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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) July 28, 1994
------------------------------
Price/Costco, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 0-20355 33-0572969
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(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification No.)
incorporation)
4649 Morena Boulevard, San Diego, California 92117
10809 120th Avenue N.E., Kirkland, Washington 98033
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(Address of principal executive offices) (Zip Code)
(619) 581-4600
Registrant's telephone number, including area code: (206) 828-8100
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(Former name or former address, if changed since last report)
Page 1 of 4 pages
Exhibit Index at page 4
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ITEM 5. OTHER EVENTS.
Price/Costco, Inc. (the "Registrant") and Price Enterprises, Inc., a
newly formed Delaware corporation ("Newco"), have entered into an Agreement of
Transfer and Plan of Exchange, dated July 28, 1994 (the "Agreement"). Pursuant
to the Agreement, the Registrant will contribute certain commercial real
estate not integral to the Registrant's merchandising operations and certain
other assets (the "Assets") to Newco in exchange for 27 million shares of
common stock of Newco ("Newco Common Stock"), which will constitute all of the
outstanding shares of common stock of Newco, and the assumption by Newco of
certain liabilities of the Registrant relating to the Assets. As soon as
practicable thereafter, the Registrant will offer to exchange up to 27 million
shares of Newco Common Stock for issued and outstanding shares of common stock
of the Registrant ("Registrant Common Stock"), on a one-for-one basis. If less
than 21.6 million shares of Registrant Common Stock are exchanged for shares
of Newco Common Stock, the Registrant will distribute to holders of Registrant
Common Stock all the remaining shares of Newco Common Stock held by the
Registrant on a pro rata basis. If at least 21.6 million shares of Registrant
Common Stock, but less than 27 million shares, are so exchanged, the
Registrant will, at its option, either (A) distribute the remaining shares of
Newco Common Stock held by the Registrant, as set forth above, or (B) sell
such shares to Newco in exchange for a promissory note.
The foregoing is only a summary of the transactions contemplated by
the Agreement and is qualified in its entirety by reference to the complete
text of the Agreement, which is attached as an Exhibit hereto.
The Registrant anticipates that the transactions contemplated by the
Agreement will close by calendar year-end.
A copy of the Agreement is filed as an exhibit to this Form 8-K.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
2.1 Agreement of Transfer and Plan of Exchange, dated July 28, 1994,
between Price/Costco, Inc. and Price Enterprises, Inc.
99.1 Press Release, dated July 15, 1994
99.2 Press Release, dated July 28, 1994
Page 2 of 4 pages
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
PRICE/COSTCO, INC.
By:/s/Donald E. Burdick
_____________________
Name: Donald E. Burdick
Title: Vice President
Dated: ________, 1994
Page 3 of 4 pages
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Exhibit Index
Exhibit Page
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2.1 Agreement of Transfer and Plan of
Exchange, dated July 28, 1994, between
Price/Costco, Inc. and Price Enterprises,
Inc.
99.1 Press Release, dated July 15, 1994
99.2 Press Release, dated July 28, 1994
Page 4 of 4 pages
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AGREEMENT OF TRANSFER
AND
PLAN OF EXCHANGE
By and between
PRICE/COSTCO, INC.
and
PRICE ENTERPRISES, INC.
Dated July 28, 1994
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TABLE OF CONTENTS
PAGE
ARTICLE I CERTAIN DEFINITIONS . . . . . . . . . . . . . . . . . . . . . 3
ARTICLE II TRANSFER OF ASSETS; ASSUMPTION
OF LIABILITIES . . . . . . . . . . . . . . . . . . . . . . 17
Section 2.1 Transactions Occurring Prior to the Transfer
Closing Date . . . . . . . . . . . . . . . . . . . . . . . 17
Section 2.2 Conveyance of Transferred Assets . . . . . . . . . . . . . . 18
Section 2.3 Consideration for Transfer. . . . . . . . . . . . . . . . . . 19
Section 2.4 Time and Place of the Transfer Closing . . . . . . . . . . . 19
Section 2.5 Deliveries at the Transfer Closing . . . . . . . . . . . . . 20
ARTICLE III THE EXCHANGE OFFER; THE DISTRIBUTION . . . . . . . . . . . . 22
Section 3.1 Commencement of the Exchange Offer . . . . . . . . . . . . . 22
Section 3.2 Term of Exchange Offer . . . . . . . . . . . . . . . . . . . 23
Section 3.3 The Distribution . . . . . . . . . . . . . . . . . . . . . . 24
ARTICLE IV THE CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 4.1 Closing. . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 4.2 Actions to be taken at the Closing. . . . . . . . . . . . . 27
ARTICLE V REPRESENTATIONS AND WARRANTIES
OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . . 29
Section 5.1 Title to Property . . . . . . . . . . . . . . . . . . . . . . 29
Section 5.2 Brokers and Finders . . . . . . . . . . . . . . . . . . . . . 30
Section 5.3 No Other Representations or Warranties . . . . . . . . . . . 30
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ARTICLE VI ADDITIONAL MATTERS RELATED TO THE
TRANSFER AND THE EXCHANGE OFFER . . . . . . . . . . . . . . 30
Section 6.1 Certain Committees . . . . . . . . . . . . . . . . . . . . . 31
Section 6.2 Certificate of Incorporation and Bylaws of Newco . . . . . . 32
Section 6.3 Amendment of Bylaws of the Company . . . . . . . . . . . . . 32
Section 6.4 Board of Directors of Newco . . . . . . . . . . . . . . . . . 33
Section 6.5 Board of Directors of the Company . . . . . . . . . . . . . . 33
Section 6.6 Agreement Not to Compete . . . . . . . . . . . . . . . . . . 33
Section 6.7 Continuance of Existing Indemnification Rights . . . . . . . 36
Section 6.8 Additional Agreements . . . . . . . . . . . . . . . . . . . . 37
Section 6.9 Fiscal 1995 Budgets . . . . . . . . . . . . . . . . . . . . . 38
Section 6.10 Certain Advances by the Company to Newco . . . . . . . . . . 38
Section 6.11 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 6.12 Further Assurances . . . . . . . . . . . . . . . . . . . . . 38
Section 6.13 Access . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 6.14 Apportionment . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 6.15 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 6.16 Filings . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 6.17 Standstill Agreements . . . . . . . . . . . . . . . . . . . . 41
Section 6.18 Certain Matters with Respect to City Notes . . . . . . . . . 42
Section 6.19 Certain Insurance Proceeds . . . . . . . . . . . . . . . . . 42
Section 6.20 Certain Real Estate Matters . . . . . . . . . . . . . . . . . 43
ARTICLE VII EMPLOYEE MATTERS . . . . . . . . . . . . . . . . . . . . . . 44
Section 7.1 Employees . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 7.2 Company Plans . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 7.3 Welfare Plans; Certain Other Plans . . . . . . . . . . . . . 48
Section 7.4 Employee Stock Options . . . . . . . . . . . . . . . . . . . 50
Section 7.5 Severance Pay . . . . . . . . . . . . . . . . . . . . . . . . 52
Section 7.6 Seniority . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Section 7.7 Administrative Services . . . . . . . . . . . . . . . . . . . 53
ARTICLE VIII TRANSFER CLOSING CONDITIONS . . . . . . . . . . . . . . . . . 53
Section 8.1 Conditions to Each Party's Obligation to Consummate
the Transfer . . . . . . . . . . . . . . . . . . . . . 53
Section 8.2 Conditions to Obligation of Newco to Consummate the
Transfer . . . . . . . . . . . . . . . . . . . . . . . . . 54
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Section 8.3 Conditions to Obligations of the Company to
Consummate the Transfer . . . . . . . . . . . . . . . . . 55
ARTICLE IX INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . 55
Section 9.1 Indemnification . . . . . . . . . . . . . . . . . . . . . . . 55
Section 9.2 Procedures Relating to Indemnification . . . . . . . . . . . 59
ARTICLE X MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . 64
Section 10.1 Amendment and Modification . . . . . . . . . . . . . . . . . 64
Section 10.2 Waiver of Compliance . . . . . . . . . . . . . . . . . . . . 64
Section 10.3 Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . 64
Section 10.4 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Section 10.5 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . 67
Section 10.6 Interpretation . . . . . . . . . . . . . . . . . . . . . . . 67
Section 10.7 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . 68
Section 10.8 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . 68
Section 10.9 Third Parties . . . . . . . . . . . . . . . . . . . . . . . . 68
Section 10.10 Complete Agreement . . . . . . . . . . . . . . . . . . . . . 68
Section 10.11 Severability . . . . . . . . . . . . . . . . . . . . . . . . 69
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EXHIBITS
A Form of Lease
B Form of Mexico Operating Agreement
C Form of International Operating Agreement
D Form of Quest Operating Agreement
E Map
F Form of Mexico Stockholders' Agreement
G Form of International Stockholders' Agreement
H Form of Quest Stockholders' Agreement
I Form of Certificate of Incorporation
of Subsidiary Corporations
J Form of Bylaws of Subsidiary Corporations
K Form of Bill of Sale
L Form of Instrument of Assignment
and Assumption
M Conditions to the Exchange Offer
N Form of Note
O Form of Amended Bylaws of the Company
P Form of Executive Committee Resolutions
Q Form of Compensation, Audit, Finance and Real Estate Committee Resolutions
R Form of Letter of Resignation
S Term Sheet for Advances by the Company to Newco
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AGREEMENT OF TRANSFER AND PLAN OF EXCHANGE, dated July 28, 1994,
between Price/Costco, Inc., a Delaware corporation (the "Company"), and Price
Enterprises, Inc., a Delaware corporation ("Newco").
WHEREAS, on July 28, 1994, the Board of Directors of the Company
considered and approved a restructuring of the Company (the "Transaction")
whereby, among other things, subject to the terms and conditions hereof (i) the
Company will transfer or cause to be transferred to Newco certain assets in
exchange for 27 million shares of common stock, par value $.01 per share, of
Newco ("Newco Common Stock") and the assumption by Newco of certain liabilities
related to such transferred assets; (ii) the Company will distribute such shares
of Newco Common Stock to the stockholders of the Company by means of an exchange
offer and/or a pro rata distribution; (iii) the Company may sell certain shares
of Newco Common Stock to Newco; and (iv) the Company will make certain advances
to Newco to enable Newco to conduct its business and operations as a stand-alone
company (subject to repayment of such advances, as set forth herein);
WHEREAS, Newco desires to acquire the assets comprising the business
and operations of the Company and certain of its subsidiaries relating to the
development of certain real estate (and certain real estate activities incident
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thereto) as well as certain other assets relating to certain other businesses
and operations, as set forth herein;
WHEREAS, Newco is willing to issue such shares of Newco Common Stock
and to assume such liabilities in exchange for such transferred assets and to
take such other actions as set forth herein;
WHEREAS, the Company and Newco are willing to indemnify each other
against certain liabilities, as set forth herein;
WHEREAS, as part of the Transaction, the Company intends to offer to
each of its stockholders the right to exchange one share of common stock of the
Company, par value $.01 per share ("Company Common Stock"), for one share of
Newco Common Stock;
WHEREAS, if less than 21.6 million shares of Company Common Stock are
exchanged for shares of Newco Common Stock, the Company shall distribute to
holders of Company Common Stock all the remaining shares of Newco Common Stock
held by the Company on a pro rata basis;
WHEREAS, if at least 21.6 million shares of Company Common Stock, but
less than 27 million shares are so exchanged, the Company shall, at its option,
either (i) distribute the remaining shares of Newco Common Stock held by the
Company, as set forth above or (ii) sell such shares to Newco in exchange for a
promissory note; and
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WHEREAS, the Company and Newco have determined that it is necessary
and desirable to set forth in this Agreement certain matters regarding the
Transaction.
NOW, THEREFORE, in consideration of the foregoing premises and the
respective representations, warranties, covenants, agreements and conditions
hereinafter set forth, and intending to be legally bound hereby, the parties
hereto agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
For the purposes of this Agreement, the following terms shall have the
following meanings:
SECTION 1.1 "Additional Agreements" shall mean the Advance Agreement,
the Leases, the Office Lease, the Operating Agreements, the Reciprocal Easement
Agreements, the Stockholders' Agreements and the Tax Allocation Agreements.
SECTION 1.2 "Advance Agreement" shall have the meaning set forth in
Section 6.11 hereof.
SECTION 1.3 "Agreement" shall mean this Agreement of Transfer and
Plan of Exchange.
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SECTION 1.4 "Assets" shall mean properties (including personal
property), assets, Contracts, rights and entitlements.
SECTION 1.5 "Assumed Construction Costs" shall mean all costs to
complete construction of the Commercial Properties, as set forth on Schedule
1.14 hereto.
SECTION 1.6 "Assumed Liabilities" shall mean (i) all Liabilities of
the Company and its subsidiaries relating to or arising out of the Transferred
Assets and which arise out of events occurring at or after the Transfer Closing
Date; (ii) the Environmental Liabilities; and (iii) the Assumed Construction
Costs.
SECTION 1.7 "Atlas Note" shall mean the note receivable described on
Schedule 1.7 hereto.
SECTION 1.8 "City Notes" shall mean the notes receivable described on
Schedule 1.8 hereto.
SECTION 1.9 "Closing" shall have the meaning set forth in Section 4.1
hereof.
SECTION 1.10 "Closing Date" shall have the meaning set forth in
Section 4.1 hereof.
SECTION 1.11 "Club Business" shall mean any merchandising activity
utilizing 70,000 square feet or more in a single location, operated with
membership and selling food and non-food items through a central checkout.
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SECTION 1.12 "CMI Stock" shall have the meaning set forth in Section
1.32 hereof.
SECTION 1.13 "Code" shall mean the Internal Revenue Code of 1986, as
amended.
SECTION 1.14 "Commercial Properties" shall mean the commercial real
estate listed on Schedule 1.14 hereto.
SECTION 1.15 "Company" shall have the meaning set forth in the
introductory clause hereto.
SECTION 1.16 "Company Common Stock" shall have the meaning set forth
in the introductory clauses hereto.
SECTION 1.17 "Company Executive Committee" shall have the meaning set
forth in Section 6.1 hereof.
SECTION 1.18 "Company Option" shall have the meaning set forth in
Section 7.4 hereof.
SECTION 1.19 "Company Option Plans" shall have the meaning set forth
in Section 7.4 hereof.
SECTION 1.20 "Company Plans" shall mean each "employee pension
benefit plan," as such term is defined in section 3(2) of ERISA, maintained or
contributed to by the Company.
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SECTION 1.21 "Company Welfare Plans" shall have the meaning set forth
in Section 7.3 hereof.
SECTION 1.22 "Contract" shall mean any contract, agreement,
commitment, indenture, lease, note, bond, mortgage, license, plan, arrangement
or understanding.
SECTION 1.23 "Costco Designees" shall have the meaning set forth in
the Bylaws of the Company.
SECTION 1.24 "Distribution" shall have the meaning set forth in
Section 3.3 hereof.
SECTION 1.25 "Distribution Record Date" shall have the meaning set
forth in Section 3.3 hereof.
SECTION 1.26 "Environmental Liabilities" shall mean all Liabilities
relating to or arising in respect of Materials of Environmental Concern and
violations or purported violations of Environmental Laws, which relate to or
arise out of the Real Properties and which arise out of events occurring prior
to, at or after the Transfer Closing Date.
SECTION 1.27 "Environmental Laws" shall mean all Federal, state,
local and foreign laws and regulations relating to pollution or protection of
human health or the environment, including, without limitation, laws and
regulations relating to emissions, discharges, releases, or threatened releases
of toxic or
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hazardous substances, materials or wastes, or petroleum and petroleum products
("Materials of Environmental Concern"), or otherwise relating to the generation,
storage, disposal, transport or handling of Materials of Environmental Concern.
SECTION 1.28 "ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as from time to time amended.
SECTION 1.29 "Exchange Offer" shall have the meaning set forth in
Section 3.1 hereof.
SECTION 1.30 "Finance Committee" shall have the meaning set forth in
Section 6.2 hereof.
SECTION 1.31 "Instrument of Assignment and Assumption" shall have the
meaning set forth in Section 2.5 hereof.
SECTION 1.32 "International Assets" shall mean (i) the right to
develop a Club Business in the Specified Geographical Areas (other than Mexico);
(ii) all shares of capital stock of Club Merchandising, Inc. owned, directly or
indirectly, by the Company (the "CMI Stock"); (iii) all right, title and
interest in and to the names "Price Club," "Price Club Costco" and "Price
Costco" in each of the Specified Geographical Areas (other than the United
Mexican States); and (iv) all other noncurrent Assets of the Company and its
subsidiaries (other than those included in CMI) specifically related to the
conduct of business in the Specified Geographical Areas.
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SECTION 1.33 "Leases" shall mean agreements substantially in the
form attached hereto as Exhibit A pursuant to which the Company will lease back
each of the Warehouse Properties following the transfer of such properties to
Newco.
SECTION 1.34 "Liabilities" shall mean liabilities and obligations,
secured or unsecured, whether absolute, accrued, contingent or otherwise, and
whether or not due, including without limitation all such liabilities relating
to or arising in respect of Materials of Environmental Concern and violations or
purported violations of Environmental Laws.
SECTION 1.35 "Materials of Environmental Concern" shall have the
meaning set forth in Section 1.27.
SECTION 1.36 "Mexico Assets" shall mean (i) the right to develop a
Club Business in the United Mexican States; (ii) all shares of capital stock of
Price Venture Mexico owned, directly or indirectly, by the Company; (iii) all
right, title and interest in and to the names "Price Club," "Price Club Costco"
and "Price Costco" in the United Mexican States; (iv) the assets listed on a
Schedule to be mutually agreed to by the Company and Newco prior to the Transfer
Closing Date (the "Scheduled Mexico Assets") and (v) all other noncurrent Assets
of the Company and its subsidiaries specifically related to the conduct of
business in the United Mexican States.
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SECTION 1.37 "net proceeds" shall mean the proceeds remaining from
any sale after the payment of all direct costs and expenses associated with such
sale, including, without limitation, all Federal, state and local income and
transfer taxes payable in connection therewith.
SECTION 1.38 "Newco" shall have the meaning set forth in the
introductory clauses hereto.
SECTION 1.39 "Newco Assets" shall mean all furniture, fixtures and
equipment used by employees of the Company who will become Retained Employees
and (excluding the Company's AS-400 data center) located at the San Diego
Property.
SECTION 1.40 "Newco Common Stock" shall have the meaning set forth in
the introductory clauses hereto.
SECTION 1.41 "Newco Employees" shall have the meaning set forth in
Section 7.1 hereof.
SECTION 1.42 "Newco Executive Committee" shall have the meaning set
forth in Section 6.1 hereof.
SECTION 1.43 "Newco Option" shall have the meaning set forth in
Section 7.4 hereof.
SECTION 1.44 "Newco Option Plan" shall have the meaning set forth in
Section 7.4 hereof.
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SECTION 1.45 "Newco Plans" shall have the meaning set forth in
Section 7.2 hereof.
SECTION 1.46 "Northridge Mortgage" shall mean outstanding
indebtedness in an original principal amount of $5,000,000 with a current
outstanding principal amount of approximately $3,500,000, which is secured by
the Commercial Property located in Northridge, California (denoted as item
number 6 on Schedule 1.14 hereto) and the Company's Club Business real estate
located adjacent thereto.
SECTION 1.47 "Note" shall have the meaning set forth in Section 3.3
hereof.
SECTION 1.48 "Notes Receivable" shall mean the Atlas Note and the
City Notes.
SECTION 1.49 "Office Lease" shall mean an agreement pursuant to which
the Company will lease certain office space located at 4649 Morena Boulevard,
San Diego, California (not to exceed the square footage currently being used by
the business and operations of the Company excluding the business and operations
of Newco) substantially in the form attached hereto as Exhibit A except that (i)
the term thereof shall end on or about July 1997, (ii) the rent with respect
thereto shall be included within the rent charged pursuant to the Ware-
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house Property located at Morena Boulevard, San Diego, California and (iii) such
agreement shall not be assignable or subleaseable by the Company.
SECTION 1.50 "Operating Agreements" shall mean agreements
substantially in the forms attached hereto as Exhibits B, C and D.
SECTION 1.51 "person" shall mean any individual, corporation,
partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or government or other agency or political
subdivision thereof, or any other entity.
SECTION 1.52 "Price Designees" shall have the meaning set forth in
the Bylaws of the Company.
SECTION 1.53 "Quest Assets" shall mean (i) all of the noncurrent
Assets of the Company or any of its subsidiaries specifically related to the
Quest Business as currently conducted; (ii) all right, title and interest, if
any, of the Company or any of its subsidiaries to the name "Price Club Quest"
and "Quest" and (iii) the Assets listed on a Schedule to be mutually agreed to
by the Company and Newco prior to the Transfer Closing Date.
SECTION 1.54 "Quest Business" shall mean all of the business and
operations currently conducted by the Company or any of its subsidiaries through
its Quest interactive electronic shopping business, together with Price Club
Travel, Price Club Realty and the Price Club automobile advertising/referral
busi-
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ness and as such business may be expanded from time to time; PROVIDED, HOWEVER,
that any expansions into new concepts in the Company's warehouse operations
shall be subject to the prior approval of the Chief Executive Officer of the
Company (which approval shall not be unreasonably withheld).
SECTION 1.55 "Real Estate Committee" shall have the meaning set forth
in Section 6.1 hereof.
SECTION 1.56 "Real Properties" shall mean the Commercial Properties,
the Warehouse Properties and the San Diego Property.
SECTION 1.57 "Reciprocal Easement Agreements" shall have the meaning
set forth in Section 6.20 hereof.
SECTION 1.58 "Registration Statement" shall have the meaning set
forth in Section 3.1 hereof.
SECTION 1.59 "Retained Employees" shall have the meaning set forth in
Section 7.1 hereof.
SECTION 1.60 "Retained Liabilities" shall mean all Liabilities of the
Company and its subsidiaries relating to or arising out of (i) the Mexico Assets
(other than shares of capital stock of Price Venture Mexico), the International
Assets (other than the CMI Stock) and the Quest Assets, which arise out of
events occurring prior to the Transfer Closing Date and (ii) the Transferred
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Assets which arise out of events occurring prior to the Transfer Closing Date,
but excluding the Environmental Liabilities and the Assumed Construction Costs.
SECTION 1.61 "San Diego Office Space" shall mean certain office space
located in the San Diego Property, as described in the Lease.
SECTION 1.62 "San Diego Property" shall mean the commercial real
estate known as 4455 and 4649 Morena Boulevard, San Diego, California.
SECTION 1.63 "Scheduled Mexico Assets" shall have the meaning set
forth in Section 1.29 hereof.
SECTION 1.64 "Securities Act" shall mean the Securities Act of 1933,
as amended.
SECTION 1.65 "SEC" shall mean the Securities and Exchange Commission.
SECTION 1.65A "Specified Companies" shall mean Wal-Mart Stores Inc.,
Target Stores, Kmart Corporation, The Home Depot, Inc. and Office Depot, Inc.
and each of their affiliates (as such term is defined in Rule 12b-2 under the
Securities Exchange Act of 1934, as amended)
SECTION 1.66 "Specified Geographical Areas" shall mean Australia, New
Zealand, the Northern Mariana Islands (including Guam and Saipan), the Republic
of Panama, those Central American countries situated north of the Republic of
Panama and south of Mexico, Mexico and those islands situated in the Western
Hemisphere north of the Equator and lying within the area marked on the map
attached hereto as Exhibit E (including Bermuda but excluding Puerto Rico and
any portion of the United States (other than the U.S. Virgin Islands) or Canada
lying within such marked area).
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SECTION 1.67 "Stockholders' Agreements" shall mean agreements
substantially in the form attached hereto as Exhibits F, G and H.
SECTION 1.68 "subsidiary" of any person shall mean any corporation or
other entity of which outstanding securities having ordinary voting power to
elect a majority of the board of directors of such corporation or a majority of
the voting equity interest of such other entity is owned directly or indirectly
by such person.
SECTION 1.69 "Subsidiary Corporations" shall mean, collectively,
Subsidiary Corporation #1, Subsidiary Corporation #2 and Subsidiary Corporation
#3.
SECTION 1.70 "Subsidiary Corporation #1" shall mean a direct or
indirect subsidiary of the Company, which shall be a Delaware corporation, to be
formed in accordance with Section 2.1 hereof, to which the Company shall cause
to be contributed the Mexico Assets.
SECTION 1.71 "Subsidiary Corporation #2" shall mean a direct or
indirect subsidiary of the Company, which shall be a Delaware corporation, to be
formed in accordance with Section 2.1 hereof, to which the Company shall cause
to be contributed the International Assets.
SECTION 1.72 "Subsidiary Corporation #3" shall mean a direct or
indirect subsidiary of the Company, which shall be a Delaware corporation, to be
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formed in accordance with Section 2.1 hereof, to which the Company shall cause
to be contributed the Quest Assets.
SECTION 1.73 "Subsidiary Interests" shall mean, collectively, 51
percent of the outstanding capital stock of each Subsidiary Corporation.
SECTION 1.74 "Tax Allocation Agreements" shall mean tax allocation
agreements to be entered into between the Company, on the one hand, and each of
Newco and each Subsidiary Corporation, on the other, pursuant to which Newco or
such Subsidiary Corporation, as the case may be, will be required to make
payments to the Company in respect of its Federal, state, local and foreign
income tax liabilities on and after the Transfer Closing Date, as if Newco, and
its subsidiaries or such Subsidiary Corporation, as the case may be, were
separate corporations for Federal income tax purposes on and after such date.
SECTION 1.75 "Tax Ruling" shall mean a ruling by the Internal
Revenue Service, which may be sought by the Company and Newco, regarding the
Federal income tax consequences of the Transaction.
SECTION 1.76 "Third Party Claim" shall have the meaning set forth in
Section 9.2 hereof.
SECTION 1.77 "Transaction" shall have the meaning set forth in the
introductory clauses hereto.
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SECTION 1.78 "Transfer" shall have the meaning set forth in Section
2.2 hereof.
SECTION 1.79 "Transferred Assets" shall mean (i) the Commercial
Properties, other than any Commercial Property that is sold to a third party
prior to the Transfer Closing Date (A) pursuant to an agreement in existence as
of the date hereof or (B) following approval of such sale by the Real Estate
Committee; (ii) the net proceeds from the sale of any Commercial Property
occurring prior to the actual transfer of such Commercial Property by the
Company to Newco; (iii) the Warehouse Properties; (iv) the San Diego Property;
(v) the Notes Receivable; (vi) the Newco Assets; (vii) the Subsidiary Interests;
and (viii) all claims, rights, entitlements and causes of action of the Company
and its Subsidiaries in respect of the Transferred Assets (other than any such
claims, rights, entitlements and cause of action arising out of or relating to
the Retained Liabilities).
SECTION 1.80 "Transfer Closing" shall have the meaning set forth in
Section 2.4 hereof.
SECTION 1.81 "Transfer Closing Date" shall have the meaning set forth
in Section 2.4 hereof.
SECTION 1.82 "Transition Period" shall have the meaning set forth in
Section 7.1 hereof.
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SECTION 1.83 "Warehouse Properties" shall mean the commercial real
estate comprising the Company's warehouse club operations at Pentagon City in
Arlington,Virginia; Wayne, New Jersey; Westbury, New York; and Morena Boulevard
in San Diego, California (including fixtures permanently attached to such
structures, but excluding inventory, furniture, trade fixtures and equipment).
ARTICLE II
TRANSFER OF ASSETS; ASSUMPTION OF LIABILITIES
SECTION 2.1 TRANSACTIONS OCCURRING PRIOR TO THE TRANSFER CLOSING
DATE. (a) Prior to the Transfer Closing Date the Company shall cause to be
formed the Subsidiary Corporations, the certificate of incorporation and bylaws
of each such Subsidiary Corporation to be substantially in the form of Exhibits
I and J hereto, respectively.
(b) Prior to the Transfer Closing Date, the Company shall cause (i)
the Mexico Assets to be conveyed, assigned, transferred and delivered to
Subsidiary Corporation #1; (ii) the International Assets to be conveyed,
assigned, transferred and delivered to Subsidiary Corporation #2; and (iii) the
Quest Assets to be conveyed, assigned, transferred and delivered to Subsidiary
Corporation #3. Each such conveyance, assignment, transfer and delivery shall
be effected by
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such bills of sale, endorsements, assignments or other instruments of transfer
and conveyance, as appropriate.
(c) In full consideration for the conveyances, assignments, transfers
and deliveries described in subsection (b) above, each Subsidiary Corporation
shall issue 100 shares of its common stock to the Company (or to such wholly-
owned subsidiary of the Company that is making the conveyances, assignments,
transfers and deliveries), which shall constitute all of the outstanding capital
stock of such Subsidiary Corporation.
SECTION 2.2 CONVEYANCE OF TRANSFERRED ASSETS. Upon the terms and
subject to the satisfaction of the conditions contained in this Agreement, at
the Transfer Closing, the Company shall cause to be conveyed, assigned,
transferred and delivered to Newco (or to a subsidiary of Newco, if agreed to by
the parties, which agreement shall not unreasonably be withheld) the Transferred
Assets (the "Transfer"). In the event that the Company is unable to convey,
assign, transfer or deliver (or to cause such action to occur) any of the
Transferred Assets as of the Transfer Closing Date, the Company will take all
reasonable actions to preserve for, or transfer to, Newco the benefits of such
Transferred Asset, pending the conveyance, assignment, transfer or delivery
thereof to Newco. In the event that the Company is unable to convey, assign,
transfer or deliver (or cause such action to occur) any of the Real Properties
to Newco on or
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prior to February 28, 1995, Newco and the Company shall agree to either (i) an
arrangement, if legally permissible, pursuant to which the Company shall lease
such Real Property to Newco pursuant to a long-term lease for an annual rent of
$1.00 per year or (ii) a conveyance by the Company to Newco of other real
property owned by the Company or its subsidiaries satisfactory to Newco in
substitution thereof; PROVIDED, that if both of such alternatives shall deprive
either party of the benefits of transferring ownership of the property
contemplated by this Agreement by February 28, 1995, then the Company shall
remit to Newco in cash the value of such property, as listed on Schedule 1.14
hereto under the column entitled "Est. Value @ Sept 1, 1994."
SECTION 2.3 CONSIDERATION FOR TRANSFER. In full consideration for
the Transfer, on the Transfer Closing Date, Newco shall (i) issue to the
Company, or one of its subsidiaries designated by the Company, 27 million
shares of Newco Common Stock; (ii) assume the Assumed Liabilities; and (iii)
make all other deliveries required to be made by Newco pursuant to this
Agreement.
SECTION 2.4 TIME AND PLACE OF THE TRANSFER CLOSING. The closing of
the Transfer (the "Transfer Closing") shall take place at the offices of
Skadden, Arps, Slate, Meagher & Flom, 300 South Grand Avenue, Los Angeles,
California at 10:00 a.m., local time, on August 26, 1994, or as soon as
practicable thereafter on such date and at such time as the parties may mutually
agree.
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The date and time at which the Transfer Closing actually occurs is hereinafter
referred to as the "Transfer Closing Date;" PROVIDED, HOWEVER, that in any case,
and regardless of the actual date and time at which the Transfer Closing
actually occurs, the Transfer Closing Date shall be deemed to occur at the close
of business on August 28, 1994.
SECTION 2.5 DELIVERIES AT THE TRANSFER CLOSING. At the Transfer
Closing:
(a) Newco will deliver to the Company:
(i) a duly executed counterpart of a bill of sale in
substantially the form attached hereto as Exhibit K (the "Bill of
Sale");
(ii) a duly executed counterpart of an instrument of
assignment and assumption in substantially the form attached hereto as
Exhibit L (the "Instrument of Assignment and Assumption");
(iii) duly executed counterparts of the Additional
Agreements;
(iv) all other documents, instruments and writings
required to be delivered by Newco at or prior to the Transfer Closing
Date pursuant to this Agreement.
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(b) The Company will deliver or cause to be delivered to Newco:
(i) the books and records included in the Transferred
Assets;
(ii) deeds in recordable form conveying to Newco all of
the Company's right, title and interest in and to the owned real
properties included in the Transferred Assets;
(iii) immediately available funds in an amount equal to
the net proceeds from the sale of any Commercial Property occurring
prior to the Transfer Closing Date;
(iv) stock certificates representing the Subsidiary
Interests;
(v) a duly executed counterpart of the Instrument of
Assignment and Assumption;
(vi) duly executed counterparts of the Additional
Agreements;
(vii) such bills of sale, endorsements, assignments and
other instruments of transfer and conveyance as shall be necessary to
effect the conveyance, assignment, transfer
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and delivery of the Transferred Assets (other than the owned real
property included in the Transferred Assets);
(viii) all other documents, instruments and writings
required to be delivered by the Company at or prior to the Transfer
Closing Date pursuant to this Agreement; and
(ix) ALTA owner's title insurance policies for all Real
Properties transferred and conveyed at the Transfer Closing showing
title consistent with this Agreement.
ARTICLE III
THE EXCHANGE OFFER; THE DISTRIBUTION
SECTION 3.1 COMMENCEMENT OF THE EXCHANGE OFFER. As soon as
practicable after the date hereof, Newco shall file with, and use its best
efforts to cause to be declared effective by, the SEC, a registration statement
on Form S-4 (such registration statement, as the same may be amended from time
to time, the "Registration Statement") pursuant to which it will register under
the Securities Act, 27 million shares of Newco Common Stock to be issued in the
Exchange Offer. As soon as practicable after the Registration Statement has
been declared effective under the Securities Act, the Company shall file with
the SEC an Issuer
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Tender Offer Statement on Schedule 13E-4 and commence an issuer tender offer
(the "Exchange Offer") pursuant to which the Company will offer to exchange,
subject to the terms and conditions set forth in this Agreement and in Exhibit M
hereto, one share of Newco Common Stock for each share of Company Common Stock
up to a maximum of 27 million shares of Newco Common Stock.
SECTION 3.2 TERM OF EXCHANGE OFFER. The Exchange Offer shall have a
scheduled expiration date 20 business days following the date of commencement.
Subject to the terms and conditions of the Exchange Offer, the Company shall
accept for payment all shares of Company Common Stock which have been validly
tendered and not withdrawn pursuant to the Exchange Offer (up to a maximum of 27
million such shares), and shall pay for each such share by issuing in exchange
therefor one share of Newco Common Stock, at the earliest time following
expiration of the Exchange Offer that all conditions to the Exchange Offer shall
have been satisfied. If more than 27 million shares of Company Common Stock are
validly tendered and not withdrawn in the Exchange Offer prior to the expiration
thereof, the shares of Company Common Stock so tendered shall be accepted for
payment, and shares of Newco Common Stock issued in exchange therefor, on a pro
rata basis. The Company shall not extend the term of the Exchange Offer, except
that the Company Executive Committee or the Newco Executive Committee may extend
the term of the Exchange Offer to
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comply with applicable law or if the Company and Newco determine to seek the Tax
Ruling and, at the time of initial expiration, the Tax Ruling shall not have
been received by the Company; PROVIDED, HOWEVER, that in no event shall the time
of expiration be extended beyond January 31, 1995.
SECTION 3.3 THE DISTRIBUTION. (a) If the Exchange Offer is
terminated with no shares exchanged or is consummated and the number of shares
validly tendered by holders of Company Common Stock, and exchanged by the
Company for shares of Newco Common Stock, is less than 21.6 million, the Board
of Directors of the Company will declare a distribution on each share of Company
Common Stock payable to holders of record of shares of Company Common Stock as
of a date no more than 20 business days after the Closing Date (the
"Distribution Record Date"), such distribution to consist of a portion of a
share of Newco Common Stock equal to a fraction, the numerator of which is the
number of shares of Newco Common Stock owned by the Company following
termination or consummation of the Exchange Offer and the denominator of which
is the number of shares of Company Common Stock outstanding on the Distribution
Record Date (the "Distribution Fraction").
(b) If the Exchange Offer is consummated and the number of
shares validly tendered by holders of Company Common Stock, and exchanged by the
Company for shares of Newco Common Stock, is greater than 21.6
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million, but less than 27 million, the Company, at its option, shall take one of
the following actions:
(i) the Board of Directors of the Company will cause to
occur a distribution on each share of Company Common Stock payable to
holders of record of shares of Company Common Stock as of the
Distribution Record Date, such dividend to consist of a portion of a
share of Newco Common Stock equal to the Distribution Fraction; or
(ii) on the thirtieth business day following the Closing
Date, the Company shall sell to Newco all shares of Newco Common Stock
owned by the Company following consummation of the Exchange Offer,
including, without limitation, such shares representing aggregated
fractional shares which would have been distributed to holders of
Company Common Stock but for subsection (c) below (and Newco shall be
required to purchase such shares by delivering in exchange therefor
its Promissory Note substantially in the form attached hereto as
Exhibit N), at a price per share equal to the average of the closing
sales price of Newco Common Stock for the 20 trading days commencing
on the sixth trading day following the expiration of the Exchange
Offer (or if
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Newco Common Stock does not trade on any such day, the average of the
high bid and low asked price per share on such day), which right of
the Company to so sell shall be exercised by delivering written notice
to Newco within 20 business days after the Closing Date specifying (A)
the number of shares of Newco Common Stock owned by the Company and
(B) that the Company desires to sell such shares to Newco.
(c) Notwithstanding any other provision of this Agreement,
no certificates or scrip for fractional shares of Newco Common Stock shall be
issued in any distribution of such shares as set forth above, and no dividend or
other distribution, stock split or interest with respect to shares of Newco
Common Stock shall relate to any fractional security, and such fractional
interests shall not entitle the owner thereof to vote or to any other rights of
a stockholder. In lieu of such fractional shares, each holder of shares of
Company Common Stock who would otherwise have been entitled to a fraction of a
share of Newco Common Stock shall be entitled to receive a cash payment (without
interest) in lieu of such fractional share equal to such fraction multiplied by
the average closing price per share of Newco Common Stock on the National
Association of Securities Dealers Inc. Automated Quotation/National Market
System (or on such other quotation service or exchange as the Newco Common Stock
shall be quoted
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or listed), during the ten trading days immediately following the date of
distribution of shares of Newco Common Stock by the Company. If, following any
distribution of shares of Newco Common Stock by the Company, as set forth in
this Section 3.3, the Company shall own any shares of Newco Common Stock
representing aggregated fractional shares which would have been distributed to
holders of Company Common Stock but for this subsection (c), the Company shall
sell such shares to Newco, in the manner and valued in accordance with
subsection (b)(ii) above.
ARTICLE IV
THE CLOSING
SECTION 4.1 CLOSING. The closing (the "Closing") of the transactions
contemplated by this Agreement, other than those actions that are taken and
transactions that are consummated at the Transfer Closing, shall take place on
the date immediately following the expiration of the Exchange Offer, or if such
date is not a business day, and the Company so elects, on the next business day
thereafter (the "Closing Date"). The Closing shall take place at the offices of
Skadden, Arps, Slate, Meagher & Flom, 300 South Grand Avenue, Los Angeles,
California at 10:00 a.m., local time, or at such other time and place as the
parties may mutually agree.
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SECTION 4.2 ACTIONS TO BE TAKEN AT THE CLOSING.
At the Closing the following actions shall be taken (if such actions
have not been taken prior to the Closing):
(a) the Company will deliver to a bank or trust company
(designated by the Company to serve as the agent of the Company for exchanging
shares of Newco Common Stock for shares of Company Common Stock in the Exchange
Offer), a number of shares of Newco Common Stock (up to a maximum of 27 million
such shares) equal to the number of shares of Company Common Stock validly
tendered and not withdrawn in the Exchange Offer and accepted for payment by the
Company;
(b) the amended Certificate of Incorporation of Newco shall be
filed with the Secretary of State of the State of Delaware;
(c) the amendments to the Bylaws of Newco, which shall have been
amended in accordance with Section 6.2 hereof, shall become effective;
(d) the amendment of the Bylaws of the Company to read in their
entirety as set forth in Exhibit O hereto shall become effective;
(e) the Board of Directors of Newco shall be expanded and the
newly created directorships shall be filled, as described in Section 6.4 hereof;
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(f) the resignations of certain Price Designees from the Board
of Directors of the Company, as described in Section 6.5 hereof, shall become
effective; and
(g) each of the Company and Newco shall deliver or cause to be
delivered all other documents, instruments and writings required to be delivered
by the Company or Newco, as the case may be, at or prior to the Closing Date
pursuant to this Agreement.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Newco as follows:
SECTION 5.1 TITLE TO PROPERTY. All of the real and personal property
owned by the Company or any of its subsidiaries and included in the Transferred
Assets, the Scheduled Mexico Assets, the International Assets or the Quest
Assets is owned by the Company or such subsidiary free and clear of any minority
interest (in the case of all owned Commercial Properties) and free and clear of
all liens except for (i) liens imposed by operation of law for current taxes not
yet due and payable in the ordinary course of business, (ii) mechanics',
repairmen's, materialmen's and other like liens in respect of liabilities which
are not yet due or which are being contested in good faith, (ii) liens arising
out of or
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relating to Environmental Liabilities, (iv) liens which have been previously
disclosed by the Company or any of its subsidiaries to Newco or with respect to
which Newco has knowledge, and (v) those liens that do not materially and
adversely affect the marketability or intended use of such property.
SECTION 5.2 BROKERS AND FINDERS. Other than Donaldson, Lufkin &
Jenrette Securities Corporation and Lehman Brothers, none of the Company or any
of its subsidiaries nor any of their respective directors, officers or employees
has employed any broker or finder (including, without limitation, any real
estate broker) or incurred any liability for any financial advisory fees,
commissions or similar payments in connection with the transactions contemplated
by this Agreement.
SECTION 5.3 NO OTHER REPRESENTATIONS OR WARRANTIES. Except as set
forth in Sections 5.1 and 5.2, the Company is not, in this Agreement nor in any
other agreement or document contemplated by this Agreement, making any
representations or warranties with respect to the Transferred Assets, the Mexico
Assets, the International Assets or the Quest Assets.
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ARTICLE VI
ADDITIONAL MATTERS RELATED TO THE
TRANSFER AND THE EXCHANGE OFFER
SECTION 6.1 CERTAIN COMMITTEES. (a) The Board of Directors of the
Company has heretofore taken all necessary actions so that, at the Transfer
Closing Date
(i) there shall be formed an executive committee of the
Board of Directors of Newco (the "Newco Executive Committee"), the
charter of which shall read as set forth in Exhibit P hereto,
consisting of James D. Sinegal and two persons designated by the Price
Designees then serving on the Board of Directors of the Company;
(ii) the charter of the current Executive Committee of
such Board will be amended to read as set forth in Exhibit P hereto
and such Executive Committee will be reconstituted, the members
thereof to consist of (A) Richard M. Libenson; (B) Duane Nelles; and
(C) all of the Costco Designees then serving on the Board of Directors
of the Company (such committee, as reconstituted, the "Company
Executive Committee");
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(iii) the charter of the current Audit and Compensation
Committees of such Board will be amended to read as set forth in
Exhibit Q and each such committee will consist of two Costco Designees
and two Price Designees; and
(iv) there shall be formed a real estate committee (the
"Real Estate Committee") and a finance committee (the "Finance
Committee"), the charters of which shall read as set forth in Exhibit
Q, each such committee to consist of two Costco Designees and two
Price Designees.
(b) Each of the Newco Executive Committee, the Company Executive
Committee, the Audit Committee, the Compensation Committee, the Real Estate
Committee and the Finance Committee shall exist from the time of execution of
this Agreement until the earliest to occur of (i) the consummation of the
Exchange Offer, (ii) January 31, 1995 or (iii) the date on which Newco Common
Stock is first distributed to the stockholders of the Company.
SECTION 6.2 CERTIFICATE OF INCORPORATION AND BYLAWS OF NEWCO. At or
prior to the Closing Date the Certificate of Incorporation and Bylaws of Newco
shall be amended in a manner specified by Newco prior to the Transfer Closing
Date.
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SECTION 6.3 AMENDMENT OF BYLAWS OF THE COMPANY. The Board of
Directors of the Company has heretofore taken all necessary actions so that the
Bylaws of the Company shall be amended to read in their entirety as set forth in
Exhibit O hereto, which amendment shall become effective as of the earlier to
occur of (A) the Closing Date or (B) the date that shares of Newco Common Stock
are distributed to holders of Company Common Stock.
SECTION 6.4 BOARD OF DIRECTORS OF NEWCO. At the Closing Date, the
existing Board of Directors of Newco shall cause such Board to be expanded to
seven directors and the Board of Directors of Newco, by a majority vote, shall
fill such newly created directorships.
SECTION 6.5 BOARD OF DIRECTORS OF THE COMPANY. (a) At the Closing
Date, the resignation of each Price Designee other than Richard M. Libenson and
Duane Nelles shall become effective. Each such resignation shall be set forth
in a letter from each such Price Designee (in the form attached hereto as
Exhibit R), which shall be executed concurrently with the execution of this
Agreement.
(b) Unless removed for cause, each of Messrs. Libenson and
Nelles shall serve on the Board of Directors of the Company until the earlier of
(i) the date two years following the Closing Date and (ii) such time as Sol
Price and Robert Price and their affiliates in the aggregate cease to
beneficially
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own at least two million shares of Company Common Stock (including any such
shares owned by charitable trusts established by either of them).
SECTION 6.6 AGREEMENT NOT TO COMPETE. (a) For a period of five
years following the Closing Date, Newco shall not, nor shall it permit or suffer
any of its subsidiaries to: (i) directly or indirectly engage in or conduct any
Club Business in any geographical area other than the Specified Geographical
Areas, own any interest in another company that conducts a Club Business in any
area other than the Specified Geographical Areas (PROVIDED that none of Newco,
Subsidiary Corporation #2 or any of their subsidiaries shall be prohibited
from purchasing and owning securities of any such company as a passive
investment so long as such securities in the aggregate represent no more
than 10% of the equity securities of such company) or knowingly sell to or
provide services to a Club Business in any such area, and in the Specified
Geographical Areas shall conduct a Club Business only through the relevant
Subsidiary Corporation; (ii) sell, assign, lease, transfer or otherwise convey
(A) any Commercial Property, or any portion thereof, to any person for use as a
Club Business (other than the Company), if any Club Business operated by the
Company as of the date hereof is located on, adjacent to or within the same
development as such latter Club Business or (B) any of the Commercial Properties
listed on Schedule 6.6 hereto to any person for use as a Club Business so long
as the Company or one
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of its subsidiaries shall operate a Club Business in the same trade area; (iii)
conduct a Quest Business from within a location that is owned or operated by any
of the Specified Companies or in any Club Business other than a Club Business
operated by the Company, Newco, the Subsidiary Corporations or any of the
licensees of the Subsidiary Corporations; or (iv) without the prior written
consent of the Company (which shall not unreasonably be withheld), engage in any
business with any of the Specified Companies, except that Newco and its
subsidiaries may (A) except as provided in clause (ii) above, sell, assign,
lease, transfer or otherwise convey any real property to, or purchase, lease
or otherwise take possession of any real property from, any of the Specified
Companies and (B) purchase merchandise from any of the Specified Companies in
the ordinary course of business and consistent with the Company's past
practice.
(b) For a period of five years following the Closing Date, the
Company shall not, nor shall it permit or suffer any of its subsidiaries to:
(i) directly or indirectly conduct a Club Business in any of the Specified
Geographical Areas other than through the Subsidiary Corporations, own any
interest in another company that conducts a Club Business in any of the
Specified Geographical Areas (PROVIDED that neither the Company nor any of its
subsidiaries shall be prohibited from purchasing and owning securities of
any such company as a passive investment so long as such securities in the
aggregate represent no more than 10% of the equity securities of such company)
or transfer to any person (other than Newco or the relevant Subsidiary
Corporation) the right to conduct a Club Business in any of the Specified
Geographical Areas, includ-
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ing, without limitation, any right to use the name "Costco" in such Specified
Geographical Areas; (ii) conduct a Quest Business; PROVIDED, HOWEVER, that
nothing herein shall prohibit the Company or its subsidiaries from conducting
business (other than any business conducted through the Quest Assets) in the
manner heretofore conducted or, with Newco's consent (which shall not be
unreasonably withheld), from conducting interactive promotional and advertising
activities other than through an electronic interactive shopping format; or
(iii) without the prior consent of Newco (which shall not unreasonably be
withheld), engage in any business with any of the Specified Companies, except
that the Company and its subsidiaries may (A) sell, assign, lease, transfer or
otherwise convey any Club Business or any real property to, or purchase, lease
or otherwise take possession of any Club Business or any real property from, any
of the Specified Companies and (B) purchase merchandise from any of the
Specified Companies in the ordinary course of business and consistent with past
practice.
(c) Prior to entering into any agreement or arrangement with any
person (other than the Company) to own, operate or develop a Club Business in
any Specified Geographical Area, whether pursuant to a joint venture, license,
equity investment by such person in Subsidiary Corporation #2 or otherwise,
Newco or Subsidiary Corporation #2 shall obtain the agreement of such person
that such person will not directly or indirectly use any proprietary infor-
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mation or know-how acquired from Subsidiary Corporation #2 with respect to the
ownership and operation of a Club Business in such person's other business
activities (other than the Club Business owned, operated or developed with
Subsidiary Corporation #2 in the Specified Geographical Area), and such
agreement shall expressly state that the Company shall be a third party
beneficiary of such agreement. In addition, any such agreement with Coles Myer
Ltd shall also provide that Coles Myer Ltd will not enter into a Club Business
outside the Specified Geographical Areas.
SECTION 6.7 CONTINUANCE OF EXISTING INDEMNIFICATION RIGHTS.
(a) From and after the Closing Date, and for a period of six years thereafter,
the Company shall continue the indemnification rights of present and former
directors and officers of the Company provided for in the Restated Certificate
of Incorporation and Bylaws of the Company as in effect on the date hereof, with
respect to indemnification for acts and omissions occurring prior to the Closing
Date, including, without limitation, with respect to the litigation entitled
FECHT ET AL. V. THE PRICE COMPANY ET AL.
(b) For two years after the Closing Date the Company shall cause
to be maintained the current policies of the officers' and directors' liability
insurance maintained by the Company covering the persons who are presently
covered by the Company's officers' and directors' liability insurance policies
with
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respect to actions and omissions occurring prior to the Closing Date to the
extent available; PROVIDED, that policies of at least the same coverage
containing terms and conditions which are no less advantageous to the insureds
may be substituted therefor; and PROVIDED, FURTHER, that in no event shall the
Company, utilizing its best efforts, be required to expend to maintain or
procure insurance coverage pursuant to this Section 6.7(a) in any amount per
annum in excess of 125% of the current annual premiums for the twelve-month
period ended December 31, 1993 (the "Maximum Premium") with respect to such
insurance, or, if the cost of such coverage exceeds the Maximum Premium, the
maximum amount of coverage that can be purchased for the Maximum Premium.
SECTION 6.8 ADDITIONAL AGREEMENTS. At or prior to the Transfer
Closing Date, Newco or the relevant Subsidiary Corporation, on the one hand,
and the Company, on the other hand, shall enter into the Additional Agreements.
SECTION 6.9 FISCAL 1995 BUDGETS. As soon as practicable after the
execution of this Agreement, but in any event prior to the Transfer Closing
Date, fiscal 1995 budgets for each of the Company and Newco shall be submitted
to the Finance Committee for its recommendation, which shall not be final until
approved by the Board of Directors of the Company.
SECTION 6.10 CERTAIN ADVANCES BY THE COMPANY TO NEWCO. During the
period commencing on the Transfer Closing Date and ending six
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months after the Closing Date, the Company shall advance to Newco funds in
accordance with the terms and conditions set forth on Exhibit S hereto to enable
Newco to conduct its business and operations during such period, which advances
shall be repaid by Newco in accordance with the terms and conditions of such
Exhibit. The terms and conditions set forth on such Exhibit shall be reflected
in a definitive loan agreement to be entered into by the Company and Newco at or
prior to the Transfer Closing Date (the "Advance Agreement").
SECTION 6.11 EXPENSES. All costs and expenses incurred in connection
with this Agreement and the transactions contemplated hereby or arising in
respect hereof (including any taxes arising from the transfer of the Transferred
Assets to Newco) shall be paid by the Company, except that, if the Transaction
is consummated, all costs and expenses of Latham & Watkins, counsel to Newco,
and Kenneth Leventhal & Company, an advisor to Newco, shall be paid by Newco.
SECTION 6.12 FURTHER ASSURANCES. Subject to the terms and conditions
of this Agreement, each of the parties hereto shall use all reasonable efforts
to take, or cause to be taken, all actions and to do, or cause to be done, all
things necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this Agreement.
In case at any time after the Closing Date any further action is necessary or
desir-
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able to carry out the purposes of this Agreement, the proper officers and
directors of each party to this Agreement shall take all necessary actions to
the extent not inconsistent with their other duties and obligations or
applicable law.
SECTION 6.13 ACCESS. Upon reasonable notice, the Company shall
afford to Newco and its officers, employees, accountants, counsel, advisors and
other representatives access during normal business hours throughout the period
prior to the Transfer Closing Date to all of the real properties included in the
Transferred Assets and all of the Company's contracts, commitments, books and
records relating thereto. Unless otherwise required by law, Newco will, and
will cause each of its officers, employees, accountants, counsel and advisors
to, hold any such information which is nonpublic in confidence until such time
as such information otherwise becomes publicly available through no wrongful act
of Newco or any such person and in the event of termination of this Agreement
for any reason, Newco will promptly return, or cause to be returned, all
nonpublic documents obtained from the Company.
SECTION 6.14 APPORTIONMENT. The Company and Newco shall, as of the
Transfer Closing Date, apportion (i) the real property taxes on all real
property included in the Transferred Assets and transferred to Newco hereunder
and (ii) other similar recurring municipal and state charges and assessments
relating to the Transferred Assets. All such prorations shall be allocated so
that
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items relating to time periods ending prior to the Transfer Closing Date shall
be allocated to the Company and items relating to time periods beginning on or
after the Transfer Closing Date shall be allocated to Newco. The amount of all
such prorations shall be settled and paid on the Transfer Closing Date;
PROVIDED, HOWEVER, that final payments with respect to prorations that are not
able to be calculated as of the Transfer Closing Date will be calculated and
paid as soon as practicable thereafter. The parties hereto agree to furnish
each other with such documents and other records as shall be reasonably
requested to confirm all proration calculations.
SECTION 6.15 CONSENTS. Each of the Company and Newco shall use its
reasonable efforts to obtain consents of all persons and governmental and
regulatory authorities necessary for the consummation of the transactions
contemplated by this Agreement.
SECTION 6.16 FILINGS. The Company shall make or cause to be made all
filings and submissions under laws and regulations applicable to the Company, if
any, as may be required by the Company for the consummation of the transactions
contemplated by this Agreement. Newco shall make or cause to be made all such
other filings and submissions under laws and regulations applicable to Seller
for the consummation of transactions contemplated by this Agreement. The
Company and Newco shall coordinate and cooperate with one
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another in exchanging such information and reasonable assistance as may be
requested by either of them in connection with this Section 6.16.
SECTION 6.17 STANDSTILL AGREEMENTS. (a) The Company agrees and
covenants that, until five years after the Closing Date, without Newco's prior
written consent, the Company will not and will cause each of its subsidiaries
not to acquire, offer or propose to acquire, or agree to acquire, directly
or indirectly, by purchase or otherwise, any Newco Common Stock or
direct or indirect rights or options to acquire (through purchase, exchange,
conversion or otherwise), any Newco Common Stock; PROVIDED, HOWEVER, that the
foregoing shall not limit any rights of Newco pursuant to the Security and
Pledge Agreement which may be entered into by the Company and Newco pursuant to
the Note.
(b) Newco agrees and covenants that, until five years after the Closing
Date, without the Company's prior written consent, Newco will not and will cause
each of its subsidiaries not to acquire, offer or propose to acquire, or agree
to acquire, directly or indirectly, by purchase or otherwise, any Company
Common Stock, or direct or indirect rights or options to acquire (through
purchase, exchange, conversion or otherwise), any Company Common Stock.
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SECTION 6.18 CERTAIN MATTERS WITH RESPECT TO CITY NOTES. If the
Company should cease to operate a Club Business at any site with respect to
which any governmental agency has executed and delivered one of the City Notes
in connection with the development of such site, or the Company should take any
other action that would entitle such governmental agency to withhold payment of
all or any portion of the unpaid principal of or interest payable on such City
Note, Newco shall have the right to sell to the Company such City Note (and the
Company shall be required to purchase such City Note from Newco) for an amount
of cash equal to 72% of the sum of (a) the outstanding book balance shown on
Schedule 1.8 owed on each such City Note, reduced by any principal repayment
since the date of such book balance, plus (b) all accrued and unpaid interest
from the date of such book balance. Newco shall be entitled to any principal
payments to the Company with respect to the City Notes made between June 5, 1994
and the Transfer Closing Date.
SECTION 6.19 CERTAIN INSURANCE PROCEEDS. If, at or after the
Transfer Closing Date, the Company receives proceeds pursuant to any insurance
policy maintained by the Company or any of its subsidiaries in respect of
Liabilities relating to or arising in respect of Materials of Environmental
Concern and violations or purported violations of Environmental Laws, which
relate to or arise out of any Real Property transferred to Newco hereunder and
which arise out of
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events occurring prior to the Transfer Closing Date, then the Company agrees to
remit, or cause to be remitted, such proceeds to Newco. The Company shall
cooperate with Newco and shall take all actions to vest in Newco the right to
receive any such proceeds.
SECTION 6.20 CERTAIN REAL ESTATE MATTERS. (a) As soon as
practicable after the date hereof, the Company shall (i) engage local counsel,
as appropriate, in jurisdictions where the Real Properties are situated, to
prepare local addenda to this Agreement to be executed by the Company and Newco
where reasonably necessary or appropriate for the transfer of any Real
Properties in such jurisdictions; (ii) cause to be commenced and completed the
subdivision (in accordance with applicable law) of any of the Real Properties as
may be required to effect the transfers of any such Real Property; (iii) cause
to be commenced and completed such surveys as may be required to effect the
transfer of any Real Property hereunder; and (iv) seek to obtain environmental
reports in Real Properties to the extent requested by the Company or Newco.
(b) At or prior to the Transfer Closing Date the parties shall enter
into appropriate agreements covering access, parking and similar matters with
respect to the Real Properties, as appropriate, consistent with the current
operation of the Real Properties (the "Reciprocal Easement Agreements").
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(c) The Company shall be entitled to receive all condemnation
proceeds payable due to condemnation proceedings occurring prior to the Transfer
Closing Date with respect to the Commercial Property located in Santee,
California (denoted as item Number 34 on Schedule 1.14 hereto).
(d) The Company shall satisfy in full all Liabilities pursuant to the
Northridge Mortgage at the earliest time that it may do so without incurring any
prepayment penalty and, upon such satisfaction, will use all reasonable efforts
to secure the release of all liens relating to such mortgage.
ARTICLE VII
EMPLOYEE MATTERS
SECTION 7.1 EMPLOYEES. As of January 1, 1995, Newco shall offer to
employ each employee of the Company who is listed on a Schedule to be delivered
to the Company on or prior to August 21, 1994, and who remains an employee of
the Company immediately prior to January 1, 1995. Each such employee who
accepts such offer of employment shall, as of January 1, 1995, be transferred to
the employment, and become an employee, of Newco (each such employee and each
person who becomes an employee of Newco during the two-year period following the
Closing Date, a "Newco Employee"). During the period beginning on the Transfer
Closing Date and ending on December 31, 1994
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(the "Transition Period"), the Company shall continue to employ each employee
listed on the foregoing Schedule (collectively, and together with any additional
persons who become employees of the Company during the Transition Period at the
request of Newco, hereinafter referred to in connection with the Transition
Period as "Retained Employees") and shall provide employee benefits to the
Retained Employees under substantially the same terms and conditions as those
under which such employees are employed as of the Transfer Closing Date;
PROVIDED, HOWEVER, that the Company shall retain the right, at Newco's request,
to terminate a Retained Employee for any reason. During the Transition Period,
Newco shall lease from the Company the services of the Retained Employees and
shall be liable, and reimburse the Company, for the cost of such services based
on the Company's actual cost in respect thereof, including without limitation
salary, wages, vacation accrual, fringe benefits and employee benefit costs and
related expenses payable to or on behalf of the Retained Employees in accordance
with the terms of this Article VII; PROVIDED, HOWEVER, that the Company shall be
solely liable and retain sole responsibility for the payment of bonuses to the
Retained Employees in respect of the 1994 fiscal year.
SECTION 7.2 COMPANY PLANS.
(a) With respect to the Company Plans, including, but not
limited to, the plans listed on Schedule 7.2(a), Newco shall, effective as of
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January 1, 1995, take, or cause to be taken, all action necessary and
appropriate to establish and maintain substantially equivalent employee benefit
plans (the "Newco Plans") for the benefit of Newco Employees who participated in
the respective, comparable Company Plan. Newco agrees that each Newco Employee
eligible to participate in a Company Plan shall immediately become eligible to
participate in the comparable Newco Plan, and, for all purposes under such Newco
Plan, each Newco Employee shall be entitled to service and any accrued benefit
or account balance, as the case may be, credited to such Newco Employee as of
January 1, 1995 under the terms of the comparable Company Plan as if such
service had been rendered to Newco and as if such accrued benefit or account
balance had originally been credited to such Newco Employee under such Newco
Plan. The Company agrees to provide Newco, as soon as practicable after the
Transfer Closing Date (with the cooperation of Newco to the extent that relevant
information is in the possession of Newco or its subsidiaries), with a list of
the Retained Employees who were, to the best knowledge of the Company,
participants in the Company Plans immediately prior to the Transfer Closing
Date, together with a listing of each such employee's service for eligibility,
vesting and benefit accrual purposes under such plan and a list of each such
Retained Employee's accrued benefit or account balance thereunder. The Company
shall, as soon as practicable after the Transfer Closing Date, provide
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Newco with such additional information (not already in the possession of Newco
or its subsidiaries) as may be reasonably requested by Newco and necessary in
order for Newco and its subsidiaries to effectively maintain and administer the
Newco Plans.
(b) In the case of each Company Plan that is a defined
contribution plan, the Company agrees to direct the trustee of each such plan to
transfer, on, or as soon as is practicable after, January 1, 1995, to the
trustee or other funding agent of the applicable Newco Plan, in cash,
securities, other property or a combination thereof, as determined by the
Company, subject to approval by Newco (which approval shall not be unreasonably
withheld), the respective account balances of the Newco Employees as of the date
of transfer, plus that portion of any unallocated contributions that is
attributable to the Newco Employees.
(c) The Company and Newco shall, in connection with the
transfers described in Section 7.2(b), cooperate in making any filings required
under the Code or ERISA, and the regulations thereunder and any applicable
securities laws, and take all such action as may be necessary and appropriate to
cause such transfers to take place as soon as practicable after the Transfer
Closing Date.
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(d) Except as specifically set forth in this Section 7.2 and in
Section 7.7, from and after January 1, 1995, the Company and its subsidiaries
shall cease to have any liability or obligation whatsoever with respect to Newco
Employees under the Company Plans, and Newco and its subsidiaries shall assume
and be solely responsible for all liabilities and obligations whatsoever of the
Company and its subsidiaries with respect to Newco Employees under the Company
Plans and shall be solely responsible for all liabilities and obligations
whatsoever under the Newco Plans. Without limiting the generality of the
foregoing, the Company and its subsidiaries shall contribute or cause to be
contributed to each Company Plan not later than such time as may be required by
law or such earlier time as may be required under the applicable plan, the
contribution with respect to the 1994 plan year required to be made under the
terms of such plan and applicable law, and Newco shall reimburse the Company for
that portion of such contribution attributable to the Retained Employees during
the Transition Period.
SECTION 7.3 WELFARE PLANS; CERTAIN OTHER PLANS.
(a) The Company and its subsidiaries shall be solely responsible
for, or cause their insurance carriers to be responsible for, the satisfaction
of all claims for medical, life insurance, health, accident, workers'
compensation or disability benefits brought by or in respect to any of the Newco
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Employees under each "employee welfare benefit plan," as such term is defined in
Section 3(1) of ERISA, including, but not limited to, the plans, programs, and
arrangements listed in Schedule 7.3(a) (the "Company Welfare Plans"), which
claims relate to events occurring prior to the Transfer Closing Date, regardless
of when notices of such claims are properly filed, without interruption as a
result of the employment by Newco or any of its subsidiaries of any such
employees.
(b) During the Transition Period, and thereafter until the
second anniversary of the Closing Date, the Company shall continue to provide
coverage under the Company Welfare Plans to Retained Employees, directors of
Newco and Newco Employees, respectively, on the same terms and conditions as
were in effect prior to the Transfer Closing Date except for changes in such
terms and conditions that apply to similarly situated employees of the Company
or provide such coverage under an alternative arrangement. The Company shall
take all action necessary and appropriate to amend the Company Welfare Plans or
provide for such an alternative arrangement to provide for such continued
coverage. Newco shall be liable, and reimburse the Company, for the provision
of such coverage based on the Company's actual cost, on an average per capita
basis (not including any incremental costs attributable to the use of an
alternative arrangement), with respect to claims relating to events occurring on
or after the Transfer Closing Date.
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(c) Newco and its subsidiaries shall be liable, and reimburse
the Company and its subsidiaries, for or indemnify the Company and its
subsidiaries against any and all liabilities and obligations whatsoever in
connection with claims for medical, life insurance, health, accident or
disability benefits brought by or in respect of Newco Employees under the
Company Welfare Plans or otherwise, which claims relate to events occurring on
or after the second anniversary of the Closing Date.
(d) Newco shall assume all obligations and liabilities with
respect to any other employment-related right, claim, cause of action, expense,
obligation, liability or cost ("Costs") with respect to a Retained Employee or
Newco Employee (including but not limited to such Costs arising under the Age
Discrimination in Employment Act, Title VII of the Civil Rights Act of 1964, the
WARN Act and other federal, state or local laws respecting the terms and
conditions of employment not otherwise provided for in this Article VII), which
Costs are attributable to events occurring on or after the Transfer Closing
Date; and the Company shall retain all obligations and liabilities with respect
to such Costs that are attributable to events occurring prior to the Transfer
Closing Date.
(e) On, or as soon as practicable after, January 1, 1995, the
Company shall transfer to Newco an amount in cash equal to the dollar value
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of any accrued but unused vacation days attributable to Newco Employees as
determined as of the Transfer Closing Date.
SECTION 7.4 EMPLOYEE STOCK OPTIONS. Each outstanding option
("Company Option") for the purchase of shares of Common Stock granted under the
Company stock option plan (the "Company Option Plan"), which Company Option is
held, as of January 1, 1995, by a Newco Employee and is then exercisable or
would have been exercisable using the formula set forth in Section 8(b) of the
Company Option Plan had the employment of the Newco Employee been terminated on
such date, shall continue to be exercisable on the same terms and conditions set
forth in the agreement evidencing the grant of the Company Option; PROVIDED,
HOWEVER, that the term of the Company Option shall expire no later than the date
that is 30 days following the date on which the holder ceases to be a Newco
Employee; and PROVIDED FURTHER, HOWEVER, that, to the extent a Company Option is
not exercisable as set forth above, it shall expire as of such date, it being
understood that the Exchange Offer shall not constitute an event causing the
acceleration of the exercisability of any such Company Option. The Company
shall take all action necessary and appropriate to amend the Company Option Plan
to provide for the continued exercise of Company Options as described in this
Section 7.4; PROVIDED, HOWEVER, that to the extent that such amendment would
adversely affect the status of the Company Option Plan under
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Rule 16b-3 of the Securities Exchange Act of 1934, as amended, a substituted
option to purchase Company Common Stock shall be granted outside the Company
Option Plan on the same terms and conditions as the relevant Company Option.
SECTION 7.5 SEVERANCE PAY.
(a) The Company and Newco agree that the employment of Newco
Employees by Newco or any of its subsidiaries on or after January 1, 1995, shall
not be deemed a severance of employment from the Company and its subsidiaries
for purposes of the payment of severance, salary continuation or similar
benefits pursuant to any policy, plan, program or agreement of the Company or
its subsidiaries to the extent that any such policy, plan, program or agreement
now exists.
(b) Newco and its subsidiaries shall assume and be solely
responsible for all liabilities and obligations whatsoever in connection with
claims made by or on behalf of the Retained Employees and the Newco Employees in
respect of severance pay, salary continuation and similar obligations relating
to the termination or alleged termination of any such person's employment on or
after the Transfer Closing Date, and the Company shall remain responsible for
such liabilities and obligations in connection with Company employees who do not
become Retained Employees.
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SECTION 7.6 SENIORITY. If the Company rehires any Newco Employee at
any time during the one-year period following the Transfer Closing Date, such
person shall be reinstated without any loss of seniority; PROVIDED, HOWEVER,
that this Section 7.6 shall not be construed to obligate the Company to offer to
rehire any Newco Employee.
SECTION 7.7 ADMINISTRATIVE SERVICES. Newco shall pay the Company the
sum of $500,000 in two equal installments of $250,000 each (which shall be due
on June 30, 1995 and June 30, 1996) for making available to Newco administrative
services in connection with the Newco Plans and the Company Welfare Plans
whether or not any such services are used by Newco. At the request of Newco,
the Company shall provide to Newco such administrative services in connection
with the Newco Plans as Newco and the Company shall mutually agree upon, during
the two-year period following the Closing Date. During such period, if the
Company shall incur any incremental, third-party out-of-pocket expenses in
connection with procuring or providing employee benefits to any employee of
Newco, Newco shall reimburse the Company for any such expenses.
SECTION 7.8 MEMBERSHIP PRIVILEGES. Newco Employees shall be entitled
to free PriceCostco warehouse club memberships so long as they remain in the
employ of Newco or one of its subsidiaries.
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ARTICLE VIII
TRANSFER CLOSING CONDITIONS
SECTION 8.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO CONSUMMATE THE
TRANSFER. The respective obligations of the Company and Newco to consummate the
Transfer contemplated hereby shall be subject to the satisfaction, at or prior
to the Transfer Closing Date, of the following conditions:
(a) neither the Company nor Newco shall be subject to any order,
decree or injunction of a court or governmental or regulatory authority of
competent jurisdiction that prevents any of the transactions contemplated by
this Agreement that are necessary to effect the Transfer; and
(b) all requisite orders, consents and approvals from all
governmental and regulatory authorities whose order, consent or approval is
required by law for the consummation of the Transfer shall have been received.
SECTION 8.2 CONDITIONS TO OBLIGATION OF NEWCO TO CONSUMMATE THE
TRANSFER. The obligation of Newco to consummate the Transfer shall be subject
to the fulfillment at or prior to the Transfer Closing Date of the following
additional condition:
The Company shall have performed in all material respects its
agreements contained in this Agreement, required to be performed on or prior to
the Transfer Closing Date and the representations and warranties of the Company
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contained in this Agreement shall be true and correct in all material respects
on and as of the date of this Agreement and on and as of the Transfer Closing
Date as if made on and as of such date, except as contemplated or permitted by
this Agreement, and Newco shall have received a certificate of the President or
of an Executive Vice President of the Company to that effect.
SECTION 8.3 CONDITIONS TO OBLIGATIONS OF THE COMPANY TO CONSUMMATE
THE TRANSFER. The obligations of the Company to consummate the Transfer shall
be subject to the fulfillment at or prior to the Transfer Closing Date of the
additional following condition:
Newco shall have performed in all material respects its agreements
contained in this Agreement required to be performed on or prior to the Transfer
Closing Date, and the Company shall have received a Certificate of the President
or of an Executive Vice President of Newco to that effect.
ARTICLE IX
INDEMNIFICATION
SECTION 9.1 INDEMNIFICATION.
(a) The Company shall indemnify Newco against and hold Newco
harmless from any loss, liability, claim, damage or expense (including
reasonable legal fees and expenses) suffered or incurred by Newco arising from,
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relating to or otherwise in respect of (i) any material breach of, or inaccuracy
in, any representation or warranty of the Company contained in this Agreement;
(ii) any material breach of any covenant of the Company contained in this
Agreement; (iii) one-half of all Liabilities relating to Materials of
Environmental Concern and violations or purported violations of Environmental
Laws arising out of or relating to the Commercial Property located in Phoenix,
Arizona and known as the Phoenix Fry's property (denoted as item number 4 on
Schedule 1.14 hereto); (iv) the Retained Liabilities; (v) the Northridge
Mortgage; and (vi) all Liabilities to which Newco may become subject under the
Securities Act or any other statute or common law (including any amount paid in
settlement of any litigation, commenced or threatened, if such settlement is
effected with the written consent of the Company) insofar as any such
Liabilities arise out of or are based upon any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement or
the Tender Offer Statement on Schedule 13E-4, or the omission or alleged
omission to state therein a material fact required to be stated herein or
necessary to make the statements therein not misleading; PROVIDED, HOWEVER, that
the indemnification agreement contained in this clause shall not apply to any
losses, liabilities, claims, damages, or expenses arising out of, or based upon,
any such untrue statement or alleged untrue statement, or any such omission or
alleged omission, which was made in reliance
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upon and in conformity with information furnished to the Company by Newco for
use in connection with the Registration Statement or the Tender Offer Statement
on Schedule 13E-4.
(b) The Company shall indemnify Newco and Subsidiary Corporation
#1 against and hold Newco and Subsidiary Corporation #1 harmless from any loss,
liability, claim, damage or expense (including reasonable legal fees and
expenses) suffered or incurred by Subsidiary Corporation #1 arising from,
relating to or otherwise in respect of any Retained Liabilities relating to or
arising out of the Mexico Assets.
(c) The Company shall indemnify Newco and Subsidiary Corporation
#2 against and hold Newco and Subsidiary Corporation #2 harmless from any loss,
liability, claim, damage or expense (including reasonable legal fees and
expenses) suffered or incurred by Subsidiary Corporation #2 arising from,
relating to or otherwise in respect of any Retained Liabilities relating to or
arising out of the International Assets.
(d) The Company shall indemnify Newco and Subsidiary Corporation
#3 against and hold Newco and Subsidiary Corporation #3 harmless from any loss,
liability, claim, damage or expense (including reasonable legal fees and
expenses) suffered or incurred by Subsidiary Corporation #3 arising
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from, relating to or otherwise in respect of any Retained Liabilities relating
to or arising out of the Quest Assets.
(e) Newco shall indemnify the Company against and hold the
Company harmless from any loss, liability, claim, damage or expense (including
reasonable legal fees and expenses) suffered or incurred by the Company arising
from, relating to or otherwise in respect of (i) any material breach of any
covenant of Newco contained in this Agreement; (ii) the Assumed Liabilities; and
(iii) all Liabilities to which the Company may become subject under the
Securities Act or any other statute or common law (including any amount paid in
settlement of any litigation, commenced or threatened, if such settlement is
effected with the written consent of Newco) insofar as any such Liabilities
arise out of or are based upon any untrue statement or alleged untrue statement
of a material fact contained in the Registration Statement or the Tender Offer
Statement on Schedule 13E-4, or the omission or alleged omission to state
therein a material fact required to be stated herein or necessary to make the
statements therein not misleading; PROVIDED, HOWEVER, that the indemnification
agreement contained in this clause shall not apply to any losses, liabilities,
claims, damages, or expenses arising out of, or based upon, any such untrue
statement or alleged untrue statement, or any such omission or alleged omission,
which was made in reliance upon and in conformity with information furnished to
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Newco by the Company for use in connection with the Registration Statement or
the Tender Offer Statement on Schedule 13E-4.
(f) Newco shall cause Subsidiary Corporation #1 to indemnify the
Company against and hold the Company harmless from any loss, liability, claim,
damage or expense (including reasonable legal fees and expenses) suffered or
incurred by the Company arising from, relating to or otherwise in respect of the
Mexico Assets which arise out of events occurring at or after the Transfer
Closing Date.
(g) Newco shall cause Subsidiary Corporation #2 to indemnify the
Company against and hold the Company harmless from any loss, liability, claim,
damage or expense (including reasonable legal fees and expenses) suffered or
incurred by the Company arising from, relating to or otherwise in respect of the
International Assets which arise out of events occurring at or after the
Transfer Closing Date.
(h) Newco shall cause Subsidiary Corporation #3 to indemnify the
Company against and hold the Company harmless from any loss, liability, claim,
damage or expense (including reasonable legal fees and expenses) suffered or
incurred by the Company arising from, relating to or otherwise in respect of the
Quest Assets which arise out of events occurring at or after the Transfer
Closing Date.
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(i) Newco guarantees to the Company the full and prompt
performance by each Subsidiary Corporation of each and every obligation required
of each of them pursuant to this Section 9.1. Newco hereby waives presentment
demand and similar defenses to the enforcement of this guarantee.
SECTION 9.2 PROCEDURES RELATING TO INDEMNIFICATION.
(a) Each person to be indemnified pursuant to Section 9.1 (an
"indemnified party") shall give prompt notice to the indemnifying party of the
assertion of any claim, or the commencement of any suit, action or proceeding,
brought against or sought to be collected from such indemnified party (each a
"Third Party Claim"), in respect of which indemnity may be sought by such
indemnified party under Section 9.1; PROVIDED that the omission so to promptly
notify the indemnifying party with respect to a Third Party Claim brought
against or sought to be collected from such indemnified party will not relieve
the indemnifying party from any liability which it may have to such indemnified
party under Section 9.1 except to the extent that such indemnifying party
demonstrates that such failure has materially prejudiced such indemnifying party
with respect to the defense of such Third Party Claim. If any indemnified party
shall seek indemnity under Section 9.1 with respect to a Third Party Claim
brought against or sought to be collected from such indemnified party, the
indemnifying party shall be entitled to participate therein and, to the extent
that it wishes, to assume
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and direct the defense and settlement thereof with counsel satisfactory to such
indemnified party; PROVIDED that if such indemnifying party shall so assume the
defense and settlement of any Third Party Claim brought against or sought to be
collected from such indemnified party, such Third Party Claim shall be
conclusively deemed a matter in respect of which such indemnified party is
entitled to be indemnified by such indemnifying party under Section 9.1; and
PROVIDED FURTHER that if any Third Party Claim brought against or sought to be
collected from any indemnified party includes a request for injunctive or other
equitable relief that, if granted, is reasonably likely to have a material
adverse effect on the business, assets, financial or other condition, results of
operations or prospects on such indemnified party, such indemnified party shall
be entitled to control and direct the defense and settlement thereof and in such
event the legal and other expenses subsequently incurred by such indemnified
party in connection with the defense thereof shall be paid by the indemnifying
party. After notice from the indemnifying party to an indemnified party of its
election to assume and direct the defense and settlement of a Third Party Claim
brought against or sought to be collected from such indemnified party which such
indemnifying party is entitled to assume and direct under the terms hereof, the
indemnifying party shall not be liable to such indemnified party under Section
9.1 for any legal or other expenses subsequently incurred by such indemnified
party in connection with the defense
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thereof other than reasonable costs of investigation; PROVIDED that such
indemnified party shall have the right to employ counsel to represent such party
if such party is advised by counsel that a conflict exists between the interests
of such party and the indemnifying party such that, as a result, such party
should be represented by separate counsel, and in such event the fees and
expenses of such separate counsel shall be paid by the indemnifying party.
Notwithstanding the foregoing provisions of this Section 9.2(a), the
indemnifying party shall not (A) without the prior written consent of an
indemnified party, effect any settlement of any pending or threatened proceeding
in respect of which such indemnified party is, or with reasonable
foreseeability, could have been a party and indemnity could have been sought
hereunder by such indemnified party for a Third Party Claim brought against or
sought to be collected from such indemnified party, unless such settlement
includes an unconditional release of such indemnified party from all liability
arising out of such proceeding (PROVIDED that, whether or not such a release is
required to be obtained, the indemnifying party shall remain liable to such
indemnified party in accordance with Section 9.1 in the event that a Third Party
Claim is subsequently brought against or sought to be collected from such
indemnified party) or (B) be liable for any settlement of any Third Party Claim
brought against or sought to be collected from an indemnified party effected
without such indemnifying party's written consent (which shall not be unreason-
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ably withheld), but if settled with such indemnifying party's written consent,
or if there is a final judgment for the plaintiff in any such Third Party Claim,
such indemnifying party agrees (to the extent stated above) to indemnify the
indemnified party from and against any loss, liability, claim, damage or expense
by reason of such settlement or judgment. The indemnification required by
Section 9.1 shall be made by periodic payments of the amount thereof during the
course of the investigation or defense, as and when bills are received or loss,
liability, claim, damage or expense is incurred.
(b) In the event any indemnified party should have a claim
against any indemnifying party under Section 9.1 that does not involve a Third
Party Claim being asserted against or sought to be collected from such
indemnified party, the indemnified party shall deliver notice of such claim with
reasonable promptness to the indemnifying party. The failure by any indemnified
party to so notify the indemnifying party shall not relieve the indemnifying
party from any liability that it may have to such indemnified party under
Section 9.1 except to the extent that the indemnifying party demonstrates that
it has been materially prejudiced by such failure. If the indemnifying party
does not notify the indemnified party within 15 calendar days following its
receipt of such notice that the indemnifying party disputes its liability to the
indemnified party under Section 9.1, such claim specified by the indemnified
party in such notice will be conclu-
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sively deemed a liability of the indemnifying party under Section 9.1 and the
indemnifying party shall pay the amount of such liability to the indemnified
party on demand or, in the case of any notice in which the amount of the claim
(or any portion thereof) is estimated, on such later date when the amount of
such claim (or such portion thereof) becomes finally determined. If the
indemnifying party has timely disputed its liability with respect to such claim,
as provided above, the indemnifying party and the indemnified party agree to
proceed in good faith to negotiate a resolution of such dispute and, if not
resolved through negotiations, such dispute will be resolved by arbitration in
accordance herewith.
ARTICLE X
MISCELLANEOUS
SECTION 10.1 AMENDMENT AND MODIFICATION. This Agreement may be
amended, modified or supplemented only by written agreement of the Company and
Newco.
SECTION 10.2 WAIVER OF COMPLIANCE. Except as otherwise provided in
this Agreement, any failure of any party hereto to comply with any obligation,
covenant, agreement or condition herein may be waived by the party entitled to
the benefits thereof only by a written instrument signed by the party granting
such waiver, but such waiver or failure to insist upon strict compliance
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with such obligation, covenant, agreement or condition shall not operate as a
waiver of, or estoppel with respect to, any subsequent or other failure.
SECTION 10.3 ARBITRATION.
(a) In the event that, from time of time, any controversy or
claim shall arise out of or relate to this Agreement, any of the Additional
Agreements, the transactions contemplated hereby or thereby or any documents or
agreements contemplated by or delivered hereunder or thereunder, or any
substantive issue or dispute shall be raised by either the Company or Newco with
the amount in controversy believed in good faith by either party to be $15
Million or less, such controversy, claim, substantive issue or dispute shall be
settled by arbitration in San Francisco, California in accordance herewith and
with the then prevailing Commercial Arbitration Rules of the American
Arbitration Association, Expedited Procedures. Each of the Company and Newco
shall use reasonable efforts, acting in good faith, to mutually select one
person prior to the Transfer Closing Date who shall serve as the arbitrator with
respect to any such arbitration proceeding.
(b) In the event that, from time to time, any controversy or
claim shall arise out of or relate to this Agreement, any of the Additional
Agreements, the transactions contemplated hereby or thereby or any documents or
agreements contemplated by or delivered hereunder or thereunder, or any
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substantive issue or dispute shall be raised by either the Company or Newco,
with the amount in controversy believed in good faith by either party to be in
excess of $15 Million such controversy, claim, substantive issue or dispute
shall be settled by arbitration in San Francisco, California in accordance
herewith and with the then prevailing Commercial Arbitration Rules of the
American Arbitration Association. The parties will have 14 days from service of
the arbitration demand to mutually agree on and select an arbitrator. If no
such agreement and selection occurs, the arbitrator shall be a member of the
AAA's Large Complex Case Panel, and shall be selected under the AAA Commercial
Arbitration Rule. All documents and information relevant to the claim or
dispute in the possession of any party shall be made available to the other
party not later than sixty (60) days after the demand for arbitration is served,
and the arbitrator may permit such depositions or other discovery deemed
necessary for a fair hearing. The hearing may not exceed two days. The award
shall be rendered within 120 days of the demand and may not include punitive
damages. The decision of the arbitrator or arbitrators shall be in writing and,
where appropriate, shall be presented in separate findings of fact and
conclusions of law.
(c) The decision of the arbitrator or arbitrators hereunder
shall be final and binding on the parties from which no appeal may be taken.
The prevailing party in any arbitration hereunder (or if there is no prevailing
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party, the party, if any, designated by the arbitrator) shall be entitled to
recover reasonable attorneys' fees and expenses from the other party, which fees
and expenses shall be in addition to any other relief that may be awarded.
SECTION 10.4 NOTICES. Any notices or other communications required
or permitted hereunder shall be in writing and shall be deemed duly given upon
(a) transmitter's confirmation of a receipt of a facsimile transmission, (b)
confirmed delivery by a standard overnight carrier or (c) the expiration of five
business days after the day when mailed by certified or registered mail, postage
prepaid, addressed at the following addresses (or at such other address as the
Company or Newco shall specify by like notice):
If to the Company, to:
Price/Costco, Inc.
10809 120th Avenue NE
Kirkland, Washington 98033
Attention: Donald E. Burdick, Esq.
Copy to:
Skadden, Arps, Slate, Meagher & Flom
300 South Grand Avenue
Suite 3400
Los Angeles, California 90071
Attention: Joseph J. Giunta, Esq.
and
Gibson, Dunn & Crutcher
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333 South Grand Avenue
Los Angeles, California 90071
Attention: Jonathan K. Layne, Esq.
If to Newco, to:
Price Enterprises, Inc.
4649 Morena Boulevard
San Diego, California 92117
Attention: Robert E. Price
Copy to:
Latham & Watkins
701 "B" Street
Suite 2100
San Diego, California 92101
Attention: Scott N. Wolfe, Esq.
SECTION 10.5 ASSIGNMENT. This Agreement and all of the provisions
hereof shall be binding upon and inure to the benefit of the Company and Newco
and their respective successors and permitted assigns, but neither this
Agreement nor any of the rights, interests, or obligations hereunder shall be
assigned by either the Company or Newco without the prior written consent of the
other party, except as otherwise provided in the Operating Agreements.
SECTION 10.6 INTERPRETATION. The descriptive headings contained in
this Agreement are solely for convenience of reference, and do not constitute a
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part of this Agreement and shall not in any way affect the meaning or
interpretation of this Agreement.
SECTION 10.7 GOVERNING LAW. This Agreement shall be governed by the
laws of the State of New York (regardless of the laws that might be applicable
under principles of conflicts of law) as to all matters, including but not
limited to matters of validity, construction, effect, performance and remedies.
SECTION 10.8 COUNTERPARTS. This Agreement may be executed in two or
more counterparts all of which shall be considered one and the same agreement
and each of which shall be deemed an original.
SECTION 10.9 THIRD PARTIES. Nothing herein expressed or implied is
intended or shall be construed to confer upon or give any person other than the
parties hereto and their successors and assigns, any rights or remedies under or
by reason of this Agreement. Notwithstanding the foregoing, each of the
Subsidiary Corporations are intended to be, and hereby expressly are
constituted, third party beneficiaries of the agreements of the Company
contained in Article IX hereof that relate to such Subsidiary Corporation.
SECTION 10.10 COMPLETE AGREEMENT. This Agreement constitutes the
entire agreement of the Company and Newco with respect to the subject matter
hereof and supersedes all prior arrangements or understandings with
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respect thereto. There are no restrictions, agreements, promises, warranties,
covenants or undertakings other than those expressly set forth herein.
SECTION 10.11 SEVERABILITY. If any provision of this Agreement shall
be held invalid, illegal or unenforceable in any respect by a court of competent
jurisdiction, such invalidity, illegality or unenforceability shall not effect
any other provision hereof.
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IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be
executed by its duly authorized officers as of the day and year first above
written.
PRICE/COSTCO, INC.
By: /s/ James D. Sinegal
_____________________
Name: James D. Sinegal
Title: President and Chief
Executive Officer
PRICE ENTERPRISES, INC.
By: /s/ Robert E. Price
_____________________
Name: Robert E. Price
Title: Director
<PAGE>
CONTACT:
Richard A. Galanti
(206) 803-8163
FOR IMMEDIATE RELEASE
PRICECOSTCO ANNOUNCES INTENTION TO SPIN OFF
-------------------------------------------
COMMERCIAL REAL ESTATE OPERATIONS VIA EXCHANGE OFFER
-----------------------------------------------------
Kirkland, Washington; and San Diego, California-July 15,
1994--PriceCostco, Inc. (NASDAQ: PCCW) today announced its intention to
spin-off its commercial real estate operations, together with certain other
assets, into a newly formed company ("Newco"). The spin-off would be
accomplished by means of an exchange offer enabling each PriceCostco
shareholder desiring to invest in Newco to exchange one share of PriceCostco
stock for a share of Newco.
It is presently contemplated that approximately 27 million shares of Newco
would be offered in the exchange, representing 100% of the shares to be
outstanding. If the offer is over-subscribed, all tendering shareholders would
be prorated equally. There are currently approximately 217 million shares of
PriceCostco stock outstanding.
Final Board approval of the terms of the spin-off/exchange is expected
within the next several weeks after definitive documentation detailing the
assets to be included, the terms of certain operating and other agreements
between the companies and the number of shares of Newco to be issued have been
finally determined.
Included in the assets to be spun-off are the following:
(i) Commercial real estate: certain real estate not integral to
PriceCostco's merchandising operations, including commercial buildings under
lease to third party tenants, along with certain notes receivable;
(ii) Four warehouse properties: the transfer/leaseback of four existing
Price Club warehouses connected with the commercial properties being trans-
<PAGE>
ferred in Westbury, NY; Pentagon City, VA; Wayne, NJ; and Morena Blvd., CA;
each of which will be leased back by PriceCostco;
(iii) Mexico operations: a 51% interest in PriceCostco's 50/50 Mexico
joint venture with a third party;
(iv) Certain international rights: a 51% interest in the merchandising
opportunities yet to be developed in certain other international markets
identified as Australia, New Zealand, the northern Mariana Islands, Central
America, certain islands east of Central America (excluding Puerto Rico) and
Bermuda;
(v) Quest Electronic Catalogue: a 51% interest in the Company's Quest
operations which consists of its in-store computerized kiosk shopping network
currently installed in 25 PriceCostco locations; and
(vi) Office space: certain office space in San Diego needed to run
Newco's operations.
The aggregate book value of the assets being spun-off as of May 8 was
approximately $617 million, after giving effect to expected write-downs to be
taken in the fourth quarter with respect to these assets. Based on the
proposed capitalization of Newco and the current market price for PriceCostco
shares ($ 14 11/16 on July 15) for which Newco's shares will be exchanged on a
one-for-one basis, PriceCostco would record a special charge of approximately
$230 million, since the spin-off would be treated as a disposition of assets
for accounting purposes. The special charge would reflect the difference
between the book value of the assets transferred and the market value of the
PriceCostco stock acquired in the exchange. A spokesman for the Company noted
that such a charge, the precise amount of which will be based on the fair
market value of the PriceCostco shares exchanged on the closing date of the
exchange offer, would be characterized as a loss on disposal of discontinued
operations and would be a one-time, nonrecurring, noncash charge to
PriceCostco. The exchange is intended to be nontaxable for federal income tax
purposes to the Company and to the exchanging stockholders, although the
closing of the exchange would not be conditioned on the transaction being
nontaxable or on ob-
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taining a ruling from the Internal Revenue Service that the exchange would be
considered nontaxable.
Jim Sinegal, Chief Executive Officer of PriceCostco and Robert Price,
Chairman of the Board of PriceCostco stated, "The proposed spin-off will allow
each of us to more autonomously pursue our areas of interest and should allow
for a more efficient utilization of the diverse management skills within the
Company. Under the terms of the merger between Price and Costco which led to
the current operating partnership under which the managements and boards of
Price and Costco were combined, certain philosophical differences developed
with respect to the two businesses regarding management strategies. Rather
than try to create one culture and set of priorities applicable to disparate
businesses, the PriceCostco Board determined that a better way to maximize
available business opportunities would be to operate the current businesses
as separate entities along the lines proposed. By effecting the spin-off as an
exchange offer, the structure would enable those shareholders who wish
to concentrate their investments in one segment versus the other, or to
allocate their investments between the two segments in any proportion that the
shareholder elects, to do so by either participating or refraining from
participating in the exchange offer."
Robert Price would be the Chief Executive Officer of Newco and Jim Sinegal
would remain Chief Executive Officer of PriceCostco. The Board of Directors of
Newco would initially consist of seven members, including Jim Sinegal and six
members designated by the current members of the PriceCostco Board who were
designated by The Price Company in connection with the merger of Price and
Costco. Upon consummation of the exchange, such designees of The Price
Company, other than Mr. Richard Libenson and a second designee, would resign
from the PriceCostco Board.
The assets and operations being spun-off constituted less than 10% of
PriceCostco's earnings on a pre-tax basis for the first three quarters of
fiscal 1994 (before the $120 million merger and restructuring charge recorded
at the time of the merger of Price and Costco), and the net assets represent
approximately 33% of the book value of the total net assets of PriceCostco.
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The transaction is being designed so as to not have an adverse impact on
the earnings per share (assuming moderate acceptance of the offer) or credit
standing of PriceCostco following the spin-off and is designed to be accretive
to the earnings per share of PriceCostco if the offer is fully subscribed.
If the exchange is undersubscribed, PriceCostco currently intends to
distribute the balance of shares in Newco as a dividend to the remaining
PriceCostco stockholders pro rata, or, if less than 20% have not been
exchanged, PriceCostco may at its option sell the retained shares to Newco at
the then current market in exchange for a promissory note.
If final Board approval of the spin-off/exchange is received, the
transaction is expected to close prior to the end of 1994.
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CONTACT:
Richard A. Galanti
(206) 803-8203
FOR IMMMEDIATE RELEASE
PRICECOSTCO CONFIRMS SPIN OFF PLANS FOR
---------------------------------------
COMMERCIAL REAL ESTATE OPERATIONS VIA EXCHANGE OFFER
----------------------------------------------------
Kirkland, Washington; and San Diego, California-July 28,
1994--PriceCostco, Inc. (NASDAQ: PCCW) today announced its Board had approved
definitive documentation for its previously announced plan to spin-off its
commercial real estate operations, together with certain other assets, into a
newly formed company to be called Price Enterprises, Inc. As previously
reported, the spin-off would be accomplished by means of an exchange offer
enabling PriceCostco shareholders desiring to invest in Price Enterprises to
exchange one share of PriceCostco stock for a share of Price Enterprises.
Essential terms of the transaction remain unchanged.
The assets to be spun-off will be operated separately by
Price Enterprises commencing August 29, 1994, the commencement of the 1995
fiscal year for both companies, and the distribution to shareholders via an
exchange offer or other distribution of shares will occur
<PAGE>
as soon thereafter as practicable, after the necessary registration statement
has been filed and declared effective. It is expected the transaction will
close by calendar year-end.
Price/Costco also announced that Joseph K. Kornwasser has
resigned as a director and Duane Nelles has been elected to the Board to fill
the vacancy created by such resignation.
2
