquidated Damages, if any, on
Securities that have become due solely by such declaration of acceleration,
have been cured or waived as provided in Section 6.12, including, if
applicable, any Event of Default relating to the covenants contained in
Section 10.1.
Notwithstanding the previous sentence of this Section 6.2, no waiver shall be
effective against any Holder for any Event of Default or event which with notice
or lapse of time or both would be an Event of Default with respect to any
covenant or provision which cannot be modified or amended without the consent of
the Holder of each outstanding Security affected thereby, unless all such
affected Holders agree, in writing, to waive such Event of Default or other
event. No such waiver shall cure or waive any subsequent Default or Event of
Default or impair any right consequent thereon.
SECTION 6.3. COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT
BY TRUSTEE.
The Company covenants that if an Event of Default in payment of
principal, premium, interest or Liquidated Damages specified in clause (1) or
(2) of Section 6.1 occurs and is continuing, the Company shall, upon demand of
the Trustee, pay to it, for the benefit of the Holders of such Securities, the
whole amount then due and payable on such Securities for principal, premium (if
any), interest and Liquidated Damages, if any, to the extent that payment of
such interest shall be legally enforceable, interest on any overdue principal
(and premium, if any) and on any overdue interest and Liquidated Damages, if
any, at the rate borne by the Securities, and, in addition thereto, such further
amount as shall be sufficient to cover the reasonable costs and expenses of
collection, including reasonable compensation to, and expenses, disbursements
and advances of the Trustee, its agents and counsel.
If the Company fails to pay such amounts forthwith upon such demand,
the Trustee, in its own name and as trustee of an express trust in favor of the
Holders, may institute a judicial proceeding for the collection of the sums so
due and unpaid, may prosecute such proceeding to judgment or final decree and
may enforce the same against the Company or any other obligor upon the
Securities and collect the moneys adjudged or decreed to be payable in the
manner provided by law out of the property of the Company or any other obligor
upon the Securities, wherever situated.
If an Event of Default occurs and is continuing, the Trustee may in
its discretion proceed to protect and enforce its rights and the rights of the
Holders by such appropriate judicial proceedings as the Trustee shall deem most
effective to protect and enforce any such rights, whether for the specific
enforcement of any covenant or agreement in this Indenture or in aid of the
exercise of any power granted herein, or to enforce any other proper remedy.
SECTION 6.4. TRUSTEE MAY FILE PROOFS OF CLAIM.
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
judicial proceeding relative to the Company or any other obligor upon the
Securities or the property of the Company or of such other obligor or their
creditors, the Trustee (irrespective of whether the principal of the Securities
shall then be due and payable as therein expressed or by declaration or
otherwise and irrespective of whether the Trustee shall have made any demand on
the Company for the payment of overdue principal, premium,
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interest or Liquidated Damages, if any) shall be entitled and empowered, by
intervention in such proceeding or otherwise to take any and all actions under
the TIA, including:
(1) to file and prove a claim for the whole amount of
principal (and premium, if any), interest and Liquidated Damages, if any,
owing and unpaid in respect of the Securities and to file such other papers
or documents as may be necessary or advisable in order to have the claims
of the Trustee (including any claim for the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agent and counsel)
and of the Holders allowed in such judicial proceeding; and
(2) to collect and receive any moneys or other property
payable or deliverable on any such claims and to distribute the same;
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or
other similar official in any such judicial proceeding is hereby authorized by
each Holder to make such payments to the Trustee and, in the event that the
Trustee shall consent to the making of such payments directly to the Holders, to
pay to the Trustee any amount due it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any other
amounts due the Trustee under Section 7.7.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment, or composition affecting the Securities
or the rights of any Holder thereof or to authorize the Trustee to vote in
respect of the claim of any Holder in any such proceeding.
SECTION 6.5. TRUSTEE MAY ENFORCE CLAIMS WITHOUT POSSESSION OF
SECURITIES.
All rights of action and claims under this Indenture or the Securities
may be prosecuted and enforced by the Trustee without the possession of any of
the Securities or the production thereof in any proceeding relating thereto, and
any such proceeding instituted by the Trustee shall be brought in its own name
as trustee of an express trust in favor of the Holders, and any recovery of
judgment shall, after provision for the payment of compensation to, and
expenses, disbursements and advances of the Trustee, its agents and counsel, be
for the ratable benefit of the Holders of the Securities in respect of which
such judgment has been recovered.
SECTION 6.6. PRIORITIES.
Any money collected by the Trustee pursuant to this Article VI shall
be applied in the following order, at the date or dates fixed by the Trustee
and, in case of the distribution of such money on account of principal, premium
(if any) or interest, upon presentation of the Securities and the notation
thereon of the payment if only partially paid and upon surrender thereof if
fully paid:
FIRST: To the Trustee in payment of all amounts due pursuant to
Section 7.7;
SECOND: To the holders of Senior Indebtedness of the Company to the
extent provided in Article XI;
THIRD: To the Holders in payment of the amounts then due and unpaid
for principal of, premium (if any), interest and Liquidated Damages, if any, on,
the Securities in respect or for the benefit of which such money has been
collected, ratably, without preference or priority of any kind,
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according to the amounts due and payable on such Securities for principal,
premium (if any), interest and Liquidated Damages, if any, respectively; and
FOURTH: To whomsoever may be lawfully entitled thereto, the
remainder, if any.
SECTION 6.7. LIMITATION ON SUITS.
No Holder of any Security shall have any right to order or direct the
Trustee to institute any proceeding, judicial or otherwise, with respect to this
Indenture, or for the appointment of a receiver or trustee, or for any other
remedy hereunder, unless:
(A) such Holder has previously given written notice to the
Trustee of a continuing Event of Default;
(B) the Holders of not less than 25% in principal amount of
then outstanding Securities shall have made written request to the Trustee
to institute proceedings in respect of such Event of Default in its own
name as Trustee hereunder;
(C) such Holder or Holders have offered to the Trustee
reasonable security or indemnity against the costs, expenses and
liabilities to be incurred or reasonably probable to be incurred in
compliance with such request;
(D) the Trustee for 60 days after its receipt of such notice,
request and offer of indemnity has failed to institute any such proceeding;
and
(E) no direction inconsistent with such written request has
been given to the Trustee during such 60-day period by the Holders of a
majority in principal amount of then outstanding Securities;
it being understood and intended that no one or more Holders shall have any
right in any manner whatever by virtue of, or by availing of, any provision of
this Indenture to affect, disturb or prejudice the rights of any other Holders,
or to obtain or to seek to obtain priority or preference over any other Holders
or to enforce any right under this Indenture, except in the manner herein
provided and for the equal and ratable benefit of all the Holders.
SECTION 6.8. UNCONDITIONAL RIGHT OF HOLDERS TO RECEIVE PRINCIPAL,
PREMIUM, INTEREST AND LIQUIDATED DAMAGES.
Notwithstanding any other provision of this Indenture, the Holder of
any Security shall have the right, which is absolute and unconditional, to
receive payment of the principal of, premium if any, interest and Liquidated
Damages, if any, on, such Security when due (including, in the case of
redemption, the Redemption Price on the applicable Redemption Date, including
accrued and unpaid interest and Liquidated Damages, if any, to the Redemption
Date, and in the case of the Repurchase Price, on the applicable Repurchase
Date) and to institute suit for the enforcement of any such payment after such
respective dates, and such rights shall not be impaired without the consent of
such Holder.
SECTION 6.9. RIGHTS AND REMEDIES CUMULATIVE.
Except as otherwise provided with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Securities in Section 2.7, no
right or remedy herein conferred upon or reserved
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to the Trustee or to the Holders is intended to be exclusive of any other right
or remedy, and every right and remedy shall, to the extent permitted by law, be
cumulative and in addition to every other right and remedy given hereunder or
now or hereafter existing at law or in equity or otherwise. The assertion or
employment of any right or remedy hereunder, or otherwise, shall not prevent the
concurrent assertion or employment of any other appropriate right or remedy.
SECTION 6.10. DELAY OR OMISSION NOT WAIVER.
No delay or omission by the Trustee or by any Holder of any Security
to exercise any right or remedy arising upon any Event of Default shall impair
the exercise of any such right or remedy or constitute a waiver of any such
Event of Default. Every right and remedy given by this Article VI or by law to
the Trustee or to the Holders may be exercised from time to time, and as often
as may be deemed expedient, by the Trustee or by the Holders, as the case may
be.
SECTION 6.11. CONTROL BY HOLDERS.
The Holder or Holders of no less than a majority in aggregate
principal amount of then outstanding Securities shall have the right to direct
the time, method and place of conducting any proceeding for any remedy available
to the Trustee or exercising any trust or power conferred upon the Trustee,
PROVIDED, that
(1) such direction shall not be in conflict with any rule of
law or with this Indenture,
(2) the Trustee shall not determine that the action so
directed would be unjustly prejudicial to the Holders not taking part in
such direction, and
(3) the Trustee may take any other action deemed proper by the
Trustee which is not inconsistent with such direction.
SECTION 6.12. WAIVER OF PAST DEFAULT.
Subject to Section 6.8, the Holder or Holders of not less than a
majority in aggregate principal amount of then outstanding Securities may, on
behalf of all Holders, prior to the declaration of acceleration of the maturity
of the Securities, waive any past default hereunder and its consequences, except
a default
(A) in the payment of the principal of, premium, if any,
interest or Liquidated Damages, if any, on, any Security not yet cured as
specified in clauses (1) and (2) of Section 6.1, or
(B) in respect of a covenant or provision hereof which, under
Article IX, cannot be modified or amended without the consent of the Holder
of each outstanding Security affected.
Upon any such waiver, such default shall cease to exist, and any Event
of Default arising therefrom shall be deemed to have been cured, for every
purpose of this Indenture; but no such waiver shall extend to any subsequent or
other default or impair the exercise of any right arising therefrom.
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SECTION 6.13. UNDERTAKING FOR COSTS.
All parties to this Indenture agree, and each Holder of any Security
by his acceptance thereof shall be deemed to have agreed, that any court may in
its discretion require, in any suit for the enforcement of any right or remedy
under this Indenture, or in any suit against the Trustee for any action taken,
suffered or omitted to be taken by it as Trustee, the filing by any party
litigant in such suit of an undertaking to pay the costs of such suit, and that
such court may in its discretion assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in such suit, having due regard to
the merits and good faith of the claims or defenses made by such party litigant;
but the provisions of this Section 6.13 shall not apply to any suit instituted
by the Company, to any suit instituted by the Trustee, to any suit instituted by
any Holder, or group of Holders, holding in the aggregate more than 10% in
aggregate principal amount of then outstanding Securities, or to any suit
instituted by any Holder for enforcement of the payment of principal of, premium
(if any), or interest on, any Security on or after the respective Stated
Maturity of such Security (including, in the case of redemption, on or after the
Redemption Date).
SECTION 6.14. RESTORATION OF RIGHTS AND REMEDIES.
If the Trustee or any Holder has instituted any proceeding to enforce
any right or remedy under this Indenture and such proceeding has been
discontinued or abandoned for any reason, or has been determined adversely to
the Trustee or to such Holder, then and in every case, subject to any
determination in such proceeding, the Company, the Trustee and the Holders shall
be restored severally and respectively to their former positions hereunder and
thereafter all rights and remedies of the Trustee and the Holders shall continue
as though no such proceeding had been instituted.
ARTICLE VII
TRUSTEE
The Trustee hereby accepts the trust imposed upon it by this Indenture
and covenants and agrees to perform the same, as herein expressed.
SECTION 7.1. DUTIES OF TRUSTEE.
(a) If a Default or an Event of Default has occurred and is
continuing, the Trustee shall exercise such of the rights and powers vested in
it by this Indenture and use the same degree of care and skill in their exercise
as a prudent Person would exercise or use under the circumstances in the conduct
of his own affairs.
(b) Except during the continuance of a Default or an Event of
Default:
(1) The Trustee need perform only those duties as are
specifically set forth in this Indenture and no others, and no covenants or
obligations shall be implied in or read into this Indenture which are
adverse to the Trustee.
(2) In the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness of
the opinions expressed therein, upon certificates or opinions furnished to
the Trustee and conforming to the requirements of this Indenture. However,
the Trustee shall examine the certificates
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and opinions to determine whether or not they conform to the requirements
of this Indenture.
(c) The Trustee may not be relieved from liability for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(1) This paragraph does not limit the effect of paragraph (b)
of this Section 7.1.
(2) The Trustee shall not be liable for any error of judgment
made in good faith by a Trust Officer, unless it is proved that the Trustee
was negligent in ascertaining the pertinent facts.
(3) The Trustee shall not be liable with respect to any action
it takes or omits to take in good faith in accordance with a direction
received by it pursuant to Section 6.11.
(d) No provision of this Indenture shall require the Trustee to
expend or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder or to take or omit to take any action
under this Indenture or at the request, order or direction of the Holders or in
the exercise of any of its rights or powers if it shall have reasonable grounds
for believing that repayment of such funds or adequate indemnity against such
risk or liability is not reasonably assured to it.
(e) Every provision of this Indenture that in any way relates to the
Trustee is subject to paragraphs (a), (b), (c), (d) and (f) of this Section 7.1.
(f) The Trustee shall not be liable for interest on any assets
received by it except as the Trustee may agree in writing with the Company.
Assets held in trust by the Trustee need not be segregated from other assets
except to the extent required by law.
SECTION 7.2. RIGHTS OF TRUSTEE.
Subject to Section 7.1:
(a) The Trustee may rely on any document believed by it to be genuine
and to have been signed or presented by the proper Person. The Trustee need not
investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may consult
with counsel and may require an Officers' Certificate or an Opinion of Counsel,
which shall conform to Sections 13.4 and 13.5. The Trustee shall not be liable
for any action it takes or omits to take in good faith in reliance on such
certificate or advice of counsel.
(c) The Trustee may act through its attorneys and agents and shall
not be responsible for the misconduct or negligence of any agent appointed with
due care.
(d) Subject to Section 7.1(c), the Trustee shall not be liable for
any action it takes or omits to take in good faith which it believes to be
authorized or within its rights or powers conferred upon it by this Indenture.
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(e) The Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement, instrument,
opinion, notice, request, direction, consent, order, bond, debenture, or other
paper or document, but the Trustee, in its discretion, may make such further
inquiry or investigation into such facts or matters as it may see fit.
(f) The Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request, order or
direction of any of the Holders, pursuant to the provisions of this Indenture,
unless such Holders shall have offered to the Trustee reasonable security or
indemnity against the costs, expenses and liabilities which may be incurred
therein or thereby.
(g) Unless otherwise specifically provided for in this Indenture, any
demand, request, direction or notice from the Company shall be sufficient if
signed by an Officer of the Company.
(h) The Trustee shall have no duty to inquire as to the performance
of the Company's covenants in Article IV hereof. In addition, the Trustee shall
not be deemed to have knowledge of any Default or Event of Default except (i)
any Event of Default occurring pursuant to Sections 6.1(1) or 6.1(2), or (ii)
any Default or Event of Default of which the Trustee shall have received written
notification or obtained actual knowledge.
SECTION 7.3. INDIVIDUAL RIGHTS OF TRUSTEE.
The Trustee in its individual or any other capacity may become the
owner or pledgee of Securities and may otherwise deal with the Company, any of
its Subsidiaries, or their respective Affiliates with the same rights it would
have if it were not Trustee. Any Agent may do the same with like rights.
However, the Trustee must comply with Sections 7.10 and 7.11.
SECTION 7.4. TRUSTEE'S DISCLAIMER.
The Trustee makes no representation as to the validity or adequacy of
this Indenture or the Securities and it shall not be accountable for the
Company's use of the proceeds from the Securities, and it shall not be
responsible for any statement in the Securities, other than the Trustee's
certificate of authentication, or the use or application of any funds received
by a Paying Agent other than the Trustee.
SECTION 7.5. NOTICE OF DEFAULT.
If a Default or an Event of Default occurs and is continuing and if it
is known to the Trustee, the Trustee shall mail to each Securityholder notice of
the uncured Default or Event of Default within 90 days after such Default or
Event of Default occurs. Except in the case of a Default or an Event of Default
in payment of principal (or premium, if any) of, interest or Liquidated Damages,
if any, on, any Security (including the payment of the Repurchase Price on the
Repurchase Date and the payment of the Redemption Price on the Redemption Date,
including accrued and unpaid interest and Liquidated Damages, if any, to the
Redemption Date), the Trustee may withhold the notice if and so long as a Trust
Officer in good faith determines that withholding the notice is in the interest
of the Securityholders.
SECTION 7.6. REPORTS BY TRUSTEE TO HOLDERS.
(a) Within 60 days after each November 1 beginning with the November
1, 1998 following the date of this Indenture, the Trustee shall, if required by
law, mail to each Securityholder, as their names and addresses appear on the
Company's register of Securities, a brief report dated as of such November 1
that complies with TIA Section 313(a) with respect to any of the following
events which may
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have occurred within the previous twelve months (but if no such event has
occurred within such period no report need be transmitted):
(1) any change to its eligibility and its qualifications under
TIA Section 310;
(2) the creation of or any material change to a relationship
specified in paragraphs (1) through (10) of TIA Section 310(b);
(3) the character and amount of any advances (and if the
Trustee elects so to state, the circumstances surrounding the making
thereof) made by the Trustee (as such) which remain unpaid on the date of
such report, and for the reimbursement of which it claims or may claim a
lien or charge, prior to that of the Securities, on any property or funds
held or collected by it as Trustee, except that the Trustee shall not be
required (but may elect) to report such advances if such advances so
remaining unpaid aggregate not more than 1/2 of 1% of the principal amount
of the Securities outstanding on the date of such report;
(4) the amount, interest rate and maturity date of all other
indebtedness owing by the Company (or by any other obligor on the
Securities) to the Trustee in its individual capacity, on the date of such
report, with a brief description of any property held as collateral
security therefor, except an indebtedness based upon a creditor
relationship arising in any manner described in paragraphs (2), (3), (4) or
(6) of TIA Section 311(b);
(5) any change to the property and funds, if any, physically
in the possession of the Trustee (as such) on the date of such report;
(6) any change to any release, or release and substitution, of
property subject to the lien of the Indenture (and the consideration
therefor, if any) which has not been previously reported;
(7) any additional issue of Securities which the Trustee has
not previously reported; and
(8) any action taken by the Trustee in the performance of its
duties hereunder which it has not previously reported and which in its
opinion materially affects the Securities, except action in respect of a
default, notice of which has been or is to be withheld by the Trustee in
accordance with an Indenture provision authorized by TIA Section 315(b).
(b) The Trustee shall transmit by mail to all Securityholders, as
their names and addresses appear on the Company's register of Securities, a
brief report with respect to the character and amount of any advances (and if
the Trustee elects so to state, the circumstances surrounding the making
thereof) made by the Trustee (as such) since the date of the last report
transmitted pursuant to Section 7.6(a) hereof (or if no such report has yet been
so transmitted, since the date of execution of this instrument) for the
reimbursement of which it claims or may claim a lien or charge, prior to that of
the Securities, on property or funds held or collected by it as Trustee and
which it has not previously reported pursuant to this subsection, except that
the Trustee shall not be required (but may elect) to report such advances if
such advances remaining unpaid at any time aggregate 10% or less of the
principal
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amount of the Securities outstanding at such time, such report to be transmitted
within 90 days of such time.
(c) A copy of each such report shall, at the time of such
transmission to Securityholders, be filed by the Trustee with each stock
exchange upon which the Securities are listed, with the SEC and with the
Company. The Company will promptly notify the Trustee when the Securities are
listed on any stock exchange. The Trustee also shall comply with TIA Sections
313(b) and 313(c).
SECTION 7.7. COMPENSATION AND INDEMNITY.
The Company agrees to pay to the Trustee from time to time such
compensation for its services as shall have been mutually agreed to in writing
between the Company and the Trustee for all services rendered by the Trustee
hereunder, whether in its capacity as Trustee, Paying Agent, Securities
Custodian, Registrar or otherwise. The Trustee's compensation shall not be
limited by any law on compensation of a trustee of an express trust. The
Company shall reimburse the Trustee upon its written request for all reasonable
disbursements, expenses and advances incurred or made by it in accordance with
any provision of this Indenture, except any such expense, disbursement or
advance as may be attributable to its (or that of its agents or counsel)
negligence, bad faith or willful misconduct. Such expenses shall include the
reasonable compensation, disbursements and expenses of the Trustee's agents,
accountants, experts and counsel.
The Company agrees to indemnify the Trustee (in its capacity as
Trustee) and each of its officers, directors, attorneys-in-fact and agents for,
and hold it harmless against, any claim, demand, expense (including but not
limited to reasonable compensation, disbursements and expenses of the Trustee's
agents and counsel), loss or liability incurred by it without negligence, bad
faith or willful misconduct on its or their part, arising out of or in
connection with the administration of this trust and its rights or duties
hereunder including the reasonable costs and expenses of defending itself
against any claim or liability in connection with the exercise or performance of
any of its powers or duties hereunder. The Trustee shall notify the Company
promptly of any claim asserted against the Trustee for which it may seek
indemnity. The Company shall defend the claim and the Trustee shall provide
reasonable cooperation at the Company's expense in the defense. The Trustee may
have separate counsel and the Company shall pay the reasonable fees and expenses
of such counsel; PROVIDED, that the Company will not be required to pay such
fees and expenses if it assumes the Trustee's defense and there is no conflict
of interest between the Company and the Trustee in connection with such defense.
The Company need not pay for any settlement made without its written consent.
The Company need not reimburse any expense or indemnify against any loss or
liability to the extent incurred by the Trustee through its negligence, bad
faith or willful misconduct.
To secure the Company's payment obligations in this Section 7.7, the
Trustee shall have a lien prior to the Securities on all assets held or
collected by the Trustee, in its capacity as Trustee, except assets held in
trust to pay principal and premium, if any, of or interest on particular
Securities.
When the Trustee incurs expenses or renders services after an Event of
Default specified in Section 6.1(5) or (6) occurs, the expenses and the
compensation for the services are intended to constitute expenses of
administration under any Bankruptcy Law.
The Company's obligations under this Section 7.7 and any lien arising
hereunder shall survive the resignation or removal of the Trustee, the discharge
of the Company's obligations pursuant to Article VIII of this Indenture and any
rejection or termination of this Indenture under any Bankruptcy Law.
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SECTION 7.8. REPLACEMENT OF TRUSTEE.
The Trustee may resign by so notifying the Company in writing;
provided that no such resignation shall become effective until a successor
Trustee has accepted its appointment pursuant to this Section 7.8. The Holder
or Holders of a majority in principal amount of then outstanding Securities may
remove the Trustee by so notifying the Company and the Trustee in writing and
may appoint a successor trustee with the Company's consent. The Company may
remove the Trustee if:
(a) the Trustee fails to comply with Section 7.10;
(b) the Trustee is adjudged bankrupt or insolvent;
(c) a receiver, Custodian, or other public officer takes charge of
the Trustee or its property; or
(d) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason, the Company shall promptly appoint a successor
Trustee. Within one year after the successor Trustee takes office, the Holder
or Holders of a majority in principal amount of then outstanding Securities may
appoint a successor Trustee to replace the successor Trustee appointed by the
Company.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Thereupon, the retiring
Trustee shall transfer all property held by it as trustee to the successor
Trustee, subject to the lien provided in Section 7.7, the resignation or removal
of the retiring Trustee shall become effective, and the successor Trustee shall
have all the rights, powers and duties of the Trustee under this Indenture. A
successor Trustee shall mail notice of its succession to each Holder.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company or the
Holder or Holders of at least 10% in principal amount of then outstanding
Securities may petition any court of competent jurisdiction for the appointment
of a successor Trustee.
If the Trustee fails to comply with Section 7.10, any Securityholder
may petition any court of competent jurisdiction for the removal of the Trustee
and the appointment of a successor Trustee.
Notwithstanding replacement of the Trustee pursuant to this Section
7.8, the Company's obligations under Section 7.7 shall continue for the benefit
of the retiring Trustee.
SECTION 7.9. SUCCESSOR TRUSTEE BY MERGER, ETC.
If the Trustee consolidates with, merges or converts into, or
transfers all or substantially all of its corporate trust business to, another
corporation, the resulting, surviving or transferee corporation without any
further act shall, if such resulting, surviving or transferee corporation is
otherwise eligible hereunder, be the successor Trustee.
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SECTION 7.10. ELIGIBILITY; DISQUALIFICATION.
The Trustee shall at all times satisfy the requirements of TIA Section
310(a)(1), (2) and (5). The Trustee shall have a combined capital and surplus
of at least $100,000,000 as set forth in its most recent published annual report
of condition. The Trustee shall comply with TIA Section 310(b).
SECTION 7.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY.
The Trustee shall comply with TIA Section 311(a), excluding any
creditor relationship listed in TIA Section 311(b). A Trustee who has resigned
or been removed shall be subject to TIA Section 311(a) to the extent indicated
therein.
ARTICLE VIII
SATISFACTION AND DISCHARGE
SECTION 8.1. SATISFACTION AND DISCHARGE OF INDENTURE.
The Company may terminate its obligations under this Indenture
(subject to the provisions of this Article VIII) when (a) it shall have
delivered to the Trustee for cancellation all Securities theretofore
authenticated (other than any Securities which shall have been destroyed, lost
or stolen and which shall have been replaced or paid as provided in Article II
hereof) and not theretofore cancelled, or (b) all the Securities not theretofore
cancelled and delivered to the Trustee for cancellation shall have become due
and payable, or are by their terms to become due and payable within one year or
are to be called for redemption within one year under arrangements satisfactory
to the Trustee for the giving of notice of redemption, and the Company shall
irrevocably deposit with the Trustee, in trust, cash or U.S. Government
Obligations sufficient to pay at maturity or upon redemption of all of the
Securities (other than any Securities which shall have been destroyed, lost or
stolen and which shall have been replaced or paid as provided in Article II
hereof) not theretofore cancelled or delivered to the Trustee for cancellation,
all sums, including principal and premium, if any, and interest and Liquidated
Damages, if any, due or to become due to such date of maturity or redemption
date, as the case may be, and in either case (a) or (b) each of the following
conditions shall be satisfied:
(1) The Company has paid all sums payable under the Indenture;
and
(2) The Company shall have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel in the United States, each
stating that all conditions precedent have been complied with as
contemplated by this Section 8.1.
However, in the case of clause (b) above, the Company's obligations in Sections
2.3, 2.4, 2.5, 2.6, 2.7, 4.1, 7.7, 7.8 and 8.2 and in Article 12, shall survive
until the Securities are no longer outstanding.
SECTION 8.2. REPAYMENT TO THE COMPANY.
Any money deposited with the Trustee or any Paying Agent, or then held
by the Company, for the payment of the principal of, premium, if any, interest
or Liquidated Damages, if any, on any Security and remaining unclaimed for two
years after such principal, premium, if any, interest or Liquidated Damages has
become due and payable shall be paid to the Company on its request; and the
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Holder of such Security shall thereafter look only to the Company for payment
thereof, and all liability of the Trustee or such Paying Agent with respect to
such trust money shall thereupon cease.
ARTICLE IX
AMENDMENTS, SUPPLEMENTS AND WAIVERS
SECTION 9.1. SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF HOLDERS.
Without the consent of any Holder, the Company, when authorized by a
Board Resolution, and the Trustee, at any time and from time to time, may enter
into one or more indentures supplemental hereto, in form satisfactory to the
Trustee, for any of the following purposes:
(1) to cure any ambiguity, defect, or inconsistency, or to
make any other change not inconsistent with the provisions of this
Indenture that does not adversely affect the rights of any Holder, PROVIDED
the Trustee may require the Company to deliver to it an Opinion of Counsel
stating that such change pursuant to this clause (1) does not adversely
affect the rights of any Holder in any respect;
(2) to create additional covenants of the Company for the
benefit of the Holders, or to surrender any right or power herein conferred
upon the Company or to make any other change that provides additional
rights or benefits to the Holders;
(3) to provide for uncertificated Securities in addition to or
in the place of certificated Securities;
(4) to evidence the succession of another Person to the
Company and the assumption by any such successor of the obligations of the
Company herein and in the Securities in accordance with Article V; or
(5) to comply with the requirements of the SEC in order to
effect or maintain the qualification of this Indenture under the TIA.
(6) to make provision with respect to the conversion rights of
Holders pursuant to Section 12.6.
SECTION 9.2. AMENDMENTS, SUPPLEMENTAL INDENTURES AND WAIVERS WITH
CONSENT OF HOLDERS.
Subject to Section 6.8 and the last sentence of this paragraph, with
the consent of the Holders of not less than a majority in aggregate principal
amount of then outstanding Securities (including, without limitation, consents
obtained in connection with a purchase of, or tender offer or exchange offer
for, the Securities), by written act of said Holders delivered to the Company
and the Trustee, the Company, when authorized by a Board Resolution, and the
Trustee may amend or supplement this Indenture or the Securities or enter into
an indenture or indentures supplemental hereto for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
this Indenture or the Securities or of modifying in any manner the rights of the
Holders under this Indenture or the Securities. Subject to Section 6.8 and the
last sentence of this paragraph, the Holder or Holders of not less than a
majority in aggregate principal amount of then outstanding Securities
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(including, without limitation, consents obtained in connection with a purchase
of, or tender offer or exchange offer for, the Securities) may, in writing,
waive compliance by the Company with any provision of this Indenture or the
Securities. Notwithstanding any of the above, however, no such amendment,
supplemental indenture or waiver shall, without the consent of the Holder of
each outstanding Security affected thereby:
(1) reduce the percentage in principal amount of the
outstanding Securities, the consent of whose Holders is required for any
such amendment, supplemental indenture or waiver provided for in this
Indenture;
(2) change the Stated Maturity of any Security or reduce the
principal amount thereof or impair the right to institute suit for the
enforcement of any such payment or the conversion of any Security on or
after the due date thereof (including, in the case of redemption, on or
after the Redemption Date), or reduce the Repurchase Price, or alter the
provisions of the Repurchase Offer or the redemption provisions;
(3) reduce the rate (or extend the time for payment) of
interest or Liquidated Damages, if any, thereon or any premium payable upon
the redemption thereof, or change the place of payment where any Security
or any premium or the interest thereon is payable;
(4) waive a Default or Event of Default in the payment of
principal or premium, if any, interest or Liquidated Damages, if any, on
the Securities (except a rescission of acceleration of the Securities by
the Holders of at least a majority in aggregate principal amount of the
Securities and a waiver of the Payment Event that resulted from such
acceleration);
(5) change the coin or currency in which, any Security or any
premium, interest or Liquidated Damages thereon is payable;
(6) make any change in the provisions of Sections 6.8 or 6.12;
(7) modify any of the provisions of Article XI or Article XII
hereof in a manner adverse to such Holder or otherwise adversely affect the
right of such Holder to convert Securities; or
(8) modify any of the provisions of this Article IX, except to
increase any required percentage or to provide that certain other
provisions of this Indenture cannot be amended, modified or waived without
the consent of the Holder of each outstanding Security affected thereby.
It shall not be necessary for the consent of the Holders under this
Section 9.2 to approve the particular form of any proposed amendment, supplement
or waiver, but it shall be sufficient if such consent approves the substance
thereof.
After an amendment, supplement or waiver under this Section 9.2
becomes effective, the Company shall mail to the Holders affected thereby a
notice briefly describing the amendment, supplement or waiver. Any failure of
the Company to mail such notice, or any defect therein, shall not, however, in
any way impair or affect the validity of any such supplemental indenture or
waiver.
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After an amendment, supplement or waiver under this Section 9.2 or
Section 9.4 becomes effective, it shall bind each Holder.
In connection with any amendment, supplement or waiver under this
Article IX, the Company may, but shall not be obligated to, offer to any Holder
who consents to such amendment, supplement or waiver, or (at the option of the
Company) to all Holders, consideration for consent to such amendment, supplement
or waiver.
SECTION 9.3. COMPLIANCE WITH TIA.
Every amendment, waiver or supplement of this Indenture or the
Securities shall comply with the TIA as then in effect.
SECTION 9.4. REVOCATION AND EFFECT OF CONSENTS.
Until an amendment, waiver or supplement becomes effective, a consent
to it by a Holder is a continuing consent by the Holder and every subsequent
Holder of a Security or portion of a Security that evidences the same debt as
the consenting Holder's Security, even if notation of the consent is not made on
any Security. However, any such Holder or subsequent Holder may revoke the
consent as to his Security or portion of his Security by written notice to the
Company or the Person designated by the Company as the Person to whom consents
should be sent if such revocation is received by the Company or such Person
before the date on which the Trustee receives an Officers' Certificate
certifying that the Holders of the requisite principal amount of Securities have
consented (and not theretofore revoked such consent) to the amendment,
supplement or waiver.
The Company may, but shall not be obligated to, fix a record date for
the purpose of determining the Holders entitled to consent to any amendment,
supplement or waiver, which record date shall be the date so fixed by the
Company notwithstanding the provisions of the TIA. If a record date is fixed,
then notwithstanding the last sentence of the immediately preceding paragraph,
those Persons who were Holders at such record date, and only those Persons (or
their duly designated proxies), shall be entitled to revoke any consent
previously given, whether or not such Persons continue to be Holders after such
record date. No such consent shall be valid or effective for more than 90 days
after such record date.
After an amendment, supplement or waiver becomes effective, it shall
bind every Securityholder, unless it makes a change described in any of clauses
(1) through (5) of Section 9.2, in which case, the amendment, supplement or
waiver shall bind only each Holder of a Security who has consented to it and
every subsequent Holder of a Security or portion of a Security that evidences
the same debt as the consenting Holder's Security; PROVIDED, that any such
waiver shall not impair or affect the right of any Holder to receive payment of
principal and premium of and interest on to a Security, on or after the
respective dates set for such amounts to become due and payable expressed in
such Security, or to bring suit for the enforcement of any such payment on or
after such respective dates.
SECTION 9.5. NOTATION ON OR EXCHANGE OF SECURITIES.
If an amendment, supplement or waiver changes the terms of a Security,
the Trustee may require the Holder of the Security to deliver it to the Trustee
or require the Holder to put an appropriate notation on the Security. The
Trustee may place an appropriate notation on the Security about the changed
terms and return it to the Holder. Alternatively, if the Company or the Trustee
so determines, the Company in exchange for the Security shall issue and the
Trustee shall authenticate a new Security
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that reflects the changed terms. Any failure to make the appropriate notation
or to issue a new Security shall not affect the validity of such amendment,
supplement or waiver.
SECTION 9.6. TRUSTEE TO SIGN AMENDMENTS, ETC.
The Trustee shall execute any amendment, supplement or waiver
authorized pursuant to this Article IX; PROVIDED, that the Trustee may, but
shall not be obligated to, execute any such amendment, supplement or waiver
which affects the Trustee's own rights, duties or immunities under this
Indenture. The Trustee shall be entitled to receive, and shall be fully
protected in relying upon, an Opinion of Counsel stating that the execution of
any amendment, supplement or waiver authorized pursuant to this Article IX is
authorized or permitted by this Indenture.
ARTICLE X
RIGHT TO REQUIRE REPURCHASE UPON A CHANGE OF CONTROL
SECTION 10.1. REPURCHASE OF SECURITIES AT OPTION OF THE HOLDER
UPON A CHANGE OF CONTROL.
(a) In the event that a Change of Control occurs, the Company shall
commence an irrevocable and unconditional offer, in accordance with the
requirements of Section 10.1(b) below, to repurchase all or any part of the then
outstanding Securities (PROVIDED, that the principal amount of such Securities
must be $1,000 or an integral multiple thereof) on the date (the "Repurchase
Date") that is no later than 60 days after the occurrence of such Change of
Control, at a cash price (the "Repurchase Price") equal to 100% of the principal
amount thereof, together with accrued and unpaid interest and Liquidated
Damages, if any, to the Repurchase Date.
(b) In the event that, pursuant to this Section 10.1, the Company
shall be required to commence an irrevocable and unconditional offer to purchase
Securities (a "Repurchase Offer"), the Company shall follow the procedures set
forth in this Section 10.1 as follows:
(1) the Repurchase Offer shall commence within 30 days
following a Change of Control;
(2) the Repurchase Offer shall remain open for not less than
20 Business Days following its commencement, except to the extent that a
longer period is required by applicable law (the "Repurchase Offer
Period"); PROVIDED, HOWEVER, that under no circumstances shall the
Repurchase Date occur later than 90 days after the Change of Control;
(3) upon the expiration of a Repurchase Offer, the Company
shall purchase all Securities tendered in response to the Repurchase Offer;
(4) if the Repurchase Date is on or after an interest payment
record date and on or before the related Interest Payment Date, and any
accrued interest will be paid to the Person in whose name a Security is
registered at the close of business on such record date, and no additional
interest will be payable to Securityholders who tender Securities pursuant
to the Repurchase Offer;
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(5) the Company shall provide the Trustee with notice of the
Repurchase Offer at least 5 Business Days before the commencement of any
Repurchase Offer; and
(6) on or before the commencement of any Repurchase Offer, the
Company or the Trustee (upon the request and at the expense of the Company)
shall send, by first-class mail, a notice to each of the Securityholders,
which (to the extent consistent with this Indenture) shall govern the terms
of the Repurchase Offer and shall state:
(i) that the Repurchase Offer is being made pursuant to
such notice and this Section 10.1 and that all Securities, or portions
thereof, tendered will be accepted for payment;
(ii) the Repurchase Price (including the amount of
accrued and unpaid interest, if any), the Repurchase Date and the
Repurchase Put Date;
(iii) that any Security, or portion thereof, not tendered
or accepted for payment will continue to accrue interest, if any;
(iv) that, unless the Company defaults in depositing Cash
with the Paying Agent in accordance with the last paragraph of this
clause (b) or such payment is prevented pursuant to Article XI, any
Security, or portion thereof, accepted for payment pursuant to the
Repurchase Offer shall cease to accrue interest after the Repurchase
Date;
(v) that Holders electing to have a Security, or portion
thereof, purchased pursuant to a Repurchase Offer will be required to
surrender the Security, with the form entitled "Option of Holder to
Elect Purchase" on the reverse of the Security completed, to the
Paying Agent (which may not for purposes of this Section 10.1,
notwithstanding anything in this Indenture to the contrary, be the
Company or any Affiliate of the Company) at the address specified in
the notice prior to the close of business on the earlier of (a) the
third Business Day prior to the Repurchase Date and (b) the third
Business Day following the expiration of the Repurchase Offer (such
earlier date being the "Repurchase Put Date");
(vi) that Holders will be entitled to withdraw their
election, in whole or in part, if the Paying Agent (which may not for
purposes of this Section 10.1, notwithstanding anything in this
Indenture to the contrary, be the Company or any Affiliate of the
Company) receives, up to the close of business on the Repurchase Date,
a telegram, telex, facsimile transmission or letter setting forth the
name of the Holder, the principal amount of the Securities the Holder
is withdrawing and a statement that such Holder is withdrawing his
election to have such principal amount of Securities purchased; and
(vii) a brief description of the events resulting in such
Change of Control.
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Any such Repurchase Offer shall comply with all applicable provisions
of Federal and state laws, including those regulating tender offers, if
applicable, and any provisions of this Indenture which conflict with such laws
shall be deemed to be superseded by the provisions of such laws.
On or before the Repurchase Date, the Company shall (i) accept for
payment Securities or portions thereof properly tendered pursuant to the
Repurchase Offer on or before the Repurchase Date, (ii) deposit with the Paying
Agent Cash sufficient to pay the Repurchase Price (together with accrued and
unpaid interest and Liquidated Damages, if any) of all Securities or portions
thereof so tendered and (iii) deliver to the Trustee Securities so accepted
together with an Officers' Certificate listing the Securities or portions
thereof being purchased by the Company. The Paying Agent shall promptly mail to
Holders of Securities so accepted payment in an amount equal to the Repurchase
Price (together with accrued and unpaid interest and Liquidated Damages, if
any), and the Trustee shall promptly authenticate and mail or deliver to such
Holders a new Security or Securities equal in principal amount to any
unpurchased portion of the Securities surrendered. Any Securities not so
accepted shall be promptly mailed or delivered by the Company to the Holder
thereof. All questions to the validity, eligibility (including time of
receipt), withdrawal and acceptance of any Security for repurchase shall be
determined by the Company, whose determination shall be final and binding. The
Company will publicly announce the results of the Repurchase Offer on or as soon
as practicable after the Repurchase Date.
ARTICLE XI
SUBORDINATION
SECTION 11.1. AGREEMENT TO SUBORDINATE.
The Company agrees, and each Holder of Securities by accepting a
Security agrees, that the Indebtedness evidenced by the Security is subordinated
in right of payment, to the extent and in the manner provided in this Article,
to the prior payment in full of all Senior Indebtedness (whether outstanding on
the date hereof or hereafter created, incurred, assumed or guaranteed), and that
the subordination is for the benefit of the holders of Senior Indebtedness.
SECTION 11.2. LIQUIDATION; DISSOLUTION; BANKRUPTCY.
Upon any payment or distribution to creditors of the Company of any
kind, whether in cash, property or securities in a liquidation or dissolution of
the Company or in a bankruptcy, reorganization, insolvency, receivership or
similar proceeding relating to the Company or its property, an assignment for
the benefit of creditors or any marshalling of the Company's assets and
liabilities, whether voluntary or involuntary, the holders of Senior
Indebtedness of the Company will be entitled to receive payment in full in cash
of all Obligations due in respect of such Senior Indebtedness before the Holders
of Securities will be entitled to receive any payment or distribution of any
kind with respect to the Securities, and until all Obligations with respect to
Senior Indebtedness are paid in full, any payment or distribution to which the
Holders of Securities would be entitled shall be made to the holders of Senior
Indebtedness (except that Holders of Securities may receive and retain Junior
Securities).
SECTION 11.3. DEFAULT ON DESIGNATED SENIOR INDEBTEDNESS.
The Company also shall not make any payment upon or in respect of the
Securities (except in Junior Securities) if (i) a default in the payment of the
principal of, premium, if any, interest, rent or other obligations in respect of
Designated Senior Indebtedness occurs and is continuing beyond
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any applicable period of grace or (ii) any other default occurs and is
continuing with respect to Designated Senior Indebtedness that permits holders
of the Designated Senior Indebtedness as to which such default relates to
accelerate its maturity, and in the case of this clause (ii) only, the Trustee
receives a notice of such default invoking the provisions described in this
paragraph (a "Payment Blockage Notice") from the holders of any Designated
Senior Indebtedness or any agent or trustee therefor. Payments on the
Securities may and shall be resumed (a) in the case of a Payment Event, upon the
date on which such default is cured or waived and (b) in case of a nonpayment
default, the earlier of the date on which such nonpayment default is cured or
waived or 179 days after the date on which the applicable Payment Blockage
Notice is received by the Trustee. No new period of payment blockage may be
commenced unless and until (i) 365 days have elapsed since the effectiveness of
the immediately prior Payment Blockage Notice and (ii) all scheduled payments of
principal, premium, if any, and interest on the Securities that have come due
have been paid in full in cash. No nonpayment default that existed or was
continuing on the date of delivery of any Payment Blockage Notice to the Trustee
shall be, or be made, the basis for a subsequent Payment Blockage Notice unless
such default shall have been cured or waived for a period of not less than 90
days.
Whenever the Company is prohibited from making any payment in respect
of the Securities, the Company also shall be prohibited from making, directly or
indirectly, any payment of any kind on account of the purchase or other
acquisition of the Securities.
SECTION 11.4. ACCELERATION OF SECURITIES.
In the event of the acceleration of the Securities because of an Event
of Default, the Company may not make any payment or distribution to the Trustee
or any Holder of Securities in respect of Obligations with respect to Securities
and may not acquire or purchase any Securities from the Trustee or any Holder of
Securities until all Senior Indebtedness then due and payable has been paid in
full or such acceleration is rescinded in accordance with the terms of this
Indenture. If payment of the Securities is accelerated because of an Event of
Default, the Company shall promptly notify holders of Senior Indebtedness of the
acceleration.
SECTION 11.5. WHEN DISTRIBUTION MUST BE PAID OVER..
In the event that the Trustee or any Holder of a Security receives any
payment of any Obligations with respect to the Securities at a time when such
payment is prohibited by Section 11.3 hereof, such payment shall be held by the
Trustee or such Holder, in trust for the benefit of, and shall be paid forthwith
over and delivered, upon written request, to, the holders of Senior Indebtedness
as their interests may appear or their Representative under the indenture or
other agreement (if any) pursuant to which Senior Indebtedness may have been
issued (the "Representative"), as their respective interests may appear, for
application to the payment of all Obligations with respect to Senior
Indebtedness remaining unpaid to the extent necessary to pay such Obligations in
full in accordance with their terms, after giving effect to any concurrent
payment or distribution to or for the holders of Senior Indebtedness.
With respect to the holders of Senior Indebtedness, the Trustee
undertakes to perform only such obligations on the part of the Trustee as are
specifically set forth in this Article 11, and no implied covenants or
obligations with respect to the holders of Senior Indebtedness shall be read
into this Indenture against the Trustee. The Trustee shall not be deemed to owe
any fiduciary duty to the holders of Senior Indebtedness, and shall not be
liable to any such holders if the Trustee shall pay over or distribute to or on
behalf of Holders of the Securities or the Company or any other Person money or
assets to which any holders of Senior Indebtedness shall be entitled by virtue
of this Article 11, except if such payment is made as a result of the willful
misconduct or gross negligence of the Trustee.
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SECTION 11.6. NOTICE BY THE COMPANY.
The Company shall promptly notify the Trustee and the Paying Agent of
any facts known to the Company that would cause a payment of any Obligations
with respect to the Securities to violate this Article, which notice shall
specifically refer to this Article 11, but failure to give such notice shall not
affect the subordination of the Securities to the Senior Indebtedness as
provided in this Article.
SECTION 11.7. SUBROGATION.
After all Senior Indebtedness is paid in full and until the Securities
are paid in full, Holders of the Securities shall be subrogated (equally and
ratably with all other PARI PASSU indebtedness) to the rights of holders of
Senior Indebtedness to receive distributions applicable to Senior Indebtedness
to the extent that distributions otherwise payable to the Holders of the
Securities have been applied to the payment of Senior Indebtedness. A
distribution made under this Article to holders of Senior Indebtedness that
otherwise would have been made to Holders of the Securities is not, as between
the Company and Holders of the Securities, a payment by the Company on the
Securities.
SECTION 11.8. RELATIVE RIGHTS.
This Article defines the relative rights of Holders of the Securities
and holders of Senior Indebtedness. Nothing in this Indenture shall:
(1) impair, as between the Company and Holders of the
Securities, the obligations of the Company, which are absolute and
unconditional, to pay principal of, premium, interest and Liquidated
Damages on the Securities in accordance with their terms;
(2) affect the relative rights of Holders of the Securities
and creditors of the Company other than their rights in relation to holders
of Senior Indebtedness; or
(3) prevent the Trustee or any Holder of the Securities from
exercising its available remedies upon a Default or Event of Default,
subject to the rights of holders and owners of Senior Indebtedness to
receive distributions and payments otherwise payable to Holders of the
Securities.
If the Company fails because of this Article to pay principal of,
premium or interest on a Security on the due date, the failure is still a
Default or Event of Default.
SECTION 11.9. SUBORDINATION MAY NOT BE IMPAIRED BY THE COMPANY.
No right of any holder of Senior Indebtedness to enforce the
subordination of the Indebtedness evidenced by the Securities shall be impaired
by any act or failure to act by the Company or any Holder or by the failure of
the Company or any Holder to comply with this Indenture.
SECTION 11.10. DISTRIBUTION OR NOTICE TO REPRESENTATIVE.
Whenever a distribution is to be made or a notice given to holders of
Senior Indebtedness, the distribution may be made and the notice given to their
Representative.
Upon any payment or distribution of assets of the Company referred to
in this Article 11, the Trustee and the Holders of the Securities shall be
entitled to rely upon any order or decree made by
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any court of competent jurisdiction or upon any certificate of such
Representative or of the liquidating trustee or agent or other Person making any
distribution to the Trustee or to the Holders of the Securities for the purpose
of ascertaining the Persons entitled to participate in such distribution, the
holders of the Senior Indebtedness and other Indebtedness of the Company, the
amount thereof or payable thereon, the amount or amounts paid or distributed
thereon and all other facts pertinent thereto or to this Article 11.
SECTION 11.11. RIGHTS OF TRUSTEE AND PAYING AGENT.
Notwithstanding the provisions of this Article 11 or any other
provision of this Indenture, the Trustee shall not be charged with knowledge of
the existence of any facts that would prohibit the making of any payment or
distribution by the Trustee, and the Trustee and the Paying Agent may continue
to make payments on the Securities, unless the Trustee shall have received at
its Corporate Trust Office at least three Business Days prior to the date of
such payment written notice of facts that would cause the payment of any
Obligations with respect to the Securities to violate this Article, which notice
shall specifically refer to this Article 11. Only the Company or a
Representative may give the notice. Nothing in this Article 11 shall impair the
claims of, or payments to, the Trustee under or pursuant to Section 7.7 hereof.
The Trustee in its individual or any other capacity may hold Senior
Indebtedness with the same rights it would have if it were not Trustee. Any
Agent may do the same with like rights.
SECTION 11.12. AUTHORIZATION TO EFFECT SUBORDINATION.
Each Holder of a Security by the Holder's acceptance thereof
authorizes and directs the Trustee on the Holder's behalf to take such action as
may be necessary or appropriate to effectuate the subordination as provided in
this Article 11, and appoints the Trustee to act as the Holder's
attorney-in-fact for any and all such purposes, including without limitation the
timely filing of a claim for the unpaid balance of the Securities held by such
Holder in the form required in any Insolvency or Liquidation Proceeding and
causing such claim to be approved. If the Trustee does not file a proper proof
of claim or proof of debt in the form required in any proceeding referred to in
Section 6.4 hereof at least 30 days before the expiration of the time of such
claim, the Representatives of the Designated Senior Indebtedness are hereby
authorized to file an appropriate claim for and on behalf of the Holders of the
Securities.
ARTICLE XII
CONVERSION OF SECURITIES
SECTION 12.1. CONVERSION PRIVILEGE.
Subject to and upon compliance with the provisions of this Article
XII, at the option of the Holder thereof, any Security may at any time be
converted, in whole, or in part in multiples of $1,000 principal amount, into
fully paid and non-assessable shares of Common Stock issuable upon conversion of
the Securities (which includes the related Series A Junior Participating
Preferred Stock Rights), at the conversion price in effect at the Date of
Conversion, until and including, but not after the close of business on
November 1, 2004 (or if such day is not a Business Day, the Business Day next
preceding November 1, 2004), or unless such Security or some portion thereof
shall have been called for redemption or delivered for repurchase prior to such
date and no default is made in making due provision for the payment of the
redemption price in accordance with the terms of this Indenture, in which case,
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with respect to such Security or portion thereof as has been so called for
redemption or delivered for repurchase, such Security or portion thereof may be
so converted until and including, but not after, the close of business on the
Business Day prior to the Redemption Date or Repurchase Date, as applicable, for
such Security, unless the Company subsequently fails to pay the applicable
Redemption Price or Repurchase Price, as the case may be.
SECTION 12.2. EXERCISE OF CONVERSION PRIVILEGE.
In order to exercise the conversion privilege, the Holder of any
Security to be converted shall surrender such Security to the Company at any
time during usual business hours at its office or agency maintained for the
purpose as provided in this Indenture, accompanied by a fully executed written
notice, in substantially the form set forth on the reverse of the Security, that
the Holder elects to convert such Security or a stated portion thereof
constituting a multiple of $1,000 principal amount, and, if such Security is
surrendered for conversion during the period between the close of business on
any Record Date and the opening of business on the next following Interest
Payment Date and has not been called for redemption on a Redemption Date which
occurs within such period, accompanied also by payment of an amount equal to the
interest payable on such Interest Payment Date on the principal amount of the
Security being surrendered for conversion, notwithstanding such conversion. The
Holder of any Security at the close of business on a Record Date will be
entitled to receive the interest payable on such Security on the corresponding
Interest Payment Date notwithstanding the conversion thereof after such Record
Date. The interest payment with respect to a Security called for redemption on
a date during the period from the close on or after any record date to the close
of business on the business day following the corresponding payment date will be
payable on the corresponding interest payment date to the registered Holder at
the close of business on that record date (notwithstanding the conversion of
such Security before the corresponding interest payment date) and a Holder who
elects to convert need not include funds equal to the interest paid. Such
notice of conversion shall also state the name or names (with address) in which
the certificate or certificates for shares of Common Stock shall be issued.
Securities surrendered for conversion shall (if reasonably required by the
Company or the Trustee) be duly endorsed by, or be accompanied by a written
instrument or instruments of transfer in form satisfactory to the Company duly
executed by, the Holder or his attorney duly authorized in writing. As promptly
as practicable after the receipt of such notice and the surrender of such
Security as aforesaid, the Company shall, subject to the provisions of Section
12.8 hereof, issue and deliver at such office or agency to such Holder, or on
his written order, a certificate or certificates for the number of full shares
of Common Stock issuable on such conversion of Securities in accordance with the
provisions of this Article XII and Cash, as provided in Section 12.3 hereof, in
respect of any fraction of a share of Common Stock otherwise issuable upon such
conversion. Such conversion shall be deemed to have been effected immediately
prior to the close of business on the date (herein called the "Date of
Conversion") on which such Security shall have been properly surrendered as
aforesaid, and the person or persons in whose name or names any certificate or
certificates for shares of Common Stock shall be issuable upon such conversion
shall be deemed to have become on the Date of Conversion the holder or holders
of record of the shares represented thereby; PROVIDED, HOWEVER, that any such
surrender on any date when the stock transfer books of the Company shall be
closed shall cause the person or persons in whose name or names the certificate
or certificates for such shares are to be issued to be deemed to have become the
recordholder or holders thereof for all purposes at the opening of business on
the next succeeding day on which such stock transfer books are open but such
conversion shall nevertheless be at the conversion price in effect at the close
of business on the date when such Security shall have been so surrendered with
the conversion notice. In the case of conversion of a portion, but less than
all, of a Security, the Company shall as promptly as practicable execute, and
the Trustee shall authenticate and deliver to the Holder thereof, at the expense
of the Company, a Security or Securities in the aggregate principal amount of
the unconverted portion of the Security surrendered. Except as otherwise
expressly provided in this Indenture, no
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payment or adjustment shall be made for interest accrued on any Security (or
portion thereof) converted or for dividends or distributions on any Common Stock
issued upon conversion of any Security.
In order to exercise the conversion privilege with respect to any
interest in a Global Security, the beneficial holder must complete the
appropriate instruction form for conversion pursuant to the Depositary's book-
entry conversion program and follow the other procedures set forth in such
program in accordance with the Applicable Procedures.
Upon conversion of a Global Security, the Trustee, or the Securities
Custodian at the direction of the Trustee, shall make a notation on such Global
Security as to the reduction in the principal amount represented thereby.
SECTION 12.3. FRACTIONAL INTERESTS.
No fractions of shares or scrip representing fractions of shares shall
be issued upon conversion of Securities. If more than one Security shall be
surrendered for conversion at one time by the same holder, the number of full
shares which shall be issuable upon conversion thereof shall be computed on the
basis of the aggregate principal amount of the Securities so surrendered. If
any fraction of a share of Common Stock would, except for the foregoing
provisions of this Section 12.3, be issuable on the conversion of any Security
or Securities, the Company shall make payment in lieu thereof in an amount of
Cash equal to the value of such fraction computed on the basis of the last sale
price of the Common Stock as reported on the Nasdaq National Market (or if not
listed for trading thereon, then on the principal national securities exchange
on which the Common Stock is listed or admitted to trading) at the close of
business on the Date of Conversion or if no such sale takes place on such day,
the last sale price for such day shall be the average of the closing bid and
asked prices regular way on the Nasdaq National Market (or if not listed for
trading thereon, on the principal national securities exchange on which the
Common Stock is listed or admitted to trading) for such day (any such last sale
price being hereinafter referred to as the "Last Sale Price"). If on such
Trading Day the Common Stock is not quoted by any such organization, the fair
value of such Common Stock on such day, as reasonably determined in good faith
by the Board of Directors of the Company, shall be used.
SECTION 12.4. CONVERSION PRICE.
The conversion price per share of Common Stock issuable upon
conversion of the Securities shall initially be $8.75 (or 114.2857 shares of
Common Stock per $1,000 principal amount of Notes).
SECTION 12.5. ADJUSTMENT OF CONVERSION PRICE.
The conversion price (herein called the "Conversion Price") shall be
subject to adjustment from time to time as follows:
(a) In case the Company shall (1) make or pay a dividend (or other
distribution) in shares of Common Stock on Common Stock of the Company, (2)
subdivide its outstanding shares of Common Stock into a greater number of shares
or (3) combine or reclassify its outstanding shares of Common Stock into a
smaller number of shares, the Conversion Price in effect immediately prior to
such action shall be adjusted so that the Holder of any Security thereafter
surrendered for conversion shall be entitled to receive the number of shares of
Common Stock that he would have owned immediately following such action had such
Security been converted immediately prior thereto. An adjustment made pursuant
to this subsection (a) shall become effective immediately, except as provided in
subsection (i)
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below, after the record date in the case of a dividend or distribution and shall
become effective immediately after the effective date in the case of a
subdivision or combination. If any dividend or distribution of the type
described in clause (1) above is not so paid or made, the Conversion Price shall
again be adjusted to the Conversion Price which would then be in effect if such
dividend or distribution had not been declared.
(b) In case the Company shall issue rights, options or warrants to
all holders of Common Stock entitling them to subscribe for or purchase shares
of Common Stock (or securities convertible into shares of Common Stock) at a
price per share less than the then current market price per share of the Common
Stock (as determined pursuant to subsection (g) below) on the record date
mentioned below, the Conversion Price shall be adjusted to a price, computed to
the nearest cent, so that the same shall equal the price determined by
multiplying:
(i) the Conversion Price in effect immediately prior to the
date of issuance of such rights, options or warrants by a fraction, of which
(ii) the numerator shall be (A) the number of shares of Common
Stock outstanding on the date of issuance of such rights, options or warrants,
immediately prior to such issuance, plus (B) the number of shares which the
aggregate offering price of the total number of shares so offered for
subscription or purchase would purchase at such current market price (determined
by multiplying such total number of shares by the exercise price of such rights,
options or warrants and dividing the product so obtained by such current market
price), and of which
(iii) the denominator shall be (A) the number of shares of
Common Stock outstanding on the date of issuance of such rights, options or
warrants, immediately prior to such issuance, plus (B) the number of additional
shares of Common Stock which are so offered for subscription or purchase.
Such adjustment shall become effective immediately, except as provided
in subsection (i) below, after the record date for the determination of holders
entitled to receive such rights, options or warrants; PROVIDED, HOWEVER, that if
any such rights, options or warrants issued by the Company as described in this
subsection (b), whether issued before or after the date of this Indenture, are
only exercisable upon the occurrence of certain triggering events, including
those relating to control and provided for in a shareholder rights plan, then
the Conversion Price will not be adjusted as provided in this subsection (b)
until such triggering events occur. Upon the expiration or termination of any
rights, options or warrants without the exercise of such rights, options or
warrants, the Conversion Price then in effect shall be adjusted immediately to
the Conversion Price which would have been in effect at the time of such
expiration or termination had such rights, options or warrants, to the extent
outstanding immediately prior to such expiration or termination, never been
issued.
(c) In case the Company or any Subsidiary of the Company shall
distribute to all holders of Common Stock, any of its assets, evidences of
indebtedness, cash or securities (other than (x) dividends or distributions
exclusively in cash or (y) any dividend or distribution for which an adjustment
is required to be made in accordance with subsections (a) or (b) above), then in
each such case the Conversion Price shall be adjusted so that the same shall
equal the price determined by multiplying the Conversion Price in effect
immediately prior to the date of such distribution by a fraction of which the
numerator shall be the then current market price per share of the Common Stock
(determined as provided in subsection (g) below) on the record date mentioned
below less the then fair market value (as reasonably determined in good faith by
the Board of Directors of the Company) of the portion of the assets so
distributed applicable to one share of Common Stock, and of which the
denominator shall be such current
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market price per share of the Common Stock. Such adjustment shall become
effective immediately, except as provided in subsection (i) below, after the
record date for the determination of stockholders entitled to receive such
distribution. If any distribution described above is not so paid or made, the
Conversion Price shall again be adjusted to the Conversion Price which would
then be in effect if such dividend or distribution had not been declared.
Notwithstanding the foregoing, in the event that the fair market value of the
assets, evidences of indebtedness, cash or securities so distributed exceeds the
current market price per share of Common Stock, or such current market price
exceeds such fair market value by less than $0.10 per share, the Company may, in
lieu of making an adjustment in the Conversion Price pursuant to this subsection
(c), make adequate provision so that each Holder who converts such Security
after the record date for such distribution will be entitled to receive upon
such conversion, in addition to shares of Common Stock, the amount of assets,
evidences of indebtedness, cash or securities such Holder would have received
had such Security been converted immediately prior to the record date for such
distribution.
(d) In case the Company or any Subsidiary of the Company shall make
any distribution consisting exclusively of cash (excluding any cash portion of
distributions for which an adjustment is required to be made in accordance with
(c) above, or cash distributed upon a merger or consolidation to which
Section 12.6 applies) to all holders of Common Stock in an aggregate amount
that, combined together with (i) all other such all-cash distributions made
within the then preceding 12 months in respect of which no adjustment has been
made and (ii) any cash and the fair market value of other consideration paid or
payable in respect of any tender offer by the Company or any of its Subsidiaries
for Common Stock concluded within the preceding 12 months in respect of which no
adjustment has been made, exceeds 15% of the Company's market capitalization
(defined as being the product of the then current market price of the Common
Stock (determined as provided in subsection (g) below) multiplied by the number
of shares of Common Stock then outstanding) on the record date of such
distribution, then in each such case the Conversion Price shall be adjusted so
that the same shall equal the price determined by multiplying the Conversion
Price in effect immediately prior to the date of such distribution by a fraction
of which the numerator shall be the then current market price per share of the
Common Stock on such record date less the amount of the cash so distributed
applicable to one share of Common Stock, and of which the denominator shall be
such current market price per share of the Common Stock. Such adjustment shall
become effective immediately, except as provided in subsection (i) below, after
the record date for the determination of stockholders entitled to receive such
distribution. If any distribution described above is not so paid or made, the
Conversion Price shall again be adjusted to the Conversion Price which would
then be in effect if such dividend or distribution had not been declared.
Notwithstanding the foregoing, in the event that the amount of cash and the fair
market value of such consideration so distributed exceeds the current market
price per share of Common Stock, or such current market price exceeds such fair
market value by less than $0.10 per share, the Company may, in lieu of making an
adjustment in the Conversion Price pursuant to this subsection (d), make
adequate provision so that each Holder who converts such Security after the
record date for such distribution will be entitled to receive upon such
conversion, in addition to shares of Common Stock, the amount of cash or other
consideration such Holder would have received had such Security been converted
immediately prior to the record date for such distribution.
(e) In case there shall be completed a tender or exchange offer made
by the Company or any Subsidiary of the Company for all or any portion of the
Common Stock (any such tender or exchange offer being referred to as an "Offer")
that involves an aggregate consideration having a fair market value as of the
expiration of such Offer (the "Expiration Time") that, together with (i) any
cash and the fair market value of any other consideration paid or payable in
respect of any other Offer consummated within the 12 months preceding the
consummation of such Offer and in respect for which no Conversion Price
adjustment pursuant to this subsection (e) has been made and (ii) the aggregate
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amount of any all-cash distributions referred to in subsection (d) of this
Section 12.5 to all holders of Common Stock within the 12 months preceding the
consummation of such Offer for which no conversion price adjustment pursuant to
such subsection (d) has been made, exceeds 15% of the product of the then
current market price per share (determined as provided in subsection (g) below)
of the Common Stock on the Expiration Time times the number of shares of Common
Stock outstanding (including any tendered shares) on the Expiration Time, the
Conversion Price shall be reduced by multiplying such Conversion Price in effect
immediately prior to the Expiration Time by a fraction of which the numerator
shall be (i) the product of the then current market price per share (determined
as provided in subsection (g) below) of the Common Stock on the Expiration Time
times the number of shares of Common Stock outstanding (including any tendered
shares) on the Expiration Time minus (ii) the fair market value of the aggregate
consideration payable to stockholders based on the acceptance (up to any maximum
specified in the terms of the Offer) of all shares validly tendered and not
withdrawn as of the Expiration Time (the shares deemed so accepted being
referred to as the "Purchased Shares") and the denominator shall be the product
of (i) such current market price per share on the Expiration Time times (ii)
such number of outstanding shares on the Expiration Time less the number of
Purchased Shares, such reduction to become effective immediately prior to the
opening of business on the day following the Expiration Time.
For purposes of this subsection (e), the fair market value of any
consideration with respect to an Offer shall be reasonably determined in good
faith by the Board of Directors of the Company and described in a Board
Resolution.
(f) In case the Company, after the date of this Indenture shall issue
shares of its Common Stock, at a price per share less than the current market
price per share (as determined pursuant to subsection (g) below) on the date the
Company fixes the offering price of such additional shares then the Conversion
Price shall be reduced immediately thereafter so that it shall equal the price
determined by multiplying such Conversion Price in effect immediately prior
thereto by a fraction of which the numerator shall be the number of shares of
Common Stock outstanding immediately prior to the issuance of such additional
shares plus the number of shares of Common Stock which the aggregate offering
price of the total number of shares of Common Stock so offered, would purchase
at the current market price and the denominator shall be the number of shares of
Common Stock that would be outstanding immediately after the issuance of such
additional shares. Such adjustment shall be made successively whenever such an
issuance is made.
This Section 12.5(f) does not apply to (i) any transaction described
in Sections 12.5(a), (b) or (c); (ii) the issuance of the Securities or the
issuance of Common Stock upon conversion of the Securities; (iii) the issuance
of Common Stock upon (x) the exercise of any option, warrant or other security
convertible or exchangeable into Common Stock ("Equity Interests") issued after
the date of this Indenture, to the extent that any required adjustment to the
Conversion Price has been made pursuant to this Section 12.5(f) or (y) the
issuance of Common Stock pursuant to the exercise of any Equity Interest
outstanding on the date of this Indenture; (iv) any Common Stock or Equity
Interests issued to the Company's or any Subsidiary's employees, consultants or
directors pursuant to any plan or agreement approved by either the stockholders
of the Company or a majority of the Company's independent directors; (v) the
issuance of any Common Stock or Equity Interests in any BONA FIDE underwritten
public offering; or (vi) any Common Stock or Equity Interests issued in
connection with any acquisition by the Company with an aggregate purchase price
of $15,000,000 or less.
(g) For the purpose of any computation under subsections (b), (c),
(d), (e) and (f) above, the current market price per share of Common Stock on
any date shall be deemed to be the average of the Last Sale Prices of a share of
Common Stock for the five consecutive Trading Days selected by the Company
commencing not more than 20 Trading Days before, and ending not later than, the
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earlier of the date in question and the date before the "`ex' date," with
respect to the issuance, distribution or Offer requiring such computation. If
on any such Trading Day the Common Stock is not quoted by any organization
referred to in the definition of Last Sale Price in Section 12.3 hereof, the
fair value of the Common Stock on such day, as reasonably determined in good
faith by the Board of Directors of the Company, shall be used. For purposes of
this paragraph, the term "`ex' date," when used with respect to any issuance,
distribution or payments with respect to an Offer, means the first date on which
the Common Stock trades regular way on the Nasdaq National Market (or if not
listed or admitted to trading thereon, then on the principal national securities
exchange on which the Common Stock is listed or admitted to trading) without the
right to receive such issuance, distribution or Offer.
(h) The Company, from time to time and to the extent permitted by
law, may reduce the Conversion Price by any amount for any period of at least 20
Business Days in which the Company shall give at least 15 days notice of such
reduction, if the Board of Directors has made a determination that such
reduction would be in the best interest of the Company, which determination
shall be conclusive. In addition to the foregoing adjustments in subsections
(a), (b), (c), (d), (e) and (f) above and this subsection (h), the Company will
be permitted to make such reductions in the Conversion Price as it considers to
be advisable, including, without limitation, to avoid or diminish any income tax
to holders of Common Stock resulting from any dividend or distribution of stock
(or rights to acquire stock) or from any event treated as such for United States
federal income tax purposes.
In the event the Company elects to make such a reduction in the
conversion price, the Company will comply with the requirements of Rule 14e-1 of
the Exchange Act and any other Federal and state laws and regulations thereunder
if and to the extent that such laws and regulations are applicable in connection
with the reduction of the Conversion Price of the Securities; PROVIDED that any
provisions of this Indenture which conflict with such laws shall be deemed to be
superseded by the provisions of such laws.
(i) In any case in which this Section 12.5 shall require that an
adjustment (including by reason of the last sentence of subsection (a) or (c)
above) be made immediately following a record date, the Company may elect to
defer the effectiveness of such adjustment (but in no event until a date later
than the effective time of the event giving rise to such adjustment), in which
case the Company shall, with respect to any Security converted after such record
date and on and before such adjustment shall have become effective (i) defer
paying any Cash payment pursuant to Section 12.3 hereof or issuing to the Holder
of such Security the number of shares of Common Stock and other Capital Stock of
the Company (or other assets or securities) issuable upon such conversion in
excess of the number of shares of Common Stock and other Capital Stock of the
Company issuable thereupon only on the basis of the Conversion Price prior to
adjustment, and (ii) not later than five Business Days after such adjustment
shall have become effective, pay to such Holder the appropriate Cash payment
pursuant to Section 12.3 hereof and issue to such Holder the additional shares
of Common Stock and other Capital Stock of the Company issuable on such
conversion.
(j) No adjustment in the Conversion Price shall be required unless
such adjustment would require an increase or decrease of at least 1.0% of the
Conversion Price; PROVIDED that any adjustments which by reason of this
subsection (j) are not required to be made shall be carried forward and taken
into account in any subsequent adjustment. All calculations under this Article
XII shall be made to the nearest cent or to the nearest one-hundredth of a
share, as the case may be.
(k) Whenever the Conversion Price is adjusted as herein provided, the
Company shall promptly (i) file with the Trustee and each conversion agent an
Officers' Certificate setting forth the Conversion Price after such adjustment
and setting forth a brief statement of the facts requiring such
56
<PAGE>
adjustment, which certificate shall be conclusive evidence of the correctness of
such adjustment, and (ii) mail or cause to be mailed a notice of such adjustment
to each holder of Securities at his address as the same appears on the registry
books of the Company.
(l) In the event that the Company distributes rights or warrants
(other than those referred to in subsection (b) above) pro rata to holders of
Common Stock, so long as any such rights or warrants have not expired or been
redeemed by the Company, the Company shall make proper provision so that the
Holder of any Security surrendered for conversion will be entitled to receive
upon such conversion, in addition to the shares of Common Stock issuable upon
such conversion (the "Conversion Shares"), a number of rights or warrants to be
determined as follows: (i) if such conversion occurs on or prior to the date
for the distribution to the holders of rights or warrants of separate
certificates evidencing such rights or warrants (the "Distribution Date"), the
same number of rights or warrants to which a holder of a number of shares of
Common Stock equal to the number of Conversion Shares is entitled at the time of
such conversion in accordance with the terms and provisions of and applicable to
the rights or warrants, and (ii) if such conversion occurs after such
Distribution Date, the same number of rights or warrants to which a holder of
the number of shares of Common Stock into which the principal amount of such
Security so converted was convertible immediately prior to such Distribution
Date would have been entitled on such Distribution Date in accordance with the
terms and provisions of and applicable to the rights or warrants.
(m) For purposes of any computation respecting consideration received
pursuant to subsection (f) of this Section 12.5, the following shall apply:
(1) in the case of the issuance of shares of Common Stock for
cash, the consideration shall be the amount of such cash, provided that in
no case shall any deduction be made for any commissions, discounts or other
expenses incurred by the Company for any underwriting of the issue or
otherwise in connection therewith; and
(2) in the case of the issuance of shares of Common Stock for
a consideration in whole or in part other than cash, the consideration
other than cash shall be deemed to be the fair market value thereof
(irrespective of the accounting treatment thereof) as determined in good
faith by the Board of Directors; and
SECTION 12.6. CONTINUATION OF CONVERSION PRIVILEGE IN CASE OF
RECLASSIFICATION, CHANGE, MERGER, CONSOLIDATION OR SALE OF ASSETS.
If any of the following shall occur, namely: (a) any reclassification
or change of outstanding shares of Common Stock issuable upon conversion of the
Securities (other than a change in par value, or from par value to no par value,
or from no par value, to par value, or as a result of a subdivision or
combination), (b) any consolidation or merger of the Company with or into any
other Person, or the merger of any other Person with or into the Company (other
than a merger which does not result in any reclassification, change,
conversion, exchange or cancellation of outstanding shares of Common Stock)
or (c) any sale, transfer or conveyance of all or substantially all of the
assets of the Company (computed on a consolidated basis), then the Company,
or such successor or purchasing entity, as the case may be, shall, as a
condition precedent to such reclassification, change, consolidation, merger,
sale or conveyance, execute and deliver to the Trustee a supplemental
indenture providing that the Holder of each Security then outstanding shall
have the right to convert such Security only into the kind and amount of
shares of stock and other securities and property (including cash) receivable
upon such reclassification, change, consolidation, merger, sale, transfer or
conveyance by a holder of the number of shares of Common Stock issuable upon
conversion of such Security immediately prior to such reclassification,
57
<PAGE>
change, consolidation, merger, sale, transfer or conveyance assuming such
holder of Common Stock of the Company failed to exercise his rights of an
election, if any, as to the kind or amount of securities, cash and other
property receivable upon such reclassification, change, consolidation,
merger, sale, transfer or conveyance (PROVIDED that if the kind or amount of
securities, cash, and other property receivable upon such reclassification,
change, consolidation, merger, sale, transfer or conveyance is not the same
for each share of Common Stock of the Company held immediately prior to such
reclassification, change, consolidation, merger, sale, transfer or conveyance
in respect of which such rights of election shall not have been exercised
("non-electing share"), then for the purpose of this Section 12.6 the kind
and amount of securities, cash and other property receivable upon such
reclassification, change, consolidation, merger, sale, transfer or conveyance
by each non-electing share shall be deemed to be the kind and amount so
receivable per share by a plurality of the non-electing shares). Such
supplemental indenture shall provide for adjustments which shall be as nearly
equivalent as may be practicable to the adjustments provided for in this
Article XII. If, in the case of any such consolidation, merger, sale or
conveyance, the stock or other securities and property (including cash)
receivable thereupon by a holder of shares of Common Stock includes shares of
stock or other securities and property (including cash) of a corporation
other than the successor or purchasing corporation, as the case may be, in
such consolidation, merger, sale or conveyance, then such supplemental
indenture shall also be executed by such other corporation and shall contain
such additional provisions to protect the interests of the Holders of the
Securities as the Board of Directors of the Company shall reasonably consider
necessary by reason of the foregoing. The provisions of this Section 12.6
shall similarly apply to successive consolidations, mergers, sales or
conveyances.
Notice of the execution of each such supplemental indenture shall be
mailed to each Holder of Securities at his address as the same appears on the
registry books of the Company.
Neither the Trustee nor any conversion agent shall be under any
responsibility to determine the correctness of any provisions contained in any
such supplemental indenture relating either to the kind or amount of shares of
stock or securities or property (including cash) receivable by Holders of
Securities upon the conversion of their Securities after any such
reclassification, change, consolidation, merger, sale or conveyance or to any
adjustment to be made with respect thereto, but, subject to the provisions of
Article VIII hereof, may accept as conclusive evidence of the correctness of any
such provisions, and shall be protected in relying upon, the Officers'
Certificate (which the Company shall be obligated to file with the Trustee prior
to the execution of any such supplemental indenture) with respect thereto.
SECTION 12.7. NOTICE OF CERTAIN EVENTS.
In case:
(a) the Company shall declare a dividend (or any other distribution)
payable to the holders of Common Stock (other than cash dividends);
(b) the Company shall authorize the granting to the holders of Common
Stock of rights, warrants or options to subscribe for or purchase any shares of
stock of any class or of any other rights;
(c) the Company shall authorize any reclassification or change of the
Common Stock (including a subdivision or combination of its outstanding shares
of Common Stock), or any consolidation or merger to which the Company is a party
and for which approval of any stockholders of the Company is required, or the
sale or conveyance of all or substantially all the property or business of the
Company;
58
<PAGE>
(d) there shall be proposed any voluntary or involuntary dissolution,
liquidation or winding-up of the Company; or
(e) the Company or any of its Subsidiaries shall complete an Offer;
then, the Company shall cause to be filed at the office or agency maintained for
the purpose of conversion of the Securities as provided in Section 3.2 hereof,
and shall cause to be mailed to each Holder of Securities, at his address as it
shall appear on the registry books of the Company, at least 20 days before the
date hereinafter specified (or the earlier of the dates hereinafter specified,
in the event that more than one date is specified), a notice stating the date on
which (1) a record is expected to be taken for the purpose of such dividend,
distribution, rights, warrants or options or Offer, or if a record is not to be
taken, the date as of which the holders of Common Stock of record to be entitled
to such dividend, distribution, rights, warrants or options or to participate in
such Offer are to be determined, or (2) such reclassification, change,
consolidation, merger, sale, conveyance, dissolution, liquidation or winding-up
is expected to become effective and the date, if any is to be fixed, as of which
it is expected that holders of Common Stock of record shall be entitled to
exchange their shares of Common Stock for securities or other property
deliverable upon such reclassification, change, consolidation, merger, sale,
conveyance, dissolution, liquidation or winding-up.
SECTION 12.8. TAXES ON CONVERSION.
The Company will pay any and all documentary, stamp or similar taxes
payable to the United States of America or any political subdivision or taxing
authority thereof or therein in respect of the issue or delivery of shares of
Common Stock on conversion of Securities pursuant thereto; PROVIDED, HOWEVER,
that the Company shall not be required to pay any tax which may be payable in
respect of any transfer involved in the issue or delivery of shares of Common
Stock in a name other than that of the Holder of the Securities to be converted
and no such issue or delivery shall be made unless and until the person
requesting such issue or delivery has paid to the Company the amount of any such
tax or has established, to the satisfaction of the Company, that such tax has
been paid. The Company extends no protection with respect to any other taxes
imposed in connection with conversion of Securities.
SECTION 12.9. COMPANY TO PROVIDE STOCK.
The Company shall reserve, free from preemptive rights, out of its
authorized but unissued shares, sufficient shares to provide for the conversion
of the Securities from time to time as such Securities are presented for
conversion, PROVIDED that nothing contained herein shall be construed to
preclude the Company from satisfying its obligations in respect of the
conversion of Securities by delivery of repurchased shares of Common Stock which
are held in the treasury of the Company.
If any shares of Common Stock to be reserved for the purpose of
conversion of Securities hereunder require registration with or approval of any
governmental authority under any Federal or state law before such shares may be
validly issued or delivered upon conversion, then the Company covenants that it
will in good faith and as expeditiously as possible use its best efforts to
secure such registration or approval, as the case may be, PROVIDED, HOWEVER,
that nothing in this Section 12.9 shall be deemed to limit in any way the
obligations of the Company provided in this Article XII.
Before taking any action which would cause an adjustment reducing the
Conversion Price below the then par value, if any, of the Common Stock, the
Company will take all corporate action which may, in the Opinion of Counsel, be
necessary in order that the Company may validly and legally issue fully paid and
non-assessable shares of Common Stock at such adjusted Conversion Price.
59
<PAGE>
The Company covenants that all shares of Common Stock which may be
issued upon conversion of Securities will upon issue be fully paid and
non-assessable by the Company and free of preemptive rights.
SECTION 12.10. DISCLAIMER OF RESPONSIBILITY FOR CERTAIN MATTERS.
Neither the Trustee nor any agent of the Trustee shall at any time be
under any duty or responsibility to any Holder of Securities to determine
whether any facts exist which may require any adjustment of the Conversion
Price, or with respect to the Officers' Certificate referred to in Section 12.5
hereof, or with respect to the nature or extent of any such adjustment when
made, or with respect to the method employed, or herein or in any supplemental
indenture provided to be employed, in making the same. Neither the Trustee nor
any agent of the Trustee shall be accountable with respect to the validity or
value (or the kind or amount) of any shares of Common Stock, or of any
securities or property (including cash), which may at any time be issued or
delivered upon the conversion of any Security; and neither the Trustee nor any
conversion agent makes any representation with respect thereto. Neither the
Trustee nor any agent of the Trustee shall be responsible for any failure of the
Company to issue, register the transfer of or deliver any shares of Common Stock
or stock certificates or other securities or property (including cash) upon the
surrender of any Security for the purpose of conversion or, subject to Article
VIII hereof, to comply with any of the covenants of the Company contained in
this Article XII.
SECTION 12.11. RETURN OF FUNDS DEPOSITED FOR REDEMPTION OF
CONVERTED SECURITIES.
Any funds which at any time shall have been deposited by the Company
or on its behalf with the Trustee or any other Paying Agent for the purpose of
paying the principal of, premium and interest on any of the Securities and which
shall not be required for such purposes because of the conversion of such
Securities, as provided in this Article XII, shall after such conversion be
repaid to the Company by the Trustee or such other Paying Agent.
ARTICLE XIII
MISCELLANEOUS
SECTION 13.1. TIA CONTROLS.
If any provision of this Indenture limits, qualifies, or conflicts
with the duties imposed by operation of the TIA in an Indenture qualified under
the TIA, such imposed duties shall control.
SECTION 13.2. NOTICES.
Any notices or other communications to the Company or the Trustee
required or permitted hereunder shall be in writing, and shall be sufficiently
given if made by hand delivery, by telex, by telecopier or registered or
certified mail, postage prepaid, return receipt requested, addressed as follows:
60
<PAGE>
if to the Company:
PETsMART, Inc.
19601 N. 27th Avenue
Phoenix, Arizona 85027
Attention:
Telecopy:
if to the Trustee:
Norwest Bank Minnesota, N.A.
Sixth and Marquette
Minneapolis, Minnesota 55479-0069
Attention: Corporate Trust Administration
Telecopy:
Any party by notice to each other party may designate additional or
different addresses as shall be furnished in writing by such party. Any notice
or communication to any party shall be deemed to have been given or made as of
the date so delivered, if personally delivered; when answered back, if telexed;
when receipt is acknowledged, if telecopied; and five Business Days after
mailing if sent by registered or certified mail, postage prepaid (except that a
notice of change of address shall not be deemed to have been given until
actually received by the addressee).
Any notice or communication mailed to a Securityholder shall be mailed
to him by first-class mail or other equivalent means at his address as it
appears on the registration books of the Registrar and shall be sufficiently
given to him if so mailed within the time prescribed.
Failure to mail a notice or communication to a Securityholder or any
defect in it shall not affect its sufficiency with respect to other
Securityholders. If a notice or communication is mailed in the manner provided
above, it is duly given, whether or not the addressee receives it.
SECTION 13.3. COMMUNICATIONS BY HOLDERS WITH OTHER HOLDERS.
Securityholders may communicate pursuant to TIA Section 312(b) with
other Securityholders with respect to their rights under this Indenture or the
Securities. The Company, the Trustee, the Registrar and any other Person shall
have the protection of TIA Section 312(c).
SECTION 13.4. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT.
Upon any request or application by the Company to the Trustee to take
any action under this Indenture, the Company shall furnish to the Trustee:
(1) an Officers' Certificate (in form and substance reasonably
satisfactory to the Trustee) stating that, in the opinion of the signers,
all conditions precedent, if any, provided for in this Indenture relating
to the proposed action have been complied with; and
(2) an Opinion of Counsel (in form and substance reasonably
satisfactory to the Trustee) stating that, in the opinion of such counsel,
all such conditions precedent have been complied with.
61
<PAGE>
SECTION 13.5. STATEMENTS REQUIRED IN CERTIFICATE OR OPINION.
Each certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include:
(1) a statement that the Person making such certificate or
opinion has read such covenant or condition;
(2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(3) a statement that, in the opinion of such Person, he has
made such examination or investigation as is necessary to enable him to
express an informed opinion as to whether or not such covenant or condition
has been complied with; and
(4) a statement as to whether or not, in the opinion of each
such Person, such condition or covenant has been complied with; PROVIDED,
HOWEVER, that with respect to matters of fact an Opinion of Counsel may
rely on an Officers' Certificate or certificates of public officials.
SECTION 13.6. RULES BY TRUSTEE, PAYING AGENT, REGISTRAR.
The Trustee may make reasonable rules for action by or at a meeting of
Securityholders. The Paying Agent or Registrar may make reasonable rules for
its functions.
SECTION 13.7. LEGAL HOLIDAYS.
A "Legal Holiday" is a Saturday, a Sunday or a day on which banking
institutions in New York, New York or Los Angeles, California are authorized or
obligated by law or executive order to close. If a payment date is a Legal
Holiday at such place, payment may be made at such place on the next succeeding
day that is not a Legal Holiday, and no interest shall accrue for the
intervening period.
SECTION 13.8. GOVERNING LAW.
THIS INDENTURE AND THE SECURITIES SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS
MADE AND PERFORMED WITHIN THE STATE OF NEW YORK.
SECTION 13.9. NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS.
This Indenture may not be used to interpret another indenture, loan or
debt agreement of the Company or any of its Subsidiaries. Any such indenture,
loan or debt agreement may not be used to interpret this Indenture.
SECTION 13.10. NO RECOURSE AGAINST OTHERS.
No direct or indirect partner, employee, incorporator, stockholder,
director or officer, as such, past, present or future of the Company or any
successor corporation or any Subsidiary or any of the Company's Affiliates,
shall have any personal liability in respect of the obligations of the Company
62
<PAGE>
under the Securities or this Indenture by reason of his, her or its status as
such partner, stockholder, incorporator, employee, director or officer. Each
Securityholder by accepting a Security waives and releases all such liability.
Such waiver and release are part of the consideration for the issuance of the
Securities.
SECTION 13.11. SUCCESSORS.
All agreements of the Company in this Indenture and the Securities
shall bind its successor. All agreements of the Trustee in this Indenture shall
bind its successor.
SECTION 13.12. DUPLICATE ORIGINALS.
All parties may sign any number of copies or counterparts of this
Indenture. Each signed copy or counterpart shall be an original, but all of
them together shall represent the same agreement.
SECTION 13.13. SEVERABILITY.
In case any one or more of the provisions in this Indenture or in the
Securities shall be held invalid, illegal or unenforceable, in any respect for
any reason, the validity, legality and enforceability of any such provision in
every other respect and of the remaining provisions shall not in any way be
affected or impaired thereby, it being intended that all of the provisions
hereof shall be enforceable to the full extent permitted by law.
SECTION 13.14. TABLE OF CONTENTS, HEADINGS, ETC.
The Table of Contents, Cross-Reference Table and headings of the
Articles and the Sections of this Indenture have been inserted for convenience
of reference only, are not to be considered a part hereof and shall in no way
modify or restrict any of the terms or provisions hereof.
SECTION 13.15. QUALIFICATION OF INDENTURE.
To the extent required by law, the Company shall qualify this
Indenture under the TIA and shall pay all reasonable costs and expenses
(including reasonable attorneys' fees for the Company and the Trustee) incurred
in connection therewith, including, but not limited to, reasonable costs and
expenses of qualification of the Indenture and the Securities and printing this
Indenture and the Securities. The Trustee shall be entitled to receive from the
Company any such Officers' Certificates, Opinions of Counsel or other
documentation as it may reasonably request in connection with any such
qualification of this Indenture under the TIA.
63
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SIGNATURES
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly executed as of the date first written above.
PETSMART, INC.,
[Seal]
By: /s/ Susan C. Schnobel
----------------------------------
Name: Susan C. Schnobel
--------------------------
Title: Senior Vice President and
Chief Financial Officer
--------------------------
Attest: /s/ Michele Hughes
-------------------
Secretary
<PAGE>
NORWEST BANK MINNESOTA, N.A., as Trustee
By: /s/ Jane Schweiger
-------------------------------------
Name: Jane Schweiger
-----------------------------
Title: Corporate Trust Officer
-----------------------------
65
<PAGE>
EXHIBIT A
FORM OF SECURITY
PETSMART, INC.
6 3/4% CONVERTIBLE SUBORDINATED NOTE
DUE 2004
No. CUSIP No. _______________
$ _______
PETsMART, Inc., a Delaware corporation (hereinafter called the
"Company," which term includes any successors under the Indenture hereinafter
referred to), for value received, hereby promises to pay to _______________, or
registered assigns, the principal sum of _____ Dollars, on November 1, 2004.
Interest Payment Dates: May 1 and November 1; commencing May 1, 1998.
Record Dates: April 15 and October 15.
Reference is made to the further provisions of this Security set forth
below, which will, for all purposes, have the same effect as if set forth at
this place.
IN WITNESS WHEREOF, the Company has caused this Instrument to be duly
executed under its corporate seal.
Dated:
PETsMART, Inc.,
a Delaware corporation
[Seal]
By:
-------------------------------------------
Name:
Title:
Attest:
---------------
Secretary
A-1
<PAGE>
FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Securities described in the within-mentioned
Indenture.
NORWEST BANK MINNESOTA, N.A.
----------------------------------------------
as Trustee
By
--------------------------------------------
Authorized Signatory
Dated:
A-2
<PAGE>
[UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR SECURITIES
IN DEFINITIVE FORM, THIS SECURITY MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY
THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY
TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR
ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR
DEPOSITARY. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK, NEW
YORK) ("DTC"), TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE
OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO.
OR SUCH OTHER NAME AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC
(AND ANY PAYMENT IS MADE TO CEDE & CO. OR SUCH OTHER ENTITY AS MAY BE REQUESTED
BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE
HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL IN AS MUCH AS THE
REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.](1)
["THIS SECURITY (OR ITS PREDECESSOR) HAS NOT BEEN REGISTERED UNDER THE
U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND,
ACCORDINGLY, MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHIN
THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS, EXCEPT
AS SET FORTH BELOW. EACH PURCHASER OF THE SECURITY EVIDENCED HEREBY IS HEREBY
NOTIFIED THAT THE SELLER MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF
SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER. BY ITS
ACQUISITION HEREOF OR OF A BENEFICIAL INTEREST HEREIN, EACH HOLDER (1) AGREES,
FOR THE BENEFIT OF PETSMART, INC., THAT IT WILL NOT RESELL OR OTHERWISE TRANSFER
THIS SECURITY EXCEPT (A) TO THE COMPANY OR ANY OF ITS SUBSIDIARIES, (B) TO A
PERSON WHOM THE SELLER REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER"
(AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) (A "QIB") PURCHASING FOR ITS
OWN ACCOUNT OR FOR THE ACCOUNT OF A QIB IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 144A, (C) IN AN OFFSHORE TRANSACTION MEETING THE
REQUIREMENTS OF RULE 904 OF THE SECURITIES ACT, (D) IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 144 UNDER THE SECURITIES ACT, (E) TO AN INSTITUTIONAL
"ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(A) (1), (2), (3) OR (7) OF
REGULATION D UNDER THE SECURITIES ACT THAT, PRIOR TO SUCH TRANSFER, FURNISHES
THE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS
RELATING TO THE TRANSFER OF THIS SECURITY (THE FORM OF WHICH CAN BE OBTAINED
FROM THE TRUSTEE) AND, IF THE COMPANY SO REQUESTS, AN OPINION OF COUNSEL
ACCEPTABLE TO THE COMPANY THAT SUCH TRANSFER IS IN COMPLIANCE WITH THE
SECURITIES ACT, (F) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT (AND BASED UPON AN OPINION OF COUNSEL
ACCEPTABLE TO THE COMPANY) OR (G) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT AND, IN EACH CASE, IN ACCORDANCE WITH THE APPLICABLE SECURITIES LAWS
OF ANY STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION AND (2)
AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS SECURITY OR AN INTEREST
HEREIN IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. AS
USED HEREIN, THE TERMS "OFFSHORE TRANSACTION" AND "UNITED STATES" HAVE THE
MEANINGS GIVEN TO THEM BY RULE 902 OF REGULATION S UNDER
- --------------------
(1) This paragraph should be included only if the Security is issued in global
form.
A-3
<PAGE>
THE SECURITIES ACT. THE INDENTURE CONTAINS A PROVISION REQUIRING THE TRUSTEE TO
REFUSE TO REGISTER ANY TRANSFER OF THIS SECURITY IN VIOLATION OF THE
FOREGOING."](2)
- -------------------------
(2) This paragraph should be removed upon the registration of the Securities
pursuant to the terms of the Registration Rights Agreement.
A-4
<PAGE>
PETSMART, INC.
6 3/4% CONVERTIBLE SUBORDINATED NOTE
DUE 2004
1. INTEREST.
PETsMART, Inc, a Delaware corporation (hereinafter called the
"Company," which term includes any successors under the Indenture hereinafter
referred to), promises to pay interest on the principal amount of this Security
at the rate of 6 3/4% per annum. To the extent it is lawful, the Company
promises to pay interest on any interest payment or Liquidated Damages due but
unpaid on such principal amount at a rate of 6 3/4% per annum compounded semi-
annually.
The Company will pay interest semi-annually on May 1 and November 1 of
each year (each, an "Interest Payment Date"), commencing May 1, 1998. Interest
on the Securities will accrue from the most recent date to which interest has
been paid or, if no interest has been paid on the Securities, from the date of
issuance. Interest will be computed on the basis of a 360-day year consisting
of twelve 30-day months.
2. METHOD OF PAYMENT.
The Company shall pay interest on the Securities (except Defaulted
Interest) to the persons who are the registered Holders at the close of business
on the Record Date immediately preceding the Interest Payment Date. Holders
must surrender Securities to a Paying Agent to collect principal payments. Any
such interest not so punctually paid, and Defaulted Interest relating thereto,
may be paid to the persons who are registered Holders at the close of business
on a Special Record Date for the payment of such Defaulted Interest, as more
fully provided in the Indenture referred to below. Except as provided below,
the Company shall pay principal, premium and interest in such coin or currency
of the United States of America as at the time of payment shall be legal tender
for payment of public and private debts ("U.S. Legal Tender"). The Securities
will be payable as to principal, premium and interest at the office or agency of
the Company maintained for such purpose within or without the City and State of
New York, or at the option of the Company, payment of principal, premium and
interest may be made by check mailed to the Holders at their addresses set forth
in the registry of Holders, and provided that payment by wire transfer of
immediately available funds will be required with respect to principal of,
premium and interest on Global Securities and all other Securities the Holders
of which shall have provided wire transfer instructions to the Company or the
Paying Agent.
3. PAYING AGENT AND REGISTRAR.
Initially, Norwest Bank Minnesota, N.A. (the "Trustee") will act as
Paying Agent and Registrar. The Company may change any Paying Agent, Registrar
or co-Registrar without notice to the Holders. The Company or any of its
Subsidiaries may, subject to certain exceptions, act as Paying Agent, Registrar
or co-Registrar.
4. INDENTURE.
The Company issued the Securities under an Indenture, dated as of
November 7, 1997 (the "Indenture"), between the Company and the Trustee.
Capitalized terms herein are used as defined in the Indenture unless otherwise
defined herein. The terms of the Securities include those stated in the
A-5
<PAGE>
Indenture and those made part of the Indenture by reference to the Trust
Indenture Act, as in effect on the date of the Indenture. The Securities are
subject to all such terms, and Holders of Securities are referred to the
Indenture and said Act for a statement of them. The Securities are general
unsecured obligations of the Company limited in aggregate principal amount to
$175,000,000 ($201,250,000 if the Initial Purchaser over-allotment option is
exercised in full).
5. OPTIONAL REDEMPTION.
The Securities will not be subject to redemption at the Company's
option prior to November 1, 2000. On or after November 1, 2000, upon not less
than 20 nor more than 60 days notice to each Holder of Securities, the
Securities will be redeemable for cash at the option of the Company, in whole or
in part, at the following Redemption Prices (expressed as a percentage of
principal amount) set forth below with respect to the indicated Redemption Date,
in each case, plus any accrued but unpaid interest and Liquidated Damages, if
any, to the Redemption Date (subject to the right of Holders of record on the
relevant record date to receive interest due on any Interest Payment Date that
is on or prior to the Redemption Date.
If redeemed during
the 12-month period
beginning November 1
of the years indicated
below: Redemption Price
---------------------- ----------------
2000. . . . . . . . . . . . . 103.857%
2001. . . . . . . . . . . . . 102.893
2002. . . . . . . . . . . . . 101.929
2003. . . . . . . . . . . . . 100.964
Any such redemption will comply with Article III of the Indenture.
6. MANDATORY REDEMPTION.
Except as set forth in paragraph 15, the Company shall not be required
to make mandatory redemption or sinking fund payments with respect to the
Securities.
7. NOTICE OF REDEMPTION.
Notice of redemption will be sent by first class mail, at least 20
days and not more than 60 days prior to the Redemption Date to the Holder of
each Security to be redeemed at such Holder's last address as then shown upon
the registry books of the Registrar. Securities may be redeemed in part in
multiples of $1,000 only.
Except as set forth in the Indenture, from and after any Redemption
Date, if monies for the redemption of the Securities called for redemption shall
have been deposited with the Paying Agent on such Redemption Date and payment of
the Securities called for redemption is not prohibited under Article XI of the
Indenture, the Securities called for redemption will cease to bear interest and
the only right of the Holders of such Securities will be to receive payment of
the Redemption Price, plus any accrued and unpaid interest and Liquidated
Damages, if any, to the Redemption Date.
A-6
<PAGE>
8. DENOMINATIONS; TRANSFER; EXCHANGE.
The Securities are in registered form, without coupons, in
denominations of $1,000 and integral multiples of $1,000. A Holder may register
the transfer of, or exchange Securities in accordance with, the Indenture. The
Registrar may require a Holder, among other things, to furnish appropriate
endorsements and transfer documents and to pay any taxes and fees required by
law or permitted by the Indenture. The Registrar need not register the transfer
of or exchange any Securities selected for redemption.
9. PERSONS DEEMED OWNERS.
The registered Holder of a Security may be treated as the owner of it
for all purposes.
10. UNCLAIMED MONEY.
If money for the payment of principal or interest remains unclaimed
for two years, the Trustee and the Paying Agent(s) will pay the money back to
the Company at its written request. After that, all liability of the Trustee
and such Paying Agent(s) with respect to such money shall cease and the Holder
of such Security shall thereafter look only to the Company for payment of such
money.
11. AMENDMENT; SUPPLEMENT; WAIVER.
Subject to certain exceptions, the Indenture or the Securities may be
amended or supplemented, and any existing Default or Event of Default or
compliance with any provision may be waived, with the written consent of the
Holders of a majority in aggregate principal amount of the Securities then
outstanding. Without notice to or consent of any Holder, the parties thereto
may amend or supplement the Indenture or the Securities to, among other things,
cure any ambiguity, defect or inconsistency, or make any other change that does
not adversely affect the rights of any Holder of a Security.
12. CONVERSION RIGHTS.
Subject to the provisions of the Indenture, the Holders have the right
to convert the principal amount of the Securities into fully paid and
nonassessable shares of Common Stock of the Company at the initial conversion
price per share of Common Stock of $8.75 (or 114.2857 shares per $1,000
principal amount of Securities), or at the adjusted conversion price then in
effect, if adjustment has been made as provided in the Indenture, upon surrender
of the Security to the Company, together with a fully executed notice in
substantially the form attached hereto and, if required by the Indenture, an
amount equal to accrued interest payable on such Security. The number of shares
of Common Stock into which the Holders have the right to convert shall be
determined by dividing the principal amount of such Securities by the conversion
price then in effect.
13. ADDITIONAL RIGHTS.
In addition to the rights provided to Holders of the Securities under
the Indenture, Holders of Transfer Restricted Securities (as defined in the
Registration Rights Agreement) shall have all the rights set forth in the
Registration Rights Agreement, dated as of the date hereof, among the Company
and the Initial Purchasers (the "Registration Rights Agreement").
A-7
<PAGE>
14. RANKING.
Payment of principal, premium, if any, interest and Liquidated
Damages, if any, on the Securities is subordinated, in the manner and to the
extent set forth in the Indenture, to the prior payment in full of all Senior
Indebtedness.
15. REPURCHASE AT OPTION OF HOLDER UPON A CHANGE OF CONTROL.
If there is a Change of Control, the Company shall be required to
offer to purchase on the Repurchase Date all outstanding Securities at a
purchase price equal to 100% of the principal amount thereof, plus accrued and
unpaid interest and Liquidated Damages, if any, to the Repurchase Date. Holders
of Securities will receive a Repurchase Offer from the Company prior to any
related Repurchase Date and may elect to have such Securities purchased by
completing the form entitled "Option of Holder to Elect Purchase" appearing
below.
16. SUCCESSORS.
When a successor assumes all the obligations of its predecessor under
the Securities and the Indenture, the predecessor will be released from those
obligations (except with respect to any obligations that arise from or as a
result of such transaction).
17. DEFAULTS AND REMEDIES.
If an Event of Default occurs and is continuing (other than an Event
of Default relating to certain events of bankruptcy, insolvency or
reorganization), then in every such case, unless the principal of all of the
securities shall have already become due and payable, either the Trustee or the
Holders of 25% in aggregate principal amount of Securities then outstanding may
declare all the Securities to be due and payable immediately in the manner and
with the effect provided in the Indenture. Holders of Securities may not
enforce the Indenture or the Securities except as provided in the Indenture.
The Trustee may require indemnity satisfactory to it before it enforces the
Indenture or the Securities. Subject to certain limitations, Holders of a
majority in aggregate principal amount of the Securities then outstanding may
direct the Trustee in its exercise of any trust or power. The Trustee may
withhold from Holders of Securities notice of any continuing Default or Event of
Default (except a Default in payment of principal, premium or interest), if it
determines that withholding notice is in their interest.
18. TRUSTEE DEALINGS WITH COMPANY.
The Trustee under the Indenture, in its individual or any other
capacity, may make loans to, accept deposits from, and perform services for the
Company or its Affiliates or any subsidiary of the Company's Affiliates, and may
otherwise deal with the Company or its Affiliates as if it were not the Trustee.
19. NO RECOURSE AGAINST OTHERS.
No director or indirect partner, employee, stockholder, director, or
officer or, as such, past, present or future, of the Company or any successor
corporation or any Subsidiary or any of the Company's Affiliates shall have any
personal liability in respect of the obligations of the Company under the
Securities or the Indenture by reason of his, her or its status as such partner
stockholder, director, officer or employee. Each Holder of a Security by
accepting a Security waives and releases all such liability. The waiver and
release are part of the consideration for the issuance of the Securities.
A-8
<PAGE>
20. GOVERNING LAW.
(THE INTERNAL LAWS OF THE STATE OF NEW YORK SHALL GOVERN THE INDENTURE
AND THE NOTES WITHOUT REGARD TO CONFLICT OF LAW PROVISIONS THEREOF.
21. AUTHENTICATION.
This Security shall not be valid until the Trustee or authenticating
agent signs the certificate of authentication on the other side of this
Security.
22. ABBREVIATIONS AND DEFINED TERMS.
Customary abbreviations may be used in the name of a Holder of a
Security or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act).
23. CUSIP NUMBERS.
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures, the Company will cause CUSIP numbers to be
printed on the Securities as a convenience to the Holders of the Securities. No
representation is made as to the accuracy of such numbers as printed on the
Securities and reliance may be placed only on the other identification numbers
printed hereon.
A-9
<PAGE>
[FORM OF] ASSIGNMENT
I or we assign this Security to
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type name, address and zip code of assignee)
Please insert Social Security or other identifying number of assignee
- --------------------------------------------------------------------------------
and irrevocably appoint __________ agent to transfer this Security on the books
of the Company. The agent may substitute another to act for him.
Dated: Signed:
------------ --------------------------------------
- --------------------------------------------------------------------------------
exactly as name appears on
the other side of this Security)
Signature Guarantee.*
- ------------------------------
* Participant in a recognized Signature Guarantee Medallion Program (or other
signature guarantor acceptable to the Trustee).
A-10
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by the Company
pursuant to Article X of the Indenture, check the box: / /
If you want to elect to have only part of this Security purchased by
the Company pursuant to Article X of the Indenture, state the amount you want to
be purchased: $________
Date: Signature:
--------------- -----------------------------------
(Sign exactly as your name appears
on the other side of this Security)
A-11
<PAGE>
FORM OF CONVERSION NOTICE
To: PETsMART, INC.
$175,000,000
6 3/4% Convertible Subordinated Notes due 2004
The undersigned owner of this Security hereby: (i) irrevocably
exercises the option to convert this Security, or the portion hereof below
designated, for shares of Common Stock of in accordance with the terms of this
Indenture referred to in this Security and (ii) directs that such shares of
Common Stock deliverable upon the conversion, together with any check in payment
for fractional shares and any Security(ies) representing any unconverted
principal amount hereof, be issued and delivered to the registered holder hereof
unless a different name has been indicated below. If shares are to be delivered
registered in the name of a person other than the undersigned, the undersigned
will pay all transfer taxes payable with respect thereto. Any amount required
to be paid by the undersigned on account of interest accompanies this Security.
Dated
---------------
---------------------------------------------
Signature
Fill in for registration of shares if to be delivered, and of
Securities if to be issued, otherwise than to and in the name of the registered
holder.
---------------------------------------------
Social Security or other
Taxpayer Identifying Number
- ----------------------------------
(Name)
- ----------------------------------
(Street Address)
- ----------------------------------
(City, State and Zip Code)
(Please print name and address)
Principal amount to be
converted: (if less than all)
$
--------------------------------------------
Signature Guarantee.*
- -----------------------------------
* Participant in a recognized Signature Guarantee Medallion Program (or other
signature guarantor acceptable to the Trustee).
A-12
<PAGE>
SCHEDULE OF EXCHANGES OF DEFINITIVE SECURITIES
The following exchanges of a part of this Global Security for
Definitive Securities have been made:
Amount of Amount of Principal Amount Signature of
decrease in increase in of this Global authorized officer
Principal Amount Principal Amount Security following of Trustee or
Date of of this Global of this Global such decrease (or Securities
Exchange Security Security increase) Custodian
- --------------------------------------------------------------------------------
A-13
<PAGE>
EXHIBIT B-1
FORM OF CERTIFICATE FOR EXCHANGE OR REGISTRATION OF TRANSFER
FROM RULE 144A GLOBAL SECURITY TO REGULATION S GLOBAL SECURITY
(Pursuant to Section 2.6(a)(i) of the Indenture)
Norwest Bank Minnesota, N.A.
Sixth and Marquette
Minneapolis, Minnesota 55479-0113
Re: 6 3/4% Convertible Subordinated Notes due 2004 of PETsMART, Inc.
Reference is hereby made to the Indenture, dated as of November 7, 1997
(the "Indenture"), between PETsMART, Inc., a Delaware corporation (the
"Company") and Norwest Bank Minnesota, N.A. (the "Trustee"). Capitalized terms
used but not defined herein shall have the meanings given to them in the
Indenture.
This letter relates to $ _______________ principal amount of Securities
which are evidenced by one or more Rule 144A Global Securities and held with the
Depositary in the name of ________________ (the "Transferor"). The Transferor
has requested a transfer of such beneficial interest in the Securities to a
Person who will take delivery thereof in the form of an equal principal amount
of Securities evidenced by one or more Regulation S Global Securities, which
amount, immediately after such transfer, is to be held with the Depositary
through Euroclear or Cedel or both.
In connection with such request and in respect of such Securities, the
Transferor hereby certifies that such transfer has been effected in compliance
with the transfer restrictions applicable to the Global Securities and pursuant
to and in accordance with Rule 903 or Rule 904 under the United States
Securities Act of 1933, as amended (the "Securities Act"), and accordingly the
Transferor hereby further certifies that:
(1) The offer of the Securities was not made to a person in the United
States;
(2) either:
(a) at the time the buy order was originated, the transferee was
outside the United States or the Transferor and any person acting on its behalf
reasonably believed and believes that the transferee was outside the United
States; or
(b) the transaction was executed in, on or through the facilities of
a designated offshore securities market and neither the Transferor nor any
person acting on its behalf knows that the transaction was prearranged with a
buyer in the United States;
(3) no directed selling efforts have been made in contravention of
the requirements of Rule 904(b) of Regulation S;
(4) the transaction is not part of a plan or scheme to evade the
registration provisions of the Securities Act; and
B-1-1
<PAGE>
(5) upon completion of the transaction, the beneficial interest being
transferred as described above is to be held with the Depositary through
Euroclear or Cedel or both.
Upon giving effect to this request to exchange a beneficial interest in a
Rule 144A Global Security for a beneficial interest in a Regulation S Global
Security, the resulting beneficial interest shall be subject to the restrictions
on transfer applicable to Regulation S Global Securities pursuant to the
Indenture and the Securities Act.
This certificate and the statements contained herein are made for your
benefit and the benefit of the Company and Donaldson, Lufkin & Jenrette
Securities Corporation and NationsBanc Montgomery Securities, Inc., the initial
purchasers of such Securities being transferred. Terms used in this certificate
and not otherwise defined in the Indenture have the meanings set forth in
Regulation S under the Securities Act.
[Insert Name of Transferor]
By:
------------------------
Name:
Title:
Dated:
cc: PETsMART, Inc.
Donaldson, Lufkin & Jenrette Securities Corporation
NationsBanc Montgomery Securities, Inc.
B-1-2
<PAGE>
EXHIBIT B-2
FORM OF CERTIFICATE FOR EXCHANGE OR REGISTRATION OF TRANSFER
FROM REGULATION S GLOBAL SECURITY TO RULE 144A GLOBAL SECURITY
(Pursuant to Section 2.6(a)(ii) of the Indenture)
Norwest Bank Minnesota, N.A.
Sixth and Marquette
Minneapolis, Minnesota 55479-0113
Re: 6 3/4% Convertible Subordinated Notes due 2004 of PETsMART, Inc.
Reference is hereby made to the Indenture, dated as of November 7, 1997
(the "Indenture"), between PETsMART, Inc., a Delaware corporation (the
"Company") and Norwest bank Minnesota, N.A. as trustee (the "Trustee").
Capitalized terms used but not defined herein shall have the meanings given to
them in the Indenture.
This letter relates to $_________ principal amount at maturity of
Securities which are evidenced by one or more Regulation S Global Securities and
held with the Depositary through Euroclear or Cedel in the name of
______________ (the "Transferor"). The Transferor has requested a transfer of
such beneficial interest in the Securities to a Person who will take delivery
thereof in the form of an equal principal amount of the Securities evidenced by
one or more Rule 144A Global Securities, to be held with the Depositary.
In connection with such request and in respect of such Securities, the
Transferor hereby certifies that:
[CHECK ONE]
/ / such transfer is being effected pursuant to and in accordance with Rule
144A under the United States Securities Act of 1933, as amended (the "Securities
Act"), and, accordingly, the Transferor hereby further certifies that the
Securities are being transferred to a Person that the Transferor reasonably
believes is purchasing the Securities for its own account, or for one or more
accounts with respect to which such Person exercises sole investment discretion,
and such Person and each such account is a "qualified institutional buyer"
within the meaning of Rule 144A in a transaction meeting the requirements of
Rule 144A;
or
/ / such transfer is being effected pursuant to and in accordance with Rule 144
under the Securities Act;
or
/ / such transfer is being effected pursuant to an exemption under the
Securities Act other than Rule 144A, Rule 144 or Rule 904 and the Transferor
further certifies that the Transfer complies with the transfer restrictions
applicable to beneficial interests in Global Securities and Definitive
Securities bearing the Restricted Securities Legend and the requirements of the
exemption claimed, which certification is supported by a certificate executed by
the Transferee in the form of Exhibit C to the Indenture, and if so requested by
the Company, an Opinion of Counsel provided by the Transferor or the Transferee
(a
B-2-1
<PAGE>
copy of which the Transferor has attached to this certification), to the effect
that (1) such Transfer is in compliance with the Securities Act and (2) such
Transfer complies with any applicable blue sky securities laws of any state of
the United States;
or
/ / such transfer is being effected pursuant to an effective registration
statement under the Securities Act;
or
/ / such transfer is being effected pursuant to an exemption from the
registration requirements of the Securities Act other than Rule 144A or Rule
144, and the Transferor hereby further certifies that the Securities are being
transferred in compliance with the transfer restrictions applicable to the
Global Securities and in accordance with the requirements of the exemption
claimed, which certification is supported by an Opinion of Counsel, provided by
the transferor or the transferee (a copy of which the Transferor has attached to
this certification) in form reasonably acceptable to the Company and to the
Registrar, to the effect that such transfer is in compliance with the Securities
Act and any applicable blue sky securities laws of any State of the United
States;
and such Securities are being transferred in compliance with any applicable blue
sky securities laws of any state of the United States.
Upon giving effect to this request to exchange a beneficial interest in
Regulation S Global Securities for a beneficial interest in Rule 144A Global
Securities, the resulting beneficial interest shall be subject to the
restrictions on transfer applicable to Rule 144A Global Securities pursuant to
the Indenture and the Securities Act.
B-2-2
<PAGE>
This certificate and the statements contained herein are made for your
benefit and the benefit of the Company and Donaldson, Lufkin & Jenrette
Securities Corporation and NationsBanc Montgomery Securities, Inc., collectively
the initial purchasers of such Securities being transferred. Terms used in this
certificate and not otherwise defined in the Indenture have the meanings set
forth in Regulation S under the Securities Act.
[Insert Name of Transferor]
By:
----------------------
Name:
Title:
Dated:
cc: PETsMART, Inc.
Donaldson, Lufkin & Jenrette Securities Corporation
NationsBanc Montgomery Securities, Inc.
B-2-3
<PAGE>
EXHIBIT B-3
FORM OF CERTIFICATE FOR EXCHANGE OR REGISTRATION OF
TRANSFER OF DEFINITIVE SECURITIES
(Pursuant to Section 2.6(b) of the Indenture)
Norwest Bank Minnesota, N.A.
Sixth and Marquette
Minneapolis, Minnesota 55479-0113
Re: 6 3/4% Convertible Subordinated Notes due 2004 of PETsMART, Inc.
Reference is hereby made to the Indenture, dated as of November 7, 1997
(the "Indenture"), between PETsMART, Inc., a Delaware corporation (the
"Company") and Norwest Bank Minnesota, N.A. as trustee (the "Trustee").
Capitalized terms used but not defined herein shall have the meanings given to
them in the Indenture.
This relates to $ ____________ principal amount of Securities which are
evidenced by one or more Definitive Securities in the name of _________________
(the "Transferor"). The Transferor has requested an exchange or transfer of
such Definitive Security(ies) in the form of an equal principal amount of
Securities evidenced by one or more Definitive Securities, to be delivered to
the Transferor or, in the case of a transfer of such Securities, to such Person
as the Transferor instructs the Trustee.
In connection with such request and in respect of the Securities
surrendered to the Trustee herewith for exchange (the "Surrendered Securities"),
the Holder of such Surrendered Securities hereby certifies that:
[CHECK ONE]
/ / the Surrendered Securities are being acquired for the Transferor's own
account, without transfer;
or
/ / the Surrendered Securities are being transferred to the Company;
or
/ / the Surrendered Securities are being transferred pursuant to and in
accordance with Rule 144A under the United States Securities Act of 1933, as
amended (the "Securities Act"), and, accordingly, the Transferor hereby further
certifies that the Surrendered Securities are being transferred to a Person that
the Transferor reasonably believes is purchasing the Surrendered Securities for
its own account, or for one or more accounts with respect to which such Person
exercises sole investment discretion, and such Person and each such account is a
"qualified institutional buyer" within the meaning of Rule 144A, in each case in
a transaction meeting the requirements of Rule 144A;
or
/ / the Surrendered Securities are being transferred in a transaction permitted
by Rule 144 under the Securities Act;
B-3-1
<PAGE>
or
/ / the Surrendered Securities are being transferred pursuant to an exemption
under the Securities Act other than Rule 144A, Rule 144 or Rule 904 and the
Transferor further certifies that the Transfer complies with the transfer
restrictions applicable to beneficial interests in Global Securities and
Definitive Securities bearing the Restricted Securities Legend and the
requirements of the exemption claimed, which certification is supported by a
certificate executed by the Transferee in the form of Exhibit C to the Indenture
and, if the Company so requests, an Opinion of Counsel provided by the
Transferor or the Transferee (a copy of which the Transferor has attached to
this certification), to the effect that (1) such Transfer is in compliance with
the Securities Act and (2) such Transfer complies with any applicable blue sky
securities laws of any state of the United States;
or
/ / the Surrendered Securities are being transferred pursuant to an effective
registration statement under the Securities Act;
or
/ / such transfer is being effected pursuant to an exemption from the
registration requirements of the Securities Act other than Rule 144A or Rule
144, and the Transferor hereby further certifies that the Securities are being
transferred in compliance with the transfer restrictions applicable to the
Global Securities and in accordance with the requirements of the exemption
claimed, which certification is supported by an Opinion of Counsel, provided by
the transferor or the transferee (a copy of which the Transferor has attached to
this certification) in form reasonably acceptable to the Company and to the
Registrar, to the effect that such transfer is in compliance with the Securities
Act and any applicable blue sky securities laws of any State of the United
States;
and the Surrendered Securities are being transferred in compliance with any
applicable blue sky securities laws of any state of the United States.
B-3-2
<PAGE>
This certificate and the statements contained herein are made for your
benefit and the benefit of the Company and Donaldson, Lufkin & Jenrette
Securities Corporation and NationsBanc Montgomery Securities, Inc., the initial
purchasers of such Securities being transferred. Terms used in this certificate
and not otherwise defined in the Indenture have the meanings set forth in
Regulation S under the Securities Act.
[Insert Name of Transferor]
By:
----------------------
Name:
Title:
Dated:
cc: PETsMART, Inc.
Donaldson, Lufkin & Jenrette Securities Corporation
NationsBanc Montgomery Securities, Inc.
B-3-3
<PAGE>
EXHIBIT B-4
FORM OF CERTIFICATE FOR EXCHANGE OR REGISTRATION OF TRANSFER
FROM RULE 144A GLOBAL SECURITY OR
REGULATION S GLOBAL SECURITY
TO DEFINITIVE SECURITY
(Pursuant to Section 2.6(c) of the Indenture)
Norwest Bank Minnesota, N.A.
Sixth and Marquette
Minneapolis, Minnesota 55479-0113
Re: 6 3/4% Convertible Subordinated Notes due 2004 of PETsMART, Inc.
Reference is hereby made to the Indenture, dated as of November 7, 1997
(the "Indenture"), between PETsMART, Inc., a Delaware corporation (the
"Company") and Norwest Bank Minnesota, N.A. as trustee (the "Trustee").
Capitalized terms used but not defined herein shall have the meanings given to
them in the Indenture.
This letter relates to $__________ principal amount of Securities which are
evidenced by a beneficial interest in one or more Rule 144A Global Securities or
Regulation S Global Securities in the name of ____________________ (the
"Transferor"). The Transferor has requested an exchange or transfer of such
beneficial interest in the form of an equal principal amount of Securities
evidenced by one or more Definitive Securities, to be delivered to the
Transferor or, in the case of a transfer of such Securities, to such Person as
the Transferor instructs the Trustee.
In connection with such request and in respect of the Securities
surrendered to the Trustee herewith for exchange (the "Surrendered Securities"),
the Holder of such Surrendered Securities hereby certifies that:
[CHECK ONE]
/ / the Surrendered Securities are being transferred to the beneficial owner of
such Securities;
or
/ / the Surrendered Securities are being transferred pursuant to and in
accordance with Rule 144A under the United States Securities Act of 1933, as
amended (the "Securities Act"), and, accordingly, the Transferor hereby further
certifies that the Surrendered Securities are being transferred to a Person that
the Transferor reasonably believes is purchasing the Surrendered Securities for
its own account, or for one or more accounts with respect to which such Person
exercises sole investment discretion, and such Person and each such account is a
"qualified institutional buyer" within the meaning of Rule 144A, in each case in
a transaction meeting they requirements of Rule 144A;
or
/ / the Surrendered Securities are being transferred in a transaction permitted
by Rule 144 under the Securities Act;
or
B-4-1
<PAGE>
/ / the Surrendered Securities are being transferred pursuant to an effective
registration statement under the Securities Act;
or
/ / the Surrendered Securities are being transferred pursuant to an exemption
under the Securities Act other than Rule 144A, Rule 144 or Rule 904 and the
Transferor further certifies that the Transfer complies with the transfer
restrictions applicable to beneficial interests in Global Securities and
Definitive Securities bearing the Restricted Securities Legend and the
requirements of the exemption claimed, which certification is supported by a
certificate executed by the Transferee in the form of Exhibit C to the Indenture
and, if the Company so requests, an Opinion of Counsel provided by the
Transferor or the Transferee (a copy of which the Transferor has attached to
this certification), to the effect that (1) such Transfer is in compliance with
the Securities Act and (2) such Transfer complies with any applicable blue sky
securities laws of any state of the United States;
or
/ / such transfer is being effected pursuant to an exemption from the
registration requirements of the Securities Act other than Rule 144A or Rule
144, and the Transferor hereby further certifies that the Securities are being
transferred in compliance with the transfer restrictions applicable to the
Global Securities and in accordance with the requirements of the exemption
claimed, which certification is supported by an Opinion of Counsel, provided by
the transferor or the transferee (a copy of which the Transferor has attached to
this certification) in form reasonably acceptable to the Company and to the
Registrar, to the effect that such transfer is in compliance with the Securities
Act any any applicable blue sky securities laws of any state of the United
States;
and the Surrendered Securities are being transferred in compliance with any
applicable blue sky securities laws of any state of the United States.
B-4-2
<PAGE>
This certificate and the statements contained herein are made for your
benefit and the benefit of the Company and Donaldson, Lufkin & Jenrette
Securities Corporation and NationsBanc Montgomery Securities, Inc., the initial
purchasers of such Securities being transferred. Terms used in this certificate
and not otherwise defined in the Indenture have the meanings set forth in
Regulation S under the Securities Act.
[Insert Name of Transferor]
By:
------------------------
Name:
Title:
Dated:
cc: PETsMART, Inc.
Donaldson, Lufkin & Jenrette Securities Corporation
NationsBanc Montgomery Securities, Inc.
B-4-3
<PAGE>
EXHIBIT C
FORM OF CERTIFICATE FROM
ACQUIRING INSTITUTIONAL ACCREDITED INVESTOR
Norwest Bank Minnesota, N.A.
Sixth and Marquette
Minneapolis, Minnesota 55479-0113
Re: 6 3/4% Convertible Subordinated Notes due 2004 of PETsMART, Inc.
In connection with our proposed purchase of $__________ aggregate
principal amount of:
(a) / / Beneficial interests, or
(b) / / Definitive Securities
we confirm that:
1. We understand that any subsequent transfer of the Securities or
any interest therein is subject to certain restrictions and conditions set forth
in the Indenture and the undersigned agrees to be bound by, and not to resell,
pledge or otherwise transfer the Securities or any interest therein except in
compliance with, such restrictions and conditions and the Securities Act of
1933, as amended (the "Securities Act").
2. We understand that the offer and sale of the Securities and the
Common Stock issuable upon conversion thereof have not been registered under the
Securities Act, and that the Securities and the Common Stock issuable upon
conversion thereof and any interest therein may not be offered or sold except as
permitted in the following sentence. We agree, on our own behalf and on behalf
of any accounts for which we are acting as hereinafter stated, that if we should
sell the Securities and the Common Stock issuable upon conversion thereof or any
interest therein, (A) we will do so only (1)(a) so long as the Securities and
the Common Stock issuable upon conversion thereof are eligible for resale
pursuant to Rule 144A under the Securities Act, to a person who the Seller
reasonably believes is a qualified institutional buyer (as defined in Rule 144A
under the Securities Act) in a transaction meeting the requirements of 144A,
(b) in a transaction meeting the requirements of Rule 144 under the Securities
Act, (c) outside the United States to a foreign person in a transaction meeting
the requirements of Rule 904 of the Securities Act, (d) to an institutional
"accredited investor" (as defined in Rule 501(A)(1), (2), (3) or (7) of
Regulation D under the Securities Act) that, prior to such transfer, furnishes
the Trustee a signed letter containing certain representations and agreements
relating to the transfer of the Securities (the form of which can be obtained
from the Trustee) and, if the Company so requests, an opinion of counsel
acceptable to the Company that such transfer is in compliance with the
Securities Act, or (e) in accordance with another exemption from the
registration requirements of the Securities Act (and based upon an opinion of
counsel), (2) to the Company or any of its subsidiaries or (3) pursuant to an
effective registration statement and, in each case, in accordance with any
applicable securities laws of any State of the United States or any other
applicable jurisdiction and (B) we will, and each subsequent holder will be
required to, notify any purchaser from it of the security evidenced hereby of
the resale restrictions set forth in (A) above.
C-1
<PAGE>
3. We understand that, on any proposed resale of the Securities and
the Common Stock issuable upon conversion thereof or beneficial interests
therein, we will be required to furnish to you and the Company such
certifications, legal opinions and other information as you and the Company may
reasonably require to confirm that the proposed sale complies with the foregoing
restrictions. We further understand that the Securities and the Common Stock
issuable upon conversion thereof purchased by us will bear a legend to the
foregoing effect.
4. We are an institutional "accredited investor" (as defined in Rule
501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) and have
such knowledge and experience in financial and business matters as to be capable
of evaluating the merits and risks of our investment in the Securities, and we
and any accounts for which we are acting are each able to bear the economic risk
of our or its investment and can afford the complete loss of such investment.
5. We are acquiring the Securities or beneficial interests therein
purchased by us for our own account or for one or more accounts (each of which
is an institutional "accredited investor") as to each of which we exercise sole
investment discretion.
6. We are not acquiring the Securities with a view to any
distribution thereof that would violate the Securities Act or the securities
laws of any State of the United States.
7. We understand that the Company and others will rely upon the
truth and accuracy of the acknowledgments, representations and agreements
contained in this Certification and we agree that if any of the acknowledgments,
representations and warranties deemed to have been made by us by our purchase of
the Securities, for our own account or for one or more accounts as to which we
exercise sole investment discretion, are no longer accurate, we shall promptly
notify the Company.
8. We have received a copy of the Offering Memorandum and
acknowledge that we have had an opportunity to ask questions of representatives
of the Company, and had access to such financial and other information as we
deem necessary in connection with our decision to purchase the Securities.
C-2
<PAGE>
You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceedings or official inquiry with
respect to the matters covered hereby.
------------------------------
[Insert Name of Accredited
Investor]
By:
---------------------------
Name:
Title:
Dated: ,
-------------- ----
C-3
<PAGE>
EXECUTION COPY
PETSMART, INC.
$175,000,000
6.75% Convertible Subordinated Notes due 2004
Purchase Agreement
November 4, 1997
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
NATIONSBANC MONTGOMERY SECURITIES, INC.
<PAGE>
6.75% Convertible Subordinated Notes due 2004
of PETsMART, Inc.
November 4, 1997
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
NATIONSBANC MONTGOMERY SECURITIES, INC.
c/o Donaldson, Lufkin & Jenrette
Securities Corporation
277 Park Avenue
New York, New York 10172
Ladies and Gentlemen:
PETsMART, Inc., a Delaware corporation (the "COMPANY"), proposes to
issue and sell to Donaldson, Lufkin & Jenrette Securities Corporation and
NationsBanc Montgomery Securities, Inc. (each an "INITIAL PURCHASER" and,
together, the "INITIAL PURCHASERS") an aggregate of $175,000,000 in principal
amount of its 6.75% Convertible Subordinated Notes due 2004 (the "FIRM NOTES"),
subject to the terms and conditions set forth herein. The Company also proposes
to issue and sell to the Initial Purchasers up to an additional $26,250,000
principal amount of its 6.75% Convertible Subordinated Notes due 2004 (the
"ADDITIONAL NOTES"), if requested by the Initial Purchasers as provided in
Section 2 hereof. The Firm Notes and the Additional Notes are herein
collectively referred to as the "NOTES". The Notes are to be issued pursuant to
the provisions of an indenture (the "INDENTURE"), to be dated as of the Closing
Date (as defined below), between the Company and Norwest Bank Minnesota, N.A.,
as trustee (the "TRUSTEE"), pursuant to which the Notes, as provided therein,
will be convertible at the option of the holders thereof into shares of the
Company's common stock, par value $.0001 per share (the "COMMON STOCK"). The
Notes and the Common Stock issuable upon conversion thereof are herein
collectively referred to as the "SECURITIES". The Securities and the Indenture
are more fully described in the Offering Memorandum (as defined below).
Capitalized terms used but not defined herein shall have the meanings given to
such terms in the Indenture.
1. OFFERING MEMORANDUM. The Notes will be offered and sold to the
Initial Purchasers pursuant to one or more exemptions from the registration
requirements under the Securities Act of 1933, as amended (the "ACT"). The
Company has prepared a preliminary offering memorandum, dated October 24, 1997
(the "PRELIMINARY OFFERING MEMORANDUM") and a final offering memorandum, dated
November 4, 1997 (the "OFFERING MEMORANDUM"), relating to the Notes.
1
<PAGE>
Upon original issuance thereof, and until such time as the same is no
longer required pursuant to the Indenture, the Notes (and all securities issued
in exchange therefor, in substitution thereof or upon conversion thereof) shall
bear the following legend:
"THIS SECURITY (OR ITS PREDECESSOR) HAS NOT BEEN REGISTERED UNDER THE U.S.
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND,
ACCORDINGLY, MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED
WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S.
PERSONS, EXCEPT AS SET FORTH BELOW. EACH PURCHASER OF THE SECURITY
EVIDENCED HEREBY IS HEREBY NOTIFIED THAT THE SELLER MAY BE RELYING ON THE
EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED
BY RULE 144A THEREUNDER. BY ITS ACQUISITION HEREOF OR OF A BENEFICIAL
INTEREST HEREIN, THE HOLDER (1) AGREES, FOR THE BENEFIT OF PETSMART, INC.,
THAT IT WILL NOT, RESELL OR OTHERWISE TRANSFER THIS SECURITY EXCEPT (A) TO
THE COMPANY OR ANY OF ITS SUBSIDIARIES, (B) TO A PERSON WHOM THE SELLER
REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN
RULE 144A UNDER THE SECURITIES ACT) (A "QIB") PURCHASING FOR ITS OWN
ACCOUNT OR FOR THE ACCOUNT OF A QIB IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 144A, (C) IN AN OFFSHORE TRANSACTION MEETING THE
REQUIREMENTS OF RULE 904 OF THE SECURITIES ACT, (D) IN A TRANSACTION
MEETING THE REQUIREMENTS OF RULE 144 UNDER THE SECURITIES ACT, (E) TO AN
INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(A) (1), (2),
(3) OR (7) OF REGULATION D UNDER THE SECURITIES ACT THAT, PRIOR TO SUCH
TRANSFER, FURNISHES THE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN
REPRESENTATIONS AND AGREEMENTS RELATING TO THE TRANSFER OF THIS SECURITY
(THE FORM OF WHICH CAN BE OBTAINED FROM THE TRUSTEE) AND, IF THE COMPANY SO
REQUESTS, AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY THAT SUCH
TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT, (F) IN ACCORDANCE WITH
ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT
(AND BASED UPON AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY) OR (G)
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AND, IN EACH CASE, IN
ACCORDANCE WITH THE APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED
STATES OR ANY OTHER APPLICABLE JURISDICTION AND (2) AGREES THAT IT WILL
DELIVER TO EACH PERSON TO WHOM THIS SECURITY OR AN INTEREST HEREIN IS
TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. AS USED
HEREIN, THE TERMS "OFFSHORE TRANSACTION" AND "UNITED STATES" HAVE THE
MEANINGS GIVEN TO THEM BY RULE 902 OF REGULATION S UNDER THE SECURITIES
ACT. THE INDENTURE CONTAINS A PROVISION REQUIRING THE TRUSTEE TO REFUSE TO
REGISTER ANY TRANSFER OF THIS SECURITY IN VIOLATION OF THE FOREGOING."
2. AGREEMENTS TO SELL AND PURCHASE. (a) On the basis of the
representations, warranties and covenants contained in this Agreement, and
subject to the terms and conditions contained herein, the Company agrees to
issue and sell to the Initial Purchasers, and the Initial Purchasers agree,
severally and
2
<PAGE>
not jointly, to purchase from the Company, an aggregate principal amount of
$175,000,000 of Notes at a purchase price equal to 97% of the principal
amount thereof (the "PURCHASE PRICE"). Each Initial Purchaser, severally and
not jointly, shall purchase the principal amount of Firm Notes set forth
opposite its name in Schedule A.
(b) On the basis of the representations and warranties contained in this
Agreement, and subject to its terms and conditions, (i) the Company agrees to
issue and sell the Additional Notes and (ii) the Initial Purchasers shall have a
right to purchase, severally and not jointly, the Additional Notes, from the
Company at the Purchase Price. Additional Notes may be purchased solely for the
purpose of covering over-allotments made in connection with the offering of the
Firm Notes. The Initial Purchasers may exercise their right to purchase
Additional Notes in whole or in part from time to time by giving written notice
thereof to the Company at any time within 30 days after the date of this
Agreement. Donaldson, Lufkin & Jenrette Securities Corporation shall give any
such notice on behalf of the Initial Purchasers and such notice shall specify
the aggregate principal amount of Additional Notes to be purchased pursuant to
such exercise and the date for payment and delivery thereof. The date specified
in any such notice shall be a business day (i) no earlier than the Closing Date
(as defined below), (ii) no later than ten business days after such notice has
been given and (iii) no earlier than two business days after such notice has
been given. If the right to purchase any of the Additional Notes is exercised,
each Initial Purchaser, severally and not jointly, agrees to purchase from the
Company the principal amount of Additional Notes which bears the same proportion
to the total principal amount of Additional Notes to be purchased from the
Company as the principal amount of Firm Notes set forth opposite the name of
such Initial Purchaser in Schedule A bears to the total principal amount of Firm
Notes.
3. TERMS OF OFFERING. The Initial Purchasers have advised the Company
that the Initial Purchasers will make offers (the "EXEMPT RESALES") of the Notes
purchased hereunder on the terms set forth in the Offering Memorandum, as
amended or supplemented, solely to (i) persons whom the Initial Purchaser
reasonably believe to be "qualified institutional buyers" as defined in Rule
144A under the Act ("QIBS") and (ii) to persons permitted to purchase the Notes
in offshore transactions in reliance upon Regulation S under the Act (each, a
"REGULATION S PURCHASER") (such persons specified in clauses (i) and (ii) being
referred to herein as the "ELIGIBLE PURCHASERS"). The Initial Purchasers will
offer the Notes to Eligible Purchasers initially at a price equal to 100% of the
principal amount thereof. Such price may be changed at any time without notice.
Holders (including subsequent transferees) of the Securities will have the
registration rights set forth in the registration rights agreement (the
"REGISTRATION RIGHTS AGREEMENT"), to be dated the Closing Date, in substantially
the form of Exhibit A hereto, for so long as such Securities constitute
"TRANSFER RESTRICTED SECURITIES" (as defined in the Registration Rights
Agreement). Pursuant to the Registration Rights Agreement, the Company will
agree to file with the Securities and Exchange Commission (the "COMMISSION")
under the circumstances set forth therein, a shelf registration statement
pursuant to Rule 415 under the Act (the "REGISTRATION STATEMENT") relating to
the resale by certain holders of the Securities and to use its commercially
reasonable efforts to cause such Registration Statement to be declared and
remain effective and usable for the periods specified in the Registration Rights
Agreement. This Agreement, the Indenture, the Notes and the Registration Rights
Agreement are hereinafter sometimes referred to collectively as the "OPERATIVE
DOCUMENTS"
4. DELIVERY AND PAYMENT
(a) Delivery of, and payment of the Purchase Price for, the Firm
Notes shall be made at the offices of Latham & Watkins, 633 West 5th Street,
Los Angeles, California or such other location
3
<PAGE>
as may be mutually acceptable. Such delivery and payment shall be made at
9:00 a.m., New York City time, on November 7, 1997 or at such other time as
shall be agreed upon by the Initial Purchasers and the Company. The time and
date of such delivery and payment are herein called the "CLOSING DATE".
(b) Delivery to the Initial Purchasers of, and payment for, any
Additional Notes to be purchased by the Initial Purchasers shall be made at
the offices of Latham & Watkins, 633 West 5th Street, Los Angeles, California
at 9:00 a.m., New York City time, on the date specified in the exercise
notice given by Donaldson, Lufkin & Jenrette Securities Corporation pursuant
to Section 2(b) (the "OPTION CLOSING DATE"). Any such Option Closing Date
and the location of delivery of, and form of payment for, the Additional
Notes may be varied by agreement between the Initial Purchasers and the
Company.
(c) One or more of the Notes in definitive global form, registered in
the name of Cede & Co., as nominee of the Depository Trust Company ("DTC"),
having an aggregate principal amount corresponding to the aggregate principal
amount of the Notes (collectively, the "GLOBAL NOTE"), shall be delivered by
the Company to the Initial Purchasers (or as the Initial Purchasers direct)
in each case with any transfer taxes thereon duly paid by the Company against
payment by the Initial Purchasers of the Purchase Price thereof by wire
transfer in same day funds to the order of the Company. The Global Note
shall be made available to the Initial Purchasers for inspection not later
than 9:30 a.m., New York City time, on the business day immediately preceding
the Closing Date.
5. AGREEMENTS OF THE COMPANY The Company hereby agrees with the Initial
Purchasers as follows:
(a) To advise the Initial Purchasers promptly and, if requested by
the Initial Purchasers, confirm such advice in writing, (i) of the issuance
by any state securities commission of any stop order suspending the
qualification or exemption from qualification of any Notes for offering or
sale in any jurisdiction designated by the Initial Purchasers pursuant to
Section 5(e) hereof, or the initiation of any proceeding by any state
securities commission or any other federal or state regulatory authority for
such purpose and (ii) of the happening of any event during the period
referred to in Section 5(c) below that makes any statement of a material fact
made in the Preliminary Offering Memorandum or the Offering Memorandum untrue
or that requires any additions to or changes in the Preliminary Offering
Memorandum or the Offering Memorandum in order to make the statements therein
not misleading. The Company shall use its best efforts to prevent the
issuance of any stop order or order suspending the qualification or exemption
of any Notes under any state securities or Blue Sky laws and, if at any time
any state securities commission or other federal or state regulatory
authority shall issue an order suspending the qualification or exemption of
any Notes under any state securities or Blue Sky laws, the Company shall use
its best efforts to obtain the withdrawal or lifting of such order at the
earliest possible time.
(b) To furnish the Initial Purchasers and those persons identified by
the Initial Purchasers to the Company as many copies of the Preliminary
Offering Memorandum and the Offering Memorandum, any documents incorporated
by reference therein, and any amendments or supplements thereto, as the
Initial Purchasers may reasonably request for the time period specified in
Section 5(c). Subject to the Initial Purchasers' compliance with its
representations and warranties and agreements set forth in Section 7 hereof,
the Company consents to the use of the Preliminary Offering Memorandum and
the Offering Memorandum, and any amendments and supplements thereto required
pursuant hereto, by the Initial Purchasers in connection with Exempt Resales.
4
<PAGE>
(c) During such period as in the opinion of counsel for the Initial
Purchasers an Offering Memorandum is required by law to be delivered in
connection with Exempt Resales by the Initial Purchasers (i) not to make any
amendment or supplement to the Offering Memorandum of which the Initial
Purchasers shall not previously have been advised or to which the Initial
Purchasers shall reasonably object after being so advised and (ii) to prepare
promptly upon the Initial Purchasers' reasonable request, any amendment or
supplement to the Offering Memorandum which may be necessary or advisable in
connection with such Exempt Resales.
(d) If, during the period referred to in Section 5(c) above, any event
shall occur or condition shall exist as a result of which, in the opinion of
counsel to the Initial Purchasers, it becomes necessary to amend or supplement
the Offering Memorandum in order to make the statements therein, in the light of
the circumstances when such Offering Memorandum is delivered to an Eligible
Purchaser, not misleading, or if, in the opinion of counsel to the Initial
Purchasers, it is necessary to amend or supplement the Offering Memorandum to
comply with any applicable law, forthwith to prepare an appropriate amendment or
supplement to such Offering Memorandum so that the statements therein, as so
amended or supplemented, will not, in the light of the circumstances when it is
so delivered, be misleading, or so that such Offering Memorandum will comply
with applicable law, and to furnish to the Initial Purchasers and such other
persons as the Initial Purchasers may designate such number of copies thereof as
the Initial Purchasers may reasonably request.
(e) Prior to the sale of all Notes pursuant to Exempt Resales as
contemplated hereby, to cooperate with the Initial Purchasers and counsel to the
Initial Purchasers in connection with the registration or qualification of the
Notes for offer and sale to the Initial Purchasers and pursuant to Exempt
Resales under the securities or Blue Sky laws of such jurisdictions as the
Initial Purchasers may request and to continue such registration or
qualification in effect so long as required for Exempt Resales and to file such
consents to service of process or other documents as may be necessary in order
to effect such registration or qualification; PROVIDED, HOWEVER, that the
Company shall not be required in connection therewith to qualify as a foreign
corporation in any jurisdiction in which it is not now so qualified or to take
any action that would subject it to general consent to service of process or
taxation in any jurisdiction in which it is not now so subject.
(f) So long as the Notes are outstanding, (i) to mail and make generally
available as soon as practicable after the end of each fiscal year to the
Trustee a financial report of the Company and its subsidiaries on a consolidated
basis (and a similar financial report of all unconsolidated subsidiaries, if
any), all such financial reports to include a consolidated balance sheet, a
consolidated statement of operations, a consolidated statement of cash flows and
a consolidated statement of stockholders' equity as of the end of and for such
fiscal year, together with comparable information as of the end of and for the
preceding year, certified by the Company's independent public accountants and
(ii) to mail and make generally available as soon as practicable after the end
of each quarterly period (except for the last quarterly period of each fiscal
year) to the Trustee, a consolidated balance sheet, a consolidated statement of
operations and a consolidated statement of cash flows (and similar financial
reports of all unconsolidated subsidiaries, if any) as of the end of and for
such period, and for the period from the beginning of such year to the close of
such quarterly period, together with comparable information for the
corresponding periods of the preceding year.
(g) So long as the Notes are outstanding, to furnish to the Initial
Purchasers as soon as available copies of all reports or other communications
furnished by the Company to its security holders or furnished to or filed with
the Commission or any national securities exchange on which any
5
<PAGE>
class of securities of the Company is listed and such other publicly
available information concerning the Company and/or its subsidiaries as the
Initial Purchasers may reasonably request.
(h) So long as any of the Notes remain outstanding and during any
period in which the Company is not subject to Section 13 or 15(d) of the
Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"), to make
available to any holder of Securities in connection with any sale thereof and
any prospective purchaser of such Securities from such holder, the
information ("RULE 144A INFORMATION") required by Rule 144A(d)(4) under the
Act.
(i) Whether or not the transactions contemplated in this Agreement
are consummated or this Agreement is terminated, to pay or cause to be paid
all expenses incident to the performance of the obligations of the Company
under this Agreement, including: (i) the fees, disbursements and expenses of
counsel to the Company and accountants of the Company in connection with the
sale and delivery of the Notes to the Initial Purchasers and pursuant to
Exempt Resales, and all other fees and expenses in connection with the
preparation, printing, filing and distribution of the Preliminary Offering
Memorandum, the Offering Memorandum, any documents incorporated by reference
and all amendments and supplements to any of the foregoing (including
financial statements), including the mailing and delivering of copies thereof
to the Initial Purchasers and persons designated by it in the quantities
specified herein, (ii) all costs and expenses related to the transfer and
delivery of the Notes to the Initial Purchasers and pursuant to Exempt
Resales, including any transfer or other taxes payable thereon, (iii) all
costs of printing or producing this Agreement, the other Operative Documents
and any other agreements or documents in connection with the offering,
purchase, sale or delivery of the Securities, (iv) all expenses in connection
with the registration or qualification of the Securities for offer and sale
under the securities or Blue Sky laws of the several states and all costs of
printing or producing any preliminary and supplemental Blue Sky memoranda in
connection therewith (including the filing fees and fees and disbursements of
counsel for the Initial Purchasers in connection with such registration or
qualification and memoranda relating thereto), (v) the cost of printing
certificates representing the Securities, (vi) all expenses and listing fees
in connection with the application for quotation of the Notes in the National
Association of Securities Dealers, Inc. ("NASD") Automated Quotation System -
PORTAL ("PORTAL"), (vii) the fees and expenses of the Trustee in connection
with the Indenture and the Notes, (viii) the costs and charges of any
transfer agent, registrar and/or depositary (including DTC), (ix) any fees
charged by rating agencies for the rating of the Notes, (x) all costs and
expenses of the Registration Statement, as set forth in the Registration
Rights Agreement, and (xi) all other costs and expenses incident to the
performance of the obligations of the Company hereunder for which provision
is not otherwise made in this Section.
(j) To use its best efforts to effect (i) the inclusion of the Notes
in PORTAL and to maintain the listing of the Notes on PORTAL for so long as
the Notes are outstanding and (ii) the approval for quotation on the Nasdaq
National Market of the Common Stock issuable upon conversion of the Notes.
(k) To obtain the approval of DTC for "book-entry" transfer of the
Notes, and to comply with all of its agreements set forth in the
representation letters of the Company to DTC relating to the approval of the
Notes by DTC for "book-entry" transfer.
(l) The Company shall not (i) offer, pledge, sell, contract to sell,
sell any option or contract to purchase, purchase any option or contract to
sell, grant any option, right or warrant to purchase, or otherwise transfer
or dispose of, directly or indirectly, any shares of Common Stock or any
securities convertible into or exercisable or exchangeable for Common Stock
or (ii) enter into any swap
6
<PAGE>
or other arrangement that transfers all or a portion of the economic
consequences associated with the ownership of any Common Stock (regardless of
whether any of the transactions described in clause (i) or (ii) is to be
settled by the delivery of Common Stock, or such other securities, in cash or
otherwise), except to the Initial Purchasers pursuant to this Agreement, for
a period of 90 days after the Closing Date without the prior written consent
of Donaldson, Lufkin & Jenrette Securities Corporation. Notwithstanding the
foregoing, during such period (i) the Company may issue shares of Common
Stock pursuant to the Company's existing equity incentive plans, (ii) the
Company may issue shares of Common Stock upon the exercise of options or
warrants or the conversion of a security outstanding on the date hereof, and
(iii) the Company may issue up to 400,000 shares of Common Stock pursuant to
its Registration Statement on S-4 (file no. 333-03696) (the "S-4 Registration
Statement") in connection with acquisitions currently pending on the date
hereof. The foregoing shall not be deemed to apply to any event pursuant to
which Rights under the Company's Share Purchase Rights Plan are triggered.
The Company also agrees not to file any registration statement with respect
to any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock for a period of 90 days after
the Closing Date without the prior written consent of Donaldson, Lufkin &
Jenrette Securities Corporation. The Company shall, prior to or concurrently
with the execution of this Agreement, deliver an agreement executed by each
of the directors and officers of the Company to the effect that such person
will not, without the prior written consent of Donaldson, Lufkin & Jenrette
Securities Corporation, during the period commencing on the date of the
Offering Memorandum and ending 90 days thereafter, (A) engage in any of the
transactions described in the first sentence of this paragraph or (B) make
any demand for, or exercise any right with respect to, the registration of
any shares of Common Stock or any securities convertible into or exercisable
or exchangeable for Common Stock.
(m) Not to sell, offer for sale or solicit offers to buy or otherwise
negotiate in respect of any security (as defined in the Act) that would be
integrated with the sale of the Notes to the Initial Purchasers or pursuant
to Exempt Resales in a manner that would require the registration of any such
sale of the Notes under the Act.
(n) Not to voluntarily claim, and to actively resist any attempts to
claim, the benefit of any usury laws against the holders of any Notes.
(o) To comply with all of its agreements set forth in the
Registration Rights Agreement.
(p) To use its best efforts to do and perform all things required or
necessary to be done and performed under this Agreement by it prior to the
Closing Date and to satisfy all conditions precedent to the delivery of the
Notes.
6. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE COMPANY. As of
the date hereof, the Company represents and warrants to, and agrees with, the
Initial Purchasers that:
(a) The Preliminary Offering Memorandum and the Offering Memorandum
(including the information incorporated by reference therein (collectively,
the "INCORPORATED DOCUMENTS")) do not, and any supplement or amendment to
them will not, 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, in the light of the circumstances under which they
were made, not misleading, except that the representations and warranties
contained in this paragraph (a) shall not apply to statements in or omissions
from the Preliminary Offering Memorandum or the Offering Memorandum (or any
supplement or amendment thereto) based upon information relating to the
Initial Purchasers furnished to the Company
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in writing by the Initial Purchasers expressly for use therein. No stop
order preventing the use of the Preliminary Offering Memorandum or the
Offering Memorandum, or any amendment or supplement thereto, or any order
asserting that any of the transactions contemplated by this Agreement are
subject to the registration requirements of the Act, has been issued. The
Incorporated Documents, at the time they were or hereafter are filed or last
amended, as the case may be, with the Commission, complied and will comply in
all material respects with the requirements of the Exchange Act, and all
documents required to be filed as exhibits to such Incorporated Documents, or
to any other document filed by the Company with the Commission, have been so
filed.
(b) Each of the Company and its subsidiaries has been duly
incorporated, is validly existing as a corporation in good standing under the
laws of its jurisdiction of incorporation and has the corporate power and
authority to carry on its business as described in the Preliminary Offering
Memorandum and the Offering Memorandum and to own, lease and operate its
properties, and each is duly qualified and is in good standing as a foreign
corporation authorized to do business in each jurisdiction in which the
nature of its business or its ownership or leasing of property requires such
qualification, except where the failure to be so qualified would not have a
material adverse effect on the business, prospects, financial condition or
results of operations of the Company and its subsidiaries, taken as a whole
(a "MATERIAL ADVERSE EFFECT").
(c) All outstanding shares of capital stock of the Company have been
duly authorized and validly issued and are fully paid, non-assessable and not
subject to any preemptive or similar rights; there are no outstanding
subscriptions, rights, warrants, options, calls, convertible securities,
commitments of sale or liens granted or issued by the Company or any of its
subsidiaries relating to or entitling any person to purchase or otherwise to
acquire any shares of the capital stock of the Company or any of its
subsidiaries, except as otherwise disclosed in the Offering Memorandum, and
the authorized, issued and outstanding capital stock of the Company is as set
forth in the Offering Memorandum in the column entitled "Actual" within the
caption "Capitalization," except for subsequent issuances, if any, pursuant
to this Agreement or pursuant to the Company's existing equity incentive
plans or the issuance of up to 400,000 shares pursuant to the S-4
Registration Statement as described in 5(l) above.
(d) The entities listed on Schedule B hereto are the only
subsidiaries, direct or indirect, of the Company. All of the outstanding
shares of capital stock of each of the Company's subsidiaries have been duly
authorized and validly issued and are fully paid and non-assessable, and are
owned by the Company, directly or indirectly through one or more
subsidiaries, free and clear of any security interest, claim, lien,
encumbrance or adverse interest of any nature (each, a "LIEN"), other than
the lien on 65% of the common stock of each of Pet City Holdings plc, a
public limited company incorporated in England and Wales, and MGMT Veterinary
Services Inc., a Canadian Federal Corporation, pursuant to the Credit
Facility.
(e) This Agreement has been duly authorized, executed and delivered
by the Company.
(f) The Indenture has been duly authorized by the Company and, on the
Closing Date, will have been validly executed and delivered by the Company.
When the Indenture has been duly executed and delivered by the Company, the
Indenture will be a valid and binding agreement of the Company, enforceable
against the Company in accordance with its terms except as (i) the
enforceability thereof may be limited by bankruptcy, insolvency or similar
laws affecting creditors' rights generally and (ii) rights of acceleration
and the availability of equitable remedies may be limited by equitable
principles of general applicability. On the Closing Date, the Indenture will
conform in all material respects to the
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requirements of the Trust Indenture Act of 1939, as amended (the "TIA" or
"TRUST INDENTURE ACT"), and the rules and regulations of the Commission
applicable to an indenture which is qualified thereunder.
(g) The Notes have been duly authorized and, on the Closing Date,
will have been validly executed and delivered by the Company. When the Notes
have been issued, executed and authenticated in accordance with the
provisions of the Indenture and delivered to and paid for by the Initial
Purchasers in accordance with the terms of this Agreement, the Notes will be
entitled to the benefits of the Indenture and will be valid and binding
obligations of the Company, enforceable in accordance with their terms except
as (i) the enforceability thereof may be limited by bankruptcy, insolvency or
similar laws affecting creditors' rights generally and (ii) rights of
acceleration and the availability of equitable remedies may be limited by
equitable principles of general applicability. On the Closing Date, the
Notes will conform as to legal matters to the description thereof contained
in the Offering Memorandum.
(h) The Notes are convertible into Common Stock in accordance with
the terms of the Indenture; the shares of Common Stock initially issuable
upon conversion of the Notes have been duly authorized and reserved for
issuance upon such conversion and, when issued upon such conversion, will be
validly issued, fully paid and nonassessable, and not subject to any
preemptive or similar rights, will conform to the description thereof
contained in the Offering Memorandum and will be duly authorized for listing
on the Nasdaq National Market, subject to notice of official issuance; and
the Company has the authorized and outstanding capital stock as set forth in
the Offering Memorandum.
(i) The Registration Rights Agreement has been duly authorized by the
Company and, on the Closing Date, will have been duly executed and delivered
by the Company. When the Registration Rights Agreement has been duly
executed and delivered, the Registration Rights Agreement will be a valid and
binding agreement of the Company, enforceable against the Company in
accordance with its terms except as (i) the enforceability thereof may be
limited by bankruptcy, insolvency or similar laws affecting creditors' rights
generally, (ii) the availability of equitable remedies may be limited by
equitable principles of general applicability and (iii) the enforceability of
rights of indemnification and contribution may be limited by principles of
public policy. On the Closing Date, the Registration Rights Agreement will
conform as to legal matters to the description thereof in the Offering
Memorandum.
(j) Neither the Company nor any of its subsidiaries is in violation
of its respective charter or by-laws or in default in the performance of any
obligation, agreement, covenant or condition contained in any indenture, loan
agreement, mortgage, lease or other agreement or instrument that is material
to the Company and its subsidiaries, taken as a whole, to which the Company
or any of its subsidiaries is a party or by which the Company or any of its
subsidiaries or their respective property is bound, except where such
violation would not have a Material Adverse Effect.
(k) The execution, delivery and performance of this Agreement, the
Registration Rights Agreement and the Indenture (collectively, the "OPERATIVE
DOCUMENTS") by the Company, compliance by the Company with all provisions
hereof and thereof and the consummation of the transactions contemplated
hereby and thereby will not (i) require any consent, approval, authorization
or other order of, or qualification with, any court or governmental body or
agency (except such as may be required under the securities or Blue Sky laws
of the various states), (ii) conflict with or constitute a breach of any of
the terms or provisions of, or a default under, the charter or by-laws of the
Company or any of its subsidiaries or under the Credit Agreement or the
Structured Lease Facilities or any other loan agreement, indenture, mortgage,
lease or other agreement or instrument that is material to the Company and
its subsidiaries, taken as a whole, to which the Company or any of its
subsidiaries is a
9
<PAGE>
party or by which the Company or any of its subsidiaries or their respective
property is bound, (iii) violate or conflict with any applicable law or any
rule, regulation, judgment, order or decree of any court or any governmental
body or agency having jurisdiction over the Company, any of its subsidiaries
or their respective property, (iv) result in the imposition or creation of
(or the obligation to create or impose) a Lien under, any agreement or
instrument to which the Company or any of its subsidiaries is a party or by
which the Company or any of its subsidiaries or their respective property is
bound, or (v) result in the termination, suspension or revocation of any
Authorization (as defined below) of the Company or any of its subsidiaries or
result in any other impairment of the rights of the holder of any such
Authorization.
(l) Except as disclosed in the Offering Memorandum, there are no
legal or governmental proceedings pending or threatened to which the Company
or any of its subsidiaries is or could be a party or to which any of their
respective property is or could be subject, which could reasonably be
expected to result, singly or in the aggregate, in a Material Adverse Effect.
(m) Neither the Company nor any of its subsidiaries has violated any
foreign, federal, state or local law or regulation relating to the protection
of human health and safety, the environment or hazardous or toxic substances
or wastes, pollutants or contaminants ("ENVIRONMENTAL LAWS") or any
provisions of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), or the rules and regulations promulgated thereunder, except for
such violations which, singly or in the aggregate, would not have a Material
Adverse Effect.
(n) There are no costs or liabilities associated with Environmental
Laws (including, without limitation, any capital or operating expenditures
required for clean-up, closure of properties or compliance with Environmental
Laws or any Authorization, any related constraints on operating activities
and any potential liabilities to third parties) which would, singly or in the
aggregate, have a Material Adverse Effect.
(o) Each of the Company and its subsidiaries has such permits,
licenses, consents, exemptions, franchises, authorizations and other
approvals (each, an "AUTHORIZATION") of, and has made all filings with and
notices to, all governmental or regulatory authorities and self-regulatory
organizations and all courts and other tribunals, including without
limitation, under any applicable Environmental Laws, as are necessary to own,
lease, license and operate its respective properties and to conduct its
business, except where the failure to have any such Authorization or to make
any such filing or notice would not, singly or in the aggregate, have a
Material Adverse Effect. Each such Authorization is valid and in full force
and effect and each of the Company and its subsidiaries is in compliance with
all the terms and conditions thereof and with the rules and regulations of
the authorities and governing bodies having jurisdiction with respect
thereto; and no event has occurred (including, without limitation, the
receipt of any notice from any authority or governing body) which allows or,
after notice or lapse of time or both, would allow, revocation, suspension or
termination of any such Authorization or results or, after notice or lapse of
time or both, would result in any other impairment of the rights of the
holder of any such Authorization; and such Authorizations contain no
restrictions that are burdensome to the Company or any of its subsidiaries;
except where such failure to be valid and in full force and effect or to be
in compliance, the occurrence of any such event or the presence of any such
restriction would not, singly or in the aggregate, have a Material Adverse
Effect.
(p) The Company and its subsidiaries have good and marketable title
in fee simple to all real property and good and marketable title to all
personal property owned by them which is material to the business of the
Company and its subsidiaries, in each case free and clear of all Liens and
defects, except such as are described in the Offering Memorandum or such as
do not materially affect
10
<PAGE>
the value of such property and do not interfere with the use made and
proposed to be made of such property by the Company and its subsidiaries; and
any real property and buildings held under lease by the Company and its
subsidiaries are held by them under valid, subsisting and enforceable leases
with such exceptions as do not interfere with the use made and proposed to be
made of such property and buildings by the Company and its subsidiaries, in
each case except as described in the Offering Memorandum.
(q) The Company and its subsidiaries own or possess, or can acquire
on reasonable terms, all patents, patent rights, licenses, inventions,
copyrights, know-how (including trade secrets and other unpatented and/or
unpatentable proprietary or confidential information, systems or procedures),
trademarks, service marks and trade names (collectively, "INTELLECTUAL
PROPERTY") concurrently employed by them in connection with the business now
operated by them except where the failure to own or possess or otherwise to
be able to acquire such intellectual property would not, singly or in the
aggregate, have a Material Adverse Effect; and neither the Company nor any of
its subsidiaries has received any notice of infringement of or conflict with
asserted rights of others with respect to any of such intellectual property
which, singly or in the aggregate, if the subject of an unfavorable decision,
ruling or finding, would have a Material Adverse Effect.
(r) The Company and each of its subsidiaries are insured by insurers
of recognized financial responsibility against such losses and risks and in
such amounts as are prudent and customary in the businesses in which they are
engaged; and neither the Company nor any of its subsidiaries (i) has received
notice from any insurer or agent of such insurer that substantial capital
improvements or other material expenditures will have to be made in order to
continue such insurance or (ii) has any reason to believe that it will not be
able to renew its existing insurance coverage as and when such coverage
expires or to obtain similar coverage from similar insurers, in each case at
a cost that would not result in a Material Adverse Effect.
(s) Except as disclosed in the Offering Memorandum, no relationship,
direct or indirect, exists between or among the Company or any of its
subsidiaries on the one hand, and the directors, officers, stockholders,
customers or suppliers of the Company or any of its subsidiaries on the other
hand, which would be required by the Act to be described in the Offering
Memorandum if the Offering Memorandum were a prospectus included in a
registration statement on Form S-1 filed with the Commission.
(t) There is no (i) significant labor practice complaint, grievance
or arbitration proceeding pending or threatened against the Company or any of
its subsidiaries before the National Labor Relations Board or any state or
local labor relations board, (ii) strike, labor dispute, slowdown or stoppage
pending or threatened against the Company or any of its subsidiaries or (iii)
union representation question existing with respect to the employees of the
Company or any of its subsidiaries, except in the case of clauses (i), (ii)
and (iii) for such actions which, singly or in the aggregate, would not have
a Material Adverse Effect. To the best knowledge of the Company, no
collective bargaining organizing activities are taking place with respect to
the Company or any of its subsidiaries.
(u) All tax returns required to be filed by the Company and each of
its subsidiaries in any jurisdiction have been filed, other than those
filings being contested in good faith, and all material taxes, including
withholding taxes, penalties and interest, assessments, fees and other
charges due pursuant to such returns or pursuant to any assessment received
by the Company or any of its subsidiaries have been paid, other than those
being contested in good faith and for which adequate reserves have been
provided, or except as would not result in a Material Adverse Effect.
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<PAGE>
(v) All indebtedness of the Company that will be repaid with the
proceeds of the issuance and sale of the Notes was incurred, and the
indebtedness represented by the Notes is being incurred, for proper purposes
and in good faith and the Company was, at the time of incurrence of such
indebtedness that will be repaid with the proceeds of the issuance and sale
of the Notes, and will be on the Closing Date (after giving effect to the
application of the proceeds from the issuance of the Notes) solvent, and had
at the time of the incurrence of such indebtedness that will be repaid with
the proceeds of the issuance and sale of the Notes and will have on the
Closing Date (after giving effect to the application of the proceeds from the
issuance of the Notes) sufficient capital for carrying on its business and
were, at the time of the incurrence of such indebtedness that will be repaid
with the proceeds of the issuance and sale of the Notes, and will be on the
Closing Date (after giving effect to the application of the proceeds from the
issuance of the Notes) able to pay its debts as they mature.
(w) No action has been taken and no law, statute, rule, regulation or
order has been enacted, adopted or issued by any governmental agency or body
which prevents the execution, delivery and performance of any of the
Operative Documents, the issuance of the Notes, or suspends the sale of the
Notes in any jurisdiction referred to in Section 5(e); and no injunction,
restraining order or other order or relief of any nature by a federal or
state court or other tribunal of competent jurisdiction has been issued with
respect to the Company or any of its subsidiaries which would prevent or
suspend the issuance or sale of the Notes in any jurisdiction referred to in
Section 5(e).
(x) The accountants, Price Waterhouse LLP, that have certified the
financial statements and supporting schedules included in the Preliminary
Offering Memorandum and the Offering Memorandum are independent public
accountants with respect to the Company, as required by the Act and the
Exchange Act. The historical financial statements, together with related
schedules and notes, set forth in the Preliminary Offering Memorandum and the
Offering Memorandum comply as to form in all material respects with the
requirements applicable to registration statements on Form S-1 under the Act.
(y) The historical financial statements, together with related
schedules and notes forming part of the Offering Memorandum (and any
amendment or supplement thereto), present fairly the consolidated financial
position, results of operations and changes in financial position of the
Company and its subsidiaries on the basis stated or incorporated by reference
in the Offering Memorandum at the respective dates or for the respective
periods to which they apply; such statements and related schedules and notes
have been prepared in accordance with generally accepted accounting
principles consistently applied throughout the periods involved, except as
disclosed therein; and the other financial and statistical information and
data set forth or incorporated by reference in the Offering Memorandum (and
any amendment or supplement thereto) are, in all material respects,
accurately presented and prepared on a basis consistent with such financial
statements and the books and records of the Company.
(z) The PRO FORMA financial and statistical information and data
included in the Offering Memorandum are, in all material respects, accurately
presented and prepared on a reasonable basis and in good faith and present
fairly the historical and proposed transactions contemplated by the
Preliminary Offering Memorandum and the Offering Memorandum.
(aa) The Company is not and, after giving effect to the offering and
sale of the Notes and the application of the net proceeds thereof as
described in the Offering Memorandum, will not be, an "investment company,"
or a company "controlled" by an "investment company" within the meaning of
the Investment Company Act of 1940, as amended.
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(ab) Except as otherwise indicated on Schedule B hereto, there are no
contracts, agreements or understandings between the Company and any person
granting such person the right to require the Company to file a registration
statement under the Act with respect to any securities of the Company or to
require the Company to include such securities with the Notes and Common
Stock issuable upon the conversion thereof to be registered pursuant to any
Registration Statement.
(ac) Neither the Company nor any of its subsidiaries nor any agent
thereof acting on the behalf of them has taken, and none of them will take,
any action that might cause this Agreement or the issuance or sale of the
Notes to violate Regulation G (12 C.F.R. Part 207), Regulation T (12 C.F.R.
Part 220), Regulation U (12 C.F.R. Part 221) or Regulation X (12 C.F.R. Part
224) of the Board of Governors of the Federal Reserve System.
(ad) The Notes have been rated single-`B'-minus by Standard & Poor's
Corporation and Caa1 by Moody's Investors Service, Inc. and no "nationally
recognized statistical rating organization" as such term is defined for
purposes of Rule 436(g)(2) under the Act (i) has imposed (or has informed the
Company that it is considering imposing) any condition (financial or
otherwise) on the Company's retaining any rating assigned to the Company, or
any securities of the Company or (ii) has indicated to the Company that it is
considering (a) the downgrading, suspension, or withdrawal of, or any review
for a possible change that does not indicate the direction of the possible
change in, any rating so assigned or (b) any change in the outlook for any
rating of the Company, or any securities of the Company.
(ae) Since the respective dates as of which information is given in
the Offering Memorandum, other than as set forth in the Offering Memorandum
(exclusive of any amendments or supplements thereto subsequent to the date of
this Agreement), (i) there has not occurred any material adverse change or
any development involving a prospective material adverse change in the
condition, financial or otherwise, or the earnings, business, management or
operations of the Company and its subsidiaries, taken as a whole, (ii) there
has not been any material adverse change or any development involving a
prospective material adverse change in the capital stock or in the long-term
debt of the Company or any of its subsidiaries and (iii) neither the Company
nor any of its subsidiaries has incurred any material liability or
obligation, direct or contingent, other than in the ordinary course of
business consistent with past practice.
(af) Each of the Preliminary Offering Memorandum and the Offering
Memorandum, as of its date, contains all the information specified in, and
meeting the requirements of, Rule 144A(d)(4) under the Act.
(ag) When the Notes are issued and delivered pursuant to this
Agreement, the Notes will not be of the same class (within the meaning of
Rule 144A under the Act) as any security of the Company that is listed on a
national securities exchange registered under Section 6 of the Exchange Act
or that is quoted in a United States automated inter-dealer quotation system.
(ah) No form of general solicitation or general advertising (as
defined in Regulation D under the Act) was used by the Company, or any of its
representatives (other than the Initial Purchasers, as to whom the Company
makes no representation) in connection with the offer and sale of the Notes
contemplated hereby, including, but not limited to, articles, notices or
other communications published in any newspaper, magazine, or similar medium
or broadcast over television or radio, or any seminar or meeting whose
attendees have been invited by any general solicitation or general
advertising. No securities of the same class as the Notes have been issued
and sold by the Company within the six-month period immediately prior to the
date hereof.
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(ai) Prior to the effectiveness of any registration statement, the
Indenture is not required to be qualified under the TIA.
(aj) The Company and its respective affiliates and all persons acting
on their behalf (other than the Initial Purchasers, as to whom the Company
makes no representation) have complied with and will comply with the offering
restrictions requirements of Regulation S in connection with the offering of
the Notes outside the United States and, in connection therewith, the
Offering Memorandum will contain the disclosure required by Rule 902(h) under
the Act.
(ak) The Company is a "reporting issuer", as defined in Rule 902
under the Act.
(al) Neither the Company, nor any of its respective affiliates or any
person acting on its or their behalf (other than the Initial Purchasers, as
to whom the Company makes no representation) has engaged or will engage in
any directed selling efforts within the meaning of Regulation S under the Act
("REGULATION S") with respect to the Securities, and the Company and its
respective affiliates or any person acting on its or their behalf (other than
the Initial Purchasers, as to whom the Company makes no representation) have
complied with and will comply with the offering restrictions requirements of
Regulation S in connection with the offering of the Notes outside the United
States.
(am) The Securities offered and sold in reliance on Regulation S have
been and will be offered and sold only in offshore transactions.
(an) The sale of the Securities pursuant to Regulation S is not part
of a plan or scheme to evade the registration provisions of the Act.
(ao) No registration under the Act of the Securities is required for the
sale of the Securities to the Initial Purchasers as contemplated hereby or for
the Exempt Resales assuming the accuracy of the Initial Purchasers'
representations and warranties and agreements set forth in Section 7 hereof.
(ap) The Company is not as of the date hereof and does not
anticipate becoming a "United States real property holding corporation" as
such term is defined by Section 897(c)(2) of the Internal Revenue Code of
1986, as amended, and the Treasury Regulations promulgated thereunder.
(aq) Each certificate signed by any officer of the Company and
delivered to the Initial Purchasers or counsel for the Initial Purchasers
shall be deemed to be a representation and warranty by the Company to the
Initial Purchasers as to the matters covered thereby.
The Company acknowledges that the Initial Purchasers and, for purposes
of the opinions to be delivered to the Initial Purchasers pursuant to Section 9
hereof, counsel for the Company, local New York counsel for the Company and
counsel for the Initial Purchasers will rely upon the accuracy and truth of the
foregoing representations and hereby consents to such reliance.
7. INITIAL PURCHASERS' REPRESENTATIONS AND WARRANTIES. Each of the
Initial Purchasers, severally and not jointly, represents and warrants to,
and agrees with, the Company:
(a) Such Initial Purchaser is either a QIB or an Accredited
Institution, in either case, with such knowledge and experience in financial
and business matters as is necessary in order to evaluate the merits and
risks of an investment in the Notes.
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<PAGE>
(b) Such Initial Purchaser (i) is not acquiring the Securities with a
view to any distribution thereof or with any present intention of offering or
selling any of the Securities in a transaction that would violate the Act or
the securities laws of any state of the United States or any other applicable
jurisdiction and (ii) will be reoffering and reselling the Securities only to
(A) QIBs in reliance on the exemption from the registration requirements of
the Act provided by Rule 144A or (B) in offshore transactions in reliance
upon Regulation S under the Act.
(c) Such Initial Purchaser agrees that no form of general
solicitation or general advertising (within the meaning of Regulation D under
the Act) has been or will be used by such Initial Purchaser or any of its
representatives in connection with the offer and sale of the Securities
pursuant hereto, including, but not limited to, articles, notices or other
communications published in any newspaper, magazine or similar medium or
broadcast over television or radio, or any seminar or meeting whose attendees
have been invited by any general solicitation or general advertising.
(d) Such Initial Purchaser agrees that, in connection with Exempt
Resales, such Initial Purchaser will solicit offers to buy the Securities
only from, and will offer to sell the Securities only to, Eligible
Purchasers. Each Initial Purchaser further agrees that it will offer to sell
the Securities only to, and will solicit offers to buy the Securities only
from (i) Eligible Purchasers that the Initial Purchaser reasonably believes
are QIBs and (ii) Regulation S Purchasers, in each case, that agree that (A)
the Securities purchased by them may be resold, pledged or otherwise
transferred within the time period referred to under Rule 144(k) under the
Act (taking into account the provisions of Rule 144(d) under the Act, if
applicable), as in effect on the date of the transfer of such Securities,
only (I) to the Company or any of its subsidiaries, (II) to a person whom the
seller reasonably believes is a QIB purchasing for its own account or for the
account of a QIB in a transaction meeting the requirements of Rule 144A under
the Act, (III) in an offshore transaction (as defined in Rule 902 under the
Act) meeting the requirements of Regulation S of the Act, (IV) in a
transaction meeting the requirements of Rule 144 under the Act, (V) to an
Accredited Institution that, prior to such transfer, furnishes the Trustee a
signed letter containing certain representations and agreements relating to
the registration of transfer of such Securities, in substantially the form of
Exhibit B hereto, and, if the Company so requests, an opinion of counsel
acceptable to the Company that such transfer is in compliance with the Act,
(VI) in accordance with another exemption from the registration requirements
of the Act (and based upon an opinion of counsel acceptable to the Company)
or (VII) pursuant to an effective registration statement and, in each case,
in accordance with the applicable securities laws of any state of the United
States or any other applicable jurisdiction and (B) they will deliver to each
person to whom such Securities or an interest therein is transferred a notice
substantially to the effect of the foregoing.
(e) Such Initial Purchaser agrees that it has not offered or sold and
will not offer to sell the Securities in the United States or to, or for the
benefit or account of, a U.S. Person (other than a distributor), in each
case, as defined in Rule 902 under the Act (i) as part of its distribution at
any time and (ii) otherwise until 40 days after the later of the commencement
of the offering of the Securities pursuant hereto and the Closing Date, other
than in accordance with Regulation S of the Act or another exemption from the
registration requirements of the Act. Each Initial Purchaser agrees that,
during such 40-day restricted period, it will not cause any advertisement
with respect to the Securities (including any "tombstone" advertisement) to
be published in any newspaper or periodical or posted in any public place and
will not issue any circular relating to the Securities, except such
advertisements as are permitted by and include the statements required by
Regulation S.
(f) Such Initial Purchaser agrees that, at or prior to confirmation of a
sale of Securities by it to any distributor, dealer or person receiving a
selling concession, fee or other
15
<PAGE>
remuneration during the 40-day restricted period referred to in Rule 903(c)(2)
under the Act, it will send to such distributor, dealer or person receiving a
selling concession, fee or other remuneration a confirmation or notice to
substantially the following effect:
"The Securities covered hereby have not been
registered under the U.S. Securities Act of 1933, as
amended (the "Securities Act"), and may not be offered and
sold within the United States or to, or for the account or
benefit of, U.S. persons (i) as part of your distribution
at any time or (ii) otherwise until 40 days after the
later of the commencement of the Offering and Closing
Date, except in either case in accordance with Regulation
S under the Securities Act (or Rule 144A or to Accredited
Institutions in transactions that are exempt from the
registration requirements of the Securities Act), and in
connection with any subsequent sale by you of the
Securities covered hereby in reliance on Regulation S
during the period referred to above to any distributor,
dealer or person receiving a selling concession fee or
other remuneration, you must deliver a notice to
substantially the foregoing effect. The terms used above
have the meanings assigned to them in Regulation S.
Such Initial Purchaser further agrees that it has not entered and will
not enter into any contractual arrangements with respect to the distribution or
delivery of the Securities, except with its affiliates or with the prior written
consent of the Company.
(g) No Initial Purchaser nor any of its affiliates or any person
acting on its behalf has engaged or will engage in any directed selling
efforts within the meaning of Regulation S with respect to the Securities.
(h) The Securities offered and sold by such Initial Purchaser
pursuant hereto in reliance on Regulation S have been and will be offered and
sold only in offshore transactions and that such Securities have been and
will be represented upon issuance by a global security that may not be
exchanged for definitive securities until the expiration of the Restricted
Period and only upon certification of beneficial ownership of the securities
by a non-U.S. person or a U.S. Person who purchased such securities in a
transaction that was exempt from the registration requirements of the Act,
which U.S. person will acquire an interest in a transfer restricted security.
(i) The sale of the Securities offered and sold by such Initial
Purchaser pursuant hereto in reliance on Regulation S is not part of a plan
or scheme to evade the registration provisions of the Act.
(j) Such Initial Purchaser further represents and agrees that (1) it
has not offered or sold and will not offer or sell any Securities to persons
in the United Kingdom prior to the expiration of the period of six months
from the issue date of the Securities, except to persons whose ordinary
activities involve them in acquiring, holding, managing or disposing of
investments (as principal or agent) for the purposes of their business or
otherwise in circumstances which have not resulted and will not result in an
offer to the public in the United Kingdom within the meaning of the Public
Offers of Securities Regulations 1995, (ii) it has complied and will comply
with all applicable provisions of the Financial Services Act 1986 with
respect to anything done by it in relation to the Securities in, from or
otherwise involving the United Kingdom and (iii) it has only issued or passed
on and will only issue or pass on in the United Kingdom any document received
by it in connection with the issuance of the Notes to a person
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who is of a kind described in Article 11(3) of the Financial Services Act of
1986 (Investment Advertisements) (Exemptions) Order 1996 or is a person to
whom the document may otherwise lawfully be issued or passed on.
(k) Such Initial Purchaser agrees that it will not offer, sell or
deliver any of the Securities in any jurisdiction outside the United States
except under circumstances that will result in compliance with the applicable
laws thereof, and that it will take at its own expense whatever action is
required to permit its purchase and resale of the Securities in such
jurisdictions. Such Initial Purchaser understands that no action has been
taken to permit a public offering in any jurisdiction outside the United
States where action would be required for such purpose.
Each Initial Purchaser acknowledges that the Company, for purposes
of the opinions to be delivered to each Initial Purchaser pursuant to Section
9 hereof, counsel for the Company, local New York counsel for the Company and
counsel for the Initial Purchasers will rely upon the accuracy and truth of
the foregoing representations and each Initial Purchaser hereby consents to
such reliance.
8. INDEMNIFICATION.
(a) The Company agrees to indemnify and hold harmless each Initial
Purchaser, its directors, its officers and each person, if any, who controls
such Initial Purchaser (within the meaning of Section 15 of the Act or
Section 20 of the Exchange Act), from and against any and all losses, claims,
damages, liabilities and judgments (including, without limitation, any legal
or other expenses incurred in connection with investigating or defending any
matter, including any action, that could give rise to any such losses,
claims, damages, liabilities or judgments) caused by any untrue statement or
alleged untrue statement of a material fact contained in the Offering
Memorandum (or any amendment or supplement thereto), the Preliminary Offering
Memorandum or any Rule 144A Information provided by the Company to any holder
or prospective purchaser of Securities pursuant to Section 5(h) hereof or
caused by any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, except insofar as such losses, claims, damages, liabilities or
judgments are caused by any such untrue statement or omission or alleged
untrue statement or omission based upon information relating to any Initial
Purchaser furnished in writing to the Company by such Initial Purchaser.
(b) Each Initial Purchaser, severally and not jointly, agrees to
indemnify and hold harmless the Company and its directors and officers and
each person, if any, who controls (within the meaning of Section 15 of the
Act or Section 20 of the Exchange Act) the Company to the same extent as the
foregoing indemnity from the Company to the Initial Purchasers but only with
reference to information relating to such Initial Purchaser furnished in
writing to the Company by such Initial Purchaser expressly for use in the
Preliminary Offering Memorandum or the Offering Memorandum.
(c) In case any action shall be commenced involving any person in
respect of which indemnity may be sought pursuant to Section 8(a) or 8(b)
hereof (the "INDEMNIFIED PARTY"), the indemnified party shall promptly notify
the person against whom such indemnity may be sought (the "INDEMNIFYING
PARTY") in writing and the indemnifying party shall assume the defense of
such action, including the employment of counsel reasonably satisfactory to
the indemnified party and the payment of all fees and expenses of such
counsel, as incurred (except that in the case of any action in respect of
which indemnity may be sought pursuant to both Sections 8(a) and 8(b) hereof,
the Initial Purchasers shall not be required to assume the defense of such
action pursuant to this Section 8(c), but may employ separate counsel and
participate in the defense thereof, but the fees and expenses of such
counsel, except
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as provided below, shall be at the expense of the Initial Purchasers). Any
indemnified party shall have the right to employ separate counsel in any such
action and participate in the defense thereof, but the fees and expenses of
such counsel shall be at the expense of the indemnified party unless (i) the
employment of such counsel shall have been specifically authorized in writing
by the indemnifying party, (ii) the indemnifying party shall have failed to
assume the defense of such action or employ counsel reasonably satisfactory
to the indemnified party or (iii) the named parties to any such action
(including any impleaded parties) include both the indemnified party and the
indemnifying party, and the indemnified party shall have been advised by such
counsel that there may be one or more legal defenses available to it which
are different from or additional to those available to the indemnifying party
(in which case the indemnifying party shall not have the right to assume the
defense of such action on behalf of the indemnified party). In any such
case, the indemnifying party shall not, in connection with any one action or
separate but substantially similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances, be
liable for the fees and expenses of more than one separate firm of attorneys
(in addition to any local counsel) for all indemnified parties and all such
fees and expenses shall be reimbursed as they are incurred. Such firm shall
be designated in writing by Donaldson, Lufkin & Jenrette Securities
Corporation, in the case of the parties indemnified pursuant to Section 8(a)
hereof, and by the Company, in the case of parties indemnified pursuant to
Section 8(b) hereof. The indemnifying party shall indemnify and hold harmless
the indemnified party from and against any and all losses, claims, damages,
liabilities and judgments by reason of any settlement of any action (i)
effected with its written consent or (ii) effected without its written
consent if the settlement is entered into more than twenty business days
after the indemnifying party shall have received a request from the
indemnified party for reimbursement for the fees and expenses of counsel (in
any case where such fees and expenses are at the expense of the indemnifying
party) and, prior to the date of such settlement, the indemnifying party
shall have failed to comply with such reimbursement request. No
indemnifying party shall, without the prior written consent of the
indemnified party, effect any settlement or compromise of, or consent to the
entry of judgment with respect to, any pending or threatened action in
respect of which the indemnified party is or could have been a party and
indemnity or contribution may be or could have been sought hereunder by the
indemnified party, unless such settlement, compromise or judgment (i)
includes an unconditional release of the indemnified party from all liability
on claims that are or could have been the subject matter of such action and
(ii) does not include a statement as to or an admission of fault, culpability
or a failure to act, by or on behalf of the indemnified party.
(d) To the extent the indemnification provided for in this Section 8
is unavailable to an indemnified party or insufficient in respect of any
losses, claims, damages, liabilities or judgments referred to therein, then
each indemnifying party, in lieu of indemnifying such indemnified party,
shall contribute to the amount paid or payable by such indemnified party as a
result of such losses, claims, damages, liabilities and judgments (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company, on the one hand, and the Initial Purchasers, on the other hand, from
the offering of the Securities or (ii) if the allocation provided by clause
8(d)(i) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause
8(d)(i) above but also the relative fault of the Company, on the one hand,
and the Initial Purchasers, on the other hand, in connection with the
statements or omissions which resulted in such losses, claims, damages,
liabilities or judgments, as well as any other relevant equitable
considerations. The relative benefits received by the Company, on the one
hand, and the Initial Purchasers, on the other hand, shall be deemed to be in
the same proportion as the total net proceeds from the offering of the
Securities (before deducting expenses) received by the Company, and the total
discounts and commissions received by the Initial Purchasers bear to the
total price to investors of the Securities, in each case as set forth in the
table on the cover page of the Offering Memorandum. The relative fault of
the Company, on the one hand, and the Initial Purchasers, on the other hand,
shall be determined by reference to,
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among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company, on the one hand, or the
Initial Purchasers, on the other hand, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.
The Company and the Initial Purchasers agree that it would not be just
and equitable if contribution pursuant to this Section 8(d) were determined by
pro rata allocation (even if the Initial Purchasers were treated as one entity
for such purpose) or by any other method of allocation which does not take
account of the equitable considerations referred to in the immediately preceding
paragraph. The amount paid or payable by an indemnified party as a result of
the losses, claims, damages, liabilities or judgments referred to in the
immediately preceding paragraph shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses incurred by such
indemnified party in connection with investigating or defending any matter,
including any action, that could have given rise to such losses, claims,
damages, liabilities or judgments. Notwithstanding the provisions of this
Section 8, the Initial Purchasers shall not be required to contribute any amount
in excess of the amount by which the total discounts and commissions received by
such Initial Purchasers exceeds the amount of any damages which the Initial
Purchasers have otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Initial Purchasers' obligations to contribute
pursuant to this Section 8(d) are several in proportion to the respective
principal amount of Securities purchased by each of the Initial Purchasers
hereunder, and not joint.
(e) The remedies provided for in this Section 8 are not exclusive and
shall not limit any rights or remedies which may otherwise be available to any
indemnified party at law or in equity.
9. CONDITIONS OF INITIAL PURCHASERS' OBLIGATIONS. The obligations of
the Initial Purchasers to purchase the Firm Notes under this Agreement on the
Closing Date and the Additional Notes, if any, on any Option Closing Date are
subject to the satisfaction of each of the following conditions.
(a) All the representations and warranties of the Company contained
in this Agreement shall be true and correct on the Closing Date, and an
Option Closing Date, if any, with the same force and effect as if made on and
as of the Closing Date and an Option Closing Date, if any.
(b) On or after the date hereof, (i) there shall not have occurred
any downgrading, suspension or withdrawal of, nor shall any notice have been
given of any potential or intended downgrading, suspension or withdrawal of,
or of any review (or of any potential or intended review) for a possible
change that does not indicate the direction of the possible change in, any
rating of the Company or any securities of the Company (including, without
limitation, the placing of any of the foregoing ratings on credit watch with
negative or developing implications or under review with an uncertain
direction) by any "nationally recognized statistical rating organization" as
such term is defined for purposes of Rule 436(g)(2) under the Act, (ii) there
shall not have occurred any change, nor shall any notice have been given of
any potential or intended change, in the outlook for any rating of the
Company or any securities of the Company by any such rating organization and
(iii) no such rating organization shall have given notice that it has
assigned (or is considering assigning) a lower rating to the Notes than that
on which the Notes were marketed.
(c) Since the respective dates as of which information is given in the
Offering Memorandum, other than as set forth in the Offering Memorandum
(exclusive of any amendments or
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supplements thereto subsequent to the date of this Agreement), (i) there
shall not have occurred any change or any development involving a prospective
change in the condition, financial or otherwise, or the earnings, business,
management or operations of the Company and its subsidiaries, taken as a
whole, (ii) there shall not have been any change or any development involving
a prospective change in the capital stock or in the long-term debt of the
Company or any of its subsidiaries and (iii) neither the Company nor any of
its subsidiaries shall have incurred any liability or obligation, direct or
contingent, the effect of which, in any such case described in clause
9(c)(i), 9(c)(ii) or 9(c)(iii), in your judgment, is material and adverse
and, in your judgment, makes it impracticable to market the Securities on the
terms and in the manner contemplated in the Offering Memorandum.
(d) You shall have received on the Closing Date a certificate, dated
the Closing Date, and on an Option Closing Date, if any, dated the Option
Closing Date, signed by the Chief Executive Officer and the Chief Financial
Officer of the Company, confirming the matters set forth in Sections 6(ae),
9(a) and 9(b) hereof and stating that the Company has complied with all the
agreements and satisfied all of the conditions herein contained and required
to be complied with or satisfied on or prior to the Closing Date or Option
Closing Date, as the case may be.
(e) You shall have received on the Closing Date and an Option Closing
Date, if any, an opinion (satisfactory to you and counsel for the Initial
Purchasers), dated the Closing Date or the Option Closing Date, as the case may
be, of Cooley Godward LLP, counsel for the Company, as to the effect of the
federal laws of the United States, the internal laws of the State of California
and the General Corporation Law of the State of Delaware, to the effect that:
(i) each of the Company and its Significant Subsidiaries (as
defined under Rule 1-02 of Regulation S-X) has been duly incorporated, is
validly existing as a corporation in good standing under the laws of its
jurisdiction of incorporation and has the corporate power and authority to
carry on its business as described in the Offering Memorandum and to own,
lease and operate its properties;
(ii) to the best of such counsel's knowledge, each of the
Company and its Significant Subsidiaries is duly qualified and is in good
standing as a foreign corporation authorized to do business in each
jurisdiction in which the nature of its business or its ownership or leasing
of property requires such qualification, except where the failure to be so
qualified would not have a Material Adverse Effect;
(iii) all the outstanding shares of capital stock of the
Company have been duly authorized and validly issued and are fully paid,
non-assessable and not subject to any preemptive or, to the best of such
counsel's knowledge, similar rights;
(iv) all of the outstanding shares of capital stock of each
of the Company's subsidiaries have been duly authorized and validly issued
and are fully paid and non-assessable, and are owned by the Company, directly
or indirectly through one or more subsidiaries, free and clear of any Lien
(other than the lien on 65% of the common stock of each of Pet City Holdings
plc, a public limited company incorporated in England and Wales, and MGMT
Veterinary Services Inc., a Canadian Federal Corporation, pursuant to the
Credit Facility);
(v) the Notes have been duly authorized;
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(vi) the Indenture has been duly authorized, executed and
delivered by the Company;
(vii) the Notes are convertible into Common Stock in
accordance with the terms of the Indenture; the shares of Common Stock
initially issuable upon conversion of the Notes have been duly authorized and
reserved for issuance upon such conversion and, when issued upon such
conversion, will be validly issued, fully paid and nonassessable, and will
not be subject to any preemptive or, to the best of such counsel's knowledge,
similar rights, will conform to the description thereof contained in the
Offering Memorandum under the caption "Description of Capital Stock" and the
Company has the authorized and outstanding capital stock as set forth in the
Offering Memorandum under the caption "Description of Capital Stock";
(viii) this Agreement has been duly authorized, executed and
delivered by the Company;
(ix) the Registration Rights Agreement has been duly
authorized, executed and delivered by the Company and is a valid and binding
agreement of the Company enforceable against the Company in accordance with
its terms, except as (A) the enforceability thereof may be limited by
bankruptcy, insolvency or similar laws affecting creditors' rights generally
and (B) by general equitable principles and limitations on the availability
of equitable remedies;
(x) the statements under the captions "Risk Factors -
Anti-Takeover Measures," "Dividend Policy," "Description of Capital Stock,"
"Management --Limitation of Liability and Indemnification Matters" and
"Certain Federal Income Tax Considerations" in the Offering Memorandum,
insofar as such statements constitute a summary of the legal matters,
documents or proceedings referred to therein, fairly present in all material
respects such legal matters, documents and proceedings (to the same extent as
would be required if the Offering Memorandum were a prospectus included in a
Registration Statement of the Company on Form S-1 under the Act);
(xi) the execution, delivery and performance of this
Agreement and the other Operative Documents by the Company, the compliance by
the Company with all provisions hereof and thereof and the consummation of
the transactions contemplated hereby and thereby do not (i) require any
consent, approval, authorization or other order of, or qualification with,
any court or governmental body or agency (except such as may be required
under the securities or Blue Sky laws of the various states), (ii) conflict
with or constitute a breach of any of the terms or provisions of, or a
default under, (A) the charter or by-laws of the Company or any of its
Significant Subsidiaries, (B) the Credit Facility or the Structured Lease
Facilities or (C) any other indenture, loan agreement, mortgage, lease or
other agreement or instrument listed by the Company as an exhibit to any
document of the Company filed with the Commission, including, but not limited
to, the Company's Annual Report on Form 10-K for the fiscal year ended
February 2, 1997, the Company's Quarterly Reports on Form 10-Q and the
Company's Registration Statements on Form S-4 (the "Public Documents"), (iii)
violate or conflict with any applicable law or any rule, regulation,
judgment, order or decree of any court or any governmental body or agency
having jurisdiction over the Company, any of its subsidiaries or their
respective property (except for the securities or Blue Sky laws of the
various states as to which such counsel need not express any opinion); or
(iv) result in the imposition or creation of (or the obligation to create or
impose) a Lien under, any of the Credit Facility, the Structured Lease
Facilities or the Public Documents;
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(xii) such counsel does not know of any legal or governmental
proceedings pending or threatened to which the Company or any of its
subsidiaries is or could be a party or to which any of their respective
property is or could be subject, which is required to be described in the
Offering Memorandum, to the extent required if the Offering Memorandum were a
prospectus included in a Registration Statement of the Company on Form S-1
under the Act and is not so described, or of any contract or offer document
which is required to be described in the Offering Memorandum which is not so
described;
(xiii) the Company is not and, after giving effect to the
offering and sale of the Notes and the application of the net proceeds
thereof as described in the Offering Memorandum, will not be, an "investment
company" as such term is defined in the Investment Company Act of 1940, as
amended;
(xiv) except as otherwise indicated on Schedule B hereto, to
the best of such counsel's knowledge after due inquiry, there are no
contracts, agreements or understandings between the Company and any person
granting such person the right to require the Company to file a registration
statement under the Act with respect to any securities of the Company or to
require the Company to include such securities with the Notes registered
pursuant to any registration statement;
(xv) it is not necessary in connection with the offer, sale
and delivery of the Notes to the Initial Purchasers in the manner
contemplated by this Agreement or in connection with the Exempt Resales to
qualify the Indenture under the TIA;
(xvi) no registration under the Act of the Securities is
required for the sale of the Securities to the Initial Purchasers as
contemplated by this Agreement or for the Exempt Resales assuming (i) that
each Initial Purchaser is a QIB or a Regulation S Purchaser, (ii) the
accuracy of, and compliance with, the Initial Purchasers' representations and
agreements contained in Section 7 of this Agreement, and (iii) the accuracy
of the representations of the Company set forth in Sections 6(ah), (aj), (al)
and (am) of this Agreement; and
Such counsel shall also state that such counsel has no reason
to believe that, as of the date of the Offering Memorandum or as of the
Closing Date or the Option Closing Date, as the case may be, the Offering
Memorandum and any information incorporated by reference therein, as amended
or supplemented, if applicable (except for the financial statements,
including supporting schedules and other financial or statistical data
included therein, as to which such counsel need not express any belief)
contains any untrue statement of a material fact or omits to state a material
fact necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
The opinion of Cooley Godward LLP described in this Section 9(e)
shall be rendered to you at the request of the Company and shall so state
therein. In giving such opinion with respect to the matters covered in the
last paragraph of Section 9(e), Cooley Godward LLP may state that its opinion
and belief are based upon its participation in the preparation of the
Offering Memorandum and any amendments or supplements thereto and review and
discussion of the contents thereof, but are without independent check or
verification except as specified.
(f) You shall have received on the Closing Date and an Option Closing
Date, if any, an opinion (satisfactory to you and counsel for the Initial
Purchasers), dated the Closing Date or the
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Option Closing Date, as the case may be, of Reed Smith Shaw & McClay LLP,
local New York counsel for the Company, as to the effect of the internal laws
of the State of New York, to the effect that:
(i) the Notes, when executed and authenticated in accordance
with the provisions of the Indenture and delivered to and paid for by the
Initial Purchasers in accordance with the terms of this Agreement, will be
entitled to the benefits of the Indenture and will be valid and binding
obligations of the Company, enforceable in accordance with their terms except
as (A) the enforceability thereof may be limited by bankruptcy, insolvency or
similar laws affecting creditors' rights generally and (B) rights of
acceleration and availability of equitable remedies may be limited by
equitable principles of general applicability;
(ii) the Indenture is a valid and binding agreement of the
Company, enforceable against the Company in accordance with its terms except
as (A) the enforceability thereof may be limited by bankruptcy, insolvency or
similar laws affecting creditors' rights generally and (B) rights of
acceleration and the availability of equitable remedies may be limited by
equitable principles of general applicability;
The opinion of Reed Smith Shaw & McClay LLP described in this Section
9(f) shall be rendered to you at the request of the Company and shall so state
therein.
(g) The Initial Purchasers shall have received on the Closing Date or an
Option Closing Date, as the case may be, an opinion, dated the Closing Date, of
Latham & Watkins, counsel for the Initial Purchasers, in form and substance
reasonably satisfactory to the Initial Purchasers.
(f) The Initial Purchasers shall have received, at the time this
Agreement is executed and at the Closing Date or an Option Closing Date, as
the case may be, letters dated the date hereof or the Closing Date or an
Option Closing Date, as the case may be, in the form and substance
satisfactory to the Initial Purchasers from Price Waterhouse LLP, independent
public accountants, containing the information and statements of the type
ordinarily included in accountants' "comfort letters" to the Initial
Purchasers with respect to the Initial Purchasers with respect to the
financial statements and certain financial information contained in the
Offering Memorandum.
(h) The Notes shall have been approved by the NASD for trading and
duly listed in PORTAL.
(i) The Initial Purchasers shall have received a counterpart,
conformed as executed, of the Indenture which shall have been entered into by
the Company and the Trustee.
(i) The Company shall have executed the Registration Rights Agreement
and the Initial Purchasers shall have received an original copy thereof, duly
executed by the Company.
(j) The Company shall not have failed at or prior to the Closing Date
or an Option Closing Date, as the case may be, to perform or comply with any
of the agreements herein contained and required to be performed or complied
with by the Company at or prior to the Closing Date or an Option Closing
Date, as the case may be.
10. EFFECTIVENESS OF AGREEMENT AND TERMINATION. This Agreement may
be terminated at any time on or prior to the Closing Date by the Initial
Purchasers by written notice to the Company if any of the following has
occurred: (i) any outbreak or escalation of hostilities or other national or
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international calamity or crisis or change in economic conditions or in the
financial markets of the United States or elsewhere that, in the Initial
Purchasers' judgment, is material and adverse and, in the Initial Purchasers'
judgment, makes it impracticable to market the Securities on the terms and in
the manner contemplated in the Offering Memorandum, (ii) the suspension or
material limitation of trading in securities or other instruments on the New
York Stock Exchange, the American Stock Exchange, the Chicago Board of
Options Exchange, the Chicago Mercantile Exchange, the Chicago Board of Trade
or the Nasdaq National Market or limitation on prices for securities or other
instruments on any such exchange or the Nasdaq National Market, (iii) the
suspension of trading of any securities of the Company on any exchange or in
the over-the-counter market, (iv) the enactment, publication, decree or other
promulgation of any federal or state statute, regulation, rule or order of
any court or other governmental authority which in your opinion materially
and adversely affects, or will materially and adversely affect, the business,
prospects, financial condition or results of operations of the Company and
its subsidiaries, taken as a whole, (v) the declaration of a banking
moratorium by either federal or New York State authorities or (vi) the taking
of any action by any federal, state or local government or agency in respect
of its monetary or fiscal affairs which in your opinion has a material
adverse effect on the financial markets in the United States.
If on the Closing Date or an Option Closing Date, as the case may
be, any one or more of the Initial Purchasers shall fail or refuse to
purchase the Notes which it or they have agreed to purchase hereunder on such
date and the aggregate principal amount of the Notes which such defaulting
Initial Purchaser or Initial Purchasers, as the case may be, agreed but
failed or refused to purchase is not more than one-tenth of the aggregate
principal amount of the Notes to be purchased on such date by all Initial
Purchasers, each non-defaulting Initial Purchaser shall be obligated
severally, in the proportion which the principal amount of the Notes set
forth opposite its name in Schedule A bears to the aggregate principal amount
of the Notes which all the non-defaulting Initial Purchasers, as the case may
be, have agreed to purchase, or in such other proportion as you may specify,
to purchase the Notes which such defaulting Initial Purchaser or Initial
Purchasers, as the case may be, agreed but failed or refused to purchase on
such date; PROVIDED that in no event shall the aggregate principal amount of
the Notes which any Initial Purchaser has agreed to purchase pursuant to
Section 2 hereof be increased pursuant to this Section 10 by an amount in
excess of one-ninth of such principal amount of the Notes without the written
consent of such Initial Purchaser. If on the Closing Date, or an Option
Closing Date, as the case may be, any Initial Purchaser or Initial Purchasers
shall fail or refuse to purchase the Notes and the aggregate principal amount
of the Notes with respect to which such default occurs is more than one-tenth
of the aggregate principal amount of the Notes to be purchased by all Initial
Purchasers and arrangements satisfactory to the Initial Purchasers and the
Company for purchase of such principal amount of the Notes are not made
within 48 hours after such default, this Agreement will terminate without
liability on the part of any non-defaulting Initial Purchaser and the
Company. In any such case which does not result in termination of this
Agreement, either you or the Company shall have the right to postpone the
Closing Date, or such Option Closing Date, as the case may be, but in no
event for longer than seven days, in order that the required changes, if any,
in the Offering Memorandum or any other documents or arrangements may be
effected. Any action taken under this paragraph shall not relieve any
defaulting Initial Purchaser from liability in respect of any default of any
such Initial Purchaser under this Agreement.
11. MISCELLANEOUS. Notices given pursuant to any provision of this
Agreement shall be addressed as follows: (i) if to the Company to PETsMART,
Inc., 19601 North 27th Avenue, Phoenix, Arizona, Attention: Chief Executive
Officer, and (ii) if to the Initial Purchasers, Donaldson, Lufkin & Jenrette
Securities Corporation, 277 Park Avenue, New York, New York 10172, Attention:
Syndicate
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Department, or in any case to such other address as the person to be notified
may have requested in writing.
The respective indemnities, contribution agreements,
representations, warranties and other statements of the Company and the
Initial Purchasers set forth in or made pursuant to this Agreement shall
remain operative and in full force and effect, and will survive delivery of
and payment for the Securities regardless of (i) any investigation, or
statement as to the results thereof, made by or on behalf of the Initial
Purchasers, the officers or directors of the Initial Purchasers, any person
controlling the Initial Purchasers, the Company, the officers or directors of
the Company, or any person controlling the Company, (ii) acceptance of the
Securities and payment for them hereunder and (iii) termination of the
Agreement.
If for any reason the Securities are not delivered by or on behalf
of the Company as provided herein (other than as a result of any termination
of this Agreement pursuant to Section 10), the Company agrees to reimburse
the Initial Purchasers for all out-of-pocket expenses (including the fees and
disbursements of counsel) incurred by them. Notwithstanding any termination
of this Agreement, the Company shall be liable for all expenses which it has
agreed to pay pursuant to Section 5(i) hereof. The Company also agrees to
reimburse the Initial Purchasers and its officers, directors and each person,
if any, who controls such Initial Purchasers within the meaning of Section 15
of the Act or Section 20 of the Exchange Act for any and all fees and
expenses (including without limitation the fees and expenses of counsel)
incurred by them in connection with enforcing their rights under this
Agreement (including without limitation its rights under Section 8).
Except as otherwise provided, this Agreement has been and is made
solely for the benefit of and shall be binding upon the Company, the Initial
Purchasers, the Initial Purchasers' directors and officers, any controlling
persons referred to herein, the directors of the Company and their respective
successors and assigns, all as and to the extent provided in this Agreement,
and no other person shall acquire or have any right under or by virtue of
this Agreement. The term "successors and assigns" shall not include a
purchaser of any of the Securities from the Initial Purchasers merely because
of such purchase.
This Agreement shall be governed and construed in accordance with
the laws of the State of New York.
This Agreement may be signed in various counterparts which together
shall constitute one and the same instrument.
25
<PAGE>
Please confirm that the foregoing correctly sets forth the agreement
among the Company, and the Initial Purchasers.
Very truly yours,
PETSMART, INC.
By: /s/ Susan C. Schnabel
----------------------------------
Name: Susan C. Schnabel
Title: Senior Vice President and
Chief Financial Officer
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
NATIONSBANC MONTGOMERY SECURITIES, INC.
By: DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By: /s/ Michael McCartney
-------------------------
Name: Michael McCartney
Title: Vice President
<PAGE>
SCHEDULE A
PRINCIPAL AMOUNT
INITIAL PURCHASER OF NOTES
----------------- ----------------
Donaldson, Lufkin & Jenrette
Securities Corporation. . . . . . . . . . . . . . . . $ 157,500,000
NationsBanc Montgomery Securities, Inc.. . . . . . . . . . $ 17,500,000
-------------
Total. . . . . . . . . . . . . . . . . . . . . . . $ 175,000,000
-------------
-------------
1
<PAGE>
SCHEDULE B
SUBSIDIARIES
Petstuff, Inc.
Petstuff Canada (USA) Holdings, Inc.
Petstuff Nova Scotia, Inc.
3003300 Nova Scotia Company
3000970 Nova Scotia Limited
State Line Tack, Inc.
National Bridle Shop, Inc.
SPAT Productions, Inc.
PETsMART Veterinary Services, Inc.
MGMT Veterinary Services Inc.
The Weisheimer Companies, Inc.
State Line Tack of Texas, Inc.
Sporting Dog Specialties, Inc.
Pet City Holdings plc
Pet City Limited
Jeffye's Limited
Pet City (ESOT Trustee) Limited
The Pet Food Giant, Inc.
Pacific Coast Distributing, Inc.
The parties to that certain Restated Registration and First Refusal Rights
Agreement dated as of October 30, 1992, as amended in February 1997 among the
Company and the other parties named therein, and the parties to that certain
Series H Preferred Stock Purchase Agreement dated as of September 8, 1991, as
amended in February, 1997, among the Company and the other parties named
therein, have certain registration rights with respect to Common Stock owned by
such parties. Such parties have waived such registration rights.
1
<PAGE>
EXHIBIT A
FORM OF REGISTRATION RIGHTS AGREEMENT
[See Exhibit 4.6]
1
<PAGE>
EXHIBIT B
FORM OF ACCREDITED INSTITUTION REPRESENTATION LETTER
[Date]
PETsMART, Inc.
19601 N. 27th Avenue
Phoenix, Arizona 85027
Donaldson, Lufkin & Jenrette Securities Corporation
NationsBanc Montgomery Securities, Inc.
c/o Donaldson, Lufkin & Jenrette Securities Corporation
277 Park Avenue
New York, New York 10172
Re: Purchase of $__________ principal amount of ___% Convertible
Subordinated Notes due 2004 (the "Notes") of PETsMART, Inc., a
Delaware corporation (the "Company")
Ladies and Gentlemen:
In connection with our purchase of the Notes, we hereby confirm that:
1. We understand that the Notes are not being and will not be
registered under the Securities Act of 1933, as amended (the "Securities
Act"), and are being sold to us in a transaction that is exempt from the
registration requirements of the Securities Act.
2. We acknowledge that (a) neither the Company, nor the Initial
Purchasers (as defined in the Offering Memorandum dated November ___, 1997
relating to the Notes (the "Offering Memorandum")) nor any persons acting on
behalf of the Company or the Initial Purchasers, have made any representation
to us with respect to the Company or the offer or sale of any Notes and (b)
any information we desire concerning the Company and the Notes or any other
matter relevant to our decision to purchase the Notes (including a copy of
the Offering Memorandum) is or has been made available to us.
3. We have such knowledge and experience in financial and business
matters as to be capable of evaluating the merits and risks of an investment
in the Notes, and we are (or any account for which we are purchasing under
paragraph 4 below) is an institutional "accredited investor" (within the
meaning of Rule 501 (a)(1), (2), (3) or (7) of Regulation D under the
Securities Act) (an "IAI") able to bear the economic risk of investment in
the Notes.
4. We are acquiring the Notes for our own account (or for accounts as
to which we exercise sole investment discretion and have authority to make,
and do make, the statements contained in this letter) and not with a view to
any distribution of the Notes, subject, nevertheless, to the understanding
that the disposition of our property will at all times be and remain within
our control.
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<PAGE>
5. We understand that the Notes will be in registered form only and that
any certificates delivered to us in respect of the Notes will bear a legend
substantially to the following effect:
"This Note has not been registered under the Securities Act of 1933, as
amended (the "Securities Act"), and this Note may not be offered, sold,
pledged or otherwise transferred except pursuant to an effective registration
statement or in accordance with an applicable exemption from the registration
requirements of the Securities Act (subject to the delivery of such evidence,
if any, required under the indenture pursuant to which this Note is issued)
and in accordance with any applicable securities laws of any state of the
United States or any other jurisdiction."
6. We agree that in the event that at some future time we wish to
dispose of any of the Notes, we will not do so unless such disposition is
made in accordance with any applicable securities laws of any state of the
United States and:
(a) the Notes are sold in compliance with Rule 144(k) under the Securities
Act; or
(b) the Notes are sold in compliance with Rule 144A under the Securities
Act; or
(c) the Notes are sold in compliance with Rule 904 of Regulation S under
the Securities Act; or
(d) the Notes are sold pursuant to an effective registration statement
under the Securities Act; or
(e) the Notes are sold to the Company or an affiliate (as defined in Rule
501(b) of Regulation D) of the Company; or
(f) the Notes are disposed of in any other transaction that does not
require registration under the Securities Act, and prior to such disposition we
have furnished to the Company or its designee an opinion of counsel experienced
in securities law matters to such effect or such other documentation as the
Company or its designee may reasonably request.
7. We understand that Donaldson, Lufkin & Jenrette Securities
Corporation and NationsBanc Montgomery Securities, Inc., as the Initial
Purchasers, the Company and other persons will rely upon the truth and
accuracy of the statements set forth herein, and we agree that if any such
statements are no longer true or accurate we will promptly so notify the
Company and the Initial Purchasers.
THIS LETTER SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE
LAWS OF THE STATE OF NEW YORK.
-----------------------------------
(Name of Purchaser)
By:
--------------------------------
Name:
Title:
Address:
--------------------------
<PAGE>
<PAGE>
6 3/4% CONVERTIBLE
SUBORDINATED NOTES DUE 2004
REGISTRATION RIGHTS AGREEMENT
Dated as of November 7, 1997
by and among
PETsMART, Inc.
and
Donaldson, Lufkin & Jenrette
Securities Corporation
and
NationsBanc Montgomery Securities, Inc.
<PAGE>
This Registration Rights Agreement (this "AGREEMENT") is made and
entered into as of November 7, 1997, by and among PETsMART, Inc., a Delaware
corporation (the "COMPANY"), and Donaldson Lufkin & Jenrette Securities
Corporation and NationsBanc Montgomery Securities, Inc. (each an "INITIAL
PURCHASER" and, collectively, the "INITIAL PURCHASERS"), each of whom has agreed
to purchase the Company's 6 3/4% Convertible Subordinated Notes due 2004 (the
"NOTES") pursuant to the Purchase Agreement (as defined below).
This Agreement is made pursuant to the Purchase Agreement, dated
November 4, 1997, (the "PURCHASE AGREEMENT"), by and among the Company and the
Initial Purchasers. In order to induce the Initial Purchasers to purchase the
Notes, the Company has agreed to provide the registration rights set forth in
this Agreement. The execution and delivery of this Agreement is a condition to
the obligations of the Initial Purchasers set forth in Section 2 of the Purchase
Agreement. Capitalized terms used herein and not otherwise defined shall have
the meaning assigned to them the Indenture, dated November 7, 1997, between the
Company and Norwest Bank Minnesota, N.A., as Trustee, relating to the Notes (the
"INDENTURE").
The parties hereby agree as follows:
SECTION 1. DEFINITIONS
As used in this Agreement, the following capitalized terms shall have
the following meanings:
ACT: The Securities Act of 1933, as amended.
AFFILIATE: As defined in Rule 144 of the Act.
CERTIFICATED SECURITIES: Definitive Notes, as defined in the
Indenture.
CLOSING DATE: The date hereof.
COMMON STOCK: Common Stock, $.0001 par value per share
of the Company.
COMMISSION: The Securities and Exchange Commission.
EFFECTIVENESS DEADLINE: As defined in Section 3(a) hereof.
EXCHANGE ACT: The Securities Exchange Act of 1934, as
amended.
EXEMPT RESALES: The transactions in which the Initial
Purchasers propose to sell the Notes to certain "qualified institutional
buyers," as such term is defined in Rule 144A under the Act, and pursuant to
Regulation S under the Act.
FILING DEADLINE: As defined in Section 3(a) hereof.
HOLDERS: As defined in Section 2 hereof.
1
<PAGE>
NOTES: The up to $201,250,000 aggregate
principle amount of 6 3/4% Convertible Subordinated Notes due 2004 being issued
pursuant to the Purchase Agreement.
PROSPECTUS: The prospectus included in a
Registration Statement at the time such Registration Statement is declared
effective, as amended or supplemented by any prospectus supplement and by all
other amendments thereto, including post-effective amendments, all material
incorporated by reference into such Prospectus and any information previously
omitted in reliance upon Rule 430A of the Act.
RECOMMENCEMENT DATE: As defined in Section 5(d) hereof.
REGISTRATION DEFAULT: As defined in Section 4 hereof.
REGULATION S: Regulation S promulgated under the Act.
RULE 144: Rule 144 promulgated under the Act.
SHELF REGISTRATION STATEMENT: As defined in Section 3 hereof.
SUSPENSION NOTICE: As defined in Section 5(d) hereof.
TIA: The Trust Indenture Act of 1939 (15
U.S.C. Section 77aaa-77bbbb, as amended, in effect on the date of the Indenture.
TRANSFER RESTRICTED SECURITIES: The Notes and the shares of Common
Stock into which the Notes are convertible, upon original issuance thereof, and
at all times subsequent thereto, until, in the case of any such Notes or shares
of Common Stock, (a) the date on which such Notes or shares of Common Stock have
been registered under and disposed of in accordance with a Shelf Registration
Statement, (b) the date on which such Notes or shares of Common Stock are
distributed to the public pursuant to Rule 144 or are saleable pursuant to Rule
144(k) (or, in each case, similar provisions then in effect) under the Act and
all legends relating to transfer restrictions have been removed or (c) the date
on which such Notes or shares of Common Stock cease to be outstanding.
SECTION 2. HOLDERS
A Person is deemed to be a holder of Transfer Restricted Securities
(each, a "HOLDER") whenever such Person owns Transfer Restricted Securities.
SECTION 3. SHELF REGISTRATION
(a) Shelf Registration. As soon as practicable after the Closing Date
but in no event later than 90 days after the Closing Date (the such 90th day,
"FILING DEADLINE"), the Company shall file with the Commission a shelf
registration statement pursuant to Rule 415 under the Act (the "SHELF
REGISTRATION STATEMENT"), relating to all Transfer Restricted Securities, and
shall use its best efforts to cause such Shelf Registration Statement to become
effective on or prior to 180 days after the Closing Date (such 180th day, the
"EFFECTIVENESS DEADLINE").
2
<PAGE>
The Company shall use all commercially reasonable efforts to keep any
Shelf Registration Statement required by this Section 3(a) continuously
effective, supplemented and amended as required by and subject to the provisions
of Sections 5(a) and (b) hereof to the extent necessary to ensure that it is
available for sales of Transfer Restricted Securities by the Holders thereof
entitled to the benefit of this Section 3(a), and to ensure that it conforms
with the requirements of this Agreement, the Act and the policies, rules and
regulations of the Commission as announced from time to time, for a period of at
least two years (as extended in the event such Shelf Registration Statement is
not available for use as provided in Section 5(b)(i) or Section 3(b)) following
the Closing Date, or such shorter period as will terminate when there cease to
be outstanding any Transfer Restricted Securities.
(b) DELAY OR SUSPENSION OF REGISTRATION. Notwithstanding the
provisions of Section 3(a), but subject to compliance with Section 4, the
Company may, by delivering written notice to the Holders, prohibit offers and
sales of Transfer Restricted Securities pursuant to the Shelf Registration
Statement at any time (and the Holders hereby agree not to use any Shelf
Registration Statement during such period) if, but only for so long as:
(i) the Company is in possession of material non-public
information relating to the Company and determines, based on the advice of
counsel, that such prohibition is necessary in order to avoid a requirement
to disclose such material non-public information to the public; and
(ii) the Company determines in good faith that public disclosure
of such material non-public information would not be in the best interests
of the Company and its subsidiaries PROVIDED that promptly following the
public disclosure by the Company of such material non-public information,
or the date that the foregoing provisions are no longer applicable, the
suspension of the use of the Shelf Registration Statement shall cease and
the Company shall promptly comply with Section 5(b)(ii) hereof and notify
the Holders that dispositions of Transfer Restricted Securities may be
resumed.
(c) PROVISION BY HOLDERS OF CERTAIN INFORMATION IN CONNECTION WITH
THE SHELF REGISTRATION STATEMENT. No Holder of Transfer Restricted Securities
may include any of its Transfer Restricted Securities in any Shelf Registration
Statement pursuant to this Agreement unless and until such Holder furnishes to
the Company in writing, within 20 days after receipt of a request therefor, the
information specified in Item 507 or 508 of Regulation S-K, as applicable, of
the Act for use in connection with any Shelf Registration Statement or
Prospectus or preliminary Prospectus included therein. No Holder of Transfer
Restricted Securities shall be entitled to liquidated damages pursuant to
Section 4 hereof unless and until such Holder shall have provided all such
information. Each selling Holder agrees to promptly furnish additional
information required to be disclosed in order to make the information previously
furnished to the Company by such Holder not materially misleading.
SECTION 4. LIQUIDATED DAMAGES
If (i) the Shelf Registration Statement is not filed with the
Commission on or prior to the Filing Deadline, (ii) such Shelf Registration
Statement has not been declared effective by the Commission on or prior to the
Effectiveness Deadline, or (iii) such Shelf Registration Statement required by
this Agreement is filed and declared effective but shall thereafter cease to be
effective or fail to be usable for its intended purpose (other than for a period
in the aggregate not to exceed 90 days in any 365-day period during which the
Company is complying with the specific provisions of Section 3(b)) without being
succeeded immediately by a post-effective amendment to such Shelf Registration
Statement that cures such
3
<PAGE>
failure and that is itself declared effective immediately (each such event
referred to in clauses (i) through (iii), a "REGISTRATION DEFAULT"), then the
Company hereby agrees to pay to each Holder of Transfer Restricted Securities
affected thereby liquidated damages in an amount equal to $.05 per week per
$1,000 in principal amount of Transfer Restricted Securities, or, if applicable,
an equivalent amount per week per share (subject to adjustment as set forth in
the Indenture) of Common Stock representing Transfer Restricted Securities, held
by such Holder for each week or portion thereof that the Registration Default
continues for the first 90-day period immediately following the occurrence of
such Registration Default. The amount of the liquidated damages shall increase
by an additional $.05 per week per $1,000 in principal amount (or, as noted
above, an equivalent amount per week per share) of Transfer Restricted
Securities with respect to each subsequent 90-day period until all Registration
Defaults have been cured, up to a maximum amount of liquidated damages of $.50
per week per $1,000 in principal amount (or as noted above, an equivalent amount
per week per share) of Transfer Restricted Securities; PROVIDED that the Company
shall in no event be required to pay liquidated damages for more than one
Registration Default at any given time. Notwithstanding anything to the
contrary set forth herein, (1) upon filing of the Shelf Registration Statement,
in the case of (i) above, (2) upon the effectiveness of this Shelf Registration
Statement, in the case of (ii) above, or (3) upon the filing of a post-effective
amendment to the Shelf Registration Statement that causes the Shelf Registration
Statement to again be declared effective or made usable, in the case of (iii)
above, the liquidated damages payable with respect to the Transfer Restricted
Securities as a result of such clause (i), (ii), or (iii), as applicable, shall
cease.
All accrued liquidated damages shall be paid to the Holders entitled
thereto, in the manner provided for the payment of interest in the Indenture, on
semi-annual payment dates that correspond to interest payment dates for the
Notes. All obligations of the Company set forth in the preceding paragraph that
are outstanding with respect to any Transfer Restricted Security at the time
such Notes and/or shares of Common Stock cease to be Transfer Restricted
Securities shall survive until such time as all such obligations with respect to
such Notes and/or shares of Common Stock shall have been satisfied in full.
SECTION 5. REGISTRATION PROCEDURES
(a) SHELF REGISTRATION STATEMENT. In connection with the Shelf
Registration Statement, the Company shall comply with all the provisions of
Section 5(b) below and shall use all commercially reasonable efforts to effect
such registration to permit the sale of the Transfer Restricted Securities being
sold in accordance with the intended method or methods of distribution thereof
(as indicated in the information furnished to the Company pursuant to Section
3(b) hereof), and pursuant thereto the Company will prepare and file with the
Commission a Shelf Registration Statement relating to the registration on any
appropriate form under the Act, which form shall be available for the sale of
the Transfer Restricted Securities in accordance with the intended method or
methods of distribution thereof (including, without limitation, one or more
underwritten offerings) within the time periods and otherwise in accordance with
the provisions hereof. The Company shall not be permitted to include in the
Shelf Registration Statement any securities other than the Transfer Restricted
Securities
(b) GENERAL PROVISIONS. In connection with any Shelf Registration
Statement and any related Prospectus required by this Agreement, the Company
shall:
(i) use all commercially reasonable efforts to keep such
Shelf Registration Statement continuously effective and provide all
requisite financial statements for the period specified in Section 3 of
this Agreement. Upon the occurrence of any event that would cause any such
Shelf Registration Statement or the Prospectus contained therein (A) to
contain a material
4
<PAGE>
misstatement or omission or (B) not to be effective and usable for the
resale of Transfer Restricted Securities during the period required by this
Agreement, the Company shall (except as permitted by Section 3(b)) promptly
file an appropriate amendment to such Shelf Registration Statement curing
such defect, and, if Commission review is required, use its best efforts to
cause such amendment to be declared effective as soon as practicable;
(ii) prepare and file with the Commission such amendments
and post-effective amendments to the Shelf Registration Statement as may be
necessary to keep such Shelf Registration Statement effective for the
applicable period set forth in Section 3 hereof, cause the Prospectus to be
supplemented by any required Prospectus supplement, and as so supplemented
to be filed pursuant to Rule 424 under the Act, and to comply fully with
Rules 424, 430A and 462, as applicable, under the Act in a timely manner;
and comply with the provisions of the Act with respect to the disposition
of all Transfer Restricted Securities covered by such Shelf Registration
Statement during the applicable period in accordance with the intended
method or methods of distribution by the sellers thereof set forth in such
Shelf Registration Statement or supplement to the Prospectus;
(iii) advise the selling Holders and underwriters, if any,
promptly and, if requested by such Persons, confirm such advice in writing,
(A) when the Prospectus or any Prospectus supplement or post-effective
amendment has been filed, and, with respect to any Shelf Registration
Statement or any post-effective amendment thereto, when the same has become
effective, (B) of any request by the Commission for amendments to the Shelf
Registration Statement or amendments or supplements to the Prospectus or
for additional information relating thereto, (C) of the issuance by the
Commission of any stop order suspending the effectiveness of the Shelf
Registration Statement under the Act or of the suspension by any state
securities commission of the qualification of the Transfer Restricted
Securities for offering or sale in any jurisdiction, or the initiation of
any proceeding for any of the preceding purposes, (D) of the existence of
any fact or the happening of any event that makes any statement of a
material fact made in the Shelf Registration Statement, the Prospectus, any
amendment or supplement thereto or any document incorporated by reference
therein untrue, or that requires the making of any additions to or changes
in the Shelf Registration Statement in order to make the statements therein
not misleading, or that requires the making of any additions to or changes
in the Prospectus in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading. If at any
time the Commission shall issue any stop order suspending the effectiveness
of the Shelf Registration Statement, or any state securities commission or
other regulatory authority shall issue an order suspending the
qualification or exemption from qualification of the Transfer Restricted
Securities under state securities or Blue Sky laws, the Company shall use
all commercially reasonable efforts to obtain the withdrawal or lifting of
such order at the earliest possible time;
(iv) subject to Section 5(b)(i), and except as permitted by
Section 3(b), if any fact or event contemplated by Section 5(b)(iii)(D)
above shall exist or have occurred, prepare a supplement or post-effective
amendment to the Shelf Registration Statement or related Prospectus or any
document incorporated therein by reference or file any other required
document so that, as thereafter delivered to the purchasers of Transfer
Restricted Securities, the Prospectus will not contain an untrue statement
of a material fact or omit to state any material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading;
5
<PAGE>
(v) furnish to the Initial Purchasers, each selling Holder named
in any Shelf Registration Statement or Prospectus and underwriters, if any,
in connection with such sale before filing with the Commission, copies of
any Shelf Registration Statement or any Prospectus included therein or any
amendments or supplements to any such Shelf Registration Statement or
Prospectus, which documents (other than any document incorporated or deemed
to be incorporated by reference in such Shelf Registration Statement) will
be subject to the review and comment of such Persons in connection with
such sale, if any, for a period of at least five Business Days, and the
Company will not file any such Shelf Registration Statement or Prospectus
or any amendment or supplement to any such Shelf Registration Statement or
Prospectus (other than any document that would be incorporated or deemed to
be incorporated by reference in such Shelf Registration Statement) to which
the Holders of a majority of the Transfer Restricted Securities (determined
on a fully converted basis), their counsel, the underwriters or the Initial
Purchasers shall reasonably object within five Business Days after the
receipt thereof. Any such Person shall be deemed to have reasonably
objected to such filing if such Registration Statement, amendment,
Prospectus or supplement, as applicable, as proposed to be filed, contains
a material misstatement or omission or fails to comply with the applicable
requirements of the Act;
(vi) make available at reasonable times for inspection by
the selling Holders and underwriters, if any, and any attorney or
accountant retained by such selling Holders, or underwriters, if any, all
financial and other records, pertinent corporate documents of the Company
and cause the Company's officers, directors and employees to supply all
information reasonably requested by any such selling Holder, underwriters,
if any, attorney or accountant in connection with such Shelf Registration
Statement or any post-effective amendment thereto subsequent to the filing
thereof and prior to its effectiveness;
(vii) if requested by any selling Holders, or underwriters,
if any, in connection with such sale, promptly (subject to Section 3(b))
include in any Shelf Registration Statement or Prospectus, pursuant to a
supplement or post-effective amendment if necessary, such information as
such selling Holders or underwriters, if any, may reasonably request to
have included therein, including, without limitation, information relating
to the "Plan of Distribution" of the Transfer Restricted Securities; and
make all required filings of such Prospectus supplement or post-effective
amendment as soon as practicable after the Company is notified of the
matters to be included in such Prospectus supplement or post-effective
amendment;
(viii) furnish to each selling Holder and each underwriter, if
any, without charge, at least one copy of the Shelf Registration Statement,
as first filed with the Commission, and of each amendment thereto,
including all documents incorporated by reference therein and all exhibits
(including exhibits incorporated therein by reference);
(ix) deliver to each selling Holder and each underwriter, if
any, without charge, as many copies of the Prospectus (including each
preliminary prospectus) and any amendment or supplement thereto as such
Persons reasonably may request; the Company hereby consents to the use (in
accordance with law) of the Prospectus and any amendment or supplement
thereto by each selling Holder and each underwriter, if any, in connection
with the offering and the sale of the Transfer Restricted Securities
covered by the Prospectus or any amendment or supplement thereto;
6
<PAGE>
(x) enter into such agreements (including underwriting
agreements in form, scope and substance as are customary in underwritten
offerings) and make such representations and warranties and take all such
other actions in connection therewith in order to expedite or facilitate
the disposition of the Transfer Restricted Securities pursuant to any Shelf
Registration Statement contemplated by this Agreement as may be reasonably
requested by any underwriter, if any, or the Holders of a majority of the
Transfer Restricted Securities being sold (determined on a fully converted
basis) in connection with any sale or resale pursuant to any applicable
Shelf Registration Statement and in such connection, the Company shall:
(A) upon request of any selling Holder or underwriter, if any,
furnish (or in the case of paragraphs (2) and (3) below, use its best
efforts to cause to be furnished) to each selling Holder or
underwriter, if any, upon the effectiveness of the Shelf Registration
Statement:
(1) a certificate, dated such date, signed on behalf of the
Company by (x) the President or any Vice President and (y) a
principal financial or accounting officer of the Company,
confirming, as of the date thereof, the matters set forth in
Sections 6(a), 9(a) and 9(b) of the Purchase Agreement and such
other similar matters as the Holders of a majority of the
Transfer Restricted Securities (determined on a fully converted
basis) may reasonably request;
(2) an opinion, dated the date of the effectiveness of the
Shelf Registration Statement, of counsel for the Company covering
matters similar to those set forth in Section 9(e) of the
Purchase Agreement and such other matter as the Holders of a
majority of the Transfer Restricted Securities (determined on a
fully converted basis) may reasonably request; and
(3) a customary comfort letter, dated as of the date of
effectiveness of the Shelf Registration Statement from the
Company's independent accountants, in the customary form and
covering matters of the type customarily covered in comfort
letters to underwriters in connection with underwritten
offerings, and affirming the matters set forth in the comfort
letters delivered pursuant to Section 9(g) of the Purchase
Agreement; and
(B) deliver such other documents and certificates as may be
reasonably requested by the Holders of a majority of the Transfer
Restricted Securities (determined on a fully converted basis) being
sold and underwriters, if any, to evidence compliance with clause (A)
above and with any customary conditions contained in the any agreement
entered into by the Company pursuant to this clause (x);
(xi) prior to any public offering of Transfer Restricted
Securities, cooperate with the selling Holders, underwriters, if any, and
their respective counsel in connection with the registration and
qualification of the Transfer Restricted Securities under the securities or
Blue Sky laws of such jurisdictions as such Persons may request and do any
and all other acts or things necessary or advisable to enable the
disposition in such jurisdictions of the Transfer Restricted Securities
covered by the applicable Registration Statement; PROVIDED, HOWEVER, that
the Company shall not be required to register or qualify as a foreign
corporation where it is not now so qualified or to take any action that
would subject it to the service of process in suits or to
7
<PAGE>
taxation, other than as to matters and transactions relating to the Shelf
Registration Statement, in any jurisdiction where it is not now so subject;
(xii) in connection with any sale of Transfer Restricted
Securities that will result in such securities no longer being Transfer
Restricted Securities, cooperate with the selling Holders to facilitate the
timely preparation and delivery of certificates representing Transfer
Restricted Securities to be sold and not bearing any restrictive legends;
and to register such Transfer Restricted Securities in such denominations
and such names as the selling Holders may request at least two Business
Days prior to such sale of Transfer Restricted Securities;
(xiii) (i) list all Shares of Common Stock covered by such
Shelf Registration Statement on any securities exchange on which the Common
Stock is then listed or (ii) authorize for quotation on the National
Association of Securities Dealers Automated Quotation System ("NASDAQ") or
the National Market System of NASDAQ all Shares of Common Stock covered by
such Shelf Registration Statement if the Common Stock is then so authorized
for quotation.
(xiv) use its best efforts to cause the disposition of the
Transfer Restricted Securities covered by the Shelf Registration Statement
to be registered with or approved by such other governmental agencies or
authorities as may be necessary to enable the seller or sellers thereof to
consummate the disposition of such Transfer Restricted Securities, subject
to the proviso contained in clause (xii) above;
(xv) provide a CUSIP number for all Transfer Restricted
Securities not later than the effective date of a Shelf Registration
Statement covering such Transfer Restricted Securities and provide the
Trustee under the Indenture with printed certificates for the Transfer
Restricted Securities which are in a form eligible for deposit with the
Depository Trust Company;
(xvi) otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission, and make generally
available to its security holders with regard to any applicable
Registration Statement, as soon as practicable, a consolidated earnings
statement meeting the requirements of Rule 158 (which need not be audited)
covering a twelve-month period beginning after the effective date of the
Registration Statement (as such term is defined in paragraph (c) of Rule
158 under the Act);
(xvii) with respect to an underwritten offering, make
appropriate officers of the Company available to the selling Holders and
underwriters, if any, for meetings with prospective purchasers of the
Transfer Restricted Securities and prepare and present to potential
investors customary "road show" material in a manner consistent with other
new issuances of other securities similar to the Transfer Restricted
Securities, PROVIDED, that such officers shall not be required to
participate in more than one "road show" in any six-month period; and
(xviii) cause the Indenture to be qualified under the TIA not
later than the effective date of the Shelf Registration Statement required
by this Agreement and, in connection therewith, cooperate with the Trustee
and the Holders to effect such changes to the Indenture as may be required
for such Indenture to be so qualified in accordance with the terms of the
TIA; and execute and use commercially reasonable efforts to cause the
Trustee to execute, all documents that may be required to effect such
changes and all other forms and documents required to be filed with the
Commission to enable such Indenture to be so qualified in a timely manner;
and
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(xix) provide promptly to any Holder upon request each
document filed with the Commission pursuant to the requirements of Section
13 or Section 15(d) of the Exchange Act.
(d) RESTRICTIONS ON HOLDERS. Each Holder agrees by acquisition of a
Transfer Restricted Security that, upon receipt of the notice referred to in
Section 5(b)(iii)(C) or any notice from the Company of the existence of any fact
of the kind described in Section 5(b)(iii)(D) hereof (in each case, a
"SUSPENSION NOTICE"), such Holder will forthwith discontinue disposition of
Transfer Restricted Securities pursuant to the applicable Registration Statement
until (i) such Holder has received copies of the supplemented or amended
Prospectus contemplated by Section 5(b)(iv) hereof, or (ii) such Holder is
advised in writing by the Company that the use of the Prospectus may be resumed,
and has received copies of any additional or supplemental filings that are
incorporated by reference in the Prospectus (in each case, the "RECOMMENCEMENT
DATE"). Each Holder receiving a Suspension Notice hereby agrees that it will
either (i) destroy any Prospectuses, other than permanent file copies, then in
such Holder's possession which have been replaced by the Company with more
recently dated Prospectuses or (ii) deliver to the Company (at the Company's
expense) all copies, other than permanent file copies, then in such Holder's
possession of the Prospectus covering such Transfer Restricted Securities that
was current at the time of receipt of the Suspension Notice. The time period
regarding the effectiveness of the Shelf Registration Statement set forth in
Section 3 hereof, as applicable, shall be extended by a number of days equal to
the number of days in the period from and including the date of delivery of the
Suspension Notice to the date of delivery of the Recommencement Date.
SECTION 6. REGISTRATION EXPENSES
(a) All expenses incident to the Company's performance of or
compliance with this Agreement will be borne by the Company, regardless of
whether a Shelf Registration Statement required by this Agreement becomes
effective, including without limitation: (i) all registration and filing fees
and expenses; (ii) all fees and expenses of compliance with federal securities
and state Blue Sky or securities laws; (iii) all expenses of printing (including
printing certificates for the Common Stock to be issued upon conversion of the
Notes and printing of Prospectuses), messenger and delivery services and
telephone; (iv) all fees and disbursements of counsel for the Company and the
Holders of Transfer Restricted Securities; (v) all application and filing fees
in connection with listing the Common Stock on a national securities exchange or
automated quotation system pursuant to the requirements hereof; and (vi) all
fees and disbursements of independent certified public accountants of the
Company (including the expenses of any special audit and comfort letters
required by or incident to such performance).
The Company will, in any event, bear its internal expenses (including,
without limitation, all salaries and expenses of its officers and employees
performing legal or accounting duties), the expenses of any annual audit and the
fees and expenses of any Person, including special experts, retained by the
Company.
(b) In connection with any Shelf Registration Statement required by
this Agreement, the Company will reimburse the Initial Purchasers and the
Holders selling Transfer Restricted Securities pursuant to the "Plan of
Distribution" contained in the Shelf Registration Statement, for the reasonable
fees and disbursements of not more than one counsel, who shall be Latham &
Watkins, unless another firm shall be chosen by the Holders of a majority in
principal amount of the Transfer Restricted Securities for whose benefit such
Shelf Registration Statement is being prepared.
9
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SECTION 7. INDEMNIFICATION
(a) The Company agrees to indemnify and hold harmless each Holder,
its directors, its officers and each Person, if any, who controls such Holder
(within the meaning of Section 15 of the Act and Section 20 of the Exchange Act)
(each such person being sometimes referred to herein as an "INDEMNIFIED
HOLDER"), from and against any and all losses, claims, damages, liabilities,
judgments, (including without limitation, any legal or other expenses incurred
in connection with investigating or defending any matter, including any action
that could give rise to any such losses, claims, damages, liabilities or
judgments) caused by any untrue statement or alleged untrue statement of a
material fact contained in any Shelf Registration Statement, preliminary
prospectus or Prospectus (or any amendment or supplement thereto) provided by
the Company to any holder or any prospective purchaser of registered Notes or
registered shares of Common Stock or caused by any omission or alleged omission
to state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, except insofar as such losses,
claims, damages, liabilities or judgments are caused by an untrue statement or
omission or alleged untrue statement or omission that is based upon information
relating to any of the Holders furnished in writing to the Company by any of the
Holders.
(b) Each Holder of Transfer Restricted Securities agrees, severally
and not jointly, to indemnify and hold harmless the Company and its directors
and officers, and each person, if any, who controls (within the meaning of
Section 15 of the Act or Section 20 of the Exchange Act) the Company, to the
same extent as the foregoing indemnity from the Company to each of the
Indemnified Holders, but only with reference to information relating to such
Indemnified Holder furnished in writing to the Company by such Indemnified
Holder expressly for use in any Registration Statement. In no event shall any
Indemnified Holder be liable or responsible for any amount in excess of the
amount by which the total amount received by such Indemnified Holder with
respect to its sale of Transfer Restricted Securities pursuant to a Shelf
Registration Statement exceeds (i) the amount paid by such Indemnified Holder
for such Transfer Restricted Securities and (ii) the amount of any damages that
such Indemnified Holder has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission.
(c) In case any action shall be commenced involving any person in
respect of which indemnity may be sought pursuant to Section 7(a) or 7(b) (the
"INDEMNIFIED PARTY"), the indemnified party shall promptly notify the person
against whom such indemnity may be sought (the "INDEMNIFYING PERSON") in writing
and the indemnifying party shall assume the defense of such action, including
the employment of counsel reasonably satisfactory to the indemnified party and
the payment of all fees and expenses of such counsel, as incurred (except that
in the case of any action in respect of which indemnity may be sought pursuant
to both Sections 7(a) and 7(b), an Indemnified Holder shall not be required to
assume the defense of such action pursuant to this Section 7(c), but may employ
separate counsel and participate in the defense thereof, but the fees and
expenses of such counsel, except as provided below, shall be at the expense of
the Indemnified Holder). Any indemnified party shall have the right to employ
separate counsel in any such action and participate in the defense thereof, but
the fees and expenses of such counsel shall be at the expense of the indemnified
party unless (i) the employment of such counsel shall have been specifically
authorized in writing by the indemnifying party, (ii) the indemnifying party
shall have failed to assume the defense of such action or employ counsel
reasonably satisfactory to the indemnified party or (iii) the named parties to
any such action (including any impleaded parties) include both the indemnified
party and the indemnifying party, and the indemnified party shall have been
advised by such counsel that there may be one or more legal defenses available
to it which are different from or additional to those available to the
indemnifying party (in which case the indemnifying party shall not have the
right to assume the defense of such action on behalf of the indemnified party).
In any such case,
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the indemnifying party shall not, in connection with any one action or separate
but substantially similar or related actions in the same jurisdiction arising
out of the same general allegations or circumstances, be liable for the fees and
expenses of more than one separate firm of attorneys (in addition to any local
counsel) for all indemnified parties and all such fees and expenses shall be
reimbursed as they are incurred. Such firm shall be designated in writing by a
majority of the Indemnified Holders, in the case of the parties indemnified
pursuant to Section 7(a), and by the Company, in the case of parties indemnified
pursuant to Section 7(b). The indemnifying party shall indemnify and hold
harmless the indemnified party from and against any and all losses, claims,
damages, liabilities and judgments by reason of any settlement of any action (i)
effected with its written consent or (ii) effected without its written consent
if the settlement is entered into more than twenty business days after the
indemnifying party shall have received a request from the indemnified party for
reimbursement for the fees and expenses of counsel (in any case where such fees
and expenses are at the expense of the indemnifying party) and, prior to the
date of such settlement, the indemnifying party shall have failed to comply with
such reimbursement request. No indemnifying party shall, without the prior
written consent of the indemnified party, effect any settlement or compromise
of, or consent to the entry of judgment with respect to, any pending or
threatened action in respect of which the indemnified party is or could have
been a party and indemnity or contribution may be or could have been sought
hereunder by the indemnified party, unless such settlement, compromise or
judgment (i) includes an unconditional release of the indemnified party from all
liability on claims that are or could have been the subject matter of such
action and (ii) does not include a statement as to or an admission of fault,
culpability or a failure to act, by or on behalf of the indemnified party.
(d) To the extent that the indemnification provided for in this
Section 7 is unavailable to an indemnified party in respect of any losses,
claims, damages, liabilities or judgments referred to therein, then each
indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages, liabilities or judgments (i) in such proportion
as is appropriate to reflect the relative benefits received by the Company, on
the one hand, and the Holders, on the other hand, from their sale of Transfer
Restricted Securities or (ii) if the allocation provided by clause 7(d)(i) is
not permitted by applicable law, in such proportion as is appropriate to reflect
not only the relative benefits referred to in clause 7(d)(i) above but also the
relative fault of the Company on the one hand, and of the Indemnified Holder, on
the other hand, in connection with the statements or omissions which resulted in
such losses, claims, damages, liabilities or judgments, as well as any other
relevant equitable considerations. The relative fault of the Company, on the
one hand, and of the Indemnified Holder, on the other hand, shall be determined
by reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by the Company, on the one hand,
or by the Indemnified Holder, on the other hand, and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission. The amount paid or payable by a party as a result
of the losses, claims, damages, liabilities and judgments referred to above
shall be deemed to include any legal or other fees or expenses reasonably
incurred by such party in connection with investigating or defending any action
or claim.
The Company and each Holder and underwriter, if any, agree that it
would not be just and equitable if contribution pursuant to this Section 7(d)
were determined by pro rata allocation (even if the Holders and underwriter, if
any, were treated as one entity for such purpose) or by any other method of
allocation which does not take account of the equitable considerations referred
to in the immediately preceding paragraph. The amount paid or payable by an
indemnified party as a result of the losses, claims, damages, liabilities or
judgments referred to in the immediately preceding paragraph shall be deemed to
include, subject to the limitations set forth above, any legal or other expenses
11
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reasonably incurred by such indemnified party in connection with investigating
or defending any matter, including any action that could have given rise to such
losses, claims, damages, liabilities or judgments. Notwithstanding the
provisions of this Section 7, no Holder or its related Indemnified Holders shall
be required to contribute, in the aggregate, any amount in excess of the amount
by which the total received by such Holder with respect to the sale of its
Transfer Restricted Securities pursuant to a Shelf Registration Statement
exceeds the sum of (A) the amount paid by such Holder for such Transfer
Restricted Securities PLUS (B) the amount of any damages which such Holder has
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The Holders' obligations to contribute pursuant to this
Section 7(d) are several in proportion to the respective principal amount of
Transfer Restricted Securities held by each of the Holders hereunder and not
joint.
SECTION 8. RULE 144 AND RULE 144A
The Company agrees with each Holder, for so long as any Transfer
Restricted Securities remain outstanding and during any period in which the
Company (i) is not subject to Section 13 or 15(d) of the Exchange Act, to make
available, upon request of any Holder of Transfer Restricted Securities, to any
Holder or beneficial owner of Transfer Restricted Securities in connection with
any sale thereof and any prospective purchaser of Transfer Restricted Securities
designated by such Holder or beneficial owner, the information required by Rule
144(d)(4) under the Act in order to permit resales of such Transfer Restricted
Securities pursuant to Rule 144A, and (ii) is subject to Section 13 or 15(d) of
the Exchange Act, to make all filings required thereby in a timely manner in
order to permit resales of such Transfer Restricted Securities pursuant to Rule
144.
SECTION 9. UNDERWRITTEN REGISTRATIONS
(a) If any of the Transfer Restricted Securities covered by any Shelf
Registration Statement are to be sold in an underwritten offering, the
investment banker or investment bankers and manager or managers that will
administer the offering will be selected by the Holders of a majority in amount
of such Transfer Restricted Securities included in such offering, subject to the
consent of the Company (which will not be unreasonably withheld or delayed).
No Holder of Transfer Restricted Securities may participate in any
underwritten registration hereunder unless such Holder (i) agrees to sell its
Transfer Restricted Securities on the basis reasonably provided in any
underwriting arrangements approved by the Persons entitled hereunder to approve
such arrangements and (ii) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents required
under the terms of such underwriting arrangements.
(b) Each Holder of Transfer Restricted Securities agrees, if
requested (pursuant to a timely written notice) by the managing underwriters in
an underwritten offering made pursuant to a Shelf Registration Statement, not to
effect any private sale or distribution (including a sale pursuant to Rule
144(k) and Rule 144A, but excluding non-public sales to any of its affiliates,
officers, directors, employees and controlling persons) of any of the Notes, in
the case of an underwritten offering of the Notes, or the Common Stock, in the
case of an underwritten offering of shares of Common Stock constituting Transfer
Restricted Securities, during the period beginning 10 days prior to, and ending
90 days after, the closing date of such underwritten offering.
12
<PAGE>
The foregoing provisions of Section 9(b) shall not apply to any Holder
of Transfer Restricted Securities if such Holder is prevented by applicable
statute or regulation from entering into any such agreement.
(c) If any of the Transfer Restricted Securities covered by any Shelf
Registration are to be sold in an underwritten offering, the underwriters, their
controlling persons and their respective officers, directors, employees,
representatives and agents, shall be entitled to indemnity (substantially
similar to the indemnity set forth in Section 7 of the Agreement) from the
Company and the Holders, which indemnity may be set forth in an underwriting
agreement.
SECTION 10. MISCELLANEOUS
(a) REMEDIES. The Company acknowledge and agree that any failure by
the Company to comply with its obligations under Section 3 hereof may result in
material irreparable injury to the Initial Purchasers or the Holders for which
there is no adequate remedy at law, that it will not be possible to measure
damages for such injuries precisely and that, in the event of any such failure,
the Initial Purchasers or any Holder may obtain such relief as may be required
to specifically enforce the Company's obligations under Section 3 hereof. The
Company further agree to waive the defense in any action for specific
performance that a remedy at law would be adequate.
(b) NO INCONSISTENT AGREEMENTS. The Company will not, on or after
the date of this Agreement, enter into any agreement with respect to its
securities that is inconsistent with the rights granted to the Holders in this
Agreement or otherwise conflicts with the provisions hereof. The Company has
not previously entered into any agreement (which has not expired or been
terminated or waived) granting any registration rights with respect to its
securities to any Person. The rights granted to the Holders hereunder do not in
any way conflict with and are not inconsistent with the rights granted to the
holders of the Company's securities under any agreement in effect on the date
hereof.
(c) NO PIGGYBACKS ON SHELF REGISTRATION STATEMENT. The Company shall
not grant to any of its security holders (other than the holders of Transfer
Restricted Securities in such capacity) the right to include any of its
securities in any Shelf Registration Statement provided for in this Agreement
other than the Transfer Restricted Securities.
(d) AMENDMENTS AND WAIVERS. The provisions of this Agreement may not
be amended, modified or supplemented, and waivers or consents to or departures
from the provisions hereof may not be given unless (i) in the case of Section 4
hereof and this Section 10(d)(i), the Company has obtained the written consent
of Holders of all outstanding Transfer Restricted Securities and (ii) in the
case of all other provisions hereof, the Company has obtained the written
consent of Holders of a majority of the outstanding principal amount (and
shares, if applicable) of Transfer Restricted Securities (excluding Transfer
Restricted Securities held by the Company or its Affiliates).
(e) THIRD PARTY BENEFICIARY. The Holders shall be third party
beneficiaries to the agreements made hereunder between the Company, on the one
hand, and the Initial Purchasers, on the other hand, and shall have the right to
enforce such agreements directly to the extent they may deem such enforcement
necessary or advisable to protect its rights or the rights of Holders hereunder.
13
<PAGE>
(f) NOTICES. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, first-class mail
(registered or certified, return receipt requested), telex, telecopier, or air
courier guaranteeing overnight delivery:
(i) if to a Holder, at the address set forth on the records
of the Registrar under the Indenture, with a copy to the Registrar under
the Indenture; and
(ii) if to the Company: PETsMART, Inc.
19601 North 27th Avenue
Phoenix, Arizona 85027
Telecopier No.: (602) 580-6517
Attention: Chief Executive Officer
With a copy to: Cooley Godward LLP
Five Palo Alto Square
3000 El Camino Real
Palo Alto, California 94306-2155
Telecopier No.: (415) 843-5000
Attention: Robert J. Brigham, Esq.
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five Business
Days after being deposited in the mail, postage prepaid, if mailed; when receipt
acknowledged, if telecopied; and on the next business day, if timely delivered
to an air courier guaranteeing overnight delivery.
Copies of all such notices, demands or other communications shall be
concurrently delivered by the Person giving the same to the Trustee at the
address specified in the Indenture.
(g) SUCCESSORS AND ASSIGNS. This Agreement shall inure to the
benefit of and be binding upon the successors and assigns of each of the
parties, including without limitation and without the need for an express
assignment, subsequent Holders of Transfer Restricted Securities; PROVIDED, that
nothing herein shall be deemed to permit any assignment, transfer or other
disposition of Transfer Restricted Securities in violation of the terms hereof
or of the Purchase Agreement or the Indenture. If any transferee of any Holder
shall acquire Transfer Restricted Securities in any manner, whether by operation
of law or otherwise, such Transfer Restricted Securities shall be held subject
to all of the terms of this Agreement, and by taking and holding such Transfer
Restricted Securities such Person shall be conclusively deemed to have agreed to
be bound by and to perform all of the terms and provisions of this Agreement,
including the restrictions on resale set forth in this Agreement and, if
applicable, the Purchase Agreement, and such Person shall be entitled to receive
the benefits hereof.
(h) COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(i) HEADINGS. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
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(j) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE
CONFLICT OF LAW RULES THEREOF.
(k) SEVERABILITY. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstance, is
held invalid, illegal or unenforceable, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions contained herein shall not be affected or impaired thereby.
(l) ENTIRE AGREEMENT. This Agreement is intended by the parties as a
final expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein
with respect to the registration rights granted with respect to the Transfer
Restricted Securities. This Agreement supersedes all prior agreements and
understandings between the parties with respect to such subject matter.
15
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
PETsMART, INC.
By: /s/ Susan C. Schnabel
---------------------------------------
Name: Susan C. Schnabel
Title: Senior Vice President and
Chief Financial Officer
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
NATIONSBANC MONTGOMERY SECURITIES, INC.
By: DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By: /s/ Michael McCartney
-------------------------------
Name: Michael McCartney
Title: Vice President
S-1
<PAGE>
[LETTERHEAD]
November 24, 1997
PETsMART, Inc.
19601 N. 27th Avenue
Phoenix, AZ 85027
Ladies and Gentlemen:
You have requested our opinion with respect to certain matters in connection
with the filing by PETsMART, Inc. (the "Company") of a Registration Statement on
Form S-3 (the "Registration Statement") with the Securities and Exchange
Commission with respect to $200,000,000 aggregate principal amount of the
Company's 6-3/4% Convertible Subordinated Notes due 2004 (the "Convertible
Notes"), issued pursuant to the Indenture dated as of November 7, 1997 (the
"Indenture") between the Company and Norwest Bank Minnesota, N.A., as trustee,
and the shares of the Company's Common Stock, $0.0001 par value per share, into
which the Convertible Notes are convertible (the "Conversion Shares").
In connection with this opinion, we have examined the form of Convertible Notes,
the Indenture, the Registration Statement and related Prospectus, your Restated
Certificate of Incorporation, as amended, and Bylaws, as amended, and such other
documents, records, certificates, memoranda and other instruments as we deem
necessary as a basis for this opinion. We have assumed the genuineness and
authenticity of all documents submitted to us as originals, the conformity to
originals of all documents submitted to us as copies thereof, the due execution,
delivery and binding effect of all documents where due execution and delivery
are a prerequisite to the effectiveness thereof, and that there are no extrinsic
agreements or understandings among the parties that would modify or interpret
the terms of the agreements or the respective rights or obligations of the
parties thereunder. With respect to our opinion as to the enforceability of the
Convertible Notes, we have relied upon the opinion of Reed Smith Shaw & McClay
LLP.
Our opinion is expressed only with respect to the federal laws of the United
States of America, the General Corporation Law of the State of Delaware and the
laws of the State of California. We express no opinion as to whether the laws
of any particular jurisdiction other than those identified above are applicable
to the subject matter hereof.
On the basis of the foregoing, and in reliance thereon, we are of the opinion
that:
A. The Convertible Notes have been duly authorized, executed and
delivered and are valid and binding obligations of the Company, subject to
applicable bankruptcy, insolvency, reorganization, arrangement, moratorium or
other similar laws affecting creditors' rights, and subject to general equity
principles and to limitations on availability of equitable relief, including
specific performance.
<PAGE>
[LOGO]
PETsMART, Inc.
November 24, 1997
Page 2
B. The Conversion Shares, when issued and delivered upon conversion
of the Convertible Notes, in accordance with the Indenture, will be validly
issued, fully paid, and nonassessable.
This opinion is intended solely for your benefit and is not to be made available
to or be relied upon by any other person, firm, or entity without our prior
written consent.
We consent to the filing of this opinion as an exhibit to the Registration
Statement.
Very truly yours,
COOLEY GODWARD LLP
By: /s/ Robert J. Brigham
--------------------------------
Robert J. Brigham
<PAGE>
SECOND AMENDMENT TO
THIRD AMENDED AND RESTATED CREDIT AGREEMENT
THIS SECOND AMENDMENT TO THIRD AMENDED AND RESTATED CREDIT AGREEMENT (this
"Second Amendment"), dated as of October 29, 1997 is entered into among
PETsMART, INC., a Delaware corporation (the "Company"), the banks listed on the
signature pages hereof (the "Lenders") and NATIONSBANK OF TEXAS, N.A., as
Administrative Lender (in said capacity, the "Administrative Lender").
BACKGROUND
A. The Company, the Lenders and the Administrative Lender heretofore
entered into that certain Third Amended and Restated Credit Agreement, dated as
of April 18, 1997, as amended by that certain First Amendment to Third Amended
and Restated Credit Agreement dated as of August 6, 1997 (as amended, the
"Credit Agreement"). The terms defined in the Credit Agreement and not
otherwise defined herein shall be used herein as defined in the Credit
Agreement.
B. The Company, the Lenders and the Administrative Lender desire to amend
the Credit Agreement.
NOW, THEREFORE, in consideration of the covenants, conditions and
agreements hereafter set forth, and for other good and valuable consideration,
the receipt and adequacy of which are all hereby acknowledged, the Company, the
Lenders and the Administrative Lender covenant and agree as follows:
1. AMENDMENTS.
(a) The following definitions are added to SECTION 1.1 of the Credit
Agreement in proper alphabetical order:
"CAPITALIZATION" means Total Debt plus Stockholder's Equity.
"CONVERTIBLE SUBORDINATED NOTES" means convertible
subordinated notes to be issued by the Company pursuant to the
terms of the prospectus which is attached hereto as Exhibit F,
which Exhibit F is incorporated herein by reference, for the
purpose of describing such notes, with only such amendments,
modifications, or waivers that are acceptable to Majority
Lenders.
"DEBT RATIO" means, as of any date of determination, for the
Company and its Subsidiaries, on a consolidated basis, the ratio
of
<PAGE>
(a) Total Debt as of the date of determination plus (i) the sum of
lease expense pursuant to Operating Leases (such lease expense to be
in an amount equal to the product of lease expense pursuant to
Operating Leases for the four fiscal quarters immediately preceding
the date of determination multiplied by eight) minus (ii) cash and
Cash Equivalents in aggregate amount in excess of $50,000,000 to
(b) EBITDA for the four fiscal quarters immediately preceding the date
of determination plus lease expense pursuant to Operating Leases for
the four fiscal quarters immediately preceding the date of
determination.
"STOCKHOLDER'S EQUITY" means stockholder's equity of the
Company and its Subsidiaries as from time to time stated and
described in the consolidated financial statements and
consolidated balance sheets provided to the Lenders by the
Company and prepared under GAAP.
"WORKING CAPITAL" means (a) the sum of the Company's cash
and Cash Equivalents of the Company and its Subsidiaries (1) IN
EXCESS OF $50,000,000, plus (b) the sum of trade receivables and
inventory minus trade payables of the Company and its
Subsidiaries.
(b) Section 2.3(a) of the Credit Agreement is hereby amended to read
as follows:
"(a) COMMITMENT FEE. Subject to Section 10.9 hereof, the Company
agrees to pay to the Administrative Lender, for the ratable account of
the Lenders, a commitment fee (which shall be payable quarterly in
arrears on each Quarterly Date and on the Maturity Date) based on the
daily average unused portion of the Commitment (subject to
Section 10.9 hereof, computed on the basis of a year of 360-day year
for the actual number of days elapsed) at the following per annum
percentages, applicable in the following situations:
Applicability Percentage
--------------- ----------
(A) If the Fixed Charges Coverage Ratio is greater 0.200%
than or equal to 2.00 to 1
(B) If the Fixed Charges Coverage Ratio is less than 0.300%
2.00 to 1 but is equal to or greater than 1.75
to 1
(C) If the Fixed Charges Coverage Ratio is less than 0.350%
1.75 to 1 but is equal to or greater than 1.50
to 1
- 2 -
<PAGE>
(D) If the Fixed Charges Coverage Ratio is less than 0.375%
1.50 to 1 but is greater than or equal to 1.25
to 1
(E) If the Fixed Charges Coverage Ratio is less than 0.400%
1.25 to 1
For purposes of calculation of the commitment fee, Letters of Credit
outstanding from time to time will reduce the unused portion of the
Commitment. The commitment fee shall be subject to reduction or
increase, as applicable and as set forth above, on a quarterly basis
according to the performance of the Company as tested by the Fixed
Charges Coverage Ratio. Any such increase or decrease in such fee
shall be effective on the fifth day following the date of receipt by
the Administrative Lender of the financial statements required
pursuant to Section 6.14(a) or 6.14(b) hereof, as appropriate. If
such financial statements are not received by the fifth day following
the date required, the commitment fee shall be determined as if the
Fixed Charges Coverage Ratio is less than 1.25 to 1 until such time as
such financial statements are received. From and including
October 29, 1997 to the date of the initial adjustment of the
commitment fee to be made as provided above, the percentage shall be
0.375%."
(c) The definition of "APPLICABLE MARGIN" set forth in Section 1.1 of
the Credit Agreement is hereby amended to read as follows:
"APPLICABLE MARGIN' shall mean the following per annum
percentages, applicable in the following situations:
Applicability LIBOR Margin
------------- -----------
(i) If the Fixed Charges Coverage Ratio is equal 0.500%
to or greater than 2.00 to 1
(ii) If the Fixed Charges Coverage Ratio is 0.750%
less than 2.00 to 1 but is equal to or
greater than 1.75 to 1
(iii) If the Fixed Charges Coverage Ratio is 0.875%
less than 1.75 to 1 but is equal to or
greater than 1.50 to 1
(iv) If the Fixed Charges Coverage Ratio is 1.125%
less than 1.50 to 1 but is greater than
or equal to 1.25 to 1
(v) If the Fixed Charges Coverage Ratio is less 1.500%
than 1.25 to 1
- 3 -
<PAGE>
The Applicable Margin payable by the Company on the Advances
outstanding hereunder shall be subject to reduction or increase, as
applicable and as set forth in the table above, on a quarterly basis
according to the Fixed Charges Coverage Ratio; PROVIDED, that each
adjustment in the Applicable Margin shall be effective as of the fifth
day following the date of receipt by the Administrative Lender of the
financial statements required pursuant to Section 6.14(a) or 6.14(b)
hereof, as appropriate. If financial statements of the Company (and
corresponding Quarterly Compliance Certificate setting forth the Fixed
Charges Coverage Ratio) are not received by the Administrative Lender
by the fifth day following the date required pursuant to
Section 6.14(a) or 6.14(b) hereof, as appropriate, the Applicable
Margin shall be determined as if the Fixed Charges Coverage Ratio is
less than 1.25 to 1 until such time as such financial statements and
Quarterly Compliance Certificate are received. The Applicable Margin
from and including October 29, 1997 to the date of the initial
adjustment to be made therein as provided above shall be 1.125%. If,
on or at any time after April 29, 1998, the Company has a rating of BB
or better from S&P or Ba2 or better from Moody's, and the Fixed Charge
Coverage Ratio is less than 2.00 to 1 but equal to or greater than
1.25 to 1, then the LIBOR Margin then in effect shall be reduced by
subtracting 0.125 therefrom. Any decrease or increase in the LIBOR
Margins based on a change in the Company's rating by S&P or Moody's
shall be effective as of the fifth day following any such change in
the rating which requires a change in the LIBOR Margin used to
calculate the Applicable Margin."
(d) Section 6.2 of the Credit Agreement is amended by the addition of
the following prior to the period at the end of Section 6.2:
", (j) Indebtedness of Foreign Subsidiaries not in excess of
$25,000,000 in the aggregate, (k) Indebtedness in respect of the
Convertible Subordinated Notes; and (l) subordinated debt issued
at all times under terms acceptable to Majority Lenders, provided
that (i) no Default or Event of Default exists immediately prior
to or after incurring such Indebtedness, and (ii) the Company is
in compliance with all covenants under this Agreement on an
actual and a pro forma basis"
(e) Section 6.7(g) of the Credit Agreement is hereby amended to read
as follows:
"(g)(i) Investments in Foreign Subsidiaries which have not
executed a Subsidiary Guaranty not to exceed $40,000,000 in
aggregate amount (excluding Investments in Foreign Subsidiaries
shown on SCHEDULE IV hereto) provided that (A) no Default or
Event of Default shall have occurred or be continuing or would
occur after giving effect thereto and (B) the Administrative
Lender has been granted a first priority
- 4 -
<PAGE>
security interest in 65% of the capital stock of such Foreign
Subsidiary pursuant to a Pledge Agreement, and"
(f) Section 6.1(b) of the Credit Agreement is hereby amended to read
as follows:
"(b) FIXED CHARGES COVERAGE RATIO. The Fixed Charges Coverage
Ratio shall not be less than (i) 1.20 to 1 at the end of any fiscal
quarter of the Company through fiscal year 1998, (ii) 1.25 to 1 at the
end of any fiscal quarter of the Company thereafter through the end of
the fiscal year 1999, (iii) 1.35 to 1 at the end of any fiscal quarter
of the Company thereafter through the end of fiscal year 2000, and
(iv) 1.40 to 1 at the end of any fiscal quarter of the Company
thereafter."
(g) Section 6.1(e) of the Credit Agreement is hereby amended to read
as follows:
"(e) DEBT RATIO. The Debt Ratio shall not be more than (i)
6.75 to 1 at the end of any fiscal quarter of the Company through
fiscal year 1998, and (ii) 6.0 to 1 at the end of any fiscal
quarter of the Company thereafter."
(h) The Quarterly Compliance Certificate is hereby amended to be in
the form of EXHIBIT "A" to this Second Amendment.
(i) Section 6.1(c) of the Credit Agreement is hereby deleted in its
entirety and replaced with the following:
"(c) TOTAL DEBT TO CAPITALIZATION. The ratio of Total Debt
to Capitalization shall at no time be greater than .50 to 1."
(j) Section 6.1(d) of the Credit Agreement is hereby amended to read
as follows:
"CAPITAL EXPENDITURES. Capital Expenditures (excluding any
Capital Expenditures in respect of any (i) Capital Leases and
(ii) Acquisitions, permitted pursuant to Section 6.8 hereof) paid or
incurred during any fiscal year of the Company set forth below shall
not exceed the amount set forth below:
Fiscal Year ending 1/31/98 $75,000,000
any Fiscal Year ending thereafter $85,000,000"
(k) Section 6.5(a) of the Credit Agreement is amended in its entirety
to read as follows:
- 5 -
<PAGE>
"(a) liquidate or dissolve itself (or suffer any liquidation or
dissolution) or otherwise wind up; or sell, lease, abandon, assign, or
otherwise dispose of all or any part of its assets, properties or
business, except (i) immaterial sales or dispositions of assets in the
ordinary course of business, including dispositions of obsolete or
useless assets, (ii) disposition of assets, including capital stock,
of the Company or any Subsidiary, provided that (A) the aggregate
value of the assets disposed of from October 29, 1997, through the
date of any such disposition, including the value of assets to be
disposed of by such disposition, shall not exceed, as of the date of
such disposition, 10% of the consolidated value of the assets of the
Company and the Subsidiaries calculated as the greater of book value
and fair market value of such consolidated assets, (B) the disposition
of such assets does not result in the release or disposition of
collateral or guaranties securing the Company's obligations hereunder,
and (C) 100% of the proceeds of such disposition shall be applied to
prepay Advances hereunder, (iii) sale-leaseback transactions in which
the consideration received is at least equal to the fair market value
of the asset sold or (iv) the Company's Ennis warehouse and
underperforming or replacement stores listed on Schedule 6.5 hereto
and related inventory and inventory and fixtures related to the
discontinuance of Discovery Centers and 3 Dog Bakeries.
Notwithstanding the foregoing, a wholly owned Subsidiary of the
Company may be dissolved or liquidated, so long as such Subsidiary
owns no assets and conducts no business; or"
(l) Section 10.2(a) of the Credit Agreement is hereby amended in its
entirety to read as follows:
"(a) If to the Company:
PETsMART, Inc.
19601 North 27th Avenue
Phoenix, Arizona 85027
Attention: Chief Financial Officer
with a copy to:
Cooley Godward L.L.P.
5 Palo Alto Square
3000 El Camino Real
Palo Alto, California 94306
Attention: Pamela J. Martinson"
(m) A new Subsection 6.1(f) is hereby added to Section 6.1 of the
Credit Agreement and shall read as follows:
- 6 -
<PAGE>
"(f) BORROWING BASE. Notwithstanding any of the terms of
this Agreement, until the Company has achieved a Fixed Charges
Coverage Ratio in excess of 1.40 to 1 for two consecutive fiscal
quarters after the conclusion of the third fiscal quarter of
1997, no Advance shall be made to the Company and the Company
shall not request any Advance hereunder to the extent that such
Advance would cause (i) the sum of (A) Advances hereunder, plus
(B) Reimbursement Obligations, plus (C) outstanding Advances
under the Amended and Restated Credit Agreement dated as of
April 18, 1997 among Arizona Funding Corporation and certain
lenders, including Administrative Lender, to exceed (ii) 50% of
Working Capital."
(n) The Credit Agreement is hereby amended by adding the prospectus
attached to this Second Amendment as Exhibit B as a new Exhibit F.
(o) Section 4.2 of the Credit Agreement is hereby amended by
replacing the reference to "Section 2.2(a)" therein with "Section 2.2".
2. REPRESENTATIONS AND WARRANTIES TRUE; NO EVENT OF DEFAULT. By its
execution and delivery hereof, Company represents and warrants that, as of the
date hereof and after giving effect to the amendments contemplated by the
foregoing Section 1 and the issuance of the Convertible Subordinated Notes:
(a) the representations and warranties contained in the Credit
Agreement are true and correct on and as of the date hereof as made on and
as of such date;
(b) no event has occurred and is continuing which constitutes a
Default or an Event of Default;
(c) The Company has full power and authority to execute and deliver
this Second Amendment, and this Second Amendment and the Credit Agreement,
as amended hereby, constitute the legal, valid and binding obligations of
the Company, enforceable in accordance with their respective terms, except
as enforceability may be limited by applicable debtor relief laws and by
general principles of equity (regardless of whether enforcement is sought
in a proceeding in equity or at law) and except as rights to indemnity may
be limited by federal or state securities laws; and
(d) no authorization, approval, consent, or other action by, notice
to, or filing with, any governmental authority or other Person (other than
the Board of Directors of the Company) is required for the execution,
delivery or performance by Company of this Second Amendment.
3. CONDITIONS OF EFFECTIVENESS. This Second Amendment shall be effective
as of the date first above written, subject to the following:
- 7 -
<PAGE>
(a) The Administrative Lender shall have received counterparts of
this Second Amendment executed by the Lenders comprising the Majority
Lenders;
(b) The Administrative Lender shall have received counterparts of
this Second Amendment executed by the Company and acknowledged by each
Guarantor (as hereinafter defined);
(c) The Administrative Lender shall have received a certified
corporate resolution of the Board of Directors of the Company authorizing
the execution, delivery and performance of this Second Amendment;
(d) Prior to December 1, 1997, the Company shall have issued
Convertible Subordinated Notes in the aggregate amount of at least
$150,000,000;
(e) The Administrative Lender shall have received, in form and
substance satisfactory to the Administrative Lender and its counsel, such
other documents, certificates and instruments as the Administrative Lender
shall require; and
(f) The Administrative Lender shall have received for the account of
each Lender a consent fee in an amount equal to the product of (i) 0.05
multiplied by (ii) such Lender's portion of the Commitment.
4. REFERENCE TO THE CREDIT AGREEMENT.
(a) Upon the effectiveness of this Second Amendment, each reference
in the Credit Agreement to "this Agreement", "hereunder", or words of like
import shall mean and be a reference to the Credit Agreement, as affected
and amended hereby.
(b) The Credit Agreement, as amended by the amendments referred to
above, shall remain in full force and effect and is hereby ratified and
confirmed.
5. COSTS, EXPENSES AND TAXES. The Company agrees to pay on demand all
costs and expenses of the Administrative Lender in connection with the
preparation, reproduction, execution and delivery of this Second Amendment and
the other instruments and documents to be delivered hereunder (including the
reasonable fees and out-of-pocket expenses of counsel for the Administrative
Lender with respect thereto).
6. GUARANTOR'S ACKNOWLEDGMENT. By signing below, each Subsidiary
executing a Subsidiary Guaranty (a "Guarantor") (a) acknowledges, consents and
agrees to the execution, delivery and performance by Borrowers of this Second
Amendment, (b) acknowledges and agrees that its obligations in respect of its
Guaranty are not released, diminished, waived, modified, impaired or affected in
any manner by this Second Amendment or any of the provisions contemplated
herein, (c) ratifies and confirms its obligations under its Guaranty, and
- 8 -
<PAGE>
(d) acknowledges and agrees that it has no claims or offsets against, or
defenses or counterclaims to, its Guaranty.
7. EXECUTION IN COUNTERPARTS. This Second Amendment may be executed in
any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed and delivered shall be deemed to be
an original and all of which when taken together shall constitute but one and
the same instrument.
8. GOVERNING LAW; BINDING EFFECT. This Second Amendment shall be
governed by and construed in accordance with the laws of the State of Texas and
shall be binding upon the Company and each Lender and their respective
successors and assigns.
9. HEADINGS. Section headings in this Second Amendment are included
herein for convenience of reference only and shall not constitute a part of this
Second Amendment for any other purpose.
10. ENTIRE AGREEMENT. THE CREDIT AGREEMENT, AS AMENDED BY THIS SECOND
AMENDMENT, AND THE OTHER LOAN PAPERS REPRESENT THE FINAL AGREEMENT BETWEEN THE
PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR
SUBSEQUENT ORAL AGREEMENTS BETWEEN THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES.
REMAINDER OF PAGE LEFT INTENTIONALLY BLANK
- 9 -
<PAGE>
IN WITNESS WHEREOF, this Second Amendment is executed as of the date first
set forth above.
COMPANY: PETsMART, INC.
By: /s/ Susan C. Schnabel
----------------------------------------
Name: SUSAN C. SCHNABEL
-----------------------------------
Title: CFO
----------------------------------
ADMINISTRATIVE LENDER: NATIONSBANK OF TEXAS, N.A., as Administrative
Lender
By: /s/ Frank M. Johnson
---------------------------------------
Name: FRANK M. JOHNSON
----------------------------------
Title: SENIOR VICE PRESIDENT
---------------------------------
ISSUING BANK: NATIONSBANK OF TEXAS, N.A., as Issuing Bank
By: /s/ Frank M. Johnson
---------------------------------------
Name: FRANK M. JOHNSON
----------------------------------
Title: SENIOR VICE PRESIDENT
---------------------------------
LENDERS: NATIONSBANK OF TEXAS, N.A.,
Individually
By: /s/ Frank M. Johnson
---------------------------------------
Name: FRANK M. JOHNSON
----------------------------------
Title: SENIOR VICE PRESIDENT
---------------------------------
- 10 -
<PAGE>
WELLS FARGO BANK, N.A.
By: /s/ Edith R. Lim
----------------------------------------
Name: EDITH R. LIM
----------------------------------
Title: Vice President
----------------------------------
By: /s/ Steven A. Newell
---------------------------------------
Name: STEVEN A. NEWELL
----------------------------------
Title: Assistant Vice President
---------------------------------
NORWEST BANK COLORADO, N.A.
By: /s/ Karen D. Handy
---------------------------------------
Name: Karen D. Handy
----------------------------------
Title:
---------------------------------
COOPERATIEVE CENTRALE RAIFFEISEN-
BOERENLEENBANK B.A., "RABOBANK NEDERLAND",
NEW YORK BRANCH
By:
---------------------------------------
Name:
----------------------------------
Title:
---------------------------------
By:
---------------------------------------
Name:
----------------------------------
Title:
---------------------------------
- 11 -
<PAGE>
ABN AMRO BANK N.V., LOS ANGELES INTERNATIONAL
BRANCH
By: /s/ Ellen M. Coleman
--------------------------------------
Name: ELLEN M. COLEMAN
---------------------------------
Title: VICE PRESIDENT/DIRECTOR
--------------------------------
By: /s/ John A. Miller
--------------------------------------
Name: JOHN A. MILLER
---------------------------------
Title: GROUP VICE PRESIDENT
--------------------------------
THE INDUSTRIAL BANK OF JAPAN, LIMITED, LOS
ANGELES AGENCY
By: /s/ Vicente L. Timiraos
--------------------------------------
Name: VICENTE L. TIMIRAOS
---------------------------------
Title: SVP & Sr. MGR
--------------------------------
THE LONG-TERM CREDIT BANK OF JAPAN, LTD.
By: /s/ T. Morgan Edwards II
-------------------------------------
Name: T. Morgan Edwards II
--------------------------------
Title: Deputy General Manager
-------------------------------
By: /s/ Bryan Read
-------------------------------------
Name: Bryan Read
--------------------------------
Title: Vice President
-------------------------------
- 12 -
<PAGE>
U.S. BANK NATIONAL ASSOCIATION
By: /s/ David Y. Kopolow
-------------------------------------
Name: DAVID Y. KOPOLOW
--------------------------------
Title: VICE PRESIDENT
--------------------------------
CORESTATES BANK, N.A.
By: /s/ John A. Ginter
-------------------------------------
Name: John A. Ginter
--------------------------------
Title: AVP
-------------------------------
FLEET NATIONAL BANK
By: /s/ Thomas J. Bullard
-------------------------------------
Name: THOMAS J. BULLARD
--------------------------------
Title: VICE PRESIDENT
-------------------------------
THE SUMITOMO BANK OF CALIFORNIA
By: /s/ Matthew Van Steenhuyse
-------------------------------------
Name: MATTHEW VAN STEENHUYSE
--------------------------------
Title: VICE PRESIDENT
--------------------------------
- 13 -
<PAGE>
THE BANK OF NOVA SCOTIA
By: /s/ John Quick
-------------------------------------
Name: John Quick
--------------------------------
Title: Sr.: Relationship Manager
----------------------------------
THE SAKURA BANK, LIMITED
By: /s/ Ofusa Sato
-----------------------------------------
Name: Ofusa Sato
------------------------------------
Title: Senior Vice President &
-----------------------------------
Assistant General Manager
CREDIT LYONNAIS LOS ANGELES BRANCH
By: /s/ Dianne M. Scott
---------------------------------------
Name: Dianne M. Scott
-----------------------------------
Title: Vice President and Manager
----------------------------------
THE DAI-ICHI KANGYO BANK, LTD., LOS ANGELES
AGENCY
By: /s/ Masatsugu Morishita
--------------------------------------
Name: MASATSUGU MORISHITA
---------------------------------
Title: SR. VICE PRESIDENT &
--------------------------------
JOINT GENERAL MANAGER
- 14 -
<PAGE>
BANK OF MONTREAL
By:
---------------------------------------
Name:
----------------------------------
Title:
---------------------------------
ACKNOWLEDGED AND AGREED TO:
THE WEISHEIMER COMPANIES, INC.
By: /s/ C. Donald Dorsey
----------------------------------
Name: C. Donald Dorsey
---------------------------
Title: SVP
---------------------------
PETSTUFF, INC.
By: /s/ C. Donald Dorsey
---------------------------------
Name: C. Donald Dorsey
---------------------------
Title: SVP
---------------------------
SPORTING DOG SPECIALTIES, INC.
By: /s/ C. Donald Dorsey
----------------------------------
Name: C. Donald Dorsey
---------------------------
Title: SVP
---------------------------
- 15 -
<PAGE>
THE PET FOOD GIANT, INC.
By: /s/ C. Donald Dorsey
----------------------------------
Name: C. Donald Dorsey
-----------------------------
Title: E.V.P.
----------------------------
PETSTUFF CANADA (USA) HOLDINGS, INC.
By: /s/ C. Donald Dorsey
----------------------------------
Name: C. Donald Dorsey
-----------------------------
Title: E.V.P.
----------------------------
PETSTUFF NOVA SCOTIA, INC.
By: /s/ C. Donald Dorsey
----------------------------------
Name: C. Donald Dorsey
-----------------------------
Title: E.V.P.
----------------------------
STATE LINE TACK, INC.
By: /s/ C. Donald Dorsey
----------------------------------
Name: C. Donald Dorsey
-----------------------------
Title: E.V.P.
---------------------------
PETSMART VETERINARY SERVICES INC.
By: /s/ C. Donald Dorsey
----------------------------------
Name: C. Donald Dorsey
-----------------------------
Title: E.V.P.
----------------------------
- 16 -
<PAGE>
PACIFIC COAST DISTRIBUTING, INC.
By: /s/ C. Donald Dorsey
----------------------------------
Name: C. Donald Dorsey
-----------------------------
Title: SVP
----------------------------
STATE LINE TACK OF TEXAS, INC.
By: /s/ C. Donald Dorsey
----------------------------------
Name: C. Donald Dorsey
-----------------------------
Title: EVP
----------------------------
NATIONAL BRIDLE SHOP, INC.
By: /s/ C. Donald Dorsey
----------------------------------
Name: C. Donald Dorsey
-----------------------------
Title: EVP
----------------------------
SPAT PRODUCTIONS, INC.
By: /s/ C. Donald Dorsey
----------------------------------
Name: C. Donald Dorsey
-----------------------------
Title: EVP
----------------------------
3003300 NOVA SCOTIA COMPANY
By: /s/ C. Donald Dorsey
----------------------------------
Name: C. Donald Dorsey
-----------------------------
Title: EVP
----------------------------
- 17 -
<PAGE>
EXHIBIT A
QUARTERLY COMPLIANCE CERTIFICATE
To: NationsBank of Texas, N.A as Administrative Lender for the Lenders
parties to the Credit Agreement
From: PETsMART, Inc.
Date: ___________________, 19____
Re: Third Amended and Restated Credit Agreement, dated as of April 18,
1997 ("Credit Agreement"), among PETsMART, Inc. ("Company"), the
Lenders parties thereto, and NationsBank of Texas, N.A., as a Lender
and as Administrative Lender
This Quarterly Compliance Certificate is delivered pursuant to
Section 6.13(e) of the Credit Agreement. All capitalized terms used herein and
defined in the Credit Agreement shall be used herein as so defined. For
purposes hereof, section references herein relate to sections of the Credit
Agreement, and bracketed amounts or ratios refer to the maximum or minimum
amounts or ratios required under the relevant sections of the Credit Agreement.
1. COVENANT CALCULATIONS. Demonstration of compliance with certain
covenants contained in Article VI of the Credit Agreement.
A. SECTION 6.1(b). Fixed Charges Coverage Ratio
(determined for the four fiscal quarters
ending on the date of calculation).
1. Minimum Ratio at each fiscal quarter
during the periods indicated below:
Up to and including the last fiscal 1.20 to 1
quarter of fiscal year 1998
During fiscal year 1999 1.25 to 1
During fiscal year 2000 1.35 to 1
Each fiscal quarter thereafter 1.40 to 1
2. Actual Fixed Charge Coverage Ratio:
a. EBITDA
(i) Net profit before Taxes $ ___________
<PAGE>
(ii) One-time charges to operating $ ___________
income with respect to costs
related to Pooling Acquisitions
not to exceed, together with
Acquisition Consideration
(other than capital stock of
the Company) and Capital
Expenditures paid or incurred
with such Acquisitions, during
each fiscal year, 15% of
Tangible Net Worth
(iii) One-time operating and $ ___________
restructuring charge for
fiscal quarter ending
August 3, 1997 (not to
exceed $65,000,000)
(iv) Depreciation and amortization $ ___________
expense
(v) Non-cash items deducted in the $ ___________
calculation of net operating
income
(vi) Interest expense (including $ ___________
interest expense pursuant to
Capital Leases and net of
interest and other investment
income)
(vii) Net extraordinary losses $ ___________
included in the
calculation of net
operating income
(viii) Net extraordinary gains $ ___________
included in the
calculation of net
operating income
(ix) EBITDA $_________
[(i) + (ii) + (iii) + (iv) +
(v) + (vi) + (vii) - (viii)]
b. Lease payments payable pursuant to $ ___________
Operating Leases
- 2 -
<PAGE>
c. All principal, interest, and other $ __________
amounts payable with respect to
Total Debt
d. Actual Fixed Charge Coverage Ratio ___ to 1
[(a) + (b)/(b) + (c)]
B. SECTION 6.1(c). Total Debt to Capitalization
Ratio.
1. Maximum Total Debt to Capitalization .50 to 1
Ratio:
2. Actual Total Debt to Capitalization
Ratio:
a. Total Debt (from E.2.(i)(e)) $_________
b. Stockholders Equity $_________
c. Actual Total Debt to Capitalization ____ to 1
Ratio [(a)/(b) + (a)]
C. SECTION 6.1(d). Maximum Capital Expenditures.
1. Maximum Capital Expenditures (excluding
Capital Expenditures related to Capital
Leases and Acquisitions permitted
pursuant to Section 6.8) during each
fiscal year below:
Fiscal Year
-----------
Ending 1/31/98 $75,000,000
Ending 1/31/99 $85,000,000
Ending 1/31/00 $85,000,000
Ending 1/31/01 $85,000,000
2. Actual Capital Expenditures paid or $___________
incurred during fiscal year
D. SECTION 6.1(e). Debt Ratio.
1. Maximum Debt Ratio
Through January 31, 1999 6.75 to 1
After January 31, 1999 6.0 to 1
2. Actual Debt Ratio
(a) Total Debt
(i) Total Debt
- 3 -
<PAGE>
(A) All principal and interest $ _________
owing under the Loan
Papers
(B) All Indebtedness evidenced $ _________
by a promissory note,
bond, debenture or
otherwise representing
borrowed money
(C) All Capital Leases $ _________
(D) All Contingent Liabilities $ _________
(excluding those arising
under leases with Arizona
Funding Corporation, Pet
Stores Funding
Corporation, Pet Stores
Trust 1995-1, Pet Stores
Trust 1996-1 and Pet
Stores Trust 1997-1)
(E) Total Debt $___________
[(A) + (B) + (C) + (D)]
(b) Lease expense pursuant to Operating $ _________
Leases (equal to the product of such
lease expense for the four fiscal
quarters immediately preceding the
date of determination multiplied by
eight)
(c) Cash and Cash Equivalents in excess $ _________
of $50,000,000
(d) EBITDA (from B.2.a. above) $ _________
(e) Lease expense pursuant to Operating $ _________
Leases for the four fiscal quarters
immediately preceding the date of
determination
(f) Actual Debt Ratio $___________
[(a) + (b) - (c)/(d) + (e)]
- 4 -
<PAGE>
E. SECTION 6.1(f). Borrowing Base.
(a) Total Advances $ _________
(b) Total Reimbursement Obligations $ _________
(c) Total Advances under Amended And Restated
Credit Agreement dated April 18, 1997, as
amended, among Arizona Funding
Corporation and Administrative Lender and
certain other lenders $ _________
(d) Total Advances (for availability)
[(a) + (b) + (c)] may not exceed (j) $ _________
(e) Cash and Cash Equivalents in excess of $ _________
$50,000,000
(f) Trade Receivables $ _________
(g) Inventory $ _________
(h) Trade Payables $ _________
(i) Borrowing Base
[(e) + (f)+(g) - (h)] $ _________
(j) Availability
(i) x .50 $ _________
F. SECTION 6.2(i), 6.7(d) AND 6.7(e). Other
Indebtedness, Working Capital Advances to
Veterinarians, and Loans and Guaranties of
Officers to exercise stock options and pay
minimum tax obligations
1. Maximum aggregate principal amount of $25,000,000
other Indebtedness permitted
2. Actual principal amount of other $__________
Indebtedness outstanding
(a) Indebtedness (including Contingent $ _________
Liabilities)
(b) Working Capital Advances to $ _________
Veterinarians
(c) Loans to, or guaranties of $ _________
obligations of, obligations of
officers of the Company
- 5 -
<PAGE>
(d) Actual Other Indebtedness $___________
[(a) + (b) + (c)]
G. SECTION 6.2(j)
(a) Indebtedness of Foreign Subsidiaries
(i) Permitted $25,000,000
(ii) Actual $__________
H. SECTION 6.7(g) AND 6.8(b). Investments in
Foreign Subsidiaries which have not executed a
Subsidiary Guaranty (excluding Investments in
Foreign Subsidiaries shown on SCHEDULE IV) and
Acquisitions of Foreign Subsidiaries which do
not execute a Subsidiary Guaranty
1. Maximum Investments in, and Acquisitions $40,000,000
of, Foreign Subsidiaries that have not
executed Subsidiary Guaranties
2. Actual:
(a) Investments in Foreign Subsidiaries $___________
that have not executed a Subsidiary
Guaranty
(b) Acquisitions of Foreign Subsidiaries $___________
that have not executed Subsidiary
Guaranties
(c) [(a) + (b)] $___________
I. SECTION 6.8(a). Acquisitions and Capital
Expenditures Permitted.
1. Maximum: 15% of Tangible Net Worth $___________
2. Actual:
(a) Acquisition Consideration (excluding $___________
capital stock of Company but
including costs associated with
Pooling Acquisitions) during fiscal
year
(b) Capital Expenditures related to $___________
Acquisitions during fiscal year
(c) [(a) + (b)] $___________
- 6 -
<PAGE>
3. COMPLIANCE CERTIFICATE. The undersigned hereby certifies to you as
follows:
(a) I am, and at all times mentioned herein have been, the duly
elected qualified and acting chief financial officer of Company.
(b) I have reviewed the provisions of the Credit Agreement and the
other Loan Papers, and a review of the activities of Company
during the period from __________, 19__ to _______________, 19__
(the "Reporting Period") has been made under my supervision with
a view toward determining whether, during the Reporting Period,
Company has kept, observed, performed and fulfilled all its
obligations under the Credit Agreement and such Loan Papers.
(c) The representations and warranties made in the Loan Papers are
true and correct in all material respects as of the date hereof
as though made at and as of the date hereof, except for such
representations and warranties which relate to a particular date,
and no Default or Event of Default has occurred or is continuing
or is imminent.
This Quarterly Compliance Certificate is executed and delivered on the
_______ day of _____________________, 19__
PETsMART, INC.
By:
----------------------------------------
Name:
----------------------------------
Title:
----------------------------------
- 7 -
<PAGE>
PETsMART, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Amounts in thousands of dollars)
<TABLE>
<CAPTION>
Fiscal Years Ended 26 Weeks Ended
------------------------------------------------------------ ---------------------
Jan. 31, Jan. 30, Jan. 29, Jan. 28, Feb. 2, July 28, Aug. 3,
1993 1994 1995 1996 1997 1996 1997
<S> <C> <C> <C> <C> <C> <C> <C>
CALCULATION OF FIXED CHARGES:
Interest expense 3,052 4,298 7,587 8,934 9,450 4,218 6,118
Capitalized interest 182 386 290 300 761 549 -
Appropriate portion (1/3)
of rentals 4,751 8,736 15,278 22,033 30,597 13,542 20,618
------------------------------------------------------------ ----------------------
Total fixed charges 7,985 13,423 23,155 31,267 40,808 18,309 26,736
------------------------------------------------------------ ----------------------
------------------------------------------------------------ ----------------------
CALCULATION OF EARNINGS BEFORE
FIXED CHARGES:
Pre-tax income (loss) from
continuing operations 912 (7,196) (10,358) (14,877) 34,252 5,600 (57,303)
------------------------------------------------------------ ----------------------
Fixed charges:
Interest expense 3,052 4,298 7,587 8,934 9,450 4,218 6,116
Capitalized interest (excluded)
Appropriate portion (1/3)
of rentals 4,751 8,739 15,278 22,033 30,597 13,542 20,619
------------------------------------------------------------ ----------------------
Total fixed charges 7,803 13,037 22,865 30,967 40,047 17,760 26,735
------------------------------------------------------------ ----------------------
Earnings before income
taxes and fixed charges 8,715 5,841 12,507 16,090 74,299 23,360 (30,568)
------------------------------------------------------------ ----------------------
------------------------------------------------------------ ----------------------
Merger and integration charges -- -- 14,100 47,129 40,714 20,364 54,522
Earnings before merger costs,
income taxes and fixed charges 8,715 5,841 26,607 63,218 115,013 43,724 23,954
------------------------------------------------------------ ----------------------
------------------------------------------------------------ ----------------------
Ratio of earnings to fixed
charges (actual) 1.1 0.4 0.5 0.5 1.8 1.3 (1.1)(a)
------------------------------------------------------------ ----------------------
------------------------------------------------------------ ----------------------
Ratio of earnings before merger
costs to fixed charges 1.1 0.4 1.1 2.0 2.8 2.4 0.9
------------------------------------------------------------ ----------------------
------------------------------------------------------------ ----------------------
</TABLE>
(a) As a result of the loss incurred in the 26 weeks ended August 3, 1997, the
Company was unable to cover the indicated fixed charges by $57,303.
Page 1
<PAGE>
PETsMART, INC.
COMPUTATION OF PRO FORMA RATIO OF EARNINGS
TO FIXED CHARGES AFTER ADJUSTMENT FOR ISSUANCE OF
CONVERTIBLE SUBORDINATED NOTES
<TABLE>
<CAPTION>
CALCULATION OF FIXED CHARGES: Feb. 2, 1997 Aug. 3, 1997
------------ ------------
<S> <C> <C>
Interest expense 20,761 10,604
Capitalized interest 761 --
Appropriate portion (1/3)
of rentals 30,597 20,819
--------- --------
Total fixed charges 52,119 31,423
--------- --------
--------- --------
CALCULATION OF EARNINGS BEFORE FIXED CHARGES:
Pre-tax income (loss) from
continuing operations 22,941 (61,991)
Fixed charges:
Interest expense 20,761 10,804
Capitalized interest (excluded)
Appropriate portion (1/3)
of rentals 30,597 20,619
--------- --------
Subtotal 51,358 31,423
Earnings before income
taxes and fixed charges 74,299 (30,568)
--------- --------
--------- --------
Merger and integration costs 40,714 54,522
Earnings before merger costs, income
taxes and fixed charges 115,013 23,954
--------- --------
--------- --------
Ratio of earnings to fixed
charges (actual) 1.4 (1.0) (b)
--------- --------
--------- --------
Ratio of earnings before merger
costs to fixed charges 2.2 0.8
--------- --------
--------- --------
</TABLE>
(b) As a result of the loss incurred in the 26 weeks ended August 3, 1997, the
Company was unable to cover the indicated fixed charges by $57,303.
Page 2
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-3 of our report dated
February 25, 1997 appearing on page F-2 of PETsMART's Annual Report on Form 10-K
for the year ended February 2, 1997. We also consent to the reference to us
under the heading "Experts" in such Prospectus.
Price Waterhouse LLP
Phoenix, Arizona
November 20, 1997
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the registration
statement of PETsMART, Inc. and Subsidiaries on Form S-3 Registration No. to be
assigned on or about November 21, 1997 of our report dated April 21, 1995, on
our audit of the financial statements of The Pet Food Giant, Inc., for the
fiscal year ended December 31, 1994 which report is included in this annual
report on Form 10-K of PETsMART, Inc. for the fiscal year ended February 2,
1997.
/s/ Coopers & Lybrand L.L.P
COOPERS & LYBRAND L.L.P.
Parsippany, New Jersey
November 20, 1997
<PAGE>
EXHIBIT 23.3
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in the Registration Statement
of PETsMART, Inc. on Form S-3 of our report relating to the consolidated
financial statements of Petstuff, Inc. and subsidiaries for the year ended
January 29, 1995 dated March 17, 1995 (June 21, 1995 as to Note 11)(which
expresses an unqualified opinion and includes an explanatory paragraph regarding
a certain complaint) appearing in this Annual Report on Form 10-K of PETsMART,
Inc. for the fiscal year ended February 2, 1997, and to the reference to us
under the heading "Experts" in the Prospectus, which is part of such
Registration Statement.
DELOITTE & TOUCHE LLP
Atlanta, Georgia
November 20, 1997
<PAGE>
EXHIBIT 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-3 and in the Prospectus constituting part of such
Registration Statement of PETsMART, Inc. and Subsidiaries of our report dated
June 9, 1995, relating to the combined financial statements of Sporting Dog
Specialties, Inc. and Affiliates which appears in the Annual Report or Form 10-K
for the fiscal year ended February 2, 1997.
DAVIE, KAPLAN & BRAVERMAN, P.C.
Rochester, New York
November 21, 1997
<PAGE>
EXHIBIT 23.5
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this Form S-3 of our report dated March 22, 1996 on the financial
statements of State Line Tack, Inc. (the Company) as of December 31, 1994 and
1995, and for the three year period ended December 31, 1995 included in
PETsMART, Inc.'s Form 10-K filed on April 28, 1997. It should be noted that we
have not audited any financial statements of the Company subsequent to December
31, 1995 or performed any audit procedures subsequent to the date of our report.
Arthur Andersen LLP
Boston, Massachusetts
November 20, 1997
<PAGE>
EXHIBIT 23.6
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-3 of our report dated
October 24, 1996 (except for the Note O-- Subsequent Events--as to which the
date is November 20, 1996) appearing on page F-2c of PETsMART, Inc.'s Annual
Report on Form 10-K for the year ended February 2, 1997. We also consent to the
reference to us under the heading "Experts" in such Prospectus.
/s/ Grant Thornton
GRANT THORNTON
London, England
November 21, 1997
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
FORM T-1
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
-----------------------
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2)
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION
(Exact name of trustee as specified in its charter)
A U.S. NATIONAL BANKING ASSOCIATION 41-1592157
(Jurisdiction of incorporation or (I.R.S. Employer
organization if not a U.S. national Identification No.)
bank)
SIXTH STREET AND MARQUETTE AVENUE
Minneapolis, Minnesota 55479
(Address of principal executive offices) (Zip code)
Stanley S. Stroup, General Counsel
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION
Sixth Street and Marquette Avenue
Minneapolis, Minnesota 55479
(612)667-1234
(Agent for Service)
-----------------------
PETsMART, INC.
(Exact name of obligor as specified in its charter)
DELAWARE 94-3024325
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
19601 NORTH 27TH AVENUE 85027
PHOENIX, AZ (Zip code)
(Address of principal executive offices)
-----------------------
6.75% CONVERTIBLE SUBORDINATED NOTES DUE 2004
(Title of the indenture securities)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
Item 1. GENERAL INFORMATION. Furnish the following information as to the
trustee:
(a) Name and address of each examining or supervising authority
to which it is subject.
Comptroller of the Currency
Treasury Department
Washington, D.C.
Federal Deposit Insurance Corporation
Washington, D.C.
The Board of Governors of the Federal Reserve System
Washington, D.C.
(b) Whether it is authorized to exercise corporate trust powers.
The trustee is authorized to exercise corporate trust
powers.
Item 2. AFFILIATIONS WITH OBLIGOR. If the obligor is an affiliate of the
trustee, describe each such affiliation.
None with respect to the trustee.
No responses are included for Items 3-14 of this Form T-1 because the obligor is
not in default as provided under Item 13.
Item 15. FOREIGN TRUSTEE. Not applicable.
Item 16. LIST OF EXHIBITS. List below all exhibits filed as a part of this
Statement of Eligibility. Norwest Bank
incorporates by reference into this Form T-1 the
exhibits attached hereto.
Exhibit 1. a. A copy of the Articles of Association of the
trustee now in effect.*
Exhibit 2. a. A copy of the certificate of authority of the
trustee to commence business issued June 28, 1872,
by the Comptroller of the Currency to The
Northwestern National Bank of Minneapolis.*
b. A copy of the certificate of the Comptroller of
the Currency dated January 2, 1934, approving the
consolidation of The Northwestern National Bank of
Minneapolis and The Minnesota Loan and Trust
Company of Minneapolis, with the surviving entity
being titled Northwestern National Bank and Trust
Company of Minneapolis.*
c. A copy of the certificate of the Acting
Comptroller of the Currency dated January 12,
1943, as to change of corporate title of
Northwestern National Bank and Trust Company of
Minneapolis to Northwestern National Bank of
Minneapolis.*
<PAGE>
d. A copy of the letter dated May 12, 1983 from the
Regional Counsel, Comptroller of the Currency,
acknowledging receipt of notice of name change
effective May 1, 1983 from Northwestern National
Bank of Minneapolis to Norwest Bank Minneapolis,
National Association.*
e. A copy of the letter dated January 4, 1988 from
the Administrator of National Banks for the
Comptroller of the Currency certifying approval of
consolidation and merger effective January 1, 1988
of Norwest Bank Minneapolis, National Association
with various other banks under the title of
"Norwest Bank Minnesota, National Association."*
Exhibit 3. A copy of the authorization of the trustee to exercise
corporate trust powers issued January 2, 1934, by the
Federal Reserve Board.*
Exhibit 4. Copy of By-laws of the trustee as now in effect.*
Exhibit 5. Not applicable.
Exhibit 6. The consent of the trustee required by Section 321(b)
of the Act.
Exhibit 7. A copy of the latest report of condition of the trustee
published pursuant to law or the requirements of its
supervising or examining authority.**
Exhibit 8. Not applicable.
Exhibit 9. Not applicable.
* Incorporated by reference to exhibit number 25 filed with
registration statement number 33-66026.
** Incorporated by reference to exhibit number 25 filed with
registration statement number 333-25301.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as amended, the
trustee, Norwest Bank Minnesota, National Association, a national banking
association organized and existing under the laws of the United States of
America, has duly caused this statement of eligibility to be signed on its
behalf by the undersigned, thereunto duly authorized, all in the City of
Minneapolis and State of Minnesota on the 25th day of November, 1997.
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION
/s/ Jane Y. Schweiger
---------------------
Jane Y. Schweiger
Corporate Trust Officer
<PAGE>
EXHIBIT 6
November 25, 1997
Securities and Exchange Commission
Washington, D.C. 20549
Gentlemen:
In accordance with Section 321(b) of the Trust Indenture Act of 1939, as
amended, the undersigned hereby consents that reports of examination of the
undersigned made by Federal, State, Territorial, or District authorities
authorized to make such examination may be furnished by such authorities to the
Securities and Exchange Commission upon its request therefor.
Very truly yours,
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION
/s/ Jane Y. Schweiger
---------------------
Jane Y. Schweiger
Corporate Trust Officer
