<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 28, 1998
REGISTRATION NO. 333-41111
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 4
TO
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)
PHILIP L. FRANCIS
PRESIDENT 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)
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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. / /
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.
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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 APRIL , 1998
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. No fractional shares of Common Stock
shall be issued but in lieu thereof an appropriate amount will be paid in cash.
On April 27, 1998, the last reported sale price of the Common Stock on the
Nasdaq National Market (symbol "PETM") was $11.43 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."
Additionally, the purchase of the Notes, in the event of a Change of Control (as
defined) may result in an event of default under the Company's Senior
Indebtedness the effect of which may be to permit acceleration of such debt.
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 February 1, 1998, 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 $68.0 million of
Senior Indebtedness outstanding and, excluding intercompany indebtedness, the
Company's subsidiaries would have had approximately $28.3 million of
liabilities, primarily trade payables, which would have effectively ranked
senior to the Notes. There can be no assurance that in the event of a Change of
Control (as defined) the Company will have, or will have access to sufficient
funds to repurchase the Notes. The Indenture (as defined) may not afford the
Holders (as defined) protection in the event of a highly leveraged transaction,
reorganization, restructuring, merger, spin-off or similar transaction, if such
transaction does not constitute a Change of Control (as defined). 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 Notes were issued in the form of a Global Note,
and so long as the Notes remain in such form, the Company's obligations to pay
interest and principal will be satisfied when the Company pays the record
holder, Cede & Co. See "Description of Notes."
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 1, 1998, filed on April 6, 1998.
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
i
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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.
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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. 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 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
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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.
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 6 3/4% Convertible Subordinated Notes (the
"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.
Philip L. Francis, who has been a director of the Company since 1989, became
President and Chief Executive Officer of the Company in March 1998. Previously,
Mr. Francis was President and Chief Executive Officer of Shaw's Supermarkets,
Inc., a subsidiary of J. Sainsbury plc, a United Kingdom retailer. Samuel J.
Parker resigned as the Company's Chief Executive Officer in March 1998 and will
remain Chairman of the Board of Directors.
Neil T. Watanabe became Executive Vice President and Chief Financial Officer
of the Company in March 1998. Previously, Mr. Watanabe was Senior Vice President
and Chief Financial Officer at Mac Frugal's Bargain Close-Out, an operator of
discount retail stores. C. Donald Dorsey, the Company's interim Chief Financial
Officer, will remain with the Company as Executive Vice President.
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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.
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.
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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 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
4
<PAGE>
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.
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
5
<PAGE>
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.
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,
6
<PAGE>
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 entire principal amount of 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 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.
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 November 2, 1997, after giving effect to the sale of the Notes
and the application of the net proceeds therefrom, the Company would have had
approximately $66.4 million of Senior Indebtedness outstanding, and excluding
intercompany indebtedness, the Company's subsidiaries would have had
approximately $41.5 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
7
<PAGE>
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. 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. 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.
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."
8
<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 to
stockholders of record on July 8, 1996. 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 1996 HIGH LOW
--------- ---------
<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 ended February 1, 1998....................... 8.00 6.00
<CAPTION>
FISCAL 1998
<S> <C> <C>
First Quarter ending May 3, 1998 (through April 27)......... $ 13.13 $ 6.68
</TABLE>
On April 27, 1998, the closing sale price reported by the Nasdaq National
Market for the Common Stock was $11.43. At March 27, 1998, there were 5,891
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.
9
<PAGE>
CAPITALIZATION
The following table sets forth at February 1, 1998, the actual
capitalization of the Company which reflects the November 1997 sale of the Notes
and the application of the net proceeds therefrom.
<TABLE>
<CAPTION>
AT FEBRUARY 1,
1998
------------------
ACTUAL
------------------
(IN THOUSANDS,
EXCEPT SHARE AND
PER SHARE DATA)
<S> <C>
Cash and cash equivalents..................................................................... $ 125,082
--------
--------
Short term debt:
Current portion of capital lease obligations................................................ $ 10,753
Credit Facility(1).......................................................................... 0
--------
Total short term debt..................................................................... 10,753
--------
Long term debt:
Long term capital lease obligations(2)...................................................... 68,008
6 3/4% Convertible Subordinated Notes due 2004............................................ 200,000
--------
Total long term debt...................................................................... 268,008
--------
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; 115,629,000 shares issued
and outstanding(3)........................................................................ 11
Additional paid-in capital.................................................................. 383,338
Cumulative foreign currency translation adjustments......................................... (529)
Accumulated deficit......................................................................... (48,126)
--------
Total stockholders' equity................................................................ 334,694
--------
Total capitalization.................................................................... $ 602,702
--------
--------
</TABLE>
- --------------------------
(1) At February 1, 1998, no amounts were outstanding under the Credit Facility.
The Company's ability to borrow under the Credit Facility is subject to
certain borrowing base limitations. See "Description of Credit Facility."
(2) See Note 5 of Notes to Consolidated Financial Statements incorporated by
reference herein regarding operating leases.
(3) Excludes 12,339,916 shares of Common Stock reserved for issuance as of
February 1, 1998 upon the exercise of outstanding stock options. At such
date, the weighted average exercise price of outstanding options was $13.77
per share.
10
<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 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)
-----------------------------------------------------
JAN. 30, JAN. 29, JAN. 28, FEB. 2, FEB. 1,
1994 1995 1996 1997(2) 1998
--------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales..................................................... $ 544,762 $ 924,199 $1,168,056 $1,501,017 $1,790,599
Cost of sales................................................. 395,689 678,420 859,819 1,074,666 1,356,413
Gross profit.................................................. 149,073 245,779 308,237 426,351 434,186(3)
Store operating expenses...................................... 118,013 195,222 228,046 289,622 349,563(3)
Store preopening expenses..................................... 7,583 7,750 5,388 10,907 9,222
General and administrative expenses........................... 28,499 35,072 36,348 42,463 53,865(3)
Merger and business integration costs......................... -- 14,100 47,129 40,714 57,364(4)
--------- --------- --------- --------- ---------
Operating income (loss)....................................... (5,022) (6,365) (8,674) 42,645 (35,828)
Interest income............................................... 2,124 3,594 2,731 1,057 213
Interest expense.............................................. 4,298 7,587 8,934 9,450 13,921
--------- --------- --------- --------- ---------
Income (loss) before income taxes, extraordinary credit and
cumulative effect of change in accounting principle......... (7,196) (10,358) (14,877) 34,252 (49,536)
Income tax expense (benefit).................................. 3,315 1,262 (9,441) 13,661 (17,735)
Net income (loss)(5).......................................... $ (10,301) $ (11,620) $ (5,436) $ 20,591 $ (34,430)
Income (loss) per share before cumulative effect of change in
accounting principle--basic(6)(15).......................... $ (0.14) $ (0.13) $ (0.06) $ 0.18 $ (0.28)
Income (loss) per share before cumulative effect of change in
accounting principle--diluted(6)(15)........................ $ (0.14) $ (0.13) $ (0.06) $ 0.17 $ (0.28)
Net income (loss) per share--basic(6)(15)..................... $ (0.13) $ (0.13) $ (0.06) $ 0.18 $ (0.30)
Net income (loss) per share--diluted(6)(15)................... $ (0.13) $ (0.13) $ (0.06) $ 0.17 $ (0.30)
Weighted average number of common shares
outstanding--basic(15)...................................... 89,015 105,443 108,387 112,520 114,920
Weighted average number of common and common equivalent shares
outstanding--diluted(15).................................... 89,015 105,443 108,387 118,226 114,920
Ratio of earnings to fixed charges(7)......................... -(8) -(8) -(8) 1.8 --(8)
AS ADJUSTED DATA:(9)
Interest expense, net......................................... $ 19,680
Net income (loss)............................................. $ (38,073)
Net income (loss) per share--diluted(15)...................... $ (0.33)
Ratio of earnings to fixed charges(7)......................... --(10)
SELECTED OPERATING DATA:
Stores open at end of period.................................. 192 269 297 376 468
Average square footage(11).................................... 3,379,860 5,200,319 6,380,672 7,616,245 9,550,533
Net sales per square foot(12)................................. $ 131.97 $ 154.20 $ 163.62 $ 179.71 $ 176.97
Net sales growth.............................................. 70.4% 69.7% 26.4% 28.5% 19.3%
Increase in comparable North American store sales(13)......... 19.8% 19.1% 12.5% 11.9% 4.6%
BALANCE SHEET DATA:
Inventories................................................... $ 107,736 $ 171,344 $ 211,933 $ 300,892 $ 317,547
Working capital............................................... 185,765 155,356 146,236 158,182 297,441
Total assets.................................................. 415,592 484,885 572,104 689,810 839,687
Capital lease obligations(14)................................. 48,171 74,240 65,725 71,680 78,761
Total debt.................................................... 55,691 95,956 87,973 96,680 278,761
Stockholders' equity and
redeemable preferred stock.................................. $ 265,445 $ 266,216 $ 301,798 $ 361,045 $ 334,694
</TABLE>
(FOOTNOTES ON FOLLOWING PAGE)
11
<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 and fiscal 1993 include the financial results of Pet City
for the 52 weeks ended July 27, 1996, July 29, 1995 and April 2, 1994,
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 year ended February 1, 1998. 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 a $210 benefit in fiscal 1993 and a $2,629 charge in fiscal 1997
for the cumulative effect of a change in accounting principle.
(6) After accretion of redeemable preferred stock of $1,521, $1,921 and $1,582
for fiscal years 1993 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 $49,599 for fiscal 1997.
(9) The as adjusted data for the year ended February 1, 1998 give effect to the
issuance of the Notes and the application of the net proceeds therefrom as
if such transactions had occurred on February 3, 1997. 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 fiscal 1997 on a
pro forma basis by $55,571.
(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. Fiscal
1993 has not been restated to reflect the acquisition of PETZAZZ in March
1994, and the periods from fiscal 1993 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.
(15) Earnings per share for all periods presented have been restated in
conformity with Statement of Financial Accounting Standards No. 128,
"Earnings per Share."
12
<PAGE>
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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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 November 2, 1997, after giving effect to the November 1997 Note offering
and the application of the net proceeds therefrom, the Company had approximately
$66.4 million of Indebtedness outstanding which would have constituted Senior
Indebtedness and, excluding intercompany liabilities, approximately $41.5
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
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<PAGE>
held by the recipient in trust for the benefit of holders of Senior
Indebtedness, and will be immediately 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
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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.
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
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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 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
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<PAGE>
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 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
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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 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.
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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 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
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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 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
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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.
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 requires 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 March 27, 1998, there were
115,646,012 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.
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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.
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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.
36
<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 the date of this
Prospectus, 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 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 OF PRINCIPAL AMOUNT
NOTES OWNED OF NOTES
NAME PRIOR TO OFFERING(1) OFFERED HEREBY
- --------------------------------------------------------------------------- -------------------- ----------------
<S> <C> <C>
AAM/Zazove Institutional Income Fund, L.P.................................. $ 1,800,000 $ 1,800,000
Argent Classic Convertible Arbitrage Fund (Bermuda), Ltd................... 10,750,000 10,750,000
Argent Convertible Arbitrage Fund Ltd...................................... 250,000 250,000
Bank of America Pension Plan............................................... 2,000,000 2,000,000
California PERS............................................................ 2,500,000 2,500,000
Canadian Imperial Holdings, Inc............................................ 4,000,000 4,000,000
Commonwealth Life Insurance Company........................................ 2,750,000 2,750,000
Cramblit & Carney Incorporated............................................. 3,441,000 3,441,000
Daniel H. Renberg and Associates, Inc...................................... 675,000 675,000
Dean Witter Convertible Securities Trust................................... 4,500,000 4,500,000
Dean Witter Income Builder Fund............................................ 3,800,000 3,800,000
Dean Witter Variable Income Builder Fund................................... 400,000 400,000
Donaldson, Lufkin & Jenrette Securities Corporation (3).................... 10,720,000 10,720,000
Forest Convertible Opportunity Fund........................................ 248,000 248,000
Forest Fulcrum Fund, LP.................................................... 3,611,000 3,611,000
Forest Global Convert Fund Ser A-1......................................... 100,000 100,000
Forest Global Convert Fund Ser A-5......................................... 3,236,000 3,236,000
Forest Global Convert Fund Ser B-1......................................... 252,000 252,000
Forest Global Convert Fund Ser B-2......................................... 200,000 200,000
Forest Global Convert Fund Ser B-3......................................... 200,000 200,000
Forest Global Convert Fund Ser B-5......................................... 275,000 275,000
Forest Performance Fund.................................................... 280,000 280,000
Forest Performance Greyhound............................................... 220,000 220,000
Forum Capital Markets LP................................................... 1,000,000 1,000,000
Fox Family Foundation...................................................... 150,000 150,000
Fox Family Portfolio Partnership........................................... 400,000 400,000
GPZ Trading................................................................ 2,000,000 2,000,000
Hamilton Partners Limited.................................................. 9,250,000 9,250,000
Highbridge Capital Corporation............................................. 4,700,000 4,700,000
HSBC Securities Inc........................................................ 2,200,000 2,200,000
KA Management Ltd.......................................................... 855,000 855,000
KA Trading L.P............................................................. 645,000 645,000
LDG Limited................................................................ 300,000 300,000
LLT Limited................................................................ 1,500,000 1,500,000
<CAPTION>
COMMON STOCK
OWNED PRIOR COMMON STOCK
NAME TO OFFERING(1)(2) OFFERED HEREBY
- --------------------------------------------------------------------------- ----------------- --------------
<S> <C> <C>
AAM/Zazove Institutional Income Fund, L.P.................................. 0 0
Argent Classic Convertible Arbitrage Fund (Bermuda), Ltd................... 0 0
Argent Convertible Arbitrage Fund Ltd...................................... 0 0
Bank of America Pension Plan............................................... 0 0
California PERS............................................................ 0 0
Canadian Imperial Holdings, Inc............................................ 0 0
Commonwealth Life Insurance Company........................................ 0 0
Cramblit & Carney Incorporated............................................. 126,500 0
Daniel H. Renberg and Associates, Inc...................................... 111,900 0
Dean Witter Convertible Securities Trust................................... 0 0
Dean Witter Income Builder Fund............................................ 0 0
Dean Witter Variable Income Builder Fund................................... 0 0
Donaldson, Lufkin & Jenrette Securities Corporation (3).................... 0 0
Forest Convertible Opportunity Fund........................................ 0 0
Forest Fulcrum Fund, LP.................................................... 0 0
Forest Global Convert Fund Ser A-1......................................... 0 0
Forest Global Convert Fund Ser A-5......................................... 0 0
Forest Global Convert Fund Ser B-1......................................... 0 0
Forest Global Convert Fund Ser B-2......................................... 0 0
Forest Global Convert Fund Ser B-3......................................... 0 0
Forest Global Convert Fund Ser B-5......................................... 0 0
Forest Performance Fund.................................................... 0 0
Forest Performance Greyhound............................................... 0 0
Forum Capital Markets LP................................................... 0 0
Fox Family Foundation...................................................... 0 0
Fox Family Portfolio Partnership........................................... 0 0
GPZ Trading................................................................ 453 0
Hamilton Partners Limited.................................................. 0 0
Highbridge Capital Corporation............................................. 0 0
HSBC Securities Inc........................................................ 0 0
KA Management Ltd.......................................................... 0 0
KA Trading L.P............................................................. 0 0
LDG Limited................................................................ 0 0
LLT Limited................................................................ 0 0
</TABLE>
37
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT OF PRINCIPAL AMOUNT
NOTES OWNED OF NOTES
NAME PRIOR TO OFFERING(1) OFFERED HEREBY
- --------------------------------------------------------------------------- -------------------- ----------------
<S> <C> <C>
McMahan Securities Company, L.P............................................ $ 1,000,000 $ 1,000,000
The Minnesota Mutual Life Insurance Company................................ 565,000 565,000
Orrington International Fund Ltd........................................... 350,000 350,000
Orrington Investments Limited Partnership.................................. 650,000 650,000
Paloma Securities L.L.C.................................................... 3,150,000 3,150,000
Phoenix Capital Offshore Fund Ltd.......................................... 500,000 500,000
Pillar Equity Income Fund.................................................. 500,000 500,000
Silverton International Fund Limited....................................... 2,100,000 2,100,000
Societe Generale Securities Corp........................................... 5,336,000 5,336,000
South Dakota Retirement System............................................. 1,000,000 1,000,000
Southport Management Partners L.P.......................................... 3,000,000 3,000,000
Southport Partners International
LTD...................................................................... 2,000,000 2,000,000
TQA Arbitrage Fund, L.P.................................................... 550,000 550,000
TQA Leverage Fund, L.P..................................................... 1,000,000 1,000,000
TQA Vantage Fund, Ltd...................................................... 750,000 750,000
TQA Vantage Plus, Ltd...................................................... 400,000 400,000
-------------------- ----------------
TOTAL.................................................................. $102,059,000 $102,059,000
-------------------- ----------------
-------------------- ----------------
<CAPTION>
COMMON STOCK
OWNED PRIOR COMMON STOCK
NAME TO OFFERING(1)(2) OFFERED HEREBY
- --------------------------------------------------------------------------- ----------------- --------------
<S> <C> <C>
McMahan Securities Company, L.P............................................ 0 0
The Minnesota Mutual Life Insurance Company................................ 0 0
Orrington International Fund Ltd........................................... 0 0
Orrington Investments Limited Partnership.................................. 0 0
Paloma Securities L.L.C.................................................... 0 0
Phoenix Capital Offshore Fund Ltd.......................................... 0 0
Pillar Equity Income Fund.................................................. 0 0
Silverton International Fund Limited....................................... 0 0
Societe Generale Securities Corp........................................... 0 0
South Dakota Retirement System............................................. 0 0
Southport Management Partners L.P.......................................... 0 0
Southport Partners International
LTD...................................................................... 0 0
TQA Arbitrage Fund, L.P.................................................... 0 0
TQA Leverage Fund, L.P..................................................... 0 0
TQA Vantage Fund, Ltd...................................................... 0 0
TQA Vantage Plus, Ltd...................................................... 0 0
--
-------
TOTAL.................................................................. 238,853 0
--
--
-------
-------
</TABLE>
- ------------------------
(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 indicted 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.
(3) Securities are held by the Placement Agent of the original offering of the
Notes.
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.
38
<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
39
<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 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 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.
40
<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............................................................................................ 9
Price Range of Common Stock................................................................................ 9
Dividend Policy............................................................................................ 9
Capitalization............................................................................................. 10
Selected Financial Data.................................................................................... 11
Description of Notes....................................................................................... 13
Description of Credit Facility............................................................................. 30
Description of Capital Stock............................................................................... 31
Certain Federal Income Tax Considerations.................................................................. 32
Selling Securityholders.................................................................................... 37
Plan of Distribution....................................................................................... 39
Legal Matters.............................................................................................. 40
Experts.................................................................................................... 40
</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. In
addition, the Registrant maintains director and officer liability
II-1
<PAGE>
insurance which, subject to certain exceptions and limitations, insures
directors and officers for any alleged breach of duty, neglect, error,
misstatement, misleading statement, omission or act in their respective
capacities as directors and officers of the Registrant.
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.(11)
4.5 Purchase Agreement by and among PETsMART, Donaldson, Lufkin & Jenrette Securities Corporation,
and NationsBanc Montgomery Securities, Inc., dated as of November 4, 1997.(11)
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.(11)
5.1 Opinion of Cooley Godward LLP.(11)
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)
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ----------- ------------------------------------------------------------------------------------------------
<C> <S> <C>
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)
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.(11)
12.1 Computation of Ratio of Earnings to Fixed Charges.(11)
23.1 Consent of Price Waterhouse LLP.
23.2 Consent of Arthur Andersen LLP.
23.3 Consent of Grant Thornton.
23.4 Consent of Cooley Godward LLP. Reference is made to Exhibit 5.1.
25.1 Statement of Eligibility of Indenture Trustee on Form T-1.(11)
</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.
II-3
<PAGE>
(11) Previously filed with this Registration Statement.
(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 Amendment to
the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Phoenix, State of Arizona, on the 27th
day of April, 1998.
<TABLE>
<S> <C> <C>
PETSMART, INC.
By: /s/ PHILIP L. FRANCIS
------------------------------------------
Philip L. Francis
PRESIDENT AND CHIEF EXECUTIVE OFFICER
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 3 to the 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/ PHILIP L. FRANCIS
------------------------------------------- President, Chief Executive Officer and Director April 27, 1998
Philip L. Francis (PRINCIPAL EXECUTIVE OFFICER)
/s/ NEIL T. WATANABE
------------------------------------------- Executive Vice President, Chief Financial Officer April 27, 1998
Neil T. Watanabe (PRINCIPAL FINANCIAL OFFICER)
*
------------------------------------------- Vice-President, Controller (PRINCIPAL ACCOUNTING OFFICER) April 27, 1998
Kenneth A. Conway
------------------------------------------- Chief Operating Officer and Director
Donna R. Ecton
/s/ SAMUEL J. PARKER
------------------------------------------- Chairman of the Board of Directors April 27, 1998
Samuel J. Parker
*
------------------------------------------- Director April 27, 1998
Richard M. Kovacevich
*
------------------------------------------- Director April 27, 1998
Lawrence S. Philips
*
------------------------------------------- Director April 27, 1998
Walter J. Salmon
*
------------------------------------------- Director April 27, 1998
Thomas G. Stemberg
</TABLE>
*By: /s/ SAMUEL J. PARKER
-------------------------
Samuel J. Parker
ATTORNEY-IN-FACT
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.(11)
4.5 Purchase Agreement by and among PETsMART, Donaldson, Lufkin & Jenrette Securities Corporation,
and NationsBanc Montgomery Securities, Inc., dated as of November 4, 1997.(11)
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.(11)
5.1 Opinion of Cooley Godward LLP.(11)
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.(11)
12.1 Computation of Ratio of Earnings to Fixed Charges.(11)
23.1 Consent of Price Waterhouse LLP.
23.2 Consent of Arthur Andersen LLP.
23.3 Consent of Grant Thornton.
23.4 Consent of Cooley Godward LLP. Reference is made to Exhibit 5.1.
25.1 Statement of Eligibility of Indenture Trustee on Form T-1.(11)
</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.
(11) Previously filed with this Registration Statement.
<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 24, 1998 appearing on page F-2 of PETsMART, Inc.'s Annual Report on
Form 10-K for the year ended February 1, 1998. We also consent to the reference
to us under the heading "Experts" in such Prospectus.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
Phoenix, Arizona
April 27, 1998
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in the Registration Statement on Form S-3 (Registration No. 333-41111)
of our report dated March 22, 1996 on the financial statements of State Line
Tack, Inc. (the Company) as of December 31, 1995, and for the year ended
December 31, 1995 included in PETsMART, Inc.'s Form 10-K for the fiscal year
ended February 1, 1998, and to the reference made to us under the heading
"Experts" in the prospectus, which is part of such Registration Statement. It
should be noted that we have not audited any financial statements of the Company
subsequent to December 31, 1995.
/s/ Arthur Andersen LLP
Arthur Andersen LLP
Boston, Massachusetts
April 27 1998
<PAGE>
EXHIBIT 23.3
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 Note O-- Subsequent Events--as to which the date is
November 20, 1996) appearing on page F-2a of PETsMART, Inc.'s Annual Report on
Form 10-K for the year ended February 1, 1998. We also consent to the reference
to us under the heading "Experts" in such Prospectus.
/s/ Grant Thornton
GRANT THORNTON
London, England
April 27, 1998
