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PROSPECTUS
3,324,024 SHARES
PETSMART, INC.
COMMON STOCK
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This Prospectus covers 3,324,024 shares (the "Shares") of the Common
Stock, $.0001 par value ("Common Stock"), of PETsMART, Inc., a Delaware
corporation ("PETsMART" or the "Company") that may be offered and issued by
the Company from time to time in connection with the acquisition directly or
indirectly by the Company of other businesses or properties or interests
therein, and which may be reserved for issuance pursuant to, or offered and
issued upon exercise or conversion of, warrants, options, convertible notes,
or other similar instruments issued by the Company from time to time in
connection with any such acquisitions.
It is expected that the specific terms of any acquisition involving the
issuance of securities covered by this Prospectus will be determined by
direct negotiations with the owners or controlling persons of the businesses
or properties or interests therein to be acquired by the Company, and that
the shares of Common Stock issued will be valued at prices reasonably related
to market prices current either at the time the terms of the acquisition are
agreed upon or at or about the time of delivery of shares or at such other
time or for such period as may be agreed upon. No underwriting discounts or
commissions will be paid, although finder's fees may be paid from time to
time with respect to specific acquisitions. Any person receiving any such
fees may be deemed to be an underwriter within the meaning of the Securities
Act of 1933, as amended (the "Securities Act").
With the consent of the Company, this Prospectus may also be used by
persons who have received or will receive shares of Common Stock covered by
this Prospectus and who may wish to sell such shares under circumstances
requiring or making desirable its use. See "Resale of Securities Covered by
this Prospectus" for information relating to resales pursuant to this
Prospectus of shares of Common Stock issued under this Registration
Statement. The Company will not receive any proceeds from any such resale of
shares. Expenses of this offering will be paid by the Company.
The Common Stock of the Company is quoted on the Nasdaq National Market
under the symbol "PETM." Application will be made to list these shares on
the Nasdaq National Market. The last reported sales price of the Company's
Common Stock on the Nasdaq National Market on May 1, 1998 was $12.37 per
share.
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THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS" ON PAGE 6.
_____________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
May 4, 1998
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AVAILABLE INFORMATION
The Company is subject to the reporting requirements of the Securities
Exchange Act of 1934, as amended (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 also makes electronic filings publicly available on the
Internet. 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.
ADDITIONAL INFORMATION
A registration statement on Form S-4 with respect to the Common Stock
offered hereby (the "Registration Statement") has been filed with the
Commission under the Act. This Prospectus does not contain all of the
information contained in such Registration Statement and the exhibits and
schedules thereto, 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 Common Stock offered hereby, reference is made
to the Registration Statement and the exhibits and schedules thereto.
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, including exhibits thereto, may be inspected without charge at the
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, 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 1, 1998, filed on April 16, 1998, including all material
incorporated by reference therein; and
(b) The description of the Common Stock contained in the Company's
Current Report on Form 8-K dated June 21, 1996, and filed on or about
September 10, 1996.
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, AZ 85027.
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The discussions in this Prospectus and the documents incorporated by
reference herein contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from
those discussed herein and in such incorporated documents. Factors that
could cause or contribute to such differences include, but are not limited
to, those discussed under the heading "Risk Factors" herein, as well as those
discussed in the documents incorporated herein by reference.
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THE COMPANY
PETsMART is the largest operator of superstores specializing in pet
food, supplies and services in North America and the United Kingdom. On
February 1, 1998, PETsMART operated 468 superstores, consisting of 372
superstores in the United States, 84 superstores in the United Kingdom and 12
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 estimates that U.S. sales of equine food, tack, riding apparel and
related supplies and equipment were approximately $8 billion in 1996.
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 February 1, 1998, veterinary clinics were operating in 213
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 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 372
superstores in the United States at February 1, 1998, 280 were 26,000 square
foot prototype superstores.
The Company believes that 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 1997, 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.
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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.
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RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS, THE FOLLOWING
FACTORS SHOULD BE CONSIDERED CAREFULLY IN EVALUATING AN INVESTMENT IN THE
COMMON STOCK.
SUPERSTORE EXPANSION PLANS, MATURATION OF EXISTING SUPERSTORES AND DEPENDENCE
ON 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 these factors, and 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 during the first six months of fiscal 1997, have contributed to the
decline in the rate of North American comparable store sales increases which
it has reported in recent years. PETsMART's North American comparable store
sales increases were 19.1% in fiscal 1994, 12.5% in fiscal 1995, 11.9% in
fiscal 1996 and 4.6% in 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.
OPERATIONAL RESTRUCTURING AND INITIATIVES
During 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
the departure from the Company's historically more effective advertising
programs. As a result, the Company has moved to implement a series of "Back
to Basics" initiatives intended to refocus the Company and improve its
financial performance. Additionally, the Company recorded restructuring
expenses and a charge for merger and business integration costs aggregating
$61.0 million (before tax benefits) in the second quarter of fiscal 1997.
There can be no assurance that the Company's recent initiatives will be
successful or that financial performance can be improved as a result of these
efforts. Should these efforts prove unsuccessful, the Company may conclude
that further restructuring and other actions are necessary in order to
attempt to improve the Company's operating and financial performance. As
such, additional restructuring and other costs may be incurred in future
periods which would adversely affect financial performance.
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, and is implementing the system in North America. The Company is
currently negotiating with various vendors with respect to the hardware and
software needs associated with this system. It is anticipated that
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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 was provided by the November 1997 Note offering. The Company
estimates that its costs in connection with the development and
implementation of the new system in North America, 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 84 superstores in the United Kingdom at February
1, 1998. The Company also recently entered the Canadian market, where it
operated 12 superstores at February 1, 1998. 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 November 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 Company's credit facility contains covenants
restricting the amounts invested in certain foreign subsidiaries, including
Pet City.
LITIGATION
On January 6, 1998 the Company and certain of its officers and directors
were named as defendants in a securities class action lawsuit by a putative
class of investors in PETsSMART securities. The lawsuit alleges, among other
things, that the Company and its officers issued materially false financial
statements about the Company's flea and tick product inventory, financial
condition and results of operations. Subsequently, four additional securities
class action lawsuits were filed in which the Company and certain of its
officers and directors were named as defendants, with allegations
substantially similar to the ones made in the first complaint. The Company
believes that all five of these lawsuits will ultimately be consolidated into
a single action. The Company believes the allegations contained in each
complaint are without merit and the Company intends to vigorously defend
itself against the claims.
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.
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On March 28, 1998, a lawsuit was filed in federal court in the middle
district of Florida entitled Cavucci et al. v. PETsMART, Inc. (Case No.
98-CV-340). This class-action complaint alleges unspecified damages based on
various alleged violations of the Fair Labor Standards Act, including alleged
failures to pay overtime premiums. The Company has begun its evaluation of
this complaint and intends to respond on a timely basis.
GOVERNMENT REGULATION
The Company is subject to laws governing its operation of veterinary
clinics in its retail stores. 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.
EXPANSION PLANS
PETsMART has expanded since its inception in 1986 to 372 superstores in
the United States, 84 superstores in the United Kingdom and 12 superstores in
Canada at February 1, 1998. 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 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 February 1, 1998, 12 of these superstores had been
closed and four replacement superstores had been opened.
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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 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.
COMPETITION FOR KEY MANAGEMENT PERSONNEL
The Company's success depends in significant part upon a smoothly
functioning senior management team. During 1997, the Company's Chief
Executive Officer and its Chief Financial Officer each left the Company. No
severance payments were made to either the former Chief Executive Officer or
the former Chief Financial Officer in connection with their respective
departures. The former Chief Financial Officer, who resigned at the end of
November 1997, received a nonstatutory stock option in December 1997 to
purchase 50,000 shares of the Company's Common Stock. The option was granted
in recognition of past services. The option has an exercise price of $7.1875
per share, and will vest 100% on the earlier of (i) December 5, 1999 or (ii)
the conversion of the Company's entire $200,000,000 aggregate principal
amount of 6-3/4% Convertible Subordinated Notes due 2004 (the "Notes") to
Common Stock. The Chief Executive Officer was replaced on an interim basis by
Samuel J. Parker, the Company's former Chief Executive Officer, and the Chief
Financial Officer was replaced on an interim basis by C. Donald Dorsey, the
Company's former Chief Financial Officer. In February 1998, the Company's
Executive Vice President, Marketing, left the Company. In March 1998, Philip
L. Francis became President and Chief Executive Officer of the Company. Mr.
Francis has been a member of the Company's Board of Directors since 1989.
Also in March 1998, Neil T. Watanabe joined the Company as Executive Vice
President and Chief Financial Officer. Competition for senior management
personnel is intense and there can be no assurance that the Company can
retain such personnel. The loss of a member of senior management requires the
remaining executive officers to divert immediate and substantial attention to
seeking a replacement. The inability to replace senior executive officers on
a
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timely basis could have a material adverse effect on the Company's business,
financial condition and results of operations.
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.
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 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.
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. During fiscal 1997, the price of the Company's Common Stock
ranged from a high of $23.00 in the first quarter to a low of $6.00 in the
fourth quarter. 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.
10.
<PAGE>
USE OF PROCEEDS
This Prospectus relates to shares of Common Stock of the Company that
may be offered and issued by the Company from time to time in connection with
the acquisition of other businesses and properties and interests therein, and
upon exercise or conversion of, warrants, options, convertible debentures, or
other similar instruments issued by the Company from time to time in
connection with any such acquisition. Other than the businesses or
properties acquired, there will be no proceeds to the Company from these
offerings. When this Prospectus is used by a Selling Stockholder in a public
reoffering or resale of Common Stock acquired pursuant to this Prospectus,
the Company will not receive any proceeds from such sale by the Selling
Stockholder.
DIVIDEND POLICY
PETsMART has never paid any cash dividends on its Common Stock. The
Company presently intends to retain earnings for use in its business and
therefore does not anticipate paying cash dividends in the foreseeable
future. In addition, the Company is prohibited from paying any cash dividends
without prior bank approval under the terms of its bank credit facility.
RESALE OF SECURITIES COVERED BY THIS PROSPECTUS
This Prospectus, as appropriately amended or supplemented, may, with the
consent of the Company, be used from time to time by persons who have
received shares covered by the Registration Statement in acquisitions of
business or properties or interests therein by the Company, or by their
transferees (such persons being referred to herein as "Selling Shareholders")
who wish to offer and sell the Shares in transactions in which they and any
broker-dealer through whom any of the Shares are sold may be deemed to be
underwriters within the meaning of the Securities Act. The Company will
receive none of the proceeds from any such sales. There presently are no
arrangements or understandings, formal or informal, pertaining to the
distribution of the Shares.
Agreements with Selling Stockholders permitting use of this Prospectus
may provide that any such offering be effected in an orderly manner through
securities dealers, acting as broker or dealer, selected by the Company; that
Selling Stockholders enter into custody agreements with one or more banks
with respect to such shares; and that sales be made only by one or more of
the methods described in this Prospectus, as appropriately supplemented or
amended when required.
The Company anticipates that resales of the Shares by a Selling
Stockholder may be effected from time to time on the open market in ordinary
brokerage transactions on the Nasdaq National Market, or such other security
exchange on which the Common Stock may be listed, or in private transactions
(which may involve crosses and block transactions). The Shares will be
offered for sale at market prices prevailing at the time of sale or at
negotiated prices and on terms to be determined when the agreement to sell is
made or at the time of sale, as the case may be. The Shares may be offered
directly, through agents designated from time to time, or through brokers or
dealers. A member firm of the National Association of Security Dealers, Inc.
may be engaged to act as the Selling Stockholder's agent in the sale of the
Shares by the Selling Stockholder and/or may acquire Shares as principal.
Broker-dealers participating in such transactions as agent may receive
commissions from the Selling Stockholder (and, if they act as agent for the
purchaser of such Shares, from such purchaser).
Participating broker-dealers may agree with the Selling Stockholder to
sell a specified number of shares at a stipulated price per share and, to the
extent such broker-dealer is unable to do so acting as agent for the Selling
Stockholder to purchase as principal any unsold shares at the price required
to fulfill the broker-dealer's commitment to the Selling Stockholder. In
addition or alternatively, shares may be sold by the Selling Stockholder,
and/or by or through other broker-dealers in special offerings, exchange
distributions, or secondary distributions. Broker-dealers who acquire shares
as principal may thereafter resell such Shares from time to time in
transactions (which may involve cross and block transactions and which may
involve sales to and through other broker-dealers, including transactions of
the nature described in the preceding two sentences) on the Nasdaq National
Market or such other security exchange on which the Common Stock may be
listed, in negotiated transactions, or otherwise, at market prices prevailing
at the time of sale or at negotiated prices, and in connection with such
resales may pay to or receive commissions from the purchasers of such shares.
11.
<PAGE>
Upon the Company's being notified by the Selling Stockholder that a
particular offer to sell the Shares is made, if a material arrangement has
been entered into with a broker-dealer for the sale of shares through a block
trade, special offering, exchange distribution, or secondary distribution, or
any block trade has taken place, to the extent required, a supplement to this
Prospectus will be delivered together with this Prospectus and filed pursuant
to Rule 424(b) under the Securities Act setting forth with respect to such
offer or trade the terms of the offer or trade; including (i) the name of
each Selling Stockholder, (ii) the number of Shares involved, (iii) the price
at which the Shares were sold, (iv) any participating brokers, dealers,
agents or member firm involved, (v) any discounts, commissions and other
items paid as compensation from, and the resulting net proceeds to, the
Selling Stockholder, (vi) that such broker-dealers did not conduct any
investigation to verify the information set out in this Prospectus, and (vii)
other facts material to the transaction.
Shares may be sold directly by the Selling Stockholder or through agents
designated by the Selling Stockholder from time to time. Unless otherwise
indicated in a supplement to this Prospectus, any such agent will be acting
on a best efforts basis for the period of its appointment.
The Selling Stockholder and any brokers, dealers, agents, member firm or
others that participate with the Selling Stockholder in the distribution of
the Shares may be deemed to be "underwriters" within the meaning of the
Securities Act, and any commissions or fees received by such persons and any
profit on the resale of the Shares purchased by such person may be deemed to
be underwriting commissions or discounts under the Securities Act.
The Company may agree to indemnify the Selling Stockholder as an
underwriter under the Securities Act against certain liabilities, including
liabilities arising under the Securities Act. Agents may be entitled under
agreements entered into with the Selling Stockholder to indemnification
against certain civil liabilities, including liabilities under the Securities
Act.
The Selling Stockholder will be subject to the applicable provisions of
the Exchange Act, and the rules and regulations thereunder, including without
limitation Rules 10b-2, 10b-6, and 10b-7, which provisions may limit the
timing of purchases and sales of any of the Common Stock by the Selling
Stockholder. All of the foregoing may affect the marketability of the Common
Stock.
The Company will pay substantially all the expenses incident to this
offering of the Common Stock by the Selling Stockholder to the public other
than brokerage fees, commissions and discounts of underwriters, dealers or
agents.
In order to comply with certain states' securities laws, if applicable,
the Common Stock will be sold in such jurisdictions only through registered
or licensed brokers or dealers. In addition, in certain states the Common
Stock may not be sold unless the Common Stock has been registered or
qualified for sale in such state or an exemption from registration or
qualification is available and is complied with.
LEGAL MATTERS
The validity of the issuance of the Common Stock offered hereby will be
passed upon for the Company by Cooley Godward LLP, Palo Alto, California.
EXPERTS
The consolidated financial statements of PETsMART, Inc. as of February
1, 1998 and February 2, 1997 and for each of the three years in the period
ended February 1, 1998 incorporated in this Prospectus by reference to the
Company's Annual Report on Form 10-K, except as they relate to 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 State Line Tack for the year ended December 31, 1995, not
included separately herein, by Arthur Andersen LLP, and insofar as they
relate to the financial statements of Pet City for the 52 weeks ended July
27, 1996, not included separately herein, by Grant Thornton, whose reports
thereon are incorporated in this Prospectus by reference to the Company's
Annual Report
12.
<PAGE>
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, stockholders' equity and cash
flows of State Line Tack for the year 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 statements of operations, shareholders' equity and cash
flows of Pet City for the 52 weeks ended July 27, 1996, 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.
13.
<PAGE>
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NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION AND REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY
STATE IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE
PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY
PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. THE
DELIVERY OF THIS PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT THE INFORMATION
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
______________
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Available Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Additional Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Incorporation of Certain
Documents by Reference . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
The Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Dividend Policy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Resale of Securities Covered by this Prospectus. . . . . . . . . . . . . . . . . 11
Legal Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Experts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
</TABLE>
______________
3,324,024 SHARES
PETSMART, INC.
COMMON STOCK
______________
PROSPECTUS
______________
May 4, 1998
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