UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant ☒
Filed by a Party other than the Registrant
Check the appropriate box:

Preliminary Proxy Statement

Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

Definitive Proxy Statement

Definitive Additional Materials

Soliciting Material under Rule 14a-12
PetSmart, Inc.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):

No fee required.

Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1)
Title of each class of securities to which transaction applies:
(2)
Aggregate number of securities to which transaction applies:
(3)
Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is calculated and state how it was determined):
In accordance with Exchange Act Rule 0-11(c), the filing fee of  $975,632.87 was determined by multiplying 0.0001162 by the aggregate merger consideration of  $8,396,152,051.54. The aggregate merger consideration was calculated by multiplying the 99,441,928 outstanding shares of common stock (including restricted stock) by the per share merger consideration of  $83.00, and adding the foregoing sum to (i) $51,147,339, the product obtained by multiplying the 616,233 shares of common stock reserved for issuance in respect of outstanding restricted stock units by the per share merger consideration of  $83.00, (ii) $45,886,052.00, the product obtained by multiplying the 552,844 shares of common stock reserved for issuance in respect of outstanding performance stock units (assuming vesting at the maximum levels permitted under the merger agreement) by the per share merger consideration of  $83.00, and (iii) $45,438,636.54, the product obtained by multiplying the 1,560,232 shares of common stock subject to outstanding employee stock options by $29.123, the per share merger consideration of  $83.00 less the $53.877 weighted average exercise price per share of such outstanding employee stock options (in each case, as of the close of business of January 9, 2014).
(4)
Proposed maximum aggregate value of transaction: $8,396,152,051.54
(5)
Total fee paid: $975,632.87

Fee paid previously with preliminary materials.

Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
(1)
Amount Previously Paid:
(2)
Form, Schedule or Registration Statement No.:
(3)
Filing Party:
(4)
Date Filed:

PRELIMINARY PROXY STATEMENT — SUBJECT TO COMPLETION, DATED JANUARY 13, 2015
[MISSING IMAGE: https://www.sec.gov/Archives/edgar/data/863157/000157104915000210/lg_petsmart-hires.jpg]
19601 North 27th Avenue
Phoenix, Arizona 85027
[•], 2015​
Dear Stockholder:
You are cordially invited to attend a special meeting of the stockholders of PetSmart, Inc., a Delaware corporation, which we will hold at [•], on [•], 2015, at [•], local time.
At the special meeting, holders of our common stock, par value $0.0001 per share (“common stock”), will be asked to consider and vote on a proposal to adopt an Agreement and Plan of Merger (as it may be amended from time to time, the “merger agreement”), dated as of December 14, 2014, by and among the Company, Argos Holdings Inc., a Delaware corporation (“Parent”), and Argos Merger Sub Inc., a Delaware corporation and wholly owned subsidiary of Parent (“Merger Sub”). Under the merger agreement, Merger Sub will be merged with and into the Company (the “merger”), and each share of common stock outstanding at the effective time of the merger (other than certain shares as set forth in the merger agreement) will be cancelled and converted into the right to receive $83.00 in cash (the “merger consideration”). If the merger is completed, the Company will become a subsidiary of Parent, an entity which will be owned by a consortium including funds advised by BC Partners Inc., La Caisse de dépôt et placement du Québec, affiliates of GIC Special Investments Pte Ltd, affiliates of StepStone Group LP and Longview Asset Management, LLC.
The board of directors of the Company (the “board”) unanimously (i) determined that the merger agreement and the merger are advisable and in the best interests of the Company and its stockholders, (ii) approved the execution, delivery and performance of the merger agreement, and (iii) resolved to recommend the adoption of the merger agreement by the stockholders of the Company and directed that such matter be submitted for consideration of the stockholders of the Company at the special meeting.
The board unanimously recommends that the stockholders of the Company vote “FOR” the proposal to adopt the merger agreement.
At the special meeting, stockholders will also be asked to vote on (i) an advisory (non-binding) proposal to approve specified compensation that may be paid or become payable to the named executive officers of the Company in connection with the merger and (ii) a proposal to approve the adjournment of the special meeting from time to time, if necessary or appropriate, to solicit additional proxies if there are insufficient votes at the time of the special meeting to approve the proposal to adopt the merger agreement. The board unanimously recommends that the stockholders of the Company vote “FOR” each of these proposals.
The enclosed proxy statement describes the merger agreement, the merger and related agreements and provides specific information concerning the special meeting. In addition, you may obtain information about us from documents filed with the Securities and Exchange Commission. We urge you to, and you should, read the entire proxy statement carefully, including the annexes and the documents referred to or incorporated by reference in the proxy statement, as it sets forth the details of the merger agreement and other important information related to the merger.
Your vote is very important. The merger cannot be completed unless holders of a majority of the outstanding shares of common stock vote in favor of the adoption of the merger agreement. If you fail to vote on the adoption of the merger agreement, the effect will be the same as a vote against the adoption of the merger agreement.

While stockholders may exercise their right to vote their shares in person, we recognize that many stockholders may not be able to attend the special meeting. Accordingly, we have enclosed a proxy card that will enable your shares to be voted on the matters to be considered at the special meeting even if you are unable to attend. If you desire your shares to be voted in accordance with the board’s recommendation, you need only sign, date and return the proxy card in the enclosed postage-paid envelope. Otherwise, please mark the proxy to indicate your voting instructions; date and sign the proxy card; and return it in the enclosed postage-paid envelope. You also may submit a proxy by using a toll-free telephone number or the Internet. We have provided instructions on the proxy card for using these convenient services. Submitting a proxy will not prevent you from voting your shares in person if you subsequently choose to attend the special meeting. Even if you plan to attend the special meeting in person, we request that you complete, sign, date and return the enclosed proxy card and thus ensure that your shares will be represented at the special meeting if you are unable to attend.
If you hold your shares in “street name” through a broker, bank or other nominee you should follow the directions provided by your broker, bank or other nominee regarding how to instruct your broker, bank or other nominee to vote your shares. Without those instructions, your shares will not be voted, which will have the same effect as voting against the proposal to adopt the merger agreement.
If you have any questions or need assistance in voting your shares, please contact our proxy solicitor, Innisfree M&A Incorporated, toll free at 1-877-456-3510.
Thank you for your continued support.
Very truly yours,
DAVID K. LENHARDT
President and Chief Executive Officer
Neither the Securities and Exchange Commission nor any state securities regulatory agency has approved or disapproved the merger, passed upon the merits or fairness of the merger or passed upon the adequacy or accuracy of the disclosure in this document. Any representation to the contrary is a criminal offense.
This proxy statement is dated [•], 2015 and is first being mailed to stockholders on or about [•], 2015.

PRELIMINARY PROXY STATEMENT — SUBJECT TO COMPLETION, JANUARY 13, 2015
PETSMART, INC.
19601 North 27th Avenue
Phoenix, Arizona 85027
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To the Stockholders of PetSmart, Inc.:
NOTICE IS HEREBY GIVEN that a Special Meeting of the Stockholders of PetSmart, Inc., a Delaware corporation (“PetSmart,” the “Company” or “we”), will be held at [•], at [•] local time on [•], 2015, for the following purposes:
1.
to consider and vote on a proposal to adopt the Agreement and Plan of Merger (as it may be amended from time to time, the “merger agreement”), dated as of December 14, 2014, by and among the Company, Argos Holdings Inc., a Delaware corporation (“Parent”), and Argos Merger Sub Inc., a Delaware corporation and wholly owned subsidiary of Parent (“Merger Sub”);
2.
to approve, on an advisory (non-binding) basis, specified compensation that may be paid or become payable to the named executive officers of the Company in connection with the merger;
3.
to approve the adjournment of the special meeting from time to time, if necessary or appropriate, to solicit additional proxies if there are insufficient votes at the time of the special meeting to approve the proposal to adopt the merger agreement; and
4.
to act upon other business as may properly come before the special meeting or any adjournment or postponement thereof by or at the direction of the board.
The holders of record of our common stock, par value $0.0001 per share (“common stock”), at the close of business on [•], 2015, are entitled to notice of and to vote at the special meeting or at any adjournment thereof. All stockholders are cordially invited to attend the special meeting in person.
The board of directors of the Company (the “board”) unanimously (i) determined that the merger agreement and the merger are advisable and in the best interests of the Company and its stockholders, (ii) approved the execution, delivery and performance of the merger agreement, and (iii) resolved to recommend the adoption of the merger agreement by the stockholders of the Company and directed that such matter be submitted for consideration of the stockholders of the Company at the special meeting.
The board unanimously recommends that the stockholders of the Company vote “FOR” the proposal to adopt the merger agreement, “FOR” the advisory (non-binding) proposal to approve specified compensation that may be paid or become payable to the named executive officers of the Company in connection with the merger and “FOR” the proposal to adjourn the special meeting from time to time, if necessary or appropriate, to solicit additional proxies if there are insufficient votes at the time of the special meeting to approve the proposal to adopt the merger agreement.
Your vote is important, regardless of the number of shares of common stock you own. The adoption of the merger agreement by the affirmative vote of holders of a majority of the outstanding shares of common stock is a condition to the consummation of the merger. The advisory (non-binding) proposal to approve specified compensation that may be paid or become payable to the named executive officers of the Company in connection with the merger and the proposal to adjourn the special meeting from time to time, if necessary or appropriate, to solicit additional proxies if there are insufficient votes at the time of the special meeting to approve the proposal to adopt the merger agreement each requires the affirmative vote of holders of a majority of the shares of common stock present in person or represented by proxy at the meeting and entitled to vote thereon. Even if you plan to attend the special meeting in person, we request that you complete, sign, date and return the enclosed proxy card and thus ensure that your shares of common stock will be represented at the special meeting if you are unable to attend. A failure to vote your shares of common stock or an abstention from voting will have the same effect as a vote against the proposal to adopt the merger agreement.

You also may submit your proxy by using a toll-free telephone number or the Internet. We have provided instructions on the proxy card for using these convenient services.
If you sign, date and return your proxy card without indicating how you wish to vote, your proxy will be voted in favor of the proposal to adopt the merger agreement, the advisory (non-binding) proposal to approve specified compensation that may be paid or become payable to the named executive officers of the Company in connection with the merger and the proposal to adjourn the special meeting from time to time, if necessary or appropriate, to solicit additional proxies if there are insufficient votes at the time of the special meeting to approve the proposal to adopt the merger agreement. If you fail to vote or submit your proxy, the effect will be that your shares will not be counted for purposes of determining whether a quorum is present at the special meeting and will have the same effect as a vote against the adoption of the merger agreement, but will not affect the advisory vote to approve specified compensation that may become payable to the named executive officers of the Company in connection with the merger and the vote regarding the adjournment of the special meeting to solicit additional proxies, if necessary or appropriate.
Your proxy may be revoked at any time before the vote at the special meeting by following the procedures outlined in the accompanying proxy statement.
BY ORDER OF THE BOARD OF DIRECTORS
PAULETTE DODSON
Senior Vice President, General Counsel and Secretary
Dated [•], 2015

TABLE OF CONTENTS
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SUMMARY
This summary discusses material information contained in this proxy statement, including with respect to the merger agreement, the merger and the other agreements entered into in connection with the merger. We encourage you to read carefully this entire proxy statement, its annexes and the documents referred to or incorporated by reference in this proxy statement, as this Summary may not contain all of the information that may be important to you. The items in this Summary include page references directing you to a more complete description of that topic in this proxy statement.
Unless stated otherwise or the context otherwise requires, in this proxy statement, all references to:

“PetSmart,” the “Company,” “we,” “our,” or “us” refer to PetSmart, Inc., a Delaware corporation;

“Parent” refers to Argos Holdings Inc., a Delaware corporation and “Merger Sub” refers to Argos Merger Sub Inc., a Delaware corporation;

the “Buyer Group” refers to a consortium of funds advised by BC Partners, Inc., La Caisse de dépôt et placement du Québec, affiliates of GIC Special Investments Pte Ltd, affiliates of StepStone Group LP and, at all times after December 12, 2014, Longview Asset Management, LLC;

“common stock” refers to the Company’s common stock, par value $0.0001 per share;

the “board” refers to the board of directors of the Company;

the “merger agreement” refers to the Agreement and Plan of Merger, dated as of December 14, 2014, as it may be amended from time to time, by and among the Company, Parent and Merger Sub, a copy of which is included as Annex A to this proxy statement;

the “merger” refers to the merger of Merger Sub with and into the Company, with the Company continuing as the surviving corporation; and

the “SEC” refers to the U.S. Securities and Exchange Commission.
The Parties to the Merger Agreement (page 16)
PetSmart, Inc.
PetSmart, Inc. is a Delaware corporation. PetSmart is one of the largest providers of pet products and services in North America. PetSmart sells goods and services in 1,404 stores and operates 202 in-store dog and cat boarding facilities in the United States, Canada and Puerto Rico. See “The Parties to the Merger Agreement — PetSmart, Inc.
Additional information about PetSmart is contained in our public filings with the SEC, which are incorporated by reference herein. See “Where You Can Find Additional Information.
Argos Holdings Inc. and Argos Merger Sub Inc.
Argos Holdings Inc. is a Delaware corporation. Argos Merger Sub Inc. is a Delaware corporation and a wholly owned subsidiary of Parent. Parent and Merger Sub are currently affiliates of funds advised by BC Partners, Inc. (“BC Partners”) and at the closing of the transactions contemplated by the merger agreement will be owned by the Buyer Group. Both Parent and Merger Sub were formed solely for the purpose of entering into the merger agreement and consummating the transactions contemplated by the merger agreement, and have not engaged in any business except for activities incidental to their formation and as contemplated by the merger agreement. See “The Parties to the Merger Agreement — Argos Holdings Inc. and Argos Merger Sub Inc.
The Special Meeting (Page 17)
The special meeting will be held at [•], on [•], 2015, at [•] local time.

Proposals to be Voted on at the Special Meeting (page 17)
At the special meeting, you will be asked to consider and vote upon the following proposals:

the proposal to adopt the merger agreement (the “merger proposal”);

the proposal to approve, on an advisory (non-binding) basis, specified compensation that may be paid or become payable to the named executive officers of the Company in connection with the merger (the “compensation proposal”); and

the proposal to approve the adjournment of the special meeting from time to time, if necessary or appropriate, to solicit additional proxies if there are insufficient votes at the time of the special meeting to approve the proposal to adopt the merger agreement (the “adjournment proposal”).
Effect of Merger (Page 17)
The merger agreement provides that at the effective time of the merger each outstanding share of common stock (other than shares owned by the Company, any subsidiary of the Company, Parent, any direct or indirect holding company of Parent, Merger Sub and holders who are entitled to and properly exercise appraisal rights under Delaware law), will be converted into the right to receive $83.00 in cash (the “merger consideration”). Following the merger, the Company will therefore become a privately held company, wholly owned by Parent and the Company’s common stock will be delisted from NASDAQ and deregistered under the Securities Exchange Act of 1934, as amended. At the closing of the transactions contemplated by the merger agreement, Parent will be owned by the Buyer Group.
Record Date and Quorum (Page 17)
The holders of record of the common stock as of the close of business on [•], 2015 (the record date for determination of stockholders entitled to notice of and to vote at the special meeting), are entitled to receive notice of and to vote at the special meeting. As of the record date, there were [•] shares of common stock outstanding.
The presence at the special meeting, in person or by proxy, of the holders of a majority of shares of common stock outstanding on the record date will constitute a quorum. Under our bylaws, in the absence of a quorum at the special meeting, the meeting of stockholders may be adjourned, but no other business shall be transacted.
Required Vote (Page 18)
For the Company to complete the merger, under Delaware law, stockholders holding at least a majority of the shares of common stock outstanding at the close of business on the record date must vote “FOR” the merger proposal. In addition, under the merger agreement, the receipt of such required vote is a condition to the consummation of the merger. A failure to vote your shares of common stock or an abstention from voting will have the same effect as a vote against the merger proposal.
The compensation proposal and the adjournment proposal each requires the affirmative vote of holders of a majority of the shares of common stock present in person or represented by proxy at the meeting and entitled to vote thereon.
Voting Support Agreement (Page 45)
On December 14, 2014, the Company entered into a voting agreement (the “voting agreement”) with Parent and Longview Asset Management, LLC (“Longview”), on behalf of Longview clients and certain related parties. Under the voting agreement, Longview agreed, among other things, to vote or cause to be voted 7,424,591 shares of common stock, which represent approximately [•]% of the total outstanding shares of common stock as of the record date, in favor of the adoption of the merger agreement, and against any other action, proposal, agreement or transaction made in opposition to or competition with the merger or the merger agreement that is not approved by the board. The voting agreement will terminate upon the earliest to occur of  (i) the effective time of the merger, (ii) the termination of the merger agreement in accordance with its terms, (iii) the termination of the voting agreement by the mutual written
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consent of the Company, Parent and Longview, (iv) a change of recommendation (as defined under “The Merger Agreement — Other Covenants and Agreements — No Solicitation) or (v) the making of any change, by amendment, waiver or other modification to any provision of the merger agreement that decreases the amount of, or changes the form of, the merger consideration.
Conditions to the Merger (Page 69)
Each party’s obligation to complete the merger is subject to the satisfaction or waiver of the following conditions:

the adoption of the merger agreement by the required vote of the stockholders;

the absence of any U.S. or Canadian order or law that prohibits or otherwise makes illegal the consummation of the merger; and

the expiration or termination of any applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”) and the Competition Act (Canada), as amended, including the regulations promulgated thereunder (the “Competition Act”).
The obligation of Parent and Merger Sub to complete the merger are subject to the satisfaction or waiver of the following additional conditions:

the accuracy of the representations and warranties of the Company (subject to materiality, material adverse effect and other qualifications specified in the merger agreement);

the Company’s performance of and compliance with its obligations and covenants under the merger agreement in all material respects; and

the delivery of an officer’s certificate by the Company certifying that the conditions in the two bullets above have been satisfied.
The obligation of the Company to complete the merger is subject to the satisfaction or waiver of the following additional conditions:

the accuracy of the representations and warranties of Parent and Merger Sub (subject to materiality, knowledge and other qualifications specified in the merger agreement);

Parent’s and Merger Sub’s performance of and compliance with their obligations and covenants under the merger agreement in all material respects; and

the delivery of an officer’s certificate by Parent certifying that the conditions in the two bullets above have been satisfied.
When the Merger Becomes Effective (Page 53)
We anticipate completing the merger in the first half of 2015, subject to the adoption of the merger agreement by the Company’s stockholders as specified herein and the satisfaction of the other closing conditions.
Recommendation of the Company’s Board of Directors (Pages 17 and 30)
The board unanimously (i) determined that the merger agreement and the merger are advisable and in the best interests of the Company and its stockholders, (ii) approved the execution, delivery and performance of the merger agreement, and (iii) resolved to recommend the adoption of the merger agreement by the stockholders of the Company and directed that such matter be submitted for consideration of the stockholders of the Company at the special meeting. The board unanimously recommends that the stockholders of the Company vote “FOR” the merger proposal, “FOR” the compensation proposal and “FOR” the adjournment proposal. For a description of the reasons considered by the board in deciding to recommend approval of the merger proposal, see “The Merger (Proposal 1) — Reasons for the Merger.
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Opinion of J.P. Morgan (Page 30 and Annex B)
At the meeting of the board on December 13, 2014, J.P. Morgan Securities LLC (“J.P. Morgan”) rendered its oral opinion, subsequently confirmed in writing on December 14, 2014, to the board that, as of such date and based upon and subject to the factors, assumptions and limitations set forth in its opinion, the merger consideration to be paid to the holders of the Company’s common stock in the merger was fair, from a financial point of view, to such holders.
The full text of the written opinion of J.P. Morgan dated December 14, 2014, which sets forth the assumptions made, procedures followed, matters considered and limitations on the review undertaken in rendering its opinion, is attached as Annex B to this proxy statement and is incorporated herein by reference. The Company urges stockholders to read the opinion in its entirety. J.P. Morgan’s written opinion is addressed to the board, is directed only to the merger consideration paid to the holders of the Company’s common stock in the merger and does not constitute a recommendation to any stockholder of the Company as to how such stockholder should vote with respect to the merger or any other matter. The summary of the opinion of J.P. Morgan set forth in this proxy statement is qualified in its entirety by reference to the full text of such opinion.
Treatment of Company Stock Options and Company RSU Awards (Page 45)
Company Options.   Except as otherwise agreed in writing between any holder and Parent, each option to purchase a share of common stock (a “Company option”) whether vested or unvested, that is outstanding immediately prior to the effective time of the merger will, as of the effective time of the merger, become fully vested and be converted into the right to receive an amount in cash, less applicable tax withholdings, equal to the product obtained by multiplying (a) the excess, if any, of the merger consideration over the exercise price per share of the Company option, by (b) the total number of shares subject to the Company option.
Company RSU Awards.   Except as otherwise agreed in writing between any holder and Parent, each award of restricted stock units that corresponds to shares of common stock (a “Company RSU award”) whether vested or unvested, that is outstanding immediately prior to the effective time of the merger, will, as of the effective time of the merger, become fully vested and be converted into the right to receive an amount in cash, less applicable tax withholdings, equal to (1) the product obtained by multiplying (a) the total number of shares subject to the Company RSU award, by (b) the merger consideration, plus (2) any dividends accrued with respect to the Company RSU award.
Company PSU Awards.   Except as otherwise agreed in writing between any holder and Parent, each performance stock unit award that corresponds to shares (a “Company PSU award”) that is outstanding immediately prior to the effective time of the merger will become fully vested (based on actual performance, in the case of awards whose performance period ends prior to the effective time of the merger, at 109.6% of target levels, in the case of awards granted in the 2013 fiscal year, and at 150.0% of target levels, in the case of awards granted in the 2014 fiscal year) and be converted into the right to receive an amount in cash, less applicable tax withholdings, equal to (1) the product obtained by multiplying (a) the total number of shares subject to the Company PSU award by (b) the merger consideration, plus (2) any dividends accrued with respect to the Company PSU award.
Company Restricted Stock.   Except as otherwise agreed in writing between any holder and Parent, effective as of immediately prior to the effective time of the merger, each then-outstanding restricted share of common stock (the “Company restricted stock”) will automatically become fully vested and the restrictions thereon will lapse, and each such share of Company restricted stock will be cancelled and converted into the right to receive an amount in cash, less applicable tax withholdings, equal to the merger consideration, plus any dividends accrued with respect to the Company restricted stock.
Interests of the Company’s Directors and Executive Officers in the Merger (Page 45)
In considering the recommendation of the board with respect to the merger proposal, you should be aware that some of the Company’s directors and executive officers have interests in the merger that are different from, or in addition to, the interests of the Company’s stockholders generally. Interests of officers and directors that may be different from or in addition to the interests of the Company’s stockholders include, among others:
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The merger agreement provides for the accelerated vesting and cash-out of all outstanding Company equity awards.

The Company’s executive officers are participants in the Company’s Executive Change in Control and Severance Benefit Plan, which provides for enhanced severance benefits in the event of a qualifying termination of employment within three months prior to or 36 months following the completion of the merger.

Pursuant to the merger agreement, the Company has established a cash-based retention program to promote retention and to incentivize efforts to consummate the merger under which certain executive officers have been granted awards.

Under the Company’s 2005 Deferred Compensation Plan, all matching contributions will vest and participants will be entitled to receive full accelerated payment of their plan balances upon the occurrence of a change in control.

The Company’s directors and executive officers are entitled to continued indemnification and insurance coverage under indemnification agreements and the merger agreement.
These interests are discussed in more detail in the section entitled “The Merger (Proposal 1) — Interests of the Company’s Directors and Executive Officers in the Merger”. The board was aware of the different or additional interests set forth herein and considered such interests along with other matters in approving the merger agreement and the transactions contemplated thereby, including the merger.
Financing (Page 40)
Parent estimates that the total amount required to complete the merger and related transactions and pay related fees and expenses will be approximately $8.4 billion. Parent expects this amount to be funded through a combination of the following:

debt financing in an aggregate principal amount of up to approximately $6.2 billion as well as a $750 million senior secured asset-based revolving credit facility, a portion of which will be available at closing. Parent has received firm commitments from a consortium of financial institutions to provide the debt financing and revolving credit facility (see “The Merger (Proposal 1) — Financing — Debt Financing”);

cash equity investments by members of the Buyer Group (other than Longview) in an aggregate amount up to approximately $1.83 billion and Longview’s contribution to Parent of  $250 million worth of the Company’s common stock immediately prior to the effective time of the merger. Parent has received equity commitments for the equity financing from the Buyer Group (other than Longview) and has entered into a rollover agreement with Longview with respect to its contribution of Company common stock to Parent (see “The Merger (Proposal 1) — Financing —  Equity Financing”); and

approximately $425 million of cash is expected to be on hand in the Company and available at the closing.
The consummation of the merger is not subject to a financing condition (although the funding of the debt and cash equity financing is subject to the satisfaction of the conditions set forth in the commitment letters under which the financing will be provided).
Termination Fee Commitment Letters (Page 44)
Each of the members of the Buyer Group (other than Longview) has entered into a termination fee commitment letter with Parent and the Company and has agreed on a several basis, and subject to other terms and conditions of the termination fee commitment letters, to pay to the Company (or if consented to by the Company, to purchase common equity securities of Parent to enable Parent to pay to the Company) an amount equal to its portion of the $510 million Parent termination fee and certain expense reimbursement that may be payable by Parent under the merger agreement, if and when due under the merger agreement. See “The Merger — Termination Fee Commitment Letters” beginning on page [•].
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Material U.S. Federal Income Tax Consequences of the Merger (Page 49)
The receipt of cash in exchange for shares of common stock pursuant to the merger will generally be a taxable transaction for U.S. federal income tax purposes. You should consult your own tax advisors regarding the particular tax consequences to you of the exchange of shares of common stock for cash pursuant to the merger in light of your particular circumstances (including the application and effect of any state, local or foreign income and other tax laws).
Regulatory Approvals (Page 52)
Under the HSR Act and related rules, certain transactions, including the merger, may not be completed until notifications have been given and information furnished to the Antitrust Division of the United States Department of Justice (“Antitrust Division”) and the Federal Trade Commission (“FTC”) and all statutory waiting period requirements have been satisfied or early termination has been granted by the applicable agencies. On December 24, 2014, both the Company and Parent filed their respective Notification and Report Forms with the Antitrust Division and the FTC. The 30-day waiting period under the HSR Act will expire at 11:59 pm on January 23, 2015, unless it is terminated early or otherwise extended. Both the Company and Parent received early termination of the HSR waiting period on January 7, 2015.
The merger is also conditioned on the applicable waiting period under the Competition Act having expired or been terminated by the applicable government agencies. Under the Competition Act, the parties must file a pre-merger notification and observe the specified waiting period requirements before consummating the merger, unless the parties are exempted from such requirements through the issuance of an Advance Ruling Certificate (an “ARC”), or a “no-action” letter together with a waiver of the notification and waiting period requirements. On December 30, 2014, the parties submitted a request to the Commissioner of Competition in Canada for an ARC or, in the alternative, a “no-action” letter.
No Solicitation (Page 61)
Under the merger agreement, the Company and its affiliates and their respective representatives may not:

solicit, initiate or knowingly encourage or facilitate the making or submission of an alternative proposal (defined below under The Merger Agreement — Other Covenants and Agreements — No Solicitation) or any inquiries, discussions or offers that constitute or could reasonably expected to lead to any alternative proposal;

participate in any discussions or negotiations regarding an alternative proposal with, or furnish any nonpublic information regarding the Company or its subsidiaries in connection with an alternative proposal to, any person that has made, or is considering making an alternative proposal (except to notify such person as to the non-solicitation provisions of the merger agreement); or

enter into any letter of intent, agreement in principle, merger or acquisition agreement or any other agreement relating to or providing for any alternative proposal (except for confidentiality agreements permitted under the merger agreement).
But if, prior to obtaining the required vote of the Company’s stockholders to adopt the merger agreement, the Company receives an unsolicited alternative proposal from a third party that in the good faith judgment of the board, after consultation with outside legal and financial advisors, constitutes, or could reasonably be expected to result in, a “superior proposal” (defined below under The Merger Agreement — Other Covenants and Agreements — No Solicitation), then the Company may take the following actions:

provide nonpublic information to the third party after entering into a confidentiality agreement acceptable under the terms of the merger agreement; and

engage in discussions or negotiations with a third party with respect to the alternative proposal.
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In order for the board to change its recommendation in response to a superior proposal or for the Company to terminate the merger agreement to accept a superior proposal, the Company must (among other obligations):

provide Parent written notice of the board’s intention to make a change in recommendation or to terminate the merger agreement with a description of the terms of the superior proposal;

provide to Parent in writing its reasons for making the change in recommendation or for terminating the merger agreement; and

provide Parent with three business days to propose changes to the terms of the merger agreement (which will be extended for additional two business day periods for any material change in the superior proposal), and during this period negotiate with Parent in good faith to make adjustments to the terms and conditions of the merger agreement.
Following the end of such three business day period (and any extension thereto), after taking into account any revisions to the terms and conditions of the merger agreement proposed by Parent, the board must determine that the superior proposal remains superior to the merger proposal. If the Company terminates the merger agreement to enter into an agreement with a third party regarding a superior proposal or the board changes its recommendation in response to a superior proposal and the agreement is terminated by Parent, then the Company must pay a termination fee of  $255 million to Parent (as described in more detail under The Merger Agreement — Termination).
Termination (Page 70)
The Company and Parent may terminate the merger agreement by mutual written consent at any time before the effective time of the merger. In addition, either the Company or Parent may terminate the merger agreement if:

the effective time of the merger has not occurred on or before June 14, 2015 (the “end date”), and the party seeking to terminate the merger agreement pursuant to this provision has not breached in any material respect its obligations under the merger agreement in any manner that has contributed to the failure to consummate the merger on or before such date and has used the efforts required of it to consummate the merger (including obtaining antitrust approvals) and to obtain the proceeds of the financings;

a governmental entity of competent jurisdiction has issued or entered an injunction or similar order permanently enjoining or otherwise prohibiting the consummation of the merger and such injunction has become final and non-appealable, so long as the party seeking to terminate the merger agreement pursuant to this provision has not breached in any material respect its obligations under the merger agreement in any manner that has contributed to such injunction or order and has used the efforts required of it under the merger agreement to prevent, oppose and remove such injunction or order; or

the Company’s stockholders fail to adopt the merger agreement after the conclusion of a stockholder meeting (including any adjournments or postponements thereof) held for that purpose.
The Company may terminate the merger agreement:

if Parent or Merger Sub has breached or failed to perform in any material respect any of its representations, warranties, covenants or other agreements contained in the merger agreement which would result in the failure to satisfy a closing condition or would result in the failure of the closing to occur, subject to a 30 business day cure period if the breach or failure is capable of being cured, so long as the Company is not then in material breach of any representation, warranty, agreement or covenant contained in the merger agreement (a “Parent Breach Termination”);

at any time prior to the Company stockholder meeting to accept a “superior proposal” (defined below under The Merger Agreement — Other Covenants and Agreements — No Solicitation) so
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long as (i) prior to or substantially concurrent with such termination, the Company has paid a termination fee of  $255 million to Parent and (ii) promptly after such termination, the Company enters into a definitive agreement with respect to such superior proposal; or

if  (i) the merger is not consummated by the second business day after the first date upon which Parent was required to consummate the closing and (ii) the Company was ready, willing, and able to consummate the merger and provided written notice to Parent confirming such fact (a “Parent Failure to Close Termination”).
Parent may terminate the merger agreement:

if the board takes an action that constitutes a change of recommendation (as defined below under The Merger Agreement — Other Covenants and Agreements — No Solicitation) prior to the stockholder meeting to adopt the merger agreement; or

if the Company breached or failed to perform in any material respect any of its representations, warranties, covenants or other agreements contained in the merger agreement which would result in the failure to satisfy a closing condition or would result in the failure of the closing to occur, subject to a 30 business day cure period if the breach or failure is capable of being cured, so long as Parent or Merger Sub is not then in material breach of any representation, warranty, agreement or covenant contained in the merger agreement.
Termination Fees (Page 71)
The Company will pay to Parent a termination fee of  $255 million in the event that:

the Company has terminated the merger agreement before stockholder approval of the merger proposal is obtained in response to a superior proposal and promptly after such termination the Company enters into a definitive agreement with respect to such superior proposal;

Parent has terminated the merger agreement in the event of a change of recommendation; or

the merger is terminated under specified conditions and concurrently with or within 12 months after such termination, the Company enters into a definitive agreement providing for a qualifying transaction (as defined below under “The Merger Agreement — Termination Fees”) or completes a qualifying transaction.
Parent will pay to the Company a reverse termination fee of  $510 million in cash in the event that:

the Company has terminated the merger agreement as a result of a Parent Breach Termination or a Parent Failure to Close Termination; or

the Company or Parent has terminated the merger agreement because the closing has not occurred by the end date and at the time of such termination the Company could have terminated the merger agreement because of a Parent Breach Termination or a Parent Failure to Close Termination.
Reimbursement of Expenses (Page 72)
If the merger agreement is terminated under specified circumstances, then the Company will be required to reimburse Parent for all reasonable out-of-pocket expenses incurred by Parent, Merger Sub or their respective affiliates and all out-of-pocket fees and expenses of the financing sources for which Parent, Merger Sub, the Buyer Group or their respective affiliates may be responsible for in connection with the merger agreement and the transactions contemplated by the merger agreement up to a maximum amount of $15 million. If the Company subsequently becomes obligated to pay a termination fee to Parent, any such expense reimbursement paid by the Company will reduce the amount of any termination fee payable to Parent.
Rights of Appraisal (Page 79 and Annex C)
Under Delaware law, holders of our common stock who do not vote in favor of the adoption of the merger agreement, who properly demand appraisal of their shares of common stock and who otherwise comply with all the requirements of Section 262 of the General Corporation Law of the State of Delaware,
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referred to as the “DGCL,” will be entitled to seek appraisal for, and obtain payment in cash for the judicially determined fair value of, their shares of common stock in lieu of receiving the merger consideration if the merger is completed. This value could be more than, the same as, or less than the merger consideration. Any holder of common stock intending to exercise appraisal rights, among other things, must submit a written demand for appraisal to us prior to the vote on the proposal to adopt the merger agreement and must not vote in favor of the proposal to adopt the merger agreement and must otherwise strictly comply with all of the procedures required by Delaware law. The relevant provisions of the DGCL are included as Annex C to this proxy statement. You are encouraged to read these provisions carefully and in their entirety. If you hold your shares of common stock through a bank, brokerage firm or other nominee and you wish to exercise appraisal rights, you should consult with your bank, brokerage firm or other nominee to determine the appropriate procedures for the making of a demand for appraisal by such bank, brokerage firm or nominee. Moreover, due to the complexity of the procedures for exercising the right to seek appraisal, stockholders who are considering exercising such rights are encouraged to seek the advice of legal counsel. Failure to strictly comply with these provisions will result in loss of the right of appraisal.
9

QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING AND THE MERGER
The following questions and answers address briefly some questions you may have regarding the special meeting, the merger agreement and the merger. These questions and answers may not address all questions that may be important to you as a stockholder of the Company. Please refer to the more detailed information contained elsewhere in this proxy statement, the annexes to this proxy statement and the documents referred to or incorporated by reference in this proxy statement.
Q:
Why am I receiving this proxy statement?
A:
On December 14, 2014, the Company entered into the merger agreement providing for the merger of Merger Sub, a wholly owned subsidiary of Parent, with and into the Company, with the Company surviving the merger as a wholly owned subsidiary of Parent. You are receiving this proxy statement in connection with the solicitation of proxies by the board in favor of the proposal to adopt the merger agreement and the other matters to be voted on at the special meeting.
Q:
What is the proposed transaction?
A:
The proposed transaction is the merger of Merger Sub with and into the Company pursuant to the merger agreement. Following the effective time of the merger, the Company will be privately held as a wholly owned subsidiary of Parent.
Q:
What will I receive in the merger?
A:
If the merger is completed, you will be entitled to receive $83.00 in cash, without interest and less any applicable withholding taxes, for each share of our common stock that you own. For example, if you own 100 shares of common stock, you will be entitled to receive $8,300 in cash in exchange for your shares of common stock, less any applicable withholding taxes. You will not be entitled to receive shares in the surviving corporation or in Parent.
Q:
Where and when is the special meeting?
A:
The special meeting will take place on [•], 2015, starting at [•] local time at [•].
Q:
What matters will be voted on at the special meeting?
A:
You will be asked to consider and vote on the following proposals:

to adopt the merger agreement;

to approve, on an advisory (non-binding) basis, specified compensation that may be paid or become payable to the named executive officers of the Company in connection with the merger; and

to approve the adjournment of the special meeting from time to time to solicit additional proxies, if necessary or appropriate, if there are insufficient votes at the time of the special meeting to approve the proposal to adopt the merger agreement.
Q:
What vote of our stockholders is required to approve the merger agreement?
A:
Under Delaware law, stockholders holding at least a majority of the shares of common stock outstanding at the close of business on the record date for the determination of stockholders entitled to vote at the meeting must vote “FOR” the merger proposal. In addition, under the merger agreement, the receipt of such required vote is a condition to the consummation of the merger. A failure to vote your shares of common stock or an abstention from voting will have the same effect as a vote against the merger proposal.
As of  [•], 2015, the record date for the special meeting, there were [•] shares of common stock outstanding.
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Q:
How will our directors and executive officers vote on the proposal to adopt the merger agreement?
A:
The directors and executive officers of the Company have informed the Company that as of the date of this proxy statement, they intend to vote in favor of the merger proposal.
As of  [•], 2015, the record date for the special meeting, the directors and current executive officers owned, in the aggregate, [•]% of the outstanding common stock of the Company entitled to vote at the special meeting.
Q:
Do any of the Company’s directors or executive officers have interests in the merger that may differ from or be in addition to my interests as a stockholder?
A:
Yes. In considering the recommendation of the board with respect to the merger proposal, you should be aware that our directors and executive officers have interests in the merger that are different from, or in addition to, the interests of our stockholders generally. The board was aware of and considered these differing interests, among other matters, in evaluating and negotiating the merger agreement and the merger, and in unanimously recommending that the merger agreement be adopted by the Company stockholders. See “The Merger (Proposal 1) — Interests of the Company’s Directors and Executive Officers in the Merger.
Q:
What vote of our stockholders is required to approve other matters to be presented at the special meeting?
A:
The compensation proposal and the adjournment proposal each require the affirmative vote of the holders of a majority of the shares of common stock present in person or represented by proxy at the special meeting and entitled to vote thereon.
Q:
Are there any voting agreements with existing stockholders?
A:
In connection with the merger agreement, the Company, Parent and Longview entered into the voting agreement, pursuant to which Longview has agreed, among other things and subject to certain conditions, to vote 7,424,591 shares of common stock in favor of the merger proposal and against any proposal made in opposition to or in competition with the merger or the merger agreement that is not approved by the board.
As of the record date, 7,424,591 shares of common stock represented approximately [•]% of the total outstanding common stock on such date.
Q:
What is a quorum?
A:
A quorum will be present if holders of a majority of the shares of common stock outstanding on the record date are present in person or represented by proxy at the special meeting. If a quorum is not present at the special meeting, the special meeting may be adjourned or postponed from time to time until a quorum is obtained.
If you submit a proxy but fail to provide voting instructions or abstain on any of the proposals listed on the proxy card, your shares will be counted for purpose of determining whether a quorum is present at the special meeting.
If your shares are held in “street name” by your broker, bank or other nominee and you do not tell the nominee how to vote your shares, these shares will not be counted for purposes of determining whether a quorum is present for the transaction of business at the special meeting.
Q:
How does the board recommend that I vote?
A:
The board unanimously recommends that our stockholders vote “FOR” the merger proposal. The board also unanimously recommends that our stockholders vote “FOR” the compensation proposal and “FOR” the adjournment proposal.
Q:
What effects will the merger have on PetSmart?
A:
Our common stock is currently registered under the Securities Exchange Act of 1934, as amended, referred to as the “Exchange Act,” and is quoted on the NASDAQ Global Select Market, referred to as
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the “NASDAQ,” under the symbol “PETM.” As a result of the merger, the Company will cease to be a publicly traded company and will be wholly owned by Parent. Following the consummation of the merger, the registration of our common stock and our reporting obligations under the Exchange Act will be terminated. In addition, upon the consummation of the merger, our common stock will no longer be listed on any stock exchange or quotation system, including the NASDAQ.
Q:
What happens if the merger is not consummated?
A:
If the merger agreement is not approved by the Company’s stockholders, or if the merger is not consummated for any other reason, the Company’s stockholders will not receive any payment for their shares in connection with the merger. Instead, the Company will remain a public company and shares of our common stock will continue to be listed and traded on the NASDAQ. Under specified circumstances, the Company may be required to pay Parent a termination fee of  $255 million and/or reimburse Parent’s and the Buyer Group expenses up to a maximum amount of  $15 million (with any expense reimbursement payable to Parent and the Buyer Group reducing the amount of any termination fee payable by the Company), or Parent may be required to pay the Company a termination fee of  $510 million or reimburse the Company for certain expenses or losses incurred in connection with the transactions contemplated by the merger agreement. See “The Merger Agreement — Termination Fees” and “The Merger Agreement — Reimbursement of Expenses.
Q:
What will happen if stockholders do not approve the advisory proposal on executive compensation payable to the Company’s named executive officers in connection with the merger?
A:
The approval of this proposal is not a condition to the completion of the merger. The SEC rules require the Company to seek approval on a non-binding, advisory basis of certain payments that will or may be made to the Company’s named executive officers in connection with the merger. The vote on this proposal is an advisory vote and will not be binding on the Company or Parent. If the merger agreement is adopted by the stockholders and the merger is completed, the merger-related compensation may be paid to the Company’s named executive officers even if stockholders fail to approve this proposal.
Q:
What do I need to do now? How do I vote my shares of common stock?
A:
We urge you to read this proxy statement carefully, including its annexes and the documents referred to as incorporated by reference in this proxy statement, and to consider how the merger affects you. Your vote is important. If you are a stockholder of record, you can ensure that your shares are voted at the special meeting by submitting your proxy via:

mail, using the enclosed postage-paid envelope;

telephone, using the toll-free number listed on each proxy card; or

the Internet, at the address provided on each proxy card.
If you hold your shares in “street name” through a broker, bank or other nominee you should follow the directions provided by your broker, bank or other nominee regarding how to instruct your broker, bank or other nominee to vote your shares. Without those instructions, your shares will not be voted, which will have the same effect as voting “AGAINST” the merger proposal.
Q:
Can I revoke my proxy?
Yes. You can revoke your proxy at any time before the vote is taken at the special meeting. If you are a stockholder of record, you may revoke your proxy by notifying the Company’s Corporate Secretary in writing at PetSmart, Inc., Attn: Corporate Secretary, 19601 North 27th Avenue, Phoenix, Arizona 85027, or by submitting a new proxy by telephone, the Internet or mail, in each case, dated after the date of the proxy being revoked. In addition, you may revoke your proxy by attending the special meeting and voting in person (simply attending the special meeting will not cause your proxy to be revoked). Please note that if you hold your shares in “street name” and you have instructed a broker,
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bank or other nominee to vote your shares, the above-described options for revoking your voting instructions do not apply, and instead you must follow the instructions received from your broker, bank or other nominee to revoke your voting instructions.
Q:
What happens if I do not vote?
A:
The vote to adopt the merger agreement is based on the total number of shares of common stock outstanding on the record date, not just the shares that are voted. If you do not vote, it will have the same effect as a vote “AGAINST” the proposal to adopt the merger agreement.
Q:
Will my shares held in “street name” or another form of record ownership be combined for voting purposes with shares I hold of record?
A:
No. Because any shares you may hold in “street name” will be deemed to be held by a different stockholder than any shares you hold of record, any shares so held will not be combined for voting purposes with shares you hold of record. Similarly, if you own shares in various registered forms, such as jointly with your spouse, as trustee of a trust or as custodian for a minor, you will receive, and will need to sign and return, a separate proxy card for those shares because they are held in a different form of record ownership. Shares held by a corporation or business entity must be voted by an authorized officer of the entity. Shares held in an individual retirement account must be voted under the rules governing the account.
Q:
What happens if I sell my shares of common stock before completion of the merger?
A:
If you transfer your shares of common stock, you will have transferred your right to receive the merger consideration in the merger. In order to receive the merger consideration, you must hold your shares of common stock through completion of the merger.
The record date for stockholders entitled to vote at the special meeting is earlier than the date on which the merger will be consummated. So, if you transfer your shares of common stock after the record date but before the special meeting, you will have transferred your right to receive the merger consideration in the merger, but retained the right to vote at the special meeting.
Q:
Should I send in my stock certificates or other evidence of ownership now?
A:
No, do not send in your certificates now. After the merger is completed, if you hold shares represented by certificates, you will receive a letter of transmittal from the paying agent for the merger with detailed written instructions for exchanging your shares of common stock for the merger consideration and if you hold book entry shares you will receive a check or wire transfer for the merger consideration with respect to such shares. If your shares of common stock are held in “street name” by your broker, bank or other nominee, you may receive instructions from your broker, bank or other nominee as to what action, if any, you need to take to effect the surrender of your “street name” shares in exchange for the merger consideration.
Q:
I do not know where my stock certificate is — how will I get the merger consideration for my shares?
A:
If the merger is completed, the transmittal materials you will receive after the completion of the merger will include the procedures that you must follow if you cannot locate your stock certificate. This will include an affidavit that you will need to sign attesting to the loss of your stock certificate. You may also be required to provide a customary indemnity agreement in order to cover any potential loss.
Q:
Am I entitled to exercise appraisal rights instead of receiving the merger consideration for my shares of common stock?
A:
If you comply with all the requirements of Section 262 of the DGCL (including not voting in favor of the adoption of the merger agreement), you are entitled to have the “fair value” (as defined pursuant to Section 262 of the DGCL) of your shares of common stock determined by the Court of Chancery of the State of Delaware and to receive payment based on that valuation instead of receiving the merger consideration. The ultimate amount you would receive in an appraisal proceeding may be more than,
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the same as or less than the amount you would have received under the merger agreement. To exercise your appraisal rights, you must comply with the requirements of the DGCL. See “Rights of Appraisal” and the text of the Delaware appraisal rights statute, Section 262 of the DGCL, which is reproduced in its entirety as Annex C to this proxy statement.
Q:
Will I have to pay taxes on the merger consideration I receive?
A:
The receipt of cash in exchange for shares of common stock pursuant to the merger will generally be a taxable transaction for U.S. federal income tax purposes. You should consult your own tax advisors regarding the particular tax consequences to you of the exchange of shares of common stock for cash pursuant to the merger in light of your particular circumstances (including the application and effect of any state, local or foreign income and other tax laws).
Q:
What does it mean if I get more than one proxy card or voting instruction card?
A:
If your shares are registered differently or are held in more than one account, you will receive more than one proxy card or voting instruction card. Please complete and return all of the proxy cards or voting instruction cards you receive (or submit each of your proxies by telephone or the Internet, if available to you) to ensure that all of your shares are voted.
Q:
What is householding and how does it affect me?
A:
The SEC permits companies to send a single set of proxy materials to any household at which two or more stockholders reside, unless contrary instructions have been received, but only if the applicable company provides advance notice and follows certain procedures. In such cases, each stockholder continues to receive a separate notice of the meeting and proxy card. Certain brokerage firms may have instituted householding for beneficial owners of common stock held through brokerage firms. If your family has multiple accounts holding common stock, you may have already received householding notification from your broker. Please contact your broker directly if you have any questions or require additional copies of this proxy statement. The broker will arrange for delivery of a separate copy of this proxy statement promptly upon your written or oral request. You may decide at any time to revoke your decision to household, and thereby receive multiple copies.
Q:
Who can help answer my other questions?
A:
If you have more questions about the merger, or require assistance in submitting your proxy or voting your shares or need additional copies of the proxy statement or the enclosed proxy card, please contact Innisfree M&A Incorporated, which is acting as the proxy solicitation agent for the Company in connection with the merger.
Innisfree M&A Incorporated
501 Madison Avenue, 20th Floor, New York, NY 10022
Stockholders may call toll-free: (877) 456-3510
Banks & Brokers may call collect: (212) 750-5833
14

CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
This proxy statement, and the documents incorporated by reference in this proxy statement, include “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, which are identified by the use of the words “believe,” “expect,” “may,” “could,” “should,” “plan,” “project,” “anticipate,” “intend,” “estimate,” “will,” “contemplate,” “would” and similar expressions that contemplate future events. Such forward-looking statements are based on management’s reasonable current assumptions and expectations, including the expected completion and timing of the merger and other information relating to the merger. You should be aware that forward-looking statements involve a number of assumptions, risks and uncertainties that could cause the actual results to differ materially from such forward-looking statements. Although we believe that the expectations reflected in these forward-looking statements are reasonable, we cannot assure you that the actual results or developments we anticipate will be realized, or even if realized, that they will have the expected effects on the business or operations of the Company. These forward-looking statements speak only as of the date on which the statements were made and we undertake no obligation to update or revise any forward-looking statements made in this proxy statement or elsewhere as a result of new information, future events or otherwise, except as required by law. In addition to other factors and matters contained in or incorporated by reference in this document, we believe the following factors could cause actual results to differ materially from those discussed in the forward-looking statements:

the occurrence of any event, change or other circumstance that could give rise to the termination of the merger agreement;

the failure to obtain the required vote of the Company’s stockholders to adopt the merger agreement, the failure to obtain any required regulatory approval, or the failure to satisfy any of the other closing conditions to the merger, and any delay in connection with the foregoing;

the failure to obtain the necessary financing;

risks related to disruption of management’s attention from the Company’s ongoing business operations due to the pendency of the merger;

the effect of the announcement of the merger on the ability of the Company to retain and hire key personnel and maintain relationships with its customers, suppliers, and others with whom it does business, or on its operating results and business generally;

changes in general economic conditions;

the outcome of any legal proceedings that have been or may be instituted against the Company and others relating to the merger agreement; and

other risks detailed in our filings with the SEC, including our most recent filings on Forms 10-K and 10-Qs. See “Where You Can Find Additional Information.
Many of the factors that will determine our future results are beyond our ability to control or predict. In light of the significant uncertainties inherent in the forward-looking statements contained herein, readers of this proxy statement should not place undue reliance on forward-looking statements, which reflect management’s views only as of the date hereof. We cannot guarantee any future results, levels of activity, performance or achievements.
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THE PARTIES TO THE MERGER AGREEMENT
PetSmart, Inc.
PetSmart, Inc. is a Delaware corporation with principal executive offices located at 19601 North 27th Avenue, Phoenix, Arizona 85027. The Company is one of the largest providers of pet products and services in North America. PetSmart sells goods and services in 1,404 stores and operates 202 in-store dog and cat boarding facilities in the United States, Canada and Puerto Rico. A detailed description of the Company’s business is contained in the Company’s Annual Report on Form 10-K for the fiscal year ended February 2, 2014, which is incorporated by reference into this proxy statement. See “Where You Can Find Additional Information.”
Argos Holdings Inc. and Argos Merger Sub.
Argos Holdings Inc. is a Delaware corporation. Argos Merger Sub Inc. is a Delaware corporation and a wholly owned subsidiary of Parent. Parent and Merger Sub are affiliates of funds advised by BC Partners, Inc. and at the closing of the transactions contemplated by the merger agreement will be owned by a consortium comprised of funds advised by BC Partners Inc., La Caisse de dépôt et placement du Québec, affiliates of GIC Special Investments Pte Ltd, affiliates of StepStone Group LP and Longview. The principal executive offices of both Parent and Merger Sub are located at 667 Madison Avenue, 19th Floor New York, NY 10065. Both Parent and Merger Sub were formed solely for the purpose of entering into the merger agreement and consummating the transactions contemplated by the merger agreement, and have not engaged in any business except for activities incidental to their formation and as contemplated by the merger agreement.
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THE SPECIAL MEETING
We are furnishing this proxy statement to the Company’s stockholders as part of the solicitation of proxies by the board for use at the special meeting. This proxy statement provides the Company’s stockholders with the information they need to know to be able to vote or instruct their vote to be cast at the special meeting.
Date, Time and Place of the Special Meeting
This proxy statement is being furnished to our stockholders as part of the solicitation of proxies by the board for use at the special meeting to be held on [•], 2015, starting at [•] local time at [•], or at any adjournment or postponement thereof.
Purpose of the Special Meeting
The purpose of the special meeting is for our stockholders to consider and vote upon the merger proposal. Our stockholders must adopt the merger agreement for the merger to occur. If our stockholders fail to adopt the merger agreement, the merger will not occur. A copy of the merger agreement is attached to this proxy statement as Annex A and the material provisions of the merger agreement are described under “The Merger Agreement.” Our stockholders are also being asked to approve the proposal to adjourn the special meeting from time to time, if necessary or appropriate, to solicit additional proxies if there are insufficient votes at the time of the special meeting to adopt the merger agreement.
In addition, in accordance with Section 14A of the Exchange Act, the Company is providing its stockholders with the opportunity to cast an advisory (non-binding) vote on the compensation that may be paid or become payable to its named executive officers in connection with the merger, the value of which is disclosed in the table in the section of the proxy statement entitled “The Merger — Interests of the Company’s Directors and Executive Officers in the Merger.” The vote on the compensation proposal is a vote separate and apart from the vote to approve the merger. Accordingly, a stockholder may vote to approve the executive compensation and vote not to adopt the merger and vice versa. Because the vote is advisory in nature only, it will not be binding on either the Company or Parent. Accordingly, because the Company is contractually obligated to pay the compensation, the compensation will be payable, subject only to the conditions applicable thereto, if the merger is approved and regardless of the outcome of the advisory vote on the compensation proposal.
This proxy statement and the enclosed form of proxy card are first being mailed to our stockholders on or about [•], 2015.
Recommendation of the Company’s Board of Directors
After careful consideration, the board has unanimously (i) determined that the merger agreement and the merger are advisable and in the best interests of the Company and its stockholders, (ii) approved the execution, delivery and performance of the merger agreement, and (iii) resolved to recommend the adoption of the merger agreement by the stockholders of the Company and directed that such matter be submitted for consideration of the stockholders of the Company at the special meeting. Certain factors considered by the board in reaching its decision to approve the merger agreement and approve the merger can be found in the section entitled “The Merger — Reasons for the Merger.”
The board unanimously recommends that the Company’s stockholders vote “FOR” the merger proposal, “FOR” the compensation proposal and “FOR” the adjournment proposal.
Record Date and Quorum
The holders of record of common stock as of the close of business on [•], 2015, the record date for the determination of stockholders entitled to notice of and to vote at the special meeting, are entitled to receive notice of and to vote at the special meeting. On the record date, [•] shares of common stock were outstanding.
The presence at the special meeting, in person or by proxy, of the holders of a majority of shares of common stock outstanding on the record date will constitute a quorum, permitting the Company to conduct its business at the special meeting. Treasury shares, which are shares owned by the Company itself,
17

are not voted and do not count for this purpose. Once a share is represented at the special meeting, it will be counted for the purpose of determining a quorum at the special meeting and any adjournment of the special meeting. However, if a new record date is set, then a new quorum will have to be established. Proxies received but marked as abstentions will be included in the calculation of the number of shares considered to be present at the special meeting. There will be no broker non-votes at the special meeting, as described below under the sub-heading “— Voting; Proxies; Revocation — Submitting a Proxy or Providing Voting Instructions.”
Required Vote
For the Company to complete the merger, under Delaware law, stockholders holding at least a majority of the shares of common stock outstanding at the close of business on the record date must vote “FOR” the merger proposal. In addition, under the merger agreement, the receipt of such required vote is a condition to the consummation of the merger. A failure to vote your shares of common stock, an abstention from voting will have the same effect as a vote against the merger proposal.
Approval of each of the compensation proposal and the adjournment proposal requires the affirmative vote of the holders of a majority of the shares of common stock present or represented by proxy at the special meeting and entitled to vote thereon. Abstentions will have the same effect as a vote against these proposals but the failure to vote your shares will have no effect on the outcome of these proposals.
As of the record date, there were [•] shares of common stock outstanding.
Voting by the Company’s Directors and Executive Officers
At the close of business on the record date, directors and executive officers of the Company were entitled to vote [•] shares of common stock, or approximately [•]% of the shares of common stock outstanding on that date. We currently expect that the Company’s directors and executive officers will vote their shares in favor of the merger proposal and the other proposals to be considered at the special meeting, although none of them is obligated to do so.
Voting; Proxies; Revocation
Attendance
All holders of shares of common stock as of the close of business on [•], 2015, the record date for voting at the special meeting, including stockholders of record and beneficial owners of common stock registered in the “street name” of a bank, broker or other nominee, are invited to attend the special meeting. If you are a stockholder of record, please be prepared to provide proper identification, such as a driver’s license. If you hold your shares in “street name,” you will need to provide proof of ownership, such as a recent account statement or voting instruction form provided by your bank, broker or other nominee or other similar evidence of ownership, along with proper identification.
Voting in Person
Stockholders of record will be able to vote in person at the special meeting. If you are not a stockholder of record, but instead hold your shares in “street name” through a bank, broker or other nominee, you must provide a proxy executed in your favor from your bank, broker or other nominee in order to be able to vote in person at the special meeting.
Submitting a Proxy or Providing Voting Instructions
To ensure that your shares are voted at the special meeting, we recommend that you provide voting instructions promptly by proxy, even if you plan to attend the special meeting in person.
Shares Held by Record Holder.   If you are a stockholder of record, you may provide voting instructions by proxy using one of the methods described below.

Submit a Proxy by Telephone or via the Internet.   This proxy statement is accompanied by a proxy card with instructions for submitting voting instructions. You may vote by telephone by calling the
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toll-free number or via the Internet by accessing the Internet address as specified on the enclosed proxy card. Your shares will be voted as you direct in the same manner as if you had completed, signed, dated and returned your proxy card, as described below.

Submit a Proxy Card.   If you complete, sign, date and return the enclosed proxy card by mail so that it is received in time for the special meeting, your shares will be voted in the manner directed by you on your proxy card. If you sign, date and return your proxy card without indicating how you wish to vote, your proxy will be voted in favor of each of the merger proposal, the compensation proposal and the adjournment proposal. If you fail to return your proxy card, unless you attend the special meeting and vote in person, the effect will be that your shares will not be counted for purposes of determining whether a quorum is present at the special meeting and will have the same effect as a vote against the merger proposal, but will not affect the compensation proposal or the adjournment proposal.
Shares Held in “Street Name.”   If your shares are held by a bank, broker or other nominee on your behalf in “street name,” your bank, broker or other nominee will send you instructions as to how to provide voting instructions for your shares by proxy. Many banks and brokerage firms have a process for their customers to provide voting instructions by telephone or via the Internet, in addition to providing voting instructions by proxy card.
In accordance with the rules of the New York Stock Exchange, banks, brokers and other nominees who hold shares of common stock in “street name” for their customers do not have discretionary authority to vote the shares with respect to the merger proposal, the compensation proposal or the adjournment proposal. Accordingly, there can be no broker non-votes at the special meeting, so failure to provide instructions to your broker or other nominee on how to vote will result in your shares not being counted as present at the meeting. A broker non-vote occurs when shares held by a broker or other nominee are represented at the meeting, but the broker or other nominee has not received voting instructions from the beneficial owner and does not have the discretion to direct the voting of the shares on a particular proposal.
Revocation of Proxies
Any person giving a proxy pursuant to this solicitation has the power to revoke and change it any time before it is voted. If you are a stockholder of record, you may revoke your proxy at any time before the vote is taken at the special meeting by:

submitting a new proxy with a later date, by using the telephone or Internet proxy submission procedures described above, or by completing, signing, dating and returning a new proxy card by mail to the Company;

attending the special meeting and voting in person; or

delivering to the Corporate Secretary of the Company a written notice of revocation c/o PetSmart, Inc., 19601 North 27th Avenue, Phoenix, Arizona 85027.
Please note, however, that only your last-dated proxy will count. Attending the special meeting without taking one of the actions described above will not in itself revoke your proxy. Please note that if you want to revoke your proxy by mailing a new proxy card to the Company or by sending a written notice of revocation to the Company, you should ensure that you send your new proxy card or written notice of revocation in sufficient time for it to be received by the Company before the special meeting.
If you hold your shares in “street name” through a bank, broker or other nominee, you will need to follow the instructions provided to you by your bank, broker or other nominee in order to revoke your proxy or submit new voting instructions.
Abstentions
An abstention occurs when a stockholder attends a meeting, either in person or by proxy, but abstains from voting. Abstentions will be included in the calculation of the number of shares of common stock represented at the special meeting for purposes of determining whether a quorum has been achieved.
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Abstaining from voting will have the same effect as a vote “AGAINST” the merger proposal, a vote “AGAINST” the advisory (non-binding) proposal on executive compensation payable to the Company’s named executive officers in connection with the merger and a vote “AGAINST” the adjournment proposal.
Adjournments and Postponements
The Company’s stockholders are being asked to approve a proposal to adjourn the special meeting from time to time, if necessary or appropriate, for the purpose of soliciting additional proxies in favor of the merger proposal if there are not sufficient votes at the time of the special meeting to adopt the merger agreement. If this adjournment proposal is approved, the special meeting could be adjourned by the board to any date for the purpose of soliciting additional proxies in favor of the merger proposal if there are not sufficient votes at the time of the special meeting to adopt the merger agreement. If there is not a quorum present at the special meeting, under our bylaws the special meeting may be adjourned by the chairman of the meeting or by vote of the holders of a majority of the voting power of the shares represented at the meeting. In addition, the board could postpone the special meeting before it commences, whether for the purpose of soliciting additional proxies or for other reasons.
Any adjournment or postponement of the special meeting for the purpose of soliciting additional proxies will allow the Company’s stockholders who have already sent in their proxies to revoke them at any time prior to their use at the special meeting as adjourned or postponed.
Solicitation of Proxies
The board is soliciting your proxy, and we will bear the cost of soliciting proxies. This includes the charges and expenses of brokerage firms and others for forwarding solicitation material to beneficial owners of our outstanding common stock. Innisfree M&A Incorporated, a proxy solicitation firm, has been retained to assist it in the solicitation of proxies for the special meeting and we will pay Innisfree M&A Incorporated approximately $[•], plus reimbursement of out-of-pocket expenses. Proxies may be solicited by mail, personal interview, e-mail, telephone, or via the Internet by Innisfree M&A Incorporated or, without additional compensation by certain of the Company’s directors, officers and employees.
Other Information
You should not return your stock certificate or send documents representing common stock with the proxy card. If the merger is completed, the paying agent for the merger will send you a letter of transmittal and instructions for exchanging your shares of common stock for the merger consideration.
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THE MERGER (PROPOSAL 1)
Certain Effects of the Merger
If the merger agreement is adopted by the Company’s stockholders and certain other conditions to the closing of the merger are either satisfied or waived, Merger Sub will be merged with and into the Company with the Company being the surviving corporation in the merger.
Upon the consummation of the merger each share of common stock issued and outstanding immediately prior to the effective time of the merger (other than shares owned by the Company, any of its subsidiaries, Parent, any direct or indirect holding company of Parent, Merger Sub and holders who are entitled to and properly exercise appraisal rights under Delaware law) will be converted into the right to receive $83.00 in cash.
Our common stock is currently registered under the Exchange Act and is quoted on the NASDAQ under the symbol “PETM.” As a result of the merger, the Company will cease to be a publicly traded company and will be wholly owned by Parent. Following the consummation of the merger, the registration of our common stock and our reporting obligations under the Exchange Act will be terminated. In addition, upon the consummation of the merger, our common stock will no longer be listed on any stock exchange or quotation system, including the NASDAQ.
Background of the Merger
The board frequently reviews, with the Company’s management and with the assistance of financial and legal advisors, the Company’s strategic and financial alternatives in light of developments in the Company’s business, in the sectors in which it competes, in the economy generally and in financial markets. The alternatives reviewed have included large and small acquisitions, mergers, a sale of the Company, as well as alternatives for returning capital to stockholders, including by means of levered or unlevered share repurchases or extraordinary dividends, and, from time to time, the Company received inquiries from third parties seeking to determine the Company’s interest in a sale transaction. During the first calendar quarter of 2014, one of the alternatives considered by the board was a merger with or acquisition of another participant in PetSmart’s industry, a privately-held company which we refer to here as “Industry Participant.” In March, 2014, the board authorized management to contact Industry Participant to determine Industry Participant’s interest in initiating exploratory discussions concerning the feasibility of a merger or acquisition transaction. During the Spring of 2014, David Lenhardt, PetSmart’s chief executive officer, spoke on a few occasions to Industry Participant’s CEO. Industry Participant’s CEO informed Mr. Lenhardt that Industry Participant was not for sale and that, in any event, Industry Participant’s management and owners believed that antitrust clearance for a combination of PetSmart and Industry Participant would not be received or would be received only with unacceptable conditions. Over the next two months, Mr. Lenhardt spoke on several other occasions with Industry Participant’s CEO and with a representative of one of Industry Participant’s controlling stockholders, during which time, Industry Participant continued to raise concerns regarding receiving antitrust clearance for such a transaction.
On May 21, 2014, the Company released its first quarter earnings announcement, which disclosed quarterly performance below Wall Street expectations and weaker-than-expected guidance for its second quarter and full year. Following this release, in late May and June 2014, the Company received written or verbal communications from some stockholders and from interested parties suggesting that the Company engage in various strategic or financial alternatives. Among the alternatives suggested were a levered return of capital to stockholders and a sale of the Company. Also during May 2014, representatives of Longview met with certain members of the board and senior management. At those meetings, representatives of Longview presented their views on the business and strategic direction of the Company, but did not advocate for any specific transactions or alternatives.
At a meeting on June 18, 2014, the board reviewed, together with a financial advisor and with Wachtell, Lipton, Rosen & Katz (“Wachtell Lipton”), its legal advisor, the various strategic and financial alternatives potentially available to the Company and determined to explore more intensively potential changes to the Company’s capital structure, with a focus on returning capital to stockholders. The board also established an ad hoc advisory subcommittee (the “ad hoc committee”) with respect to, among other
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things, the review of alternatives. Chairman Gregory Josefowicz and directors Rakesh Gangwal and Thomas Stemberg, all of whom are nonexecutive, independent directors, were appointed to the ad hoc committee. In addition, the board authorized the vetting and retention of a financial advisor to assist in the review. In July, after interviewing several potential financial advisors, the Company retained J.P. Morgan as financial advisor based on, among other factors, J.P. Morgan’s reputation, experience in mergers and acquisitions, valuation, financing and capital markets and its familiarity with the Company.
On July 3, 2014, JANA Partners filed a Schedule 13D with the SEC disclosing that JANA had acquired 9.9% of the Company’s outstanding common stock and that JANA intended to engage in discussions with management and the board with respect to a review of strategic alternatives, including a sale of the Company. On July 7, 2014, Longview made public a letter to the board in which Longview stated that the board should consider the a sale of the Company (as well as other strategic alternatives) and that should the board determine a sale transaction to be in the interests of all stockholders, Longview would consider, depending on the parties and terms involved, rolling part or all of its holdings into equity of the acquiring entity rather than receive cash consideration, should doing so prove necessary in order to enable the Company to complete a transaction. Over the course of July and August, JANA Partners filed several amendments to its Schedule 13D and publicly disclosed letters to the board, advocating for a sale of PetSmart. On July 10, 2014, representatives of JANA met in person with representatives of the Company. At this meeting, the JANA representatives presented their perspectives on the Company and advocated for a sale of the Company. On July 10, 2014, representatives of the Company also spoke to representatives of Longview and Longview reiterated its advocacy for a sale of the Company.
On August 7, 2014, a representative of Industry Participant contacted a representative of J.P. Morgan. The Industry Participant representative indicated that she had heard rumors that J.P. Morgan was working with the Company and wanted to inform J.P. Morgan that, if the Company were to pursue strategic alternatives, Industry Participant might be interested in re-visiting the conversations that had taken place in the Spring concerning the feasibility of a possible combination of the two Companies. The J.P. Morgan representative reported the conversation to the ad hoc committee.
On August 13, 2014, the board met in person, together with members of management and representatives of J.P. Morgan and Wachtell Lipton, to complete its initial review of strategic and financial alternatives potentially available to the Company and to receive an update on communications from stockholders and other interested parties, including Industry Participant. As a result of this meeting, the board (1) determined to explore strategic alternatives (including a possible sale of the Company) for the Company to maximize value for stockholders including by commencing a process to determine the potential value that could be achieved via a sale of the Company; (2) instructed management to commence intensive planning for a cost-reduction and profit-improvement plan (which we refer to collectively as the “Profit Improvement Plan”) to potentially increase the value of the Company, whether in a sale of the Company or on a standalone basis should no sale materialize; and (3) authorized the ad hoc committee to oversee the sale exploration process, and, in between meetings of the full board, to give direction to the Company’s financial and legal advisors, to lead on behalf of the Company (or to give guidance to the Company’s representatives in connection with) any negotiations with potentially interested parties and periodically to brief the full board on the status of the sale exploration process. Together with the Company’s financial and legal advisors, the board also considered and discussed alternative formats and timing for the conduct of the exploratory sale process, and determined that at the appropriate time, which was expected to be during the second half of September or early October, J.P. Morgan should contact financial and strategic parties deemed likely to be interested and capable of completing a transaction. In addition, the board determined that the Company would issue a public announcement of its intention to explore strategic alternatives, which would ensure that interested parties not contacted would become aware of the process and could contact J.P. Morgan on their own initiative. In connection with this discussion, after deliberation and consultation with its financial and legal advisors, the board reviewed the potential benefits and risks of inviting Industry Participant to participate in the exploratory sale process. In this regard, the board considered, among other things, in addition to the communications with Industry Representative in the Spring and on August 7, the very high risk that an acquisition by or a combination with Industry Participant would not receive antitrust clearances, or would receive such clearances only with the imposition by governmental authorities of unacceptable conditions; the near certainty that the process of seeking such clearances would result in the receipt of a so-called “second request” from governmental
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authorities and would take eight months to a year, or longer, to pursue, with no assurance of success even after such a delay; the risk that Industry Participant would obtain competitively advantageous information in the course of due diligence even if it were not the winning bidder or indeed never bid; and the risk that participation by Industry Participant in the sale process would disrupt or negatively impact the sale process or impose an unacceptable time delay, in either case which would not advance the goal of maximizing shareholder value. On August 19, 2014, concurrent with its second quarter earnings announcement, the Company issued a press release announcing that it determined to explore strategic alternatives for the Company to maximize value for stockholders, including a possible sale of the Company.
During the weeks following the August 13 board meeting, members of the ad hoc committee continued to discuss among themselves, with fellow directors and with J.P. Morgan, the timing and process for the exploration of strategic alternatives, including issues relating to Industry Participant. In light of the risks discussed at the August 13 meeting and in these subsequent discussions, the ad hoc committee directed J.P. Morgan to communicate to Industry Participant the board’s concerns as a result of which Industry Participant would not be invited to participate in the exploratory process. On August 22, 2014, a representative of J.P. Morgan contacted by telephone the representative of Industry Participant with whom the J.P. Morgan representative had spoken to on August 7. During this call, Industry Participant confirmed that it was aware of the Company’s August 19 announcement and the J.P Morgan representative informed the Industry Participant representative of the board’s concerns regarding Industry Participant’s participation. The parties agreed to speak again in a few days. On August 27, 2014, representatives of Industry Participant contacted by telephone the representative of J.P. Morgan. During this call, the Industry Participant representatives stated that Industry Participant would have interest in discussing the possibility of a combination of the two companies. The J.P. Morgan representative reiterated the concerns identified by the board that engaging with Industry Participant was unlikely to maximize value for PetSmart’s stockholders. The J.P. Morgan representative stated that Industry Participant would not be invited into the exploratory process, but that if Industry Participant were to wish to submit a proposal or other communication to the Company, the board would consider it. There has been no contact between PetSmart and Industry Participant (or between any of their respective representatives) since August 27, 2014.
During the period from the middle of August through the end of October, the Company developed the Profit Improvement Plan and prepared for a sale process. During this period, J.P. Morgan was contacted by 27 potential participants in a sale process, including three strategic parties (not counting Industry Participant) and 24 financial participants (including potential lead buyers as well as large suppliers of equity capital to lead buyers).
On October 3, 2014, the board met, together with members of management and representatives of J.P. Morgan and Wachtell Lipton, to conduct regularly scheduled business and to receive an update on the status of the Profit Improvement Plan, the planning for which had been completed, and on the sale process, including an update on communications with the 27 potentially interested parties as well as Industry Participant that had occurred since the August 13 board meeting. Among other things, the board was informed that approximately 15 parties had expressed interest in participating in the process. In addition, at this meeting, in consultation with its financial and legal advisors, the board reviewed and, for the reasons discussed in August, reaffirmed the determination not to invite Industry Participant to participate in the sale process.
In the first week of October 2014, the Company entered into confidentiality and standstill agreements with 15 potentially interested financial buyers, all 15 of which, during the month of October engaged in due diligence, received management presentations involving the Company’s senior-most management, and received detailed financial and business plan information, including detailed information concerning the Profit Improvement Plan and associated cost-saving plans and opportunities.
During October, the potential bidders were informed that non-binding preliminary indications of interest would be due on October 30, 2014. The potential bidders were also informed that Longview had informed the Company that it would be willing to “roll-over” up to 7.5 million shares on terms and price acceptable to Longview, meaning that such shares would not receive cash merger consideration but would
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remain outstanding as equity in PetSmart or the buyer’s acquisition vehicle, if so desired by the bidder. The Company requested that, in connection with their preliminary indications of interest, the bidders should indicate their interest, if any, in participation by Longview, but that such interest was not a condition to participation in the process.
On October 30, six of the potentially interested parties submitted indications of interest. From October 30 to November 2, 2014, representatives of J.P. Morgan spoke by telephone with all of the potentially interested parties, including those that did not submit an indication of interest, to hear the parties’ respective rationales for the price levels suggested in their indications or rationales for not submitting an indication. Three bidders initially indicated price ranges that reached at least $80.00 per share, including the Buyer Group, which indicated a range of  $81.00 to $83.00 per share, and another bidder, which suggested a range of  $80.00 to $85.00 per share. As a result of its discussions with J.P. Morgan, another bidder (which we refer to as “Bidder 2”), which had initially indicated a price of  $78.00, increased its indication to a range of  $81.00 to $84.00 per share.
On November 3, 2014, the board met in person, together with members of management and representatives of J.P. Morgan and Wachtell Lipton, to continue its review of strategic alternatives, including a review of the indications of interest. The board determined to allow the four bidders that had indicated a price or range at or above $80.00 per share to proceed to the final round of the sale process. Following this meeting, representatives of J.P. Morgan notified the eliminated parties, none of which indicated any interest or ability to remain in the process at price levels above their respective initial indications.
Two of the bidders (one of which had been invited into the final round but had indicated a desire to work with an equity partner in light of the size of an acquisition of PetSmart, and the other of which had indicated to J.P. Morgan that it would drop out of the process if not permitted to work together with another bidder) requested permission to work together. These two bidders informed J.P. Morgan that they had worked together successfully in previous large leveraged buyouts. After deliberation and consultation with the Company’s financial and legal advisors, the ad hoc committee authorized these two bidders to work together. We refer to these two bidders together as “Bidder 3.” Each of the bidders invited into the final round indicated some interest in a Longview rollover, though each also stated that its bid would not be conditioned or dependent on Longview participation.
During November, the bidders engaged in further extensive due diligence investigations of the Company, including further detailed management presentations. Also during November, the Company circulated a form of merger agreement to the bidders with instructions that the bidders submit any proposed comments on the merger agreement together with their final bids. Following the Company’s third quarter earnings announcement and, at the request of bidders and the direction of the board and the Company, representatives of J.P. Morgan provided the bidders with updates to the Company’s fiscal year 2014 financial projections.
On December 3, 2014, the board met in-person for a regularly scheduled meeting. In addition to regular business, significant portions of this meeting were devoted to a further review and financial analysis of the Company’s strategic and financial alternatives, particularly in light of positive indications about the Company’s operating results based on preliminary information from the Fall and Thanksgiving season and indications that the Profit Improvement Plan would likely be successful in achieving at least $200 million in annual incremental profit. During these portions of the meeting, which were attended by members of management and representatives of J.P. Morgan and Wachtell Lipton, the board considered the values for the Company that might be achieved on a standalone basis, with and without a leveraged return of capital to stockholders. Because the board did not have bids in hand at this time, no decisions were made. The board had initially targeted Monday, December 15 for completion of the sale process, and had initially set Friday, December 5 as the date for submission of bids so as to allow sufficient time for the Company to receive and analyze the bids, conduct further rounds of bidding, if necessary, to negotiate final documentation, and to permit the winning bidder a short period of time to discuss and negotiate a Longview rollover, if desired by the winning bidder. However, on December 4 and December 5, 2014, after consultation with the Company’s financial and legal advisors, the ad hoc committee concluded that these matters could be accomplished in a shorter period of time, which would reduce the risk of leaks or
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unintended public disclosure. Accordingly, the Company set the evening of Wednesday, December 10 (five days, rather than 10 days prior to the anticipated December 15 completion date) as the deadline for submission of final bids, and at the same time asked the bidders to submit mark-ups of the draft merger agreement and the other transaction documents and financing commitments, if possible, in advance.
On December 6, 2014, the Buyer Group and Bidder 2 submitted their respective comments on the draft merger agreement and other transaction documents, and the Buyer Group provided its financing commitment documents.
On December 8, 2014, the board met telephonically, together with members of management and representatives of J.P. Morgan and Wachtell Lipton, to receive an update and review and discuss the comments from the bidders on the draft merger agreement and other transaction documents. Later on December 8, 2014, Wachtell Lipton sent to the Buyer Group and Bidder 2 revised versions of the form of merger agreement and other transaction documents, reflecting the Company’s positions and reactions to the bidders’ respective comments.
Following the execution of a confidentiality agreement, on December 9, 2014, J.P. Morgan arranged introductory meetings between Longview and the Buyer Group, and between Longview and Bidder 2. These meetings, which were attended by representatives of J.P. Morgan and Wachtell Lipton, were introductory in nature, to enable the bidders to determine their interest in working with Longview, and vice versa, and the bidders were prohibited at this time from disclosing to Longview the respective prices that the bidders intended to bid.
On December 10, PetSmart received final bid letters along with revised versions of the merger agreement and other transaction documents from the Buyer Group and from Bidder 2 and a verbal indication from Bidder 3. The Buyer Group offered $80.70 per share, in cash, and Bidder 2 offered $80.35 per share, in cash. Bidder 3 verbally communicated to J.P. Morgan that their valuation would not be above the current stock price of approximately $78 per share. J.P. Morgan communicated to Bidder 3 that it was unlikely to be competitive and accordingly Bidder 3 did not submit a written offer. The form of merger agreement and other transaction documentation submitted by the Buyer Group were more favorable to the Company (including because they were less conditional and more likely to be completed and because they offered more certainty of protection for the Company in the unlikely event of non-completion of the transaction) and reflected substantially more acceptance of the Company’s positions. Each bidder indicated that its bid was not dependent on a rollover by Longview, but neither the Buyer Group nor Bidder 2 ruled out the possibility of partnering with Longview in a transaction, though Bidder 2 indicated that any partnering with Longview would only occur after completion of bidding and execution of a definitive merger agreement with the Company.
On December 10, 2014, the ad hoc committee discussed the bids and the draft merger agreements with representatives of J.P. Morgan and Wachtell Lipton. The ad hoc committee was of the view that there could be no assurance that the board would approve either bid unless improved. In light of the closeness of the bids, recent positive developments identified at the board meeting on December 3, and the view shared by the ad hoc committee and J.P. Morgan that neither of the bids represented the bidders’ respective best offers, the ad hoc committee instructed J.P. Morgan to inform each bidder that it would need to increase its bid, and to instruct the bidders to submit improved bids on December 12, 2014. On the evening of December 11, 2014, representatives of J.P. Morgan contacted Longview to inform Longview that the bidders have been asked to submit revised and improved bids, and to confirm that Longview continued to be interested and willing to participate in a potential transaction by rolling over a portion of its Company common stock, so long as Longview’s participation was desired and approved by the ad hoc committee.
Early in the day on December 12, 2014, the Buyer Group requested permission to work more closely with Longview in order to include a rollover of a portion of the Company shares managed by Longview in the Buyer Group’s bid. The Buyer Group informed J.P. Morgan that the Buyer Group was working to achieve a higher price, and that Longview participation with the Buyer Group might enhance the Buyer Group’s ability to do so. Bidder 2 indicated to J.P. Morgan that accommodation of a Longview rollover would not affect Bidder 2’s price, and that Bidder 2 would consider accommodating a Longview rollover only after execution of a merger agreement between the Company and Bidder 2. After consultation with the Company’s financial and legal advisors, the ad hoc committee approved the Buyer Group’s request, and,
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later that day, Longview and the Buyer Group entered into a confidentiality agreement permitting the exchange of detailed information between them, including bid price, which had not previously been shared with Longview. The ad hoc committee also instructed Wachtell Lipton to provide a form of voting agreement to Longview to secure Longview’s commitment to vote for the merger subject to certain exceptions, including a change of recommendation by the board.
During the evening of December 12, 2014, Bidder 2 submitted an offer of  $81.50 per share, in cash. Representatives of J.P. Morgan confirmed via a conversation with Bidder 2 on the evening of December 12, 2014 that $81.50 per share was its best and final offer. The Buyer Group initially submitted an oral offer of $82.50 per share, in cash, but stated that it was working to increase the offer within the next few hours. Later in the evening, the Buyer Group submitted a best and final offer of  $83.00 per share, in cash. In addition, each bidder submitted a revised draft of the merger agreement and other transaction agreements, and copies of their respective financing commitment documents. The versions submitted by the Buyer Group were, with few exceptions, in substantially executable form.
On December 13, 2014, the board met in person, together with the members of management and representatives of J.P. Morgan and Wachtell Lipton, to discuss and review the final bids and to consider the proposed transaction. Representatives of J.P. Morgan reviewed the respective bids as well as the recent progression of the sale process. Representatives of Wachtell Lipton reviewed the terms of the draft merger agreement and other transaction documents and reviewed the financing commitments that had been provided by the Buyer Group. Representatives of J.P. Morgan made a financial presentation concerning the proposed transaction with the Buyer Group, as well as the Company’s alternatives to a sale of the Company, including a leveraged share repurchase. J.P. Morgan then rendered its oral opinion, which was subsequently confirmed in writing, to the board that, as of that date, and based upon and subject to the factors, assumptions and limitations set forth in its opinion, the merger consideration of  $83.00 in cash to be paid to the holders of the Company’s common stock in the merger was fair, from a financial point of view, to such holders. Following extensive discussion, the board unanimously determined that the merger agreement and the transactions contemplated thereby, including the merger, were advisable and in the best interests of PetSmart and its stockholders, and to recommend that the Company’s stockholders approve the adoption of the merger agreement. The board’s determination was subject, however, to confirmation that the remaining open points in the merger agreement had been satisfactorily resolved, and the board determined to reconvene, if deemed necessary by the ad hoc committee or the chairman of the board.
Following the board meeting, the parties completed negotiations on terms satisfactory to both parties, and finalized the terms of the Longview voting agreement. On December 14, 2014, the parties executed the merger agreement, the voting agreement and related transaction agreements and issued a press release announcing the transaction.
Reasons for the Merger
On December 13, 2014, the board unanimously approved the merger agreement and determined that the merger agreement and the transactions contemplated thereby, including the merger, are advisable and in the best interests of PetSmart and its stockholders. Accordingly, the board unanimously recommends that PetSmart stockholders vote “FOR” the merger proposal.
In the course of making the unanimous decision to approve and recommend the merger agreement and the merger, the board consulted with outside legal and financial advisors and PetSmart’s management team, and considered a number of factors that it believed supported its decision, including the following:
Attractive Value.   The board considered the current and historical market prices of the common stock, including the market performance of the common stock relative to those of other participants in the Company’s industry and general market indices, and the fact that the merger consideration of  $83.00 per share in cash represents an attractive premium to estimates of the Company’s unaffected stock price, including a premium of 38.8% to the Company’s stock price on July 2, 2014, the date on which a PetSmart stockholder disclosed its acquisition of a 9.9% stake in the Company and advocated publicly for the Company to explore strategic alternatives, including a sale of the Company.
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Best Alternative for Maximizing Shareholder Value / Thorough and Well Publicized Sale Process.   The board considered that the merger consideration of  $83.00 in cash per share was more favorable to the Company’s stockholders than the potential value that might result from other alternatives reasonably available to the Company, including, but not limited to, a merger with a different buyer, a leveraged recapitalization, extraordinary dividends, stock repurchases and the continued operation of the Company on a stand-alone basis in light of a number of factors, including the following:

The board considered that the Company had conducted a lengthy and thorough process, directed by the board and the ad hoc committee, which consisted solely of independent directors, during which representatives of the Company contacted or were contacted by more than 25 potential participants, entered into non-disclosure agreements with and engaged in due diligence or provided management presentation to 15 potential bidders, received first round indications of interest from 5 bidder groups, and ultimately negotiated with the Buyer Group as well as two other bidding groups, neither of which was willing to make a definitive offer at a price above $81.50, which was lower than the $83.00 price offered by the Buyer Group. The board noted that Bidder 2 had informed the Company’s representatives that $81.50 per share was its best and final offer. The board also noted that, based on conversations with, and based on the course of negotiations with, the Buyer Group, $83.00 per share appeared to be the highest price the Buyer Group could offer. Among other things, the Buyer Group informed representatives of the Company that after increasing its offer from $82.50 to $83.00 per share, some members of the group, or all of them, were unwilling or unable to offer additional consideration. The Buyer Group also informed representatives of the Company that Longview’s willingness to participate in the Buyer Group with respect to $250 million of the common stock was helpful in achieving an $83.00 per share price.

The board noted that the Company’s receptiveness to a sale transaction was well publicized, including as a result of the Company’s public announcement on August 19, 2014 of its intent to explore a possible sale of the Company.

On several occasions in 2014, including in-person meetings in June, August, October and December, the board evaluated carefully, with the assistance of financial advisors, the risks and potential benefits associated with other strategic or financial alternatives and the potential for shareholder value creation associated with those alternatives, including the alternative of returning significant cash to stockholders via a leveraged a recapitalization, as well as the alternative of not engaging in a strategic or financial transaction and executing on the Company’s business plans and the Profit Improvement Plan. As part of these evaluations, the board considered:

the risks associated with executing on the Company’s business plans, including that the Company’s business plans and Profit Improvement Plan are based, in part, on projections that are dependent on a number of variables, including economic growth, same-store-sales growth, ability to execute on store expansion plans, and overall business performance that are difficult to project and are subject to a high level of uncertainty and volatility;

general macroeconomic challenges and economic weaknesses that could result in reduced consumer spending; and

the potential benefits of the Company’s Profit Improvement Plan, which the board believed likely to result in at least $200 million of annual incremental profit by fiscal 2016, as well as the risks and costs associated with executing the Company’s Profit Improvement Plan generally, and in particular the risks and costs associated with achieving incremental profit greater than $200 million.
Opinion of J.P. Morgan.   The board considered the financial analysis presentations of J.P. Morgan and the oral opinion of J.P. Morgan rendered to the board on December 13, 2014, which was subsequently confirmed in writing on December 14, 2014, that, as of such date and based upon and subject to the factors, assumptions and limitations set forth in its opinion, the $83.00 per share in cash to be paid to the holders of shares of common stock in the merger agreement was fair, from a financial point of view, to such holders, as more fully described below in the section entitled “— Opinion of J.P. Morgan Securities LLC.
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Greater Certainty of Value.   The board considered that the proposed merger consideration is all cash, so that the transaction provides stockholders certainty of value and liquidity for their shares, especially when viewed against the risks and uncertainties inherent in the Company’s standalone strategy, with or without a financial transaction such as a leveraged recapitalization.
Likelihood of Completion.   The board considered the likelihood of completion of the merger in light of the terms of the merger agreement and the closing conditions, including:

The conditions to closing contained in the merger agreement, which are limited in number and scope, and which, in the case of the condition related to the accuracy of the Company’s representations and warranties, are generally subject to a “material adverse effect” qualification;

the fact that Parent and Merger Sub have obtained committed debt financing for the transaction from reputable financial institutions and committed equity financing, the limited number and nature of the conditions to the debt and equity financing and the obligation of Parent to use reasonable best efforts to consummate the debt financing;

the Company’s ability, under circumstances specified in the merger agreement, to specifically enforce Parent’s obligation to enforce the financing commitments and to cause the equity financing sources to fund their contributions as contemplated by the merger agreement and the equity commitment letters, and to enforce the rollover agreement; and

the requirement that, in the event of a failure of the merger to be consummated under specified circumstances, particularly circumstances relating to the failure of debt or equity financing sources to provide funds at closing, Parent will pay the Company a termination fee of  $510 million, and the obligation to pay such amounts by the members of the Buyer Group (other than Longview), pursuant to the terms of the termination fee commitment letters, as more fully described under “— Termination Fee Commitment Letters” and “The Merger Agreement —  Termination Fees.
Opportunity to Receive Alternative Proposals and to Terminate the Transaction in Order to Accept a Superior Proposal.   The board considered the terms of the merger agreement permitting PetSmart to receive unsolicited alternative proposals, and the other terms and conditions of the merger agreement, including:

PetSmart’s right, subject to certain conditions, to respond to and negotiate unsolicited acquisition proposals made prior to the time PetSmart’s stockholders approve the proposal to adopt the merger agreement. In this regard, the board took into consideration that the confidentiality agreements entered into by the 15 potentially interested parties that engaged in due diligence contained standstill provisions that prevent those parties from submitting (or even seeking permission to submit) a higher bid once the Company entered into a definitive transaction agreement with the winning sale process participant. The board, after deliberation and consultation with its financial and legal advisors, believed that such provisions promoted the goal of maximizing shareholder value by encouraging the potentially interested parties to put their best bids forward during the sale process;

the provision of the merger agreement allowing the board to terminate the merger agreement, in specified circumstances relating to a superior proposal, subject, in specified cases, to payment of a termination fee of  $255 million; and

the fact that as of  [•], 2015, the date of this proxy statement, no person has made an unsolicited offer or proposal to acquire PetSmart.
Other Factors.   The board also considered:

The availability of appraisal rights under Delaware law to holders of shares of common stock who do not vote in favor of the proposal to adopt the merger agreement and comply with all of the required procedures under Delaware law, which provides those eligible stockholders with an opportunity to have a Delaware court determine the fair value of their shares, which may be more than, less than, or the same as the amount such stockholders would have received under the merger agreement.
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That the merger agreement limits the Company’s monetary liability in the event of breach by the Company to $510 million.

That the merger agreement permits the Company to award up to $10 million in the aggregate in retention payments to current employees and executives, which, the board believed, would increase the stability of the Company during the pendency of the merger and reduce the risks to the Company in the event the merger is terminated and not completed for any reason.

The fact that Longview, which as of the date of the merger agreement managed 9% of the Company’s outstanding stock, and which is a long-term investor in the Company, supports and has agreed to vote in favor of the merger. In this connection, the board noted that a majority of the Company shares managed by Longview are not being rolled over in the transaction but will receive the same $83.00 per share merger consideration as all other stockholders, and that the willingness of Longview to roll over a portion of its shares was helpful to the Buyer Group in achieving an $83.00 price per share.

That several of the bidders indicated to representatives of the Company that while sufficient debt financing was available to support an acquisition of the Company at this time, recent potential changes in regulation or the enforcement of regulation by the U.S. federal government could limit the availability of such financing in the future.
In the course of reaching the determinations and decisions and making the recommendation described above, the board considered the following risks and potentially negative factors relating to the merger agreement, the merger and the other transactions contemplated thereby:

That the Company’s stockholders generally will have no ongoing equity participation in the Company following the merger, and that such stockholders will cease to participate in the Company’s future earnings or growth, if any, or to benefit from increases, if any, in the value of the common stock, and will not participate in any potential future sale of the surviving corporation to a third party.

The risk of incurring substantial expenses related to the merger.

The risk that there can be no assurance that all conditions to the parties’ obligations to complete the merger will be satisfied, and as a result, it is possible that the merger may not be completed even if the merger agreement is adopted by the Company’s stockholders.

The risk that the debt financing contemplated by the debt commitment letters or the equity financing contemplated by the equity commitment letters will not be obtained, resulting in the Buyer Group not having sufficient funds to complete the merger.

The merger agreement’s restrictions on the conduct of the Company’s business prior to the completion of the merger, generally requiring the Company to conduct its business only in the ordinary course, subject to specific limitations, which may delay or prevent the Company from undertaking business opportunities that may arise pending completion of the merger.

The risks and costs to the Company if the merger does not close, including uncertainty about the effect of the proposed merger on the Company’s employees, customers and other parties, which may impair the Company’s ability to attract, retain and motivate key personnel, and could cause customers, suppliers and others to seek to change existing business relationships with the Company.

That the receipt of cash by stockholders in exchange for shares of common stock pursuant to the merger will be a taxable transaction for U.S. federal income tax purposes.

The possibility that, under certain circumstances under the merger agreement, the Company may be required to pay a termination fee of  $255 million as more fully described under “The Merger Agreement — Termination Fees.
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The fact that Parent and Merger Sub are newly formed corporations with essentially no assets and that the Company’s remedy in the event of breach of the merger agreement by Parent and Merger Sub may be limited to a receipt of a $510 million termination fee payable by Parent and that, under certain circumstances, the Company may not be entitled to receive such a fee.
The foregoing discussion of the information and factors considered by the board includes the material factors considered by the board. In view of the variety of factors considered in connection with its evaluation of the merger, the board did not find it practicable to, and did not, quantify or otherwise assign relative weights to the specific factors considered in reaching its determination and recommendation. In addition, individual directors may have given different weights to different factors. The board recommended the merger agreement and the merger based upon the totality of the information it considered.
Recommendation of the Company’s Board of Directors
After careful consideration, the board has unanimously (i) determined that the merger agreement and the merger are advisable and in the best interests of the Company and its stockholders, (ii) approved the execution, delivery and performance of the merger agreement, and (iii) resolved to recommend the adoption of the merger agreement by the stockholders of the Company and directed that such matter be submitted for consideration of the stockholders of the Company at the special meeting.
The board unanimously recommends that the stockholders of the Company vote “FOR” the merger proposal.
Opinion of J.P. Morgan
Pursuant to an engagement letter effective as of August 21, 2014, the Company retained J.P. Morgan as its financial advisor in connection with a possible transaction, including: (a) any merger, consolidation, joint venture or other business combination pursuant to which the business of the Company is combined with that of another person, (b) the acquisition by another person, directly or indirectly, of a majority of the capital stock of the Company, by way of tender or exchange offer, negotiated purchase or any other means, and/or (c) the acquisition by another person, directly or indirectly, of a majority of the assets, properties and/or businesses of the Company, by way of a direct or indirect purchase, lease, license, exchange, joint venture or other means.
At the meeting of the board on December 13, 2014, J.P. Morgan rendered its oral opinion, subsequently confirmed in writing on December 14, 2014, to the board that, as of such date and based upon and subject to the factors, assumptions and limitations set forth in its opinion, the merger consideration to be paid to the holders of the Company’s common stock in the merger was fair, from a financial point of view, to such holders. No limitations were imposed by the board upon J.P. Morgan with respect to the investigations made or procedures followed by it in rendering its opinion.
The full text of the written opinion of J.P. Morgan dated December 14, 2014, which sets forth the assumptions made, procedures followed, matters considered and limitations on the review undertaken in rendering its opinion, is attached as Annex B to this proxy statement and is incorporated herein by reference. The Company urges stockholders to read the opinion in its entirety. J.P. Morgan’s written opinion is addressed to the board, is directed only to the merger consideration to be paid to the holders of the Company’s common stock in the merger and does not constitute a recommendation to any stockholder of the Company as to how such stockholder should vote with respect to the merger or any other matter. The summary of the opinion of J.P. Morgan set forth in this proxy statement is qualified in its entirety by reference to the full text of such opinion.
In arriving at its opinion, J.P. Morgan, among other things:

reviewed the merger agreement;

reviewed certain publicly available business and financial information concerning the Company and the industries in which it operates;

compared the proposed financial terms of the merger with the publicly available financial terms of certain transactions involving companies J.P. Morgan deemed relevant and the consideration paid for such companies;
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compared the financial and operating performance of the Company with publicly available information concerning certain other companies J.P. Morgan deemed relevant and reviewed the current and historical market prices of the Company’s common stock and certain publicly traded securities of such other companies;

reviewed certain internal financial analyses and forecasts prepared by the management of the Company relating to its business; and

performed such other financial studies and analyses and considered such other information as J.P. Morgan deemed appropriate for the purposes of its opinion.
In addition, J.P. Morgan held discussions with certain members of the management of the Company with respect to certain aspects of the merger, and the past and current business operations of the Company, the financial condition and future prospects and operations of the Company, and certain other matters J.P. Morgan believed necessary or appropriate to its inquiry.
In giving its opinion, J.P. Morgan relied upon and assumed the accuracy and completeness of all information that was publicly available or was furnished to or discussed with J.P. Morgan by the Company or otherwise reviewed by or for J.P. Morgan, and J.P. Morgan did not independently verify (nor has it assumed responsibility or liability for independently verifying) any such information or its accuracy or completeness. J.P. Morgan did not conduct and was not provided with any valuation or appraisal of any assets or liabilities, nor did J.P. Morgan evaluate the solvency of the Company or Parent under any state or federal laws relating to bankruptcy, insolvency or similar matters. In relying on financial analyses and forecasts provided to it or derived therefrom, J.P. Morgan assumed that they were reasonably prepared based on assumptions reflecting the best currently available estimates and judgments by management to the expected future results of operations and financial condition of the Company to which such analyses or forecasts relate. J.P. Morgan expressed no view as to such analyses or forecasts or the assumptions on which they were based. J.P. Morgan also assumed that the merger and the other transactions contemplated by the merger agreement will be consummated as described in the merger agreement. J.P. Morgan also assumed that the representations and warranties made by the Company and Parent in the merger agreement and the related agreements are and will be true and correct in all respects material to J.P. Morgan’s analysis. J.P. Morgan is not a legal, regulatory or tax expert and relied on the assessments made by advisors to the Company with respect to such issues. J.P. Morgan further assumed that all material governmental, regulatory or other consents and approvals necessary for the consummation of the merger will be obtained without any adverse effect on the Company or on the contemplated benefits of the merger.
J.P. Morgan’s opinion is based on economic, market and other conditions as in effect on, and the information made available to J.P. Morgan as of, the date of such opinion. Subsequent developments may affect J.P. Morgan’s opinion, and J.P. Morgan does not have any obligation to update, revise, or reaffirm such opinion. J.P. Morgan’s opinion is limited to the fairness, from a financial point of view, of the merger consideration to be paid to the holders of the Company’s common stock in the merger, and J.P. Morgan has expressed no opinion as to the fairness of any consideration paid in connection with the merger to the holders of any other class of securities, creditors or other constituencies of the Company or as to the underlying decision by the Company to engage in the merger. Furthermore, J.P. Morgan has expressed no opinion with respect to the amount or nature of any compensation to any officers, directors, or employees of any party to the merger, or any class of such persons relative to the merger consideration to be paid to the holders of the Company’s common stock in the merger or with respect to the fairness of any such compensation.
In accordance with customary investment banking practice, J.P. Morgan employed generally accepted valuation methods in reaching its opinion. The following is a summary of the material financial analyses utilized by J.P. Morgan in connection with providing its opinion. The financial analyses summarized below include information presented in tabular format. The tables are not intended to stand alone and, in order to more fully understand the financial analyses used by J.P. Morgan, the tables must be read together with the full text of each summary. Considering the data set forth herein without considering the full narrative description of the financial analyses, including the methodologies and assumptions underlying the analyses, could create a misleading or incomplete view of J.P. Morgan’s financial analyses.
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Public Trading Multiples
Using publicly available information, J.P. Morgan compared selected financial data of the Company with similar data for selected publicly traded companies engaged in businesses which J.P. Morgan judged to be similar in certain respects to the Company. The companies selected by J.P. Morgan were:

Advance Auto Parts, Inc.

AutoZone, Inc.

Bed Bath & Beyond Inc.

Best Buy Co., Inc.

Dick’s Sporting Goods, Inc.

Dollar General Corporation

Dollar Tree, Inc.

Family Dollar Stores, Inc.

GameStop Corp.

GNC Holdings, Inc.

Lowe’s Companies, Inc.

Office Depot, Inc.

O’Reilly Automotive, Inc.

Pets at Home Group Plc

Staples, Inc.

The Container Store Group, Inc.

The Home Depot, Inc.

The Michaels Companies, Inc.

Tractor Supply Company

Ulta Salon, Cosmetics & Fragrance, Inc.

Vitamin Shoppe, Inc.

Williams-Sonoma, Inc.
None of the selected companies reviewed is identical to the Company. However, the companies were selected, among other reasons, because they are publicly traded companies in the retail sector with operations and businesses that, for purposes of J.P. Morgan’s analysis, may be considered similar to those of the Company. The analyses necessarily involve complex considerations and judgments concerning differences in financial and operational characteristics of the companies involved and other factors that could affect their comparability to the Company.
The estimated financial data for the selected companies were based on publicly available information and filings and publicly available research analysts’ estimates, and the multiples summarized below were based on closing stock prices as of December 9, 2014 other than (i) PetSmart, which was based on the closing stock price as of July 2, 2014 (which was the last trading day prior to a stockholder publicly disclosing that it had acquired 9.9% of the Company’s outstanding common stock), (ii) Dollar General Corporation, which was based on the closing stock price as of August 15, 2014 (which was the last trading day prior to Dollar General Corporation publicly disclosing its offer to acquire Family Dollar Stores, Inc.), (iii) Dollar Tree, which was based on the closing stock price as of July 25, 2014 (which was the last trading day prior to Dollar Tree, Inc. announcing that it had entered into a definitive agreement to acquire Family Dollar Stores, Inc.), and (iv) Family Dollar Stores, Inc., which was based on the closing stock price as of June 6, 2014 (which was the last trading day prior to a stockholder publicly disclosing that it had acquired 9.4% of Family Dollar Stores, Inc.’s outstanding common stock).
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Using publicly available information, J.P. Morgan calculated for each selected company the ratio of the company’s firm value (calculated as the market value of the company’s common stock on a fully diluted basis, plus any debt and minority interest, and less cash and cash equivalents) to the company’s estimated EBITDA (defined as earnings before interest, taxes, depreciation and amortization) for the fiscal year ended January 31, 2016 (as calendarized to reflect the Company’s fiscal year end of January 31) (the “January 2016E FV/EBITDA”), and the price to estimated earnings for the company’s fiscal year ended January 31, 2016 (in each case as calendarized to reflect the Company’s fiscal year end of January 31) (the “January 2016E P/E”).
The following table presents the results of this analysis:
Metric
Mean
Median
Low
High
January 2016E FV/EBITDA
9.3x 9.4x 4.7x 13.7x
January 2016E P/E*
17.0x 15.8x 8.8x 30.3x
*
Mean multiple excludes the multiple of 30.3x for The Container Store Group, Inc.
Based on the results of this analysis and taking into account differences in the Company’s business and such other factors as J.P. Morgan deemed appropriate, J.P. Morgan selected multiple reference ranges for the Company of 6.0x – 8.0x for January 2016E FV/EBITDA, 7.0x – 9.0x for January 2016E FV/Adjusted EBITDA (where Adjusted EBITDA assumes for comparative purposes with the selected companies that the Company’s capital leases are treated as operating leases), and a multiple reference range of 13.0x – 15.5x for January 2016E P/E.
After applying such ranges to the appropriate metrics for the Company as provided by Company management, the analysis indicated the following implied per share equity value ranges for shares of the Company’s common stock, rounded to the nearest $0.25, compared in each case to the merger consideration of  $83.00 per share for shares of the Company’s common stock, the Company’s closing share price of  $78.82 on December 9, 2014, and the Company’s closing share price of  $59.81 on July 2, 2014:
Benchmark
Implied Per Share Equity Value Range
January 2016E FV/EBITDA
$62.00 – $83.00
January 2016E FV/Adjusted EBITDA
$64.00 – $82.50
January 2016E P/E
$65.25 – $77.75
Selected Transaction Multiples Analysis
Using publicly available information, J.P. Morgan reviewed selected transactions involving acquired businesses that, for purposes of J.P. Morgan’s analysis, may be considered similar in certain respects to the Company. Specifically, J.P. Morgan reviewed the following transactions during the periods from 2010 to 2014 and from 2005 to 2007:
2010 – 2014 Transactions
Target
Buyer
Announcement Date
Family Dollar Stores, Inc.
Dollar General Corporation
September 2014
Family Dollar Stores, Inc.
Dollar Tree, Inc.
July 2014
General Parts International, Inc.
Advance Auto Parts, Inc.
October 2013
Yankee Candle Investments LLC
Jarden Corporation
September 2013
OfficeMax Incorporated
Office Depot, Inc.
February 2013
Party City Holdings Inc.
Thomas H. Lee Partners, L.P.
June 2012
Academy Ltd.
Kohlberg Kravis Roberts & Co. L.P.
May 2011
Jo-Ann Stores, Inc.
Leonard Green & Partners, L.P.
December 2010
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2005 – 2007 Transactions
Target
Buyer
Announcement Date
Claire’s Stores, Inc.
Apollo Management, L.P.
March 2007
Dollar General Corporation
Kohlberg Kravis Roberts & Co. L.P.
March 2007
GNC Parent Corporation
Ares Management LLC
February 2007
Guitar Center Inc.
Bain Capital Partners, LLC
June 2007
PETCO Animal Supplies, Inc.
Leonard Green & Partners, L.P. and
Texas Pacific Group
July 2006
Michaels Stores, Inc.
Bain Capital Partners LLC and
The Blackstone Group
June 2006
The Sports Authority, Inc.
Leonard Green & Partners, L.P. and
The Sports Authority Senior
Management
January 2006
Linens N Things Inc.
Apollo Management LP
November 2005
Toys “R” Us, Inc.
Kohlberg Kravis Roberts & Co. L.P.,
Bain Capital Partners, LLC, and
Vornado Realty Trust
March 2005
Using publicly available information, J.P. Morgan calculated, for each selected transaction, the ratio of the transaction value to the target company’s EBITDA for the latest publicly available twelve-month period immediately prior to announcement of the applicable transaction (“TV/LTM EBITDA”).
The following table presents the results of this analysis:
TV/LTM EBITDA
2010 – 2014 Transactions
High
11.9x
Low
7.2x
Mean
9.6x
Median
9.7x
2005 – 2007 Transactions
High
12.4x
Low
8.1x
Mean
10.2x
Median
9.7x
Based on the results of this analysis and taking into account differences in the Company’s business and such other factors as J.P. Morgan deemed appropriate, J.P. Morgan selected a multiple reference range of 8.5x – 11.0x for TV/LTM EBITDA and applied it to the Company’s estimated Adjusted EBITDA as of January 31, 2015 as provided by Company management. The analysis indicated an implied per share equity value range for shares of the Company’s common stock, rounded to the nearest $0.25, of between $70.50 and $91.50 per share, compared to the merger consideration of  $83.00 per share for shares of the Company’s common stock, the Company’s closing share price of  $78.82 on December 9, 2014, and the Company’s closing share price of  $59.81 on July 2, 2014.
Discounted Cash Flow Analysis
J.P. Morgan conducted a discounted cash flow analysis for the purpose of determining an implied fully diluted equity value per share for shares of the Company’s common stock. A discounted cash flow analysis is a method of evaluating an asset using estimates of the future unlevered free cash flows generated by the asset and taking into consideration the time value of money with respect to those cash flows by calculating their “present value.” The “unlevered free cash flows” refers to a calculation of the future cash flows
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generated by an asset without including in such calculation any debt servicing costs. Specifically, unlevered free cash flow represents unlevered net operating profit after tax, adjusted for depreciation, capital expenditures, changes in net working capital, and certain other one-time cash expenses as applicable. “Present value” refers to the current value of the cash flows generated by the asset, and is obtained by discounting those cash flows back to the present using a discount rate that takes into account macro-economic assumptions and estimates of risk, the opportunity cost of capital and other appropriate factors. “Terminal value” refers to the present value of all future cash flows generated by the asset for periods beyond the projections period.
J.P. Morgan calculated the unlevered free cash flows that the Company is expected to generate during fiscal years 2014 through 2019 based upon financial projections provided by Company management, and extrapolations of such projections through fiscal year 2024, which the Company’s management reviewed and approved, including estimated net debt / (cash) of  $(430) million as of January 31, 2015 (adjusted to exclude capital lease obligations) and assuming that the Company’s capital leases are treated as operating leases. J.P. Morgan also calculated a range of terminal values of the Company at the end of the ten-year period ending 2024 by applying a perpetual growth rate ranging from 1.5% to 2.5% to the unlevered free cash flow of the Company during the terminal period of the projections. The unlevered free cash flows and the range of terminal values were then discounted to present values as of January 31, 2015 using a range of discount rates from 9.0% to 11.0%. This discount rate range was based upon J.P. Morgan’s analysis of the capital structures and costs of equity and debt of the Company and the selected publicly traded companies identified above. The present value of the unlevered free cash flows and the terminal values were adjusted for the net present value of the net operating loss carry-forwards of certain of the Company’s subsidiaries.
This analysis indicated an implied per share equity value range for shares of the Company’s common stock, rounded to the nearest $0.25, of  $78.25 – $106.25, compared to the merger consideration of  $83.00 per share for shares of the Company’s common stock, the Company’s closing share price of  $78.82 on December 9, 2014, and the Company’s closing share price of  $59.81 on July 2, 2014.
At the request of the board and for reference purposes only, J.P. Morgan also performed a discounted cash flow analysis of the Company using the same perpetuity growth rates and discount rates summarized above based upon financial projections provided by Company management assuming estimated net debt / (cash) of  $91 million as of January 31, 2015. This analysis indicated an implied per share equity value range for shares of the Company’s common stock, rounded to the nearest $0.25, of  $77.25 – $107.00, compared to the merger consideration of  $83.00 per share for shares of the Company’s common stock, the Company’s closing share price of  $78.82 on December 9, 2014, and the Company’s closing share price of  $59.81 on July 2, 2014.
In addition, at the request of the board and for reference purposes only, J.P. Morgan also performed a discounted cash flow analysis of the Company using the following four sensitivity cases that were requested by and discussed with the board at its meeting on December 3, 2014:

A higher discount range rate range of 10.0% – 12.0% to reflect the increased risk underlying execution of the growth plan in conjunction with the profit improvement program (“Sensitivity Case #1”);

Same store sales growth of 2.0% starting in fiscal year 2016 and new store growth per the Management Plan through fiscal year 2019 with no new store growth thereafter (“Sensitivity Case #2”);

Same store sales growth of 2.0% starting in fiscal year 2016 and 50% of the Management Plan’s new store growth in fiscal years 2015-2019 with no new store growth thereafter (“Sensitivity Case #3”); and

Same store sales growth of 2.0% starting in fiscal year 2016 and no new store growth after fiscal year 2014 (“Sensitivity Case #4”).
Using the same perpetuity growth rates and discount rates summarized above (except in the case of Sensitivity Case #1, which at the request of the board used a higher discount rate range), this analysis indicated the following implied per share equity value ranges for shares of the Company’s common stock,
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rounded to the nearest $0.25, compared to the merger consideration of  $83.00 per share for shares of the Company’s common stock, the Company’s closing share price of  $78.82 on December 9, 2014, and the Company’s closing share price of  $59.81 on July 2, 2014:
Implied Per Share Equity Value Range
Sensitivity Case #1
$71.00 – $92.75
Sensitivity Case #2
$71.00 – $95.25
Sensitivity Case #3
$68.00 – $91.00
Sensitivity Case #4
$65.00 – $87.00
Other Information
J.P. Morgan reviewed the share price trading history of the Company for the 52-week trading range ending on July 2, 2014. During this period, J.P. Morgan noted that the Company’s common stock traded as low as $55.00 per share and as high as $77.32 per share, as compared to the closing price of the Company’s common stock on July 2, 2014 of  $59.81 per share.
J.P. Morgan reviewed the price targets set by published equity research analysts for the Company’s common stock prior to July 2, 2014. The price targets ranged from a low of  $48.00 per share to a high of $65.00 per share, as compared to the closing price of the Company’s common stock on July 2, 2014 of $59.81 per share.
J.P. Morgan also reviewed the price targets set by published equity research analysts for the Company’s common stock prior to December 9, 2014. The price targets ranged from a low of  $60.00 per share to a high of  $80.00 per share, as compared to the closing price of the Company’s common stock on December 9, 2014 of  $78.82 per share.
However, J.P. Morgan noted that historical trading and analyst price target analyses are not valuation methodologies but presented these analyses for reference purposes only.
The foregoing summary of certain material financial analyses does not purport to be a complete description of the analyses or data presented by J.P. Morgan. The preparation of a fairness opinion is a complex process and is not necessarily susceptible to partial analysis or summary description. J.P. Morgan believes that the foregoing summary and its analyses must be considered as a whole and that selecting portions of the foregoing summary and these analyses, without considering all of its analyses as a whole, could create an incomplete view of the processes underlying the analyses and its opinion. In arriving at its opinion, J.P. Morgan did not attribute any particular weight to any analyses or factors considered by it and did not form an opinion as to whether any individual analysis or factor (positive or negative), considered in isolation, supported or failed to support its opinion. Rather, J.P. Morgan considered the totality of the factors and analyses performed in determining its opinion. Analyses based upon forecasts of future results are inherently uncertain, as they are subject to numerous factors or events beyond the control of the parties and their advisors. Accordingly, forecasts and analyses used or made by J.P. Morgan are not necessarily indicative of actual future results, which may be significantly more or less favorable than suggested by those analyses. Moreover, J.P. Morgan’s analyses are not and do not purport to be appraisals or otherwise reflective of the prices at which businesses actually could be bought or sold. None of the selected companies reviewed as described in the above summary is identical to the Company, and none of the selected transactions reviewed was identical to the merger. However, the companies selected were chosen because they are publicly traded companies with operations and businesses that, for purposes of J.P. Morgan’s analysis, may be considered similar to those of the Company. The transactions selected were similarly chosen because their participants, size and other factors, for purposes of J.P. Morgan’s analysis, may be considered similar to the merger. The analyses necessarily involve complex considerations and judgments concerning differences in financial and operational characteristics of the companies involved and other factors that could affect the companies compared to the Company and the transactions compared to the merger.
As a part of its investment banking business, J.P. Morgan and its affiliates are continually engaged in the valuation of businesses and their securities in connection with mergers and acquisitions, investments for passive and control purposes, negotiated underwritings, secondary distributions of listed and unlisted
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securities, private placements, and valuations for estate, corporate and other purposes. J.P. Morgan was selected to advise the Company with respect to the merger and deliver an opinion to the Company’s board with respect to the merger on the basis of such experience and its familiarity with the Company.
For services rendered in connection with the merger and the delivery of its opinion, the Company has agreed to pay J.P. Morgan an amount up to approximately $39 million, a substantial portion of which will become payable only if the merger is consummated. In addition, the Company has agreed to reimburse J.P. Morgan for its expenses incurred in connection with its services, including the fees and disbursements of counsel, and will indemnify J.P. Morgan against certain liabilities, including liabilities arising under the Federal securities laws.
During the two years preceding the date of its opinion, neither J.P. Morgan nor its affiliates have had any material financial advisory or other material commercial or investment banking relationships with the Company other than as disclosed in this proxy statement, or with Parent, Longview or Stepstone Group LP. During the two years preceding the date of its opinion, J.P. Morgan and its affiliates have had commercial or investment banking relationships with the members of the Buyer Group, for which J.P. Morgan and such affiliates have received compensation. Such services during such period have included acting as financial advisor to BC Partners Limited on the sale of its interest in Spotless Group in June 2014; as financial advisor to La Caisse de dépôt et placement du Québec on its acquisition of an equity interest in the Port of Brisbane in November 2013; as joint bookrunner on the offerings of shares in Sunway Bhd by GIC Private Limited in October 2013 and in November 2014 and as financial advisor to GIC Private Limited on its sale of its interest in Beijing Capital International Airport in December 2013. In addition, during such period, J.P. Morgan and its affiliates have provided investor services and asset management services to GIC Private Limited, and have acted as lender and bookrunner for portfolio companies of BC Partners Limited, for which J.P. Morgan and such affiliates have received compensation. During the two years preceding the date of its opinion, J.P. Morgan and its affiliates have received compensation or other financial benefits from the members of the Buyer Group for the foregoing services in the aggregate amount of approximately $112 million. As discussed by representatives of J.P. Morgan with the board, James Crown, who serves on the board of directors of JPMorgan Chase & Co., which is an affiliate of J.P. Morgan, and has a significant economic interest in its common stock, is a party affiliated with Longview. See “Voting Support Agreement.” In the ordinary course of its businesses, J.P. Morgan and its affiliates may actively trade the debt and equity securities of the Company and certain portfolio companies of the respective parent companies of the members of the Buyer Group for its own account or for the accounts of customers and, accordingly, may at any time hold long or short positions in such securities.
Projected Financial Information
Projections
The Company does not as a matter of course make public projections as to future performance or earnings beyond the current fiscal year and is especially wary of making projections for extended earnings periods due to the unpredictability of the underlying assumptions and estimates. However, in connection with the review of strategic alternatives, management, at the request of the board, prepared financial projections for fiscal years 2014, 2015, 2016, 2017, 2018 and 2019. Following the release of the Company’s third fiscal quarter financial results, selected income statement line items for fiscal year 2014 only were updated to reflect actual performance and better visibility into the performance of the Company’s profit improvement plan. These projections, as updated, were provided to the board and J.P. Morgan for purposes of considering, analyzing and evaluating the Company’s strategic and financial alternatives, including the merger. These projections were also made available to Parent and Merger Sub and other parties in connection with their respective consideration and evaluation of a merger with the Company. In addition, financial forecasts for fiscal years 2020, 2021, 2022, 2023 and 2024 were extrapolated jointly by J.P. Morgan and the Company’s management from prior years’ forecasts at the direction of, and were approved by, the management of the Company and were made available to the board and J.P. Morgan in connection with their respective considerations of the merger, but were not made available to Buyer, Parent or other parties. We have included a summary of these projections (the “Projections”) below to give stockholders access to certain nonpublic information provided to our board and J.P. Morgan for purposes of considering and
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evaluating the Company’s strategic and financial alternatives, including the merger. The inclusion of the Projections should not be regarded as an indication that Parent, Merger Sub or the board, J.P. Morgan, or any other recipient of this information considered, or now considers, it to be an assurance of the achievement of future results.
The Projections and the underlying assumptions upon which the Projections were based are subjective in many respects. The Projections reflect numerous estimates and assumptions with respect to industry performance, general business, economic, market and financial conditions , changes to the business, financial condition or results of operations of the Company and other matters, including those described under “Cautionary Statement Concerning Forward-Looking Statements,” many of which are difficult to predict, subject to significant economic and competitive uncertainties, are beyond the Company’s control and may cause the Projections or the underlying assumptions to be inaccurate. Since the Projections cover multiple years, such information by its nature becomes less reliable with each successive year. The Projections do not take into account any circumstances or events occurring after the date they were prepared. As a result, there can be no assurance that the Projections will be realized or that actual results will not be significantly higher or lower than projected. The Projections were prepared for internal use and provided to our board and J.P. Morgan, and not with a view toward public disclosure or toward complying with GAAP, the published guidelines of the SEC regarding projections or the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of prospective financial information. For example, certain metrics included in the Projections are non-GAAP measures, and the Projections do not include footnote disclosures as may be required by GAAP. Neither the Company’s independent auditors, nor any other independent accountants, have compiled, examined, or performed any procedures with respect to the prospective financial information contained herein, nor have they expressed any opinion or any other form of assurance on such information or its achievability, and assume no responsibility for, and disclaim any association with, the prospective financial information.
Readers of this proxy statement are cautioned not to place undue reliance on the specific portions of the Projections below. No one has made or makes any representation to any stockholder regarding the information included in the Projections.
For the foregoing reasons, as well as the basis and assumptions on which the Projections were compiled, the inclusion of specific portions of the Projections in this proxy statement should not be regarded as an indication that such Projections will be an accurate prediction of future events, and they should not be relied on as such. Except as required by applicable securities laws, the Company does not intend to update, or otherwise revise the Projections or the specific portions presented to reflect circumstances existing after the date when made or to reflect the occurrence of future events, even in the event that any or all of the assumptions are shown to be in error.
The following is a summary of the Projections that were provided to the board and J.P. Morgan and that were later made available to Parent and Merger Sub and the other parties in connection with their respective considerations of the merger:
Fiscal Year End
2014E Jan-15(1)
2015E Jan-16
2016E Jan-17
2017E Jan-18
2018E Jan-19
2019E Jan-20
(dollars in million)
Revenue
$ 7,081 $ 7,456 $ 7,869 $ 8,331 $ 8,822 $ 9,329
EBITDA(2) $ 967 $ 1,060 $ 1,223 $ 1,326 $ 1,422 $ 1,515
Net Income
$ 445 $ 490 $ 588 $ 646 $ 700 $ 748
Cash Flow from Operations
$ 617 $ 721 $ 825 $ 851 $ 913 $ 972
(1)
Prior to the update discussed above following the release of the Company’s third fiscal quarter financial results, the Projections included projected revenue was $7,088 million, projected EBITDA was $958 million and projected net income was $432 million. Cash flow from operations was projected to be $617 million prior to such update and was not changed in such update.
(2)
EBITDA is defined as earnings before interest, taxes, depreciation and amortization, adjusted to exclude charges related to one-time costs for the Profit Improvement Program incurred during the Company’s third fiscal quarter of 2014.
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The following is a summary of the Projections that were provided to the board and J.P. Morgan in connection with their respective considerations of the merger (but were not provided to other parties):
Fiscal Year End
2014E Jan-15(1)
2015E Jan-16
2016E Jan-17
2017E Jan-18
2018E Jan-19
2019E Jan-20
(dollars in million)
Adjusted EBITDA(2)
$ 848 $ 936 $ 1088 $ 1181 $ 1,269 $ 1,352
Earnings Per Share(3)
$ 4.45 $ 5.01 $ 6.37 $ 7.39 $ 8.44 $ 9.50
Unlevered Free Cash Flow(4)
$ 404 $ 506 $ 595 $ 605 $ 652 $ 695
(1)
Prior to the update discussed above following the release of the Company’s third fiscal quarter financial results discussed above, the Projections included projected adjusted EBIDTA was $839 million, projected earnings per share was $4.32 and projected unlevered free cash flow was $394 million.
(2)
Adjusted EBITDA is defined as earnings before interest, taxes, depreciation and amortization, adjusted to exclude charges related to one-time costs for the Profit Improvement Program incurred during the Company’s third fiscal quarter of 2014, and assumes that the Company’s capital leases are accounted for as operating leases.
(3)
Earnings per share takes into account a projected share repurchase program and was calculated using 100.1 million shares outstanding for fiscal 2014, 97.8 million shares outstanding for fiscal 2015, 92.4 million shares outstanding for fiscal 2016, 87.4 million shares outstanding for fiscal 2017, 82.9 million shares outstanding for fiscal 2018 and 78.8 million shares outstanding for fiscal 2019.
(4)
Unlevered free cash flow was calculated assuming that the Company’s capital leases are accounted for as operating leases.
The following is a summary of the extrapolated Projections that were provided to the board and J.P. Morgan in connection with their respective considerations of the merger (but were not provided to the other parties):
Fiscal Year End
2020E Jan-21
2021E Jan-22
2022E Jan-23
2023E Jan-24
2024E Jan-25
(dollars in million)
Revenue
$ 9,794 $ 10,229 $ 10,597 $ 10,883 $ 11,101
Adjusted EBITDA(1)
$ 1,419 $ 1,482 $ 1,536 $ 1,577 $ 1,609
Unlevered Free Cash Flow(2)
$ 731 $ 765 $ 793 $ 815 $ 832
(1)
Adjusted EBITDA is defined as earnings before interest, taxes, depreciation and amortization, adjusted to exclude charges related to one-time costs for the Profit Improvement Program incurred during the Company’s third fiscal quarter of 2014, and assumes that the Company’s capital leases are accounted for as operating leases.
(2)
Unlevered free cash flow was calculated assuming that the Company’s capital leases are accounted for as operating leases.
In addition, in response to discussions with J.P. Morgan and management of the Company, at the board’s request, J.P. Morgan prepared for the board, for reference purposes only, an assessment of several sensitivities to the Projections in order to assist the board in assessing the potential downside risks that could arise from reasonable deviations in the assumptions underlying the Projections, see “— Opinion of J.P. Morgan” for the results of this assessment. The sensitivities assessment was provided to the board in its evaluation of the proposed merger, and was not provided to Parent, Merger Sub or any other party.
Like the Projections, the sensitivities were not prepared with a view toward public disclosure or toward complying with GAAP, the published guidelines of the SEC regarding projections or the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of
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prospective financial information. They are summarized in this proxy statement only because they were considered by the board in evaluating the merger. As with the Projections, the Company does not as a matter of course make public any sensitivities, and all qualifications and limitations applicable to the Projections, as described above, are applicable to the sensitivities assessment described under “— Opinion of J.P. Morgan.
Financing
The Company and Parent estimate that the total amount of funds required to complete the merger and related transactions and pay related fees and expenses will be approximately $8.4 billion. Parent expects this amount to be funded through a combination of the following:

debt financing in an aggregate principal amount of up to approximately $6.2 billion as well as a $750 million senior secured asset-based revolving credit facility, a portion of which will be available at closing. Parent has received firm commitments from a consortium of financial institutions to provide the debt financing and revolving credit facility. See “— Debt Financing”;

cash equity investments by members of the Buyer Group (other than Longview) in an aggregate amount up to approximately $1.83 billion and Longview’s contribution to Parent of  $250 million worth of the Company’s common stock immediately prior to the effective time of the merger. Parent has received equity commitments for the equity financing from the Buyer Group (other than Longview) and has entered into a rollover agreement with Longview with respect to its contribution of Company common stock to Parent. See “— Equity Financing”; and

approximately $425 million of cash is expected to be on hand and available at the closing.
Equity Financing
On December 14, 2014, members of the Buyer Group (other than Longview) entered into equity commitment letters (collectively referred to as the “equity commitment letters” and, together with the debt commitment letters described below, the “commitment letters”) with Parent pursuant to which the Buyer Group (other than Longview) committed to contribute (or cause to be contributed) to Parent up to $1.83 billion in cash in the aggregate. The equity commitments are subject to the following conditions:

satisfaction or waiver by Parent of the conditions precedent to Parent’s and Merger Sub’s obligations to complete the merger as set forth in the merger agreement (other than those conditions that by their nature are to be satisfied by actions to be taken at the closing or those conditions the failure of which to be satisfied is a result of any breach of Parent or Merger Sub of their representations, warranties, covenants or agreements contained in the merger agreement);

the substantially contemporaneous consummation of the merger or the Company having irrevocably confirmed in writing that if an order of specific performance is granted and the debt financing and the cash equity financing contemplated by such equity commitment letter is funded, then the Company will consummate the merger; and

the prior or substantially concurrent funding of the debt financing (solely with respect to amounts required to consummate the merger) or the substantially concurrent funding of the debt financing if the equity financing is funded or will be funded.
The obligations of the Buyer Group (other than Longview) to fund the equity commitment will automatically and immediately terminate upon the earliest to occur of  (subject to specified exceptions and qualifications): (i) the consummation of the merger; (ii) the valid termination of the merger agreement; (iii) June 14, 2016, except if there is a claim by the Company seeking an order to enforce the equity commitments, then the equity commitment letters will not terminate until such claim is resolved in a final, non-appealable decision by a court of competent jurisdiction; and (iv) the date that the Company or any of its subsidiaries assert in any litigation or other legal proceeding or arbitration any claim prohibited by either the equity commitment letter or the termination fee commitment letter.
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The Company is an express third-party beneficiary of the equity commitment letters and has the right to specific performance to enforce the obligations under the equity commitment letters solely to the extent the Company has the right to seek specific performance under the merger agreement to require Parent to cause the cash equity commitments under the equity commitment letters to be funded (as defined below). See “The Merger Agreement — Specific Performance.”
On December 14, 2014, the Parent and Longview entered into a rollover agreement (the “rollover agreement”) under which Longview has agreed to contribute 3,012,050 shares (“rollover shares”) to Parent immediately prior to the effective time in exchange for equity interests in Parent. Longview’s obligation to transfer and contribute to Parent the rollover shares is subject to the satisfaction of the following conditions:

satisfaction or waiver by Parent of the conditions precedent to Parent’s and Merger Sub’s obligations to complete the merger as set forth in the merger agreement (other than those conditions that by their nature are to be satisfied by actions to be taken at the closing or those conditions the failure of which to be satisfied is a result of any breach of Parent or Merger Sub of their representations, warranties, covenants or agreements contained in the merger agreement);

the substantially contemporaneous consummation of the merger or the Company having irrevocably confirmed in writing that if an order of specific performance is granted and the debt financing and cash equity financing under the equity commitment letters are funded, then the Company will consummate the merger; and

the prior or substantially concurrent funding of the debt financing (solely with respect to amounts required to consummate the merger) or the substantially concurrent funding of the debt financing if the rollover shares are or will be transferred or contributed and the cash equity financing under the equity commitment letters is funded or will be funded.
The obligations of Longview under the rollover agreement, including the obligation to transfer and contribute the rollover shares, to Parent will automatically and immediately terminate upon the earliest to occur of  (subject to specified exceptions and qualifications): (i) the consummation of the merger; (ii) the valid termination of the merger agreement; (iii) June 14, 2016, except if there is a claim by the Company seeking an order to enforce the rollover agreement then pending, then the rollover agreement will not terminate until such claim is resolved in a final, non-appealable decision by a court of competent jurisdiction; and (iv) the date that the Company or any of its subsidiaries assert in any litigation or other legal proceeding or arbitration any claim prohibited by the rollover agreement.
The Company is an express third-party beneficiary of the rollover agreement and has the right to specific performance to enforce the obligations under the rollover agreement solely to the extent the Company has the right to seek specific performance under the merger agreement to require Parent to cause the rollover shares to be transferred and contributed pursuant to the rollover agreement. See “The Merger Agreement — Specific Performance.”
Longview will receive the same $83.00 per share merger consideration as the other holders of the Company’s common stock for all other shares of common stock beneficially owned by it (other than the rollover shares).
Debt Financing
In connection with the entry into the merger agreement, Merger Sub has (i) obtained a commitment letter (as amended from time to time in accordance with the merger agreement, the “debt commitment letter”) from Citigroup Global Markets Inc., Barclays Bank PLC, Deutsche Bank AG New York Branch, Nomura Securities International, Inc. and Jefferies Finance LLC, and, in some cases, certain of their affiliates (collectively, the “Initial Lenders”) and (ii) entered into joinder agreements with respect to the debt commitment letter with each of RBC Capital Markets, Macquarie Capital (USA) Inc. and Natixis, New York Branch (together with the Initial Lenders, the “Lenders”) to provide, severally but not jointly, upon the terms and subject to the conditions set forth in the debt commitment letter, in the aggregate up to $6.95 billion in debt financing (not all of which is expected to be drawn at the closing of the merger), consisting of the following:
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$4.3 billion senior secured term loan B facility;

$750 million asset-based revolving credit facility; and

$1.9 billion pursuant to a senior unsecured bridge facility (which would be utilized in the event that Merger Sub or one or more of its subsidiaries does not issue and sell the full amount of the senior notes referred to below at or prior to the closing of the merger).
It is also expected that, at or prior to the closing of the merger, up to $1.9 billion in aggregate principal amount of senior unsecured notes will be issued by Merger Sub or one or more of its subsidiaries in an offering conducted under Rule 144A of the Securities Act of 1933, as amended (the “Securities Act”), or another private placement transaction. We refer to the financing described above collectively as the “debt financing.” The aggregate principal amount of the term loan facility and the bridge facility (or the senior notes, as the case may be) may be increased to fund certain original issue discount or upfront fees in connection with the debt financing. The proceeds of the debt financing will be used (i) to finance, in part, the payment of the amounts payable under the merger agreement, the refinancing of certain of the Company’s indebtedness outstanding as of the closing of the merger and the payment of related fees and expenses, (ii) to provide ongoing working capital and (iii) for other general corporate purposes of the Company and its subsidiaries.
The debt financing contemplated by the debt commitment letter is conditioned on the consummation of the merger in accordance with the merger agreement, as well as other customary conditions, including, but not limited to:

the execution and delivery by the borrowers and certain guarantors of definitive documentation, consistent with the debt commitment letter;

the consummation of the equity financing substantially concurrently with the initial borrowing under the term loan facility;

subject to certain limitations, the absence of a Company material adverse effect (i) from February 2, 2014 through the date of the merger agreement and (ii) since the date of the merger agreement;

payment of all applicable fees and expenses;

delivery of certain audited, unaudited and pro forma financial statements;

as a condition to the availability of the bridge facility, the agents having been afforded a marketing period of at least 15 consecutive business days (subject to certain blackout dates) following receipt of portions of a customary offering memorandum and certain financial statements;

receipt by the lead arrangers of documentation and other information about the borrowers and guarantors required under applicable “know your customer” and anti-money laundering rules and regulations (including the PATRIOT Act);

subject to certain limitations, the execution and delivery of guarantees by certain guarantors and the taking of certain actions necessary to establish and perfect a security interest in specified items of collateral;

the repayment of certain outstanding debt of the Company; and

the accuracy in all material respects of specified representations and warranties in the merger agreement and specified representations and warranties in the loan documents.
If any portion of the debt financing becomes unavailable on the terms and conditions contemplated by the debt commitment letter, Parent is required to promptly notify the Company and use its reasonable best efforts to obtain alternative financing (in an amount sufficient to replace such unavailable debt financing) from the same or other sources on terms and conditions no less favorable to Parent than such unavailable debt financing (including the “flex” provisions contained in the fee letter referenced in the debt commitment letter). As of the last practicable date before the printing of this proxy statement, no alternative financing arrangements or alternative financing plans have been made in the event the debt financing is not available
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as anticipated. Except as described in this proxy statement, there is no plan or arrangement regarding the refinancing or repayment of the debt financing. The documentation governing debt financing contemplated by the debt commitment letter has not been finalized and, accordingly, the actual terms of the debt financing may differ from those described in this proxy statement.
The Lenders may invite other banks, financial institutions and institutional lenders to participate in the debt financing contemplated by the debt commitment letter and to undertake a portion of the commitments to provide such debt financing.
Term Loan Facility
Interest under the term loan facility will be payable, at the option of the borrower, either (i) at a base rate (subject to a floor of 2.0% and based on the highest of the prime rate, the overnight federal funds rate plus 1/2 of 1.0% and the one-month LIBOR rate plus 1.00%) plus an applicable margin expected to be 3.50% or (ii) a LIBOR-based rate (subject to a floor of 1.0%) plus an applicable margin expected to be 4.50%, in the case of each of clauses (i) and (ii), expected to be subject to two step-downs of 25 basis points, each based on first lien leverage ratios. Interest will be payable, in the case of loans bearing interest based on LIBOR, at the end of each interest period set forth in the credit agreement (but at least every three months) and, in the case of loans bearing interest based on the base rate, quarterly in arrears. The term loan facility will mature seven years from the date of closing of the merger and will amortize in equal quarterly installments in aggregate annual amounts equal to 1.00% of the original principal amount.
The borrower under the term loan facility will be Merger Sub or one of its subsidiaries, and upon consummation of the merger, the rights and obligations under the term loan facility will be assumed by the Company. The term loan facility will be guaranteed, subject to certain agreed upon exceptions, on a joint and several basis by Parent and each direct and indirect wholly-owned material U.S. restricted subsidiary of the Company. The term loan facility will be secured, subject to certain agreed upon exceptions, by (i) a first priority security interest in substantially all the assets of Parent, Merger Sub (and, after the merger, the Company) and each guarantor (other than the ABL collateral (as defined below)) and (ii) a second priority security interest in the ABL collateral.
The term loan facility will contain customary affirmative covenants including, among other things, delivery of annual audited and quarterly unaudited financial statements, notices of defaults, material litigation and material ERISA events, submission to certain inspections, maintenance of property and customary insurance, payment of taxes and compliance with laws and regulations. The term loan facility also will contain customary negative covenants that, subject to certain exceptions, qualifications and “baskets,” generally will limit the borrower’s and its restricted subsidiaries’ ability to incur debt, create liens, make fundamental changes, enter into asset sales and sale-and-lease back transactions, make certain investments and acquisitions, pay dividends or distribute or redeem certain equity, prepay or redeem certain debt and enter into certain transactions with affiliates.
ABL Facility
Interest under the asset-based revolving credit facility will be payable, at the option of the relevant borrower, either at a base rate (based on the highest of the prime rate, the overnight federal funds rate plus 1/2 of 1.0% and the one-month LIBOR rate plus 1.00%) plus 0.50% or a LIBOR-based rate plus 1.50%, with step-downs and step-ups of 25 basis points, each based on excess availability. Interest will be payable, in the case of loans bearing interest based on LIBOR, at the end of each interest period set forth in the credit agreement (but at least every three months) and, in the case of loans bearing interest based on the base rate, quarterly in arrears. The asset-based revolving credit facility will mature five years from the date of closing of the merger. Borrowings under the asset-based revolving credit facility will be subject to availability under a US borrowing base and Canadian borrowing base which, subject to certain reserves to be agreed, will each consist of  (i) 90% of the appraised net orderly liquidation value of eligible inventory, (ii) 85% of eligible accounts receivable, (iii) 90% of eligible credit card receivables, (iv) 100% of qualified cash (up to $100 million in the aggregate), (v) in the case of the Canadian Borrowing Base and at the option of the Canadian borrower, the unutilized portion of the US Borrowing Base and (vi) customary reserves.
The borrowers under the asset-based revolving credit facility will be (i) Merger Sub or one of its subsidiaries, and upon consummation of the merger, the Company and (ii) a subsidiary of the Company
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organized in Canada (the “Canadian Borrower”). The asset-based revolving credit facility will be guaranteed, subject to certain agreed upon exceptions, on a joint and several basis by Parent and each direct and indirect wholly-owned material U.S. restricted subsidiary of the Company (and in the case of the obligations of the Canadian Borrower, each wholly-owned material restricted subsidiary of the Company). The asset-based revolving credit facility will be secured, subject to certain agreed upon exceptions, by (i) a first priority security interest in the accounts receivable, inventory, cash, deposit accounts, securities and commodity accounts and certain items in connection therewith of Parent, Merger Sub (and, after the merger, the Company) and each guarantor (collectively, the “ABL collateral”) and (ii) a second priority security interest in the collateral for the term loan facility (other than the ABL collateral).
The asset-based revolving credit facility will contain customary affirmative covenants including, among other things, delivery of annual audited and quarterly unaudited financial statements, notices of defaults, material litigation and material ERISA events, submission to certain inspections, maintenance of property and customary insurance, payment of taxes and compliance with laws and regulations. The asset-based revolving credit facility will also contain customary negative covenants that, subject in each case to certain exceptions, qualifications and “baskets,” generally will limit the Company’s and its restricted subsidiaries’ ability to incur debt, create liens, make fundamental changes, enter into asset sales and sale-and-lease back transactions, make certain investments and acquisitions, pay dividends or distribute or redeem certain equity, prepay, purchase or redeem certain debt and enter into certain transactions with affiliates.
Bridge Facility
The borrower under the bridge facility will be Merger Sub or one of its subsidiaries, and upon consummation of the merger, the rights and obligations under the bridge facility will be assumed by the Company. Interest under the bridge facility will initially equal the LIBOR-based rate for interest periods of one, two, three or six months, as selected by the borrower (subject to a 1.0% floor), plus 7.0%, increasing by 50 basis points every three months thereafter up to a cap. The bridge facility will be guaranteed by the same entities that guarantee the term loan facility.
Any loans under the bridge facility that are not paid in full on or before the first anniversary of the closing date of the merger will automatically be converted into term loans maturing eight years after the closing date of the merger. After such a conversion, the holders of outstanding term loans may choose, subject to certain limitations, to exchange their loans for exchange notes that mature eight years after the closing date of the merger.
The bridge facility is expected to contain incurrence-based negative covenants that, subject to certain exceptions, qualifications and “baskets,” will restrict, among other things, the borrower’s, its guarantors’ and other restricted subsidiaries’ ability to incur debt, create liens, sell assets, pay dividends and enter into transactions with affiliates, affirmative covenants to deliver annual and quarterly financial statements and provide notices of default, and such other affirmative and negative covenants as are customary for bridge loan financings of this type and consistent with Rule 144A “for life” high yield indentures of comparable issuers.
It is expected that, in lieu of borrowings under the bridge facility, at or prior to the closing of the merger, up to $1.9 billion of aggregate principal amount of notes will be issued by Merger Sub or one or more of its subsidiaries in an offering conducted under Rule 144A of the Securities Act, or another private placement transaction.
Termination Fee Commitment Letters
Concurrently with the execution of the merger agreement, members of the Buyer Group (other than Longview) have also executed and delivered a termination fee commitment letter in favor of the Company (collectively, the “termination fee commitment letters”), pursuant to which members of the Buyer Group (other than Longview) severally agreed, subject to the terms and conditions of the termination fee commitment letters, to pay to the Company (or if consented to by the Company, to purchase common equity securities of Parent to enable Parent to pay to the Company) an amount equal to such members’ respective pro rata portion of the Parent termination fee and certain expense reimbursements (each as
44

described in more detail under “The Merger Agreement —  Termination Fees” and “The Merger Agreement — Reimbursement of Expenses”), subject to an aggregate cap for all of the termination fee commitment letters equal to the Parent termination fee of  $510 million.
Each of the termination fee commitment letters will terminate upon the earliest to occur of:

the effective time of the merger;

the valid termination of the merger agreement (other than a termination for which Parent is required to pay the Parent termination fee or which does not discharge Parent’s other payment obligations to the Company (any such termination described in this parenthetical, a “qualifying termination”)); and

180 days after a qualifying termination unless prior to the 180th day after such termination, the Company or any of subsidiaries commences a litigation or arbitration against Parent or the applicable members of the Buyer Group to enforce the obligations under the merger agreement or the termination fee commitment letter in which case the termination fee commitment letter will remain in effect until the final determination of such litigation or arbitration.
The termination fee commitment letters also restrict the Company from asserting specified claims against the Buyer Group or their affiliates or related persons.
Voting Support Agreement
On December 14, 2014, the Company entered into the voting agreement with Parent and Longview, on behalf of Longview clients and certain related parties. Under the voting agreement, Longview agreed, among other things, to vote or cause to be voted 7,424,591 shares of common stock, which represent approximately [•]% of the total outstanding shares of common stock as of the record date, in favor of the adoption of the merger agreement, and against any other action, proposal, agreement or transaction made in opposition to or competition with the merger or the merger agreement that is not approved by the board. The voting agreement will terminate upon the earliest to occur of  (i) the effective time of the merger, (ii) the termination of the merger agreement in accordance with its terms, (iii) the termination of the voting agreement by the mutual written consent of the Company, Parent and Longview, (iv) a change of recommendation (as defined under “The Merger Agreement — Other Covenants and Agreements — No Solicitation) or (v) the making of any change, by amendment, waiver or other modification to any provision of the merger agreement that decreases the amount of, or changes the form of, the merger consideration. James Crown, a client of Longview with a significant economic interest in the shares of common stock subject to the voting agreement, serves on the board of directors of JP Morgan Chase & Co., which is an affiliate of J.P. Morgan.
Interests of the Company’s Directors and Executive Officers in the Merger
In considering the recommendation of the board that you vote to approve the merger proposal, you should be aware that aside from their interests as stockholders of the Company, the Company’s directors and executive officers have interests in the merger that are different from, or in addition to, those of other stockholders of the Company generally. Members of the board were aware of and considered these interests, among other matters, in evaluating and negotiating the merger agreement and the transaction, and in unanimously recommending to the stockholders of the Company that the merger agreement be adopted. See the section entitled “The Merger (Proposal 1) — Background of the Merger” and the section entitled “The Merger (Proposal 1) — Reasons for the Merger.” The Company’s stockholders should take these interests into account in deciding whether to vote “FOR” the merger proposal. These interests are described in more detail below, and certain of them are quantified in the narrative and the table below.
Treatment of Company Equity Awards
Under the merger agreement, equity-based awards held by the Company’s directors and executive officers as of the effective time of the merger will be treated at the effective time of the merger as follows:
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Company Options.   Except as otherwise agreed in writing between any holder and Parent, each Company option, whether vested or unvested, that is outstanding immediately prior to the effective time of the merger will, as of the effective time of the merger, become fully vested and be converted into the right to receive an amount in cash, less applicable tax withholdings, equal to the product obtained by multiplying (a) the excess, if any, of the merger consideration over the exercise price per share of the Company option, by (b) the total number of shares subject to the Company option.
Company RSU Awards.   Except as otherwise agreed in writing between any holder and Parent, each Company RSU award, whether vested or unvested, that is outstanding immediately prior to the effective time of the merger, will, as of the effective time of the merger, become fully vested and be converted into the right to receive an amount in cash, less applicable tax withholdings, equal to (1) the product obtained by multiplying (a) the total number of shares subject to the Company RSU award, by (b) the merger consideration, plus (2) any dividends accrued with respect to the Company RSU award.
Company PSU Awards.   Except as otherwise agreed in writing between any holder and Parent, each Company PSU award that is outstanding immediately prior to the effective time of the merger will become fully vested (based on actual performance, in the case of awards whose performance period ends prior to the effective time of the merger, at 109.6% of target levels, in the case of awards granted in the 2013 fiscal year, and at 150.0% of target levels, in the case of awards granted in the 2014 fiscal year) and be converted into the right to receive an amount in cash, less applicable tax withholdings, equal to (1) the product obtained by multiplying (a) the total number of shares subject to the Company PSU award by (b) the merger consideration, plus (2) any dividends accrued with respect to the Company PSU award.
Company Restricted Stock.   Except as otherwise agreed in writing between any holder and Parent, effective as of immediately prior to the effective time of the merger, each then-outstanding share of Company restricted stock will automatically become fully vested and the restrictions thereon will lapse, and each such share of Company restricted stock will be cancelled and converted into the right to receive an amount in cash, less applicable tax withholdings, equal to the merger consideration, plus any dividends accrued with respect to the Company restricted stock.
Quantification of Payments.   For an estimate of the amounts that would be payable to each of the Company’s named executive officers on settlement of their unvested equity-based awards, see “— Quantification of Payments and Benefits to the Company’s Named Executive Officers” below. The estimated aggregate amount that would be payable to the Company’s executive officers who are not named executive officers in settlement of their unvested equity-based awards if the transaction were completed on January 9, 2015 is $14,373,324. We estimate that the aggregate amount that would be payable to the Company’s nine non-employee directors for their unvested equity-based awards if the transaction were completed on January 9, 2015 is $1,227,321.
Executive Change in Control and Severance Benefit Plan
Certain of the Company’s executives, including all of the Company’s executive officers, participate in the Company’s Amended and Restated Executive Change in Control and Severance Benefit Plan, which we refer to as the “executive severance plan,” which provides for enhanced severance benefits in the event of a termination of employment by the Company without cause, or by the executive officer due to a constructive termination, in each case, within three months prior to or 36 months following a change in control (which we refer to as a “qualifying termination”). The merger would constitute a change in control under the executive severance plan.
The executive severance plan provides that in the event of a qualifying termination, the executive officer would be entitled to:

an amount equal to 1.5 times (2 times, in the case of David K. Lenhardt, the Company’s Chief Executive Officer) the greater of  (1) the executive officer’s current monthly salary multiplied by 12 and (2) the greatest amount of base salary received in any 12-month period within the prior three years;
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an amount equal to 1.5 times (2 times, in the case of Mr. Lenhardt) the sum of the largest amount of any cash incentive payouts (including certain restricted stock or restricted stock units paid in lieu of cash incentive payouts) that were paid to the executive officer during any consecutive 12-month period in the three years immediately preceding the merger;

continued health and life insurance benefits for 18 months (24 months, in the case of Mr. Lenhardt) following the executive officer’s qualifying termination; and

outplacement services and any other amounts or benefits required to be paid or provided under any plan or program.
Under the executive severance plan, any payments or benefits payable to the executive officer will be cutback to the extent that such payments or benefits would result in the imposition of excise taxes under Section 4999 of the Code, unless the executive officer would be better off on an after-tax basis receiving all such payments or benefits.
The payment of benefits under the executive severance plan is conditioned upon the executive officer executing a general release in favor of the Company and executive’s confirmation of his or her obligations under the Company’s confidentiality and noncompetition agreement.
For an estimate of the value of the payments and benefits described above that would be payable to each of the Company’s named executive officers, see “— Quantification of Payments and Benefits to the Company’s Named Executive Officers” below. The estimated aggregate amount that would be payable to the Company’s other executive officers under their employment agreements if the merger were to be completed and they were to experience a qualifying termination on January 9, 2015 is $7,946,854.
Retention Program
Pursuant to the merger agreement, the Company established a cash-based retention program in the aggregate amount of $10 million to promote retention and to incentivize efforts to consummate the merger. Under the retention program, one-half of any payments will be paid upon the 90th day following the closing date and one-half of any payments will be paid upon the 120th day following the closing date, in each case, subject to continued employment with the Company and its subsidiaries through such date; however, if an award recipient’s employment with the Company is terminated due to a qualifying termination prior to any scheduled payment date, then the unpaid portions of the payments will be paid upon the date of the individual’s qualifying termination. Amounts under the retention program will be allocated among the employees of the Company and its subsidiaries identified, and in the amounts and other terms determined, by the Chief Executive Officer of the Company (or his designees), though the retention award allocated to any employee may not exceed $650,000.
For an estimate of the amounts payable to the Company’s named executive officers under the retention program upon a qualifying termination, see “— Quantification of Payments and Benefits to the Company’s Named Executive Officers” below. The estimated aggregate amount payable to the Company’s other executive officers under the retention program if the effective time of the merger were to occur on January 9, 2015 and all such executive officers experienced a qualifying termination on that date is $1,985,000.
2005 Deferred Compensation Plan
Certain of the Company’s executive officers participate in the Company’s 2005 Deferred Compensation Plan, which provides for the accelerated vesting of all matching contributions credited to the executive’s account under the plan and full accelerated payment of the executive’s plan balance upon the occurrence of a change in control.
For an estimate of the value of the matching contributions described above credited to the accounts of each of the Company’s named executive officers that would become fully vested upon consummation of the transaction, see “— Quantification of Payments and Benefits to the Company’s Named Executive Officers” below. The estimated aggregate amount of matching contributions credited to the accounts of the Company’s other executive officers under the Company’s 2005 Deferred Compensation Plan that would become fully vested if the effective time of the merger were to occur on January 9, 2015 is $309,086.
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Indemnification Insurance
The Company is party to indemnification agreements with each of its directors and executive officers that require the Company, among other things, to indemnify the directors and executive officers against certain liabilities that may arise by reason of their status or service as directors or officers. In addition, pursuant to the terms of the merger agreement, the Company’s directors and executive officers will be entitled to certain ongoing indemnification and coverage under directors’ and officers’ liability insurance policies from the surviving corporation. Such indemnification and insurance coverage is further described in the section entitled “The Merger Agreement — Indemnification of Directors and Officers; Insurance.”
Quantification of Payments and Benefits to the Company’s Named Executive Officers
The table below sets forth the amount of payments and benefits that each of the Company’s named executive officers would receive in connection with the transaction, assuming that the transaction were consummated and each such executive officer experienced a qualifying termination on January 9, 2015.
Name
Cash
($)(5)
Equity
($)(6)
Pension/NQDC
($)(7)
Perquisites/Benefits
($)(8)
Total
($)
David K. Lenhardt
4,844,600 18,599,229 482,375 78,555 24,004,759
Robert F. Moran(1)
Carrie W. Teffner
2,118,750 1,923,156 10,766 64,781 4,117,453
Lawrence P. Molloy(2)
Joseph D. O’Leary(3)
Bruce K. Thorn
1,617,852 4,526,104 102,283 59,694 6,305,933
Donald E. Beaver(4)
(1)
Mr. Moran resigned as Chairman of the Board, Director, and Chief Executive Officer of the Company effective June 14, 2013. He is not entitled to any compensation in connection with the merger.
(2)
Mr. Molloy resigned as Executive Vice President and Chief Financial Officer effective as of June 3, 2013, and ceased to be a special advisor to the Company on March 31, 2014. He is not entitled to any compensation in connection with the merger.
(3)
Mr. O’Leary retired from the Company effective as of April 4, 2014. He is not entitled to any compensation in connection with the merger.
(4)
Mr. Beaver retired from the Company effective as of April 4, 2014. He is not entitled to any compensation in connection with the merger.
(5)
The cash payments payable to each of the named executive officers consist of  (a) a lump sum severance payment in an amount equal to 1.5 times (2 times, in the case of the Mr. Lenhardt) the sum of  (i) the greater of  (A) the executive officer’s current monthly salary multiplied by 12 and (B) the greatest amount of base salary received in any 12-month period within the prior three years and (ii) an amount equal to 1.5 times (2 times, in the case of Mr. Lenhardt) the sum of the largest amount of any cash incentive payouts (including certain restricted stock or restricted stock units paid in lieu of cash incentive payouts) that were paid to the executive officer during any consecutive 12-month period in the three years immediately preceding the merger, which amount would be payable upon the executive officer’s qualifying termination within three months prior to or 36 months following the consummation of the merger and would be payable within ten days of the effective date of the executive officer’s release of claims, and (b) the amount the executive officer would receive under the retention program, payable on the date of the executive officer’s qualifying termination. The severance payment is “double-trigger” and the retention payment is “single-trigger.” The payment of benefits under the executive severance plan is conditioned upon the executive officer executing a general release in favor of the Company and executive’s confirmation that the executive will be subject to restrictions set forth in the Company’s confidentiality and noncompetition agreement. Set forth below are the separate values of each of the 2014 fiscal year bonus, the severance payment, and the retention payment.
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Name
Severance Payment
(“Double-Trigger”)
($)
Retention Payment
(“Single-Trigger”)
($)
David K. Lenhardt
4,844,600
Robert F. Moran
Carrie W. Teffner
1,518,750 600,000
Lawrence P. Molloy
Joseph D. O’Leary
Bruce K. Thorn
1,617,852
Donald E. Beaver
(6)
As described above, all unvested equity-based awards held by the Company’s named executive officers will become vested and will be settled at the effective time of the merger (i.e., “single-trigger” vesting). Set forth below are the values of each type of equity-based award that would be payable in connection with a qualifying termination (including any corresponding dividends).
Name
Stock Options
($)
Restricted
Stock Units
($)
Performance
Stock Units
($)
Restricted
Stock
($)
David K. Lenhardt
10,517,187 8,082,042
Robert F. Moran
Carrie W. Teffner
707,953 1,215,203
Lawrence P. Molloy
Joseph D. O’Leary
Bruce K. Thorn
2,681,180 1,844,924
Donald E. Beaver
(7)
As described above, all matching contributions credited to the named executive officer’s account under the Company’s 2005 Deferred Compensation Plan will become vested and the named executive officer will be entitled to receive full accelerated payment of his or her plan balance upon the consummation of the merger (i.e., “single-trigger” vesting).
(8)
The amounts above include (a) the estimated value of health plan premiums for each named executive officer and his or her eligible dependents for 18 months (2 years, in the case of Mr. Lenhardt) following termination of employment, and (b) the estimated value of outplacement services. All such benefits are “double-trigger.”
Material U.S. Federal Income Tax Consequences of the Merger
The following is a general discussion of the material U.S. federal income tax consequences of the merger to U.S. holders (as defined below) and non-U.S. holders (as defined below) of common stock whose shares are exchanged for cash pursuant to the merger. This discussion is based on the provisions of the Internal Revenue Code of 1986, as amended (the “Code”), applicable U.S. Treasury regulations, judicial opinions, and administrative rulings and published positions of the Internal Revenue Service (“IRS”), each as in effect as of the date hereof. These authorities are subject to change, possibly on a retroactive basis, and any such change could affect the accuracy of the statements and conclusions set forth in this discussion. This discussion does not address any tax consequences arising under the unearned income Medicare contribution tax pursuant to the Health Care and Education Reconciliation Act of 2010, nor does it address any tax considerations under state, local or foreign laws or U.S. federal laws other than those pertaining to the U.S. federal income tax. This discussion is not binding on the IRS or the courts and, therefore, could be subject to challenge, which could be sustained. No ruling is intended to be sought from the IRS with respect to the merger.
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For purposes of this discussion, the term “U.S. holder” means a beneficial owner of common stock that is:

an individual citizen or resident of the United States;

a corporation, or other entity taxable as a corporation for U.S. federal income tax purposes, created or organized in or under the laws of the United States, any state thereof, or the District of Columbia;

a trust if  (1) a court within the United States is able to exercise primary supervision over the trust’s administration and one or more U.S. persons are authorized to control all substantial decisions of the trust or (2) the trust has a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person; or

an estate the income of which is subject to U.S. federal income tax regardless of its source.
For purposes of this discussion, the term “non-U.S. holder” means a beneficial owner of common stock, other than an entity or arrangement treated as a partnership for U.S. federal income tax purposes, that is not a U.S. holder.
This discussion applies only to holders of shares of common stock who hold such shares as a capital asset within the meaning of Section 1221 of the Code (generally, property held for investment). Further, this discussion does not purport to consider all aspects of U.S. federal income taxation that may be relevant to a holder in light of its particular circumstances, or that may apply to a holder that is subject to special treatment under the U.S. federal income tax laws (including, for example, insurance companies, dealers or brokers in securities or foreign currencies, traders in securities who elect the mark-to-market method of accounting, holders liable for the alternative minimum tax, U.S. holders that have a functional currency other than the U.S. dollar, tax-exempt organizations, banks and certain other financial institutions, mutual funds, real estate investment trusts, certain expatriates, partnerships, S corporations, or other pass-through entities or investors in partnerships, S corporations or such other entities, holders who hold shares of common stock as part of a hedge, straddle, constructive sale or conversion transaction, holders that own, or have owned at any time within the five-year period ending on the date of the merger, more than five percent of the common stock, and holders who acquired their shares of common stock through the exercise of employee stock options or other compensation arrangements). Moreover, this discussion does not address any U.S. federal income tax consequences of the merger to Longview or any other holder of common stock that directly or indirectly contributes any shares of common stock to Parent prior to the merger pursuant to the rollover agreement with Parent (or otherwise is treated as owning any shares of Parent, directly, indirectly, or constructively), which consequences could be different than those described below, including potential dividend treatment with respect to a portion of the consideration received in the merger. Longview and such other holders should consult their own tax advisors with respect to the U.S. federal income tax consequences of the merger to them in light of their particular circumstances.
If a partnership (including for this purpose any entity or arrangement treated as a partnership for U.S. federal income tax purposes) holds shares of common stock, the tax treatment of a partner in such partnership will generally depend on the status of the partners and the activities of the partnership. If you are a partner of a partnership holding shares of common stock, you should consult your tax advisor.
Holders of common stock are urged to consult their own tax advisors to determine the particular tax consequences to them of the merger, including the applicability and effect of the alternative minimum tax, and any state, local, foreign or other tax laws.
Consequences to U.S. Holders
The receipt of cash by U.S. holders in exchange for shares of common stock pursuant to the merger will be a taxable transaction for U.S. federal income tax purposes. In general, for U.S. federal income tax purposes, a U.S. holder will recognize capital gain or loss in an amount equal to the difference, if any, between (1) the amount of cash received in exchange for shares of common stock pursuant to the merger and (2) the U.S. holder’s adjusted tax basis in such shares of common stock.
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If a U.S. holder’s holding period in the shares of common stock surrendered in the merger is greater than one year as of the date of the merger, the gain or loss will be long-term capital gain or loss. Long term capital gains of certain non-corporate U.S. holders, including individuals, are generally subject to U.S. federal income tax at preferential rates. The deductibility of a capital loss from the exchange is subject to limitations. If a U.S. holder acquired different blocks of common stock at different times and different prices, such U.S. holder must determine its adjusted tax basis and holding period separately with respect to each block of common stock.
Consequences to Non-U.S. Holders
A non-U.S. holder who receives cash in exchange for shares of common stock pursuant to the merger generally will not be subject to U.S. federal income taxation unless:

the gain, if any, on such shares resulting from the merger is effectively connected with the non-U.S. holder’s conduct of a trade or business within the United States (and, if required by an applicable income tax treaty, is attributable to a permanent establishment of the non-U.S. holder in the United States); or

the non-U.S. holder is an individual who is present in the United States for 183 days or more in the individual’s taxable year in which the merger occurs and certain other conditions are satisfied.
Gain recognized by a non-U.S. holder described in the first bullet above generally will be subject to U.S. federal income tax on a net income basis at regular graduated U.S. federal income tax rates in the same manner as if such holder were a “United States person” as defined under the Code. A non-U.S. holder that is a corporation may also be subject to an additional “branch profits tax” at a rate of 30% (or such lower rate as may be specified by an applicable income tax treaty) on its effectively connected earnings and profits, subject to certain adjustments.
Gain recognized by a non-U.S holder described in the second bullet above generally will be subject to U.S. federal income tax at a flat 30% rate (or such lower rate as may be specified under an applicable income tax treaty), but such gain may be offset by certain United States source capital losses, if any, of the non-U.S. holder.
Information Reporting and Backup Withholding
Payments made to U.S holders in exchange for shares of common stock pursuant to the merger may be subject, under certain circumstances, to information reporting and backup withholding (currently at a rate of 28%). To avoid backup withholding, a U.S. holder that does not otherwise establish an exemption from such withholding should complete and return IRS Form W-9, certifying that such U.S. holder is a U.S. person, the taxpayer identification number provided is correct and such U.S. holder is not subject to backup withholding.
Payments made to non-U.S. holders in exchange for shares of common stock pursuant to the merger that are effected through a U.S. office of a broker generally will be subject to information reporting and backup withholding (currently at a rate of 28%) unless such non-U.S. holder provides a properly completed and executed IRS Form W-8BEN or W-8BEN-E (or other applicable IRS Form W-8) certifying such non-U.S. holder’s non-U.S. status or such non-U.S. holder otherwise establishes an exemption. Payments made to non-U.S. holders that are effected through a non-U.S. office of a U.S. broker or of a non-U.S. broker with certain specified U.S. connections generally will be subject to information reporting (but not backup withholding) unless such non-U.S. holder provides a properly completed and executed IRS Form W-8BEN or W-8BEN-E (or other applicable IRS Form W-8) certifying such non-U.S. holder’s non-U.S. status or such non-U.S. holder otherwise establishes an exemption.
Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules may be refunded or credited against a holder’s U.S. federal income tax liability, if any, provided that such holder furnishes the required information to the IRS in a timely manner.
This summary of the material U.S. federal income tax consequences is for general information purposes only and is not tax advice. Holders of common stock should consult their own tax advisors as to the specific tax consequences to them of the merger, including the applicability and effect of the alternative minimum tax and the effect of any federal, state, local, foreign and other tax laws.
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Regulatory Approvals
Antitrust Approval in the U.S.
Under the HSR Act and related rules, certain transactions, including the merger, may not be completed until notifications have been given and information furnished to the Antitrust Division and the FTC and all statutory waiting period requirements have been satisfied. On December 24, 2014, both the Company and Parent filed their respective Notification and Report Forms with the Antitrust Division and the FTC. The 30-day waiting period under the HSR Act will expire at 11:59 pm on January 23, 2015, unless terminated early or otherwise extended. Both the Company and Parent received early termination of the HSR waiting period on January 7, 2015.
At any time before or after the effective time of the merger, the Antitrust Division or the FTC could take action under the antitrust laws, including seeking to prevent the merger, to rescind the merger or to conditionally approve the merger upon the divestiture of assets of the Company or Parent or subject to regulatory conditions or other remedies. In addition, U.S. state attorneys general could take action under the antitrust laws as they deem necessary or desirable in the public interest, including, without limitation, seeking to enjoin the completion of the merger or permitting completion subject to regulatory conditions. Private parties may also seek to take legal action under the antitrust laws under some circumstances. There can be no assurance that a challenge to the merger on antitrust grounds will not be made or, if such a challenge is made, that it would not be successful.
Antitrust Approval in Canada
Under the Competition Act in Canada, the parties must file a pre-Merger notification and observe the specified waiting period requirements before consummating the merger, unless the parties are exempted from such requirements through the issuance of an ARC, or a “no-action” letter together with a waiver of the notification and waiting period requirements. On December 30, 2014, the parties submitted a request to the Commissioner of Competition in Canada for an ARC or, in the alternative, a “no-action” letter.
Litigation
Since the December 14, 2014 announcement of the transaction, the members of the board, Parent, Merger Sub, and BC Partners, Inc. have been named in six putative class action lawsuits filed in the Delaware Court of Chancery challenging the merger. PetSmart, La Caisse de dépôt et placement du Québec, GIC Special Investments Pte Ltd, Longview Asset Management, LLC and Stepstone Group LP have been named in five of the six lawsuits, and Jana Partners LLC has been named in one of the lawsuits. The cases are captioned Soffer v. Lenhardt, et al., C.A. No. 10482-VCN, Sharkey v. PetSmart, Inc., et al., C.A. No. 10496-VCN, Lipovich v. PetSmart, Inc., et al., C.A. No. 10504-VCN, Wayne County Employees’ Retirement System v. BC Partners, Inc., et al., C.A. No. 10514-VCN, Levine v. PetSmart, Inc., et al., C.A. No. 10516-VCN, and City of Atlanta Firefighters Pension Plan v. Lenhardt, et al., C.A. No. 10527-VCN. The complaints generally allege, among other things, that the PetSmart directors breached their fiduciary duties by agreeing to the transaction at an inadequate price and through an inadequate process and by agreeing to deal terms that allegedly prevent a superior offer for the Company. The complaints also allege that PetSmart and/or some or all of the other entity defendants aided and abetted the directors’ alleged breaches of duty. The complaints seek, among other things, to enjoin the transaction or to rescind the transaction if consummated, and attorney’s fees and other costs.
We believe that the lawsuits are without merit.
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THE MERGER AGREEMENT
The following is a summary of the material provisions of the merger agreement, a copy of which is attached to this proxy statement as Annex A, and is incorporated by reference into this proxy statement. This summary may not contain all of the information about the merger agreement that is important to you. We encourage you to read carefully the merger agreement in its entirety, as the rights and obligations of the parties thereto are governed by the express terms of the merger agreement and not by this summary or any other information contained in this proxy statement.
Explanatory Note Regarding the Merger Agreement
The following summary of the merger agreement, and the copy of the merger agreement attached hereto as Annex A to this proxy statement, are intended to provide information regarding the terms of the merger agreement and are not intended to modify or supplement any factual disclosures about the Company in its public reports filed with the SEC. In particular, the merger agreement and the related summary are not intended to be, and should not be relied upon as, disclosures regarding any facts and circumstances relating to the Company or any of its subsidiaries or affiliates. The merger agreement contains representations and warranties by the Company, Parent and Merger Sub which were made only for purposes of that agreement and as of specified dates. The representations, warranties and covenants in the merger agreement were made solely for the benefit of the parties to the merger agreement, may be subject to limitations agreed upon by the contracting parties, including being qualified by confidential disclosures made for the purposes of allocating contractual risk between the parties to the merger agreement instead of establishing these matters as facts, and may apply contractual standards of materiality or material adverse effect that generally differ from those applicable to investors. In addition, information concerning the subject matter of the representations, warranties and covenants may change after the date of the merger agreement, which subsequent information may or may not be fully reflected in the Company’s public disclosures. Moreover, the description of the merger agreement below does not purport to describe all of the terms of such agreement, and is qualified in its entirety by reference to the full text of such agreement, a copy of which is attached hereto as Annex A and is incorporated herein by reference.
Additional information about the Company may be found elsewhere in this proxy statement and the Company’s other public filings. See “Where You Can Find Additional Information.
Structure of the Merger; Certificate of Incorporation; Bylaws; Directors and Officers
At the effective time of the merger, Merger Sub will merge with and into the Company, the separate corporate existence of Merger Sub will cease and the Company will continue its corporate existence under Delaware law as the surviving corporation in the merger. The certificate of incorporation of the Company will be amended so as to read in its entirety in the form attached as Exhibit A to the merger agreement, and, as so amended, will be the certificate of incorporation of the surviving corporation until thereafter amended in accordance with applicable law. The bylaws of the surviving corporation will be amended and restated so as to read in its entirety in the form attached as Exhibit B to the merger agreement, and, as so amended and restated, will be the bylaws of the surviving corporation until thereafter amended in accordance with applicable law. Subject to applicable law, the directors of Merger Sub as of the effective time of the merger will be the directors of the surviving corporation as of the effective time and will hold office until their respective successors are duly elected and qualified, or their earlier death, resignation or removal. The officers of the Company as of the effective time of the merger will be the initial officers of the surviving corporation as of the effective time and will hold office until their respective successors are duly elected and qualified, or their earlier death, resignation or removal.
When the Merger Becomes Effective
The closing of the merger will take place at the offices of Wachtell, Lipton, Rosen & Katz, 51 West 52nd Street, New York, New York, on a date which will be the third business day after the satisfaction or waiver (to the extent permitted by applicable law) of the closing conditions stated in the merger agreement (other than those conditions that by their nature are to be satisfied by actions to be taken at the closing, but subject to the satisfaction or waiver of such conditions) or at such other place, date and time as the Company and Parent may agree in writing. However, if the marketing period (as defined below) has not
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ended at the time of the satisfaction or waiver of such closing conditions, the closing will occur on the earlier of  (i) a date during the marketing period specified by Parent on no fewer than three business days’ notice to the Company and (ii) the first business day following the last day of the marketing period.
The merger will become effective at the time when the Company files a certificate of merger with the Secretary of State of the State of Delaware or at such later date or time as Merger Sub and the Company agree and specify in the certificate of merger.
For purposes of the merger agreement, “marketing period” means the first period of 20 consecutive business days after the date of the mailing of this proxy statement and throughout and at the end of which:

Parent has received the required information (as defined under “— Financing”) from the Company; and

(i) the mutual conditions to the parties’ obligations to consummate the merger and the conditions to the obligations of Parent and Merger Sub to effect the merger (except for those conditions that by their nature are to be satisfied at the closing) are satisfied or waived and (ii) nothing has occurred and no condition exists that would cause any of those conditions referred to in clause (i) to fail to be satisfied assuming the closing were to be scheduled for any time during such 20 consecutive business day period; subject to the following:

if the Company stockholder meeting is scheduled for, or re-scheduled to, a date within 25 business days of June 14, 2015 (referred to herein as the “end date”) and no later than five business days prior to the end date) and the marketing period would otherwise commence as provided above but for the fact that the Company stockholder approval has not been received, the marketing period will commence on a date selected by Parent which must be a date at least 25 business days prior to the end date (as long as the Company stockholder meeting has been so scheduled or re-scheduled with sufficient time so as to permit and in all cases the marketing period must still be for a period of 20 consecutive business days);

the marketing period will commence no earlier than January 5, 2015,

the marketing period will not commence if prior to the completion of the marketing period, (I) Deloitte & Touche LLP withdraws its audit opinion with respect to any of the financial statements contained in the required information, (II) the financial statements included in the required information on the first day of any such 20 business day period would be required to be updated to permit a registration statement on Form S-1 using such financial statements to be declared effective by the SEC on the last day of such 20 consecutive business day period or (III) the Company has announced any intention to restate any historical financial statements of the Company or other financial information included in the required information, or that any such restatement is under consideration or may be a possibility; and

the marketing period will end when the debt financing is obtained by Parent.
Effect of the Merger on the Common Stock
At the effective time of the merger, each issued and outstanding share of the common stock outstanding immediately prior to the effective time of the merger (each, a “share”), other than “cancelled shares”, “converted shares” or “dissenting shares” (each as described below) will be converted automatically into the right to receive merger consideration.
Each share that is owned by the Company, Parent, any direct or indirect holding company of Parent (including any share actually contributed pursuant to a “rollover agreement” between Parent or its affiliates and the holder of such share (including the rollover agreement)) or Merger Sub immediately prior to the effective time of the merger (the “cancelled shares”) will be cancelled and retired and will cease to exist and no consideration will be delivered in exchange for such cancellation and retirement. Each share that is owned directly by any subsidiary of the Company (the “converted shares”) will be converted into such number of shares of common stock of the surviving corporation so as to maintain relative ownership percentages.
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Any shares held by holders who have not voted in favor of the adoption of the merger agreement or consented thereto in writing and who have properly exercised appraisal rights in accordance with Section 262 of the DGCL (such shares being the “dissenting shares”) will not be converted into the right to receive the merger consideration, and holders of such dissenting shares will be entitled to receive payment of the fair value of such dissenting shares in accordance with the provisions of Section 262 of the DGCL unless and until any such holder fails to perfect or effectively withdraws or loses its rights to appraisal and payment under the DGCL.
At the effective time of the merger, each share of common stock of Merger Sub issued and outstanding immediately prior to the effective time of the merger will be converted into and become one validly issued, fully paid and nonassessable share of common stock of the surviving corporation and will constitute the only outstanding shares of capital stock of the surviving corporation.
Treatment of Company Equity Awards
Company Options.   Except as otherwise agreed in writing between any holder and Parent, each Company option, whether vested or unvested, that is outstanding immediately prior to the effective time of the merger will, as of the effective time of the merger, become fully vested and be converted into the right to receive an amount in cash, less applicable tax withholdings, equal to the product obtained by multiplying (a) the excess, if any, of the merger consideration over the exercise price per share of the Company option, by (b) the total number of shares subject to the Company option.
Company RSU Awards.   Except as otherwise agreed in writing between any holder and Parent, each Company RSU award, whether vested or unvested, that is outstanding immediately prior to the effective time of the merger, will, as of the effective time of the merger, become fully vested and be converted into the right to receive an amount in cash, less applicable tax withholdings, equal to (1) the product obtained by multiplying (a) the total number of shares subject to the Company RSU award, by (b) the merger consideration, plus (2) any dividends accrued with respect to the Company RSU award.
Company PSU Awards.   Except as otherwise agreed in writing between any holder and Parent, each Company PSU award that is outstanding immediately prior to the effective time of the merger will become fully vested (based on actual performance, in the case of awards whose performance period ends prior to the effective time of the merger, at 109.6% of target levels, in the case of awards granted in the 2013 fiscal year, and at 150.0% of target levels, in the case of awards granted in the 2014 fiscal year) and be converted into the right to receive an amount in cash, less applicable tax withholdings, equal to (1) the product obtained by multiplying (a) the total number of shares subject to the Company PSU award by (b) the merger consideration, plus (2) any dividends accrued with respect to the Company PSU award.
Company Restricted Stock.   Except as otherwise agreed in writing between any holder and Parent, effective as of immediately prior to the effective time of the merger, each then-outstanding share of Company restricted stock will automatically become fully vested and the restrictions thereon will lapse, and each such share of Company restricted stock will be cancelled and converted into the right to receive an amount in cash, less applicable tax withholdings, equal to the merger consideration, plus any dividends accrued with respect to the Company restricted stock.
Treatment of the Company ESPP
The Company will, prior to the effective time of the merger, take all actions necessary to terminate the Company’s 2012 Employee Stock Purchase Plan (the “Company ESPP”) and all outstanding rights thereunder as of immediately prior to the effective time of the merger, and to provide that (a) the Company will not commence a new offering period, (b) no new participants will be permitted into the Company ESPP, and (c) existing participants may not increase their elections with respect to the current offering period. Immediately prior to the effective time of the merger, any then outstanding rights under the plan will terminate and the Company will distribute to each participant in the plan all of his or her accumulated payroll deductions with respect to the offering period then in effect (if any).
Payment for the Shares in the Merger
Prior to the effective time of the merger, Parent will deposit, or cause to be deposited, with a U.S. bank or trust company that will be appointed by Parent (and approved by the Company), as paying agent, in
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trust for the benefit of the holders of the shares (other than the cancelled shares, converted shares and dissenting shares), cash sufficient to pay the aggregate merger consideration.
As soon as reasonably practicable after the effective time of the merger and in any event not later than the second business day following the closing date, the paying agent will mail to each record holder of shares of common stock that were converted into the merger consideration a letter of transmittal with respect to book-entry shares (to the extent applicable) and certificates that immediately prior to the effective time of the merger represented shares (“certificates”) and instructions for use in effecting the surrender of certificates (or affidavits of losses in lieu thereof) in exchange for the merger consideration. Upon surrender of certificates (or affidavits of loss) or book-entry shares together with such letter of transmittal and such other documents as may be customarily required by the paying agent, the holder of such shares will be entitled to receive cash equal to the total merger consideration for all shares represented by such certificates or book-entry shares. As soon as reasonably practicable after the effective time of the merger and in any event not later than the second business day following the closing date, the paying agent will issue and deliver to each holder of book entry shares a check or wire transfer for an amount equal to the total merger consideration for such shares that are book-entry shares. No interest will be paid or accrued on any amount payable upon surrender of certificates or book-entry shares.
Representations and Warranties
The merger agreement contains a number of representations and warranties made by the Company, on the one hand, and Parent and Merger Sub, on the other hand. The representations and warranties do not survive the effective time of the merger. These representations and warranties are subject to specified exceptions and qualifications contained in the merger agreement, as well as information contained in the documents that the Company filed with the SEC on or after January 29, 2012 and prior to the date of the merger agreement, and information contained in the confidential disclosure letters exchanged between the parties in connection with the merger agreement.
The merger agreement contains representations and warranties of each of the Company and of Parent and Merger Sub as to, among other things:

corporate organization, existence, good standing and authority to carry on its business as presently conducted, including, as to the Company, with respect to its subsidiaries;

corporate power and authority to enter into the merger agreement and to consummate the transactions contemplated by the merger agreement;

required regulatory filings and authorizations, consents or approvals of governmental entities;

the absence of certain violations, defaults or consent requirements under certain contracts, organizational documents and law, in each case arising out of the execution and delivery of, and consummation of the transactions contemplated by, the merger agreement;

matters relating to information to be included in this proxy statement in connection with the merger;

the absence of certain litigation, orders and judgments and governmental proceedings and investigations related to Parent and Merger Sub or the Company, as applicable; and

the absence of any fees owed to investment bankers or brokers in connection with the merger, other than those specified in the merger agreement.
The merger agreement also contains representations and warranties of the Company as to, among other things:

the capitalization of the Company, including the Company’s equity awards, and the absence of certain rights to purchase or acquire equity securities of the Company of any of its subsidiaries, the absence of any bonds or other obligations allowing holders the right to vote with stockholders of the Company, the absence of stockholder agreements or voting trusts to which the Company or any of its subsidiaries is a party, and the absence of certain indebtedness;
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the accuracy of the Company’s filings with the SEC and of financial statements included in the SEC filings;

the implementation and maintenance of disclosure controls and internal controls over financial reporting and the absence of certain claims, complaints or allegations with respect thereto;

the absence of certain undisclosed liabilities for the Company and its subsidiaries;

compliance with laws and possession of necessary permits and authorizations by the Company and its subsidiaries;

environmental matters and compliance with environmental laws by the Company and its subsidiaries;

the Company’s employee benefit plans and other agreements with its employees;

labor matters related to the Company and its subsidiaries;

conduct of the Company’s business and the absence of a Company material adverse effect (as defined below) since February 2, 2014;

the absence of certain actions by the Company and its subsidiaries since August 3, 2014;

the payment of taxes, the filing of tax returns and other tax matters related to the Company and its subsidiaries;

ownership of or rights with respect to the intellectual property of the Company and its subsidiaries;

real property owned or leased by the Company and its subsidiaries;

the receipt by the board of an opinion of J.P. Morgan;

the vote of stockholders required to adopt the merger agreement;

material contracts of the Company and its subsidiaries;

the suppliers of the Company and its subsidiaries;

insurance policies of the Company and its subsidiaries;

the inapplicability of restrictions on business combinations set forth in Section 203 of the DGCL;

the absence of certain interested party transactions; and

the limitation of the Company’s representations and warranties to those set forth in the merger agreement.
The merger agreement also contains representations and warranties of Parent and Merger Sub as to, among other things:

the financing (as defined below) that has been committed in connection with the merger;

the termination fee commitment letters delivered by members of the Buyer Group (other than Longview);

Parent’s ownership of Merger Sub and the absence of any previous conduct of business by Merger Sub other than in connection with the transactions contemplated by the merger agreement;

the absence of any required vote by Parent’s stockholders to approve the merger agreement;

the limitation of Parent’s and Merger Sub’s representations and warranties to those set forth in the merger agreement;

the absence of agreements with any beneficial owner of more than five percent of the outstanding shares or any executive officer or member of the Company’s board relating to the Company, the merger or the operations of the Company following the effective time of the merger;
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the absence of any ownership above five percent by Parent, Merger Sub or any of their “affiliates” (as such term is defined under the HSR Rules) (the “HSR Affiliates”) in a person that owns, controls or operates a business engaged in the United States in any of the principal lines of business in which the Company is engaged;

the absence of any direct or indirect ownership, as of the date of the merger agreement, by Parent or Merger Sub of common stock or securities convertible into or exchange for common stock; and

the solvency of the surviving corporation immediately after giving effect to the transactions contemplated by the merger agreement.
Many of the Company’s representations and warranties in the merger agreement are qualified by materiality qualifications or a “Company material adverse effect” standard.
For purposes of the merger agreement, a “Company material adverse effect” means:

a change, event, development or effect that (a) is or would reasonably be expected to be materially adverse to the business, results of operations or condition (financial or otherwise) of the Company and its subsidiaries, taken as a whole or (b) prevents, or would reasonably be expected to prevent, the Company’s ability to consummate the merger prior to the end date, but for purposes of clause (a) does not include changes, events, developments or effects relating to or resulting from:

changes or developments in economic or political conditions or in securities, credit or financial markets;

changes or developments in or affecting the industries in which the Company and its subsidiaries operate, including changes in law or regulation affecting such industries;

the entry into the merger agreement or the public announcement or pendency of the merger or other transactions contemplated by the merger agreement, including the impact on the relationships of the Company or any of its subsidiaries with employees, customers, suppliers or partners;

the identity of Parent or any of its affiliates as the acquiror of the Company, or its or their plans for the Company;

the omission to take any action expressly prohibited by certain provisions of the merger agreement pertaining to the conduct of business by the Company if, prior to the relevant omission to take any such action, the Company seeks in writing the prior approval of Parent to take such action which Parent declines to provide;

the taking of any action required by the merger agreement or any action or inaction expressly consented to by Parent;

any acts of terrorism or war;

any hurricane, tornado, flood, earthquake, natural disasters, acts of God or other comparable events;

changes in generally accepted accounting principles or the interpretation thereof;

any shareholder litigation relating to the merger agreement or the transactions contemplated by the merger agreement; or

any failure to meet internal or published projections, forecasts or revenue or earning predictions for any period, or any decline in the market price or trading volume of the common stock (however, the facts, changes, events, developments or effects underlying any such failure or decline may be taken into account in determining whether a Company material adverse effect has occurred);

 however, changes, events, developments or effects described in the first, second, seventh, eighth and ninth bullets may be taken into account in determining whether a Company material adverse
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effect has occurred to the extent that the Company and its subsidiaries, taken as a whole, are disproportionately adversely affected relative to other participants in the industries in which the Company or its subsidiaries conduct their business.
Certain of the representations and warranties of Parent and Merger Sub are qualified by a “Parent material adverse effect” standard. For the purpose of the merger agreement, a “Parent material adverse effect” with respect to Parent or Merger Sub means an event or effect that prevents or materially delays or materially impairs the ability of Parent or Merger Sub to perform its obligations under the merger agreement or to consummate the merger and the other transactions contemplated by the merger agreement (including obtaining the financing necessary to pay the merger consideration).
Conduct of Business Pending the Merger
The merger agreement provides that, subject to specified exceptions in the merger agreement and the disclosure letter delivered by the Company in connection with the merger agreement, during the period from the signing of the merger agreement to the effective time of the merger, except as may be required by law or as consented to by Parent in writing or as expressly required or permitted by the merger agreement, the Company, among other things, will conduct the business of the Company and its subsidiaries in all material respects in the ordinary course of business consistent with past practice and will not, and will not permit any of its subsidiaries to take the following actions (subject to specified exceptions):

authorize or pay any dividend on, or make any other distribution with respect to, any shares of its capital stock;

split, combine or reclassify any capital stock or issue or authorize or propose the issuance of any securities in respect of, in lieu of or in substitution for shares of its capital stock;

except as required by existing written agreements or Company benefit plans, (i) increase the compensation or other benefits payable or provided to the Company’s directors, executives or employees, other than with respect to increases in compensation and benefits to employees having a title of Vice President or below in the ordinary course of business, consistent with past practice not to exceed an aggregate increase of 2.5%, (ii) enter into, amend or terminate any employment, change of control, severance or retention agreements with any employee of the Company or any of its subsidiaries, subject to certain exceptions, (iii) hire any employee or retain any individual independent contractor with annual target cash compensation in excess of  $400,000, (iv) terminate any director, executive or employee with annual target cash compensation in excess of  $400,000, other than for cause, (v) grant to any current or former director, employee or individual independent contractor any equity or equity-based award, or (vi) permit any employee to participate in the Company’s Executive Change in Control Severance Plan other than those employees who are participants as of the date of the merger agreement;

enter into or make any loans or advances to any of its executive officers, directors, employees, agents or consultants (other than loans or advances in the ordinary course of business consistent with past practice) or make any change in its existing borrowing or lending arrangements for or on behalf of any of such persons, except as required by the terms of any Company benefit plan;

materially change financial accounting policies or procedures or any of its methods of reporting income, deductions or other material items for financial accounting purposes, except as required by generally accepted accounting principles or SEC rules;

amend any provision of its certificate of incorporation or bylaws or similar applicable charter or organizational documents;

issue, sell, pledge, dispose of or encumber, or authorize the issuance, sale, pledge, disposition or encumbrance of, any shares of its capital stock or other ownership interest in the Company or any subsidiaries or any securities convertible into or exchangeable for any such shares or ownership interest, or any rights, warrants or options to acquire or with respect to any such shares of capital stock, ownership interest or convertible or exchangeable securities or take any action to cause to be exercisable any otherwise unexercisable Company option (except as otherwise expressly provided by the terms of the merger agreement or the express terms of any unexercisable options
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outstanding on the date of the merger agreement), other than issuances of shares of common stock in respect of any exercise of Company options, and settlement of any Company RSU awards or Company PSU awards, in each case outstanding on the date of the merger agreement and in accordance with the terms of the merger agreement;

purchase, redeem or otherwise acquire any shares of its capital stock or any rights, warrants or options to acquire any such shares;

incur, assume, guarantee, prepay or otherwise become liable for any indebtedness (as defined in the merger agreement), except in the ordinary course of business in an amount not to exceed $10 million pursuant to the Company’s existing credit agreement or for trade payables, capital lease obligations or obligations issued or incurred as consideration for services or property, including inventory;

sell, lease, license, transfer, exchange or swap, mortgage or otherwise encumber, or subject to any lien (other than permitted liens) or otherwise dispose of any material portion of its properties or material assets, including any capital stock of subsidiaries;

modify, amend, terminate or waive any material rights under any material contract other than in the ordinary course of business consistent with past practice, or enter into any new agreement that would have been considered a specified type of material contract under the merger agreement if it were entered into prior to the date of the merger agreement, other than in the ordinary course of business consistent with past practice;

settle any actual or threatened claim, action, suit, proceeding or investigation, whether civil, criminal, administrative or investigative above specified monetary thresholds;

acquire or dispose (by merger, consolidation, acquisition or disposition of stock or assets or otherwise) assets from or to any other person above specified monetary thresholds, other than acquisitions of merchandise for sale in the Company’s stores;

make any loans, advances or capital contributions to, or investments in, any person;

merge or consolidate with any other person or restructure, reorganize or completely or partially liquidate;

make or authorize any capital expenditures in excess of  $5 million in the aggregate other than those capital expenditures specified in the Company’s capital expenditure budget provided to Parent;

enter into any collective bargaining agreement or any agreement with any labor organization, trade union, labor association, or other employee representative;

(i) make, change or rescind any material tax election, (ii) change any material method of tax accounting, (iii) file any material amended tax return, (iv) enter into any closing agreement with respect to a material amount of taxes, (v) settle or compromise any audit or proceeding relating to a material amount of taxes, or (vi) surrender any right to claim a material amount of tax refund, in each case, to the extent such action would result in a material increase in the tax liability in excess of the amounts reserved therefor; and

agree, in writing or otherwise, to take any of the foregoing actions.
The merger agreement also provides that, between the date of the merger agreement and the effective time of the merger, (i) Parent and Merger Sub will not, and will not permit any of the members of the Buyer Group to take or agree to take any action which would reasonably be expected to result in a Parent material adverse effect, and (ii) Parent and Merger Sub will not, and will not permit any of their HSR affiliates (as defined in the merger agreement) to take any action that has the effect of, or would reasonably be expected to have the effect of, materially delaying or preventing the satisfaction of the closing condition regarding antitrust approvals.
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Other Covenants and Agreements
Access and Information
Subject to certain exceptions and limitations, the Company must give Parent and its officers, employees, accountants, consultants, legal counsel, financial advisors, financial sources and agents and other representatives reasonable access during normal business hours, throughout the period prior to the earlier of the effective time of the merger and the termination of the merger agreement, to the Company’s and its subsidiaries’ senior executives, properties, contracts, commitments, books and records, other than any such matters that relate to the negotiation and execution of the merger agreement, or to transactions potentially competing with or alternative to the transactions contemplated by the merger agreement or proposals from other parties relating to any competing or alternative transactions. The Company will also furnish reasonably promptly to Parent and its representatives certain reports and such other information about the Company’s business as may be reasonably requested by Parent that has been or is prepared by the Company (or is readily available without any preparation) in the ordinary course of business.
No Solicitation
The Company agreed that neither it nor any subsidiary nor any of its or their respective affiliates or representatives will, directly or indirectly:

solicit, initiate or knowingly encourage or facilitate the making or submission of any alternative proposal (as defined below) or any inquiries, discussions or offers that constitute or could be reasonably expected to lead to any alternative proposal;

participate in any discussions or negotiations regarding an alternative proposal with, or furnish any nonpublic information regarding the Company or its subsidiaries in connection with an alternative proposal to, any person that has made or, to the Company’s knowledge, is considering making an alternative proposal (except, in each case, to notify such person as to the existence of the no solicitation provisions of the merger agreement); or

enter into any letter of intent, agreement in principle, merger or acquisition agreement or any other agreement relating to or providing for any alternative proposal (except for confidentiality agreements permitted under the merger agreement).
At any time prior to the receipt of the Company stockholder approval of the adoption of the merger agreement, if the Company receives an unsolicited alternative proposal from a third party made after the date of the merger agreement which in the good faith judgment of the board of directors of the Company, after consultation with outside legal counsel and financial advisors, constitutes a superior proposal (as defined below) or could reasonably be expected to result in a superior proposal being made, the Company may take the following actions:

furnish nonpublic information to the third party making such alternative proposal pursuant to a confidentiality agreement having provisions as to confidential treatment of information that are substantially similar to the confidentiality provisions of the confidentiality agreements between the Company and certain members of the Buyer Group; and if such nonpublic information is provided to such third party, Parent must, to the extent not previously provided to Parent, provide such information to Parent prior to or at substantially the same time as it being provided to such third party, and

engage in discussions or negotiations with the third party with respect to the alternative proposal.
The Company must promptly (and in any event within forty-eight hours) notify Parent of any alternative proposal received by the Company and keep Parent reasonably informed on a reasonably current basis of any material developments regarding any alternative proposals or any material change to the terms of any such alternative proposal.
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Except as described below, the board of directors of the Company may not:

withdraw, qualify or modify in any manner adverse to Parent, or propose publicly to withdraw, qualify or modify in any manner adverse to Parent, the recommendation of the board for stockholders to adopt the merger agreement (referred to as the “recommendation”);

approve, recommend or declare advisable (or propose publicly to approve, recommend or declare advisable) any alternative proposal; or

fail to include the recommendation in this proxy statement or fail to recommend against any alternative proposal subject to Regulation 14D under the Exchange Act in any solicitation or recommendation statement on Schedule 14D-9 after the commencement of such alternative proposal (any such action referred to in this bullet and in the two previous bullets, a “change of recommendation”).
Notwithstanding the foregoing, prior to obtaining the Company stockholder approval of the adoption of the merger agreement, the board may, in response to a superior proposal received by the Company after the date of the merger agreement on an unsolicited basis, (x) make a change of recommendation or (y) cause the Company to terminate the merger agreement to enter into an agreement with respect to a superior proposal; provided, however, that the board is not entitled to take any such action until:

the Company sends written notice to Parent advising Parent that the board intends to make a change of recommendation or to terminate the merger agreement and specifying the reasons therefor, which notice must include a description of the terms and conditions of the superior proposal that is the basis for the proposed action of the board, the identity of the person making the proposal and a copy of any written proposals or proposed definitive agreements (including relating to any debt or equity financing) for such superior proposal;

during the three business day period following the date on which the Company’s written notice is received, the Company must, and must cause its representatives to, use commercially reasonable efforts to negotiate in good faith with Parent (to the extent Parent wishes to negotiate), to make adjustments to the terms and conditions of the merger agreement; and

following the end of such three business day period, the board, after consultation with the Company’s financial advisors and outside legal counsel and taking in account any revisions to the terms and conditions of the merger agreement proposed by Parent, must determine in good faith that the alternative proposal remains a superior proposal; provided, that each time material modifications to the terms of an alternative proposal determined to be a superior proposal are made (it being understood any change to the consideration to be received by the Company’s stockholders in such proposal will be deemed a material modification), the Company must notify Parent of such modification and the time period set forth in immediately preceding bullet will recommence and be extended for two business days from the day of such notification.
Prior to obtaining the Company stockholder approval of the adoption of the merger agreement, the board may also, solely in response to an intervening event (as defined below), make a change of recommendation, if the board determines in good faith, after consultation with the Company’s outside legal counsel, that the failure of the board to take such action would be inconsistent with its fiduciary duties under applicable law; provided, however, that the board is not be entitled to effect such a change of recommendation until:

the Company sends written notice to Parent advising Parent that the board intends to effect such a change of recommendation and specifying the reasons therefor, which notice must include a description of the applicable intervening event;

during the three business day period following the date on which the Company’s written notice is received, the Company must, and must cause its representatives to, use commercially reasonable efforts to negotiate in good faith with Parent (to the extent Parent wishes to negotiate), to make adjustments to the terms and conditions of the merger agreement; and
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following the end of such three business day period, the board, after consultation with the Company’s outside legal counsel and taking into account any revisions to the terms and conditions of the merger agreement proposed by Parent, must determine in good faith that the failure of the board to make such a change of recommendation would be inconsistent with its fiduciary duties under applicable law.
Nothing in the merger agreement will prohibit the Company or the board from (i) disclosing to its stockholders a position contemplated by Rules 14d-9 and 14e-2(a) promulgated under the Exchange Act, or from issuing a “stop, look and listen” statement pending disclosure of its position thereunder or (ii) making any disclosure to its stockholders if the board determines in good faith, after consultation with the Company’s outside legal counsel, that the failure of the board to make such disclosure would be inconsistent with the directors’ exercise of their fiduciary obligations to the Company’s stockholders under applicable law; provided, however, that in no event may the board effect a change of recommendation except in accordance with the provisions of the merger agreement described above.
As used in the merger agreement:

“alternative proposal” means any bona fide proposal or offer made by any person or group of related persons, and whether involving a transaction or series of related transactions, for (i) a merger, reorganization, share exchange, consolidation, business combination, recapitalization, dissolution, liquidation or similar transaction involving the Company, (ii) the acquisition by any person or group of related persons of more than 25% of the assets of the Company and its subsidiaries, on a consolidated basis (in each case, including securities of the subsidiaries of the Company), or (iii) the direct or indirect acquisition by any person or group of related persons of more than 25% of the outstanding shares of common stock;

“superior proposal” means a written alternative proposal (substituting “50%” for “25%” that the board determines in good faith, after consultation with the Company’s financial and legal advisors, taking into account the timing, likelihood of consummation, legal, financial, regulatory and other aspects of the alternative proposal, including the financing terms thereof, and such other factors as the board considers to be appropriate, to be more favorable to the Company and its stockholders than the transactions contemplated by the merger agreement; and

“intervening event” means any material event, change, effect, condition, occurrence or development relating to the Company that

is unknown and not reasonably foreseeable to the board as of the date of the merger agreement, or if known and reasonably foreseeable to the board, the material consequences of which were not known and reasonably foreseeable to the board as of the date of the merger agreement;

does not relate to the fact, in each case in and of itself, that the Company meets or exceeds any internal or published projections, forecasts or estimates of its revenue, earnings or other financial performance or results of operations for any period ending on or after the date of the merger agreement, or changes, in each case in and of itself, after the date of the merger agreement in the market price or trading volume of the shares or the credit rating of the Company; and

does not relate to any alternative proposal.
Stockholder Meeting
The Company will take all action required under the DGCL and its certificate of incorporation and bylaws to duly call, give notice of, convene and hold a meeting of its stockholders promptly following the mailing of this proxy statement for the purpose of obtaining the approval of the Company’s stockholders to adopt the merger agreement and subject to a change of recommendation being made in accordance with the provisions of the merger agreement, will use all reasonable efforts to solicit from its stockholders proxies in favor of the adoption of the merger agreement.
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Employee Matters
From and after the effective time of the merger, the Company will, and Parent will cause the Company to, honor all benefit plans in accordance with their terms as in effect immediately before the effective time of the merger. For a period of one year following the effective time of the merger, Parent will provide, or will cause to be provided, to current employees of the Company and its subsidiaries who remain so employed (a) base compensation and bonus opportunities that, in each case, are no less favorable than were provided to the employee immediately before the effective time of the merger, and (b) all other compensation and employee benefits that are comparable in the aggregate to those provided to the employee immediately before the effective time of the merger (though the Company may, in lieu of granting equity awards to any particular employee, grant to such employee cash or other awards).
For all purposes (including purposes of vesting, eligibility to participate, and level of benefits) under the employee benefit plans of Parent and its subsidiaries providing benefits to any Company employees after the effective time of the merger (the “New Plans”), each Company employee will be credited with his or her years of service with the Company and its subsidiaries and their respective predecessors before the effective time of the merger, to the same extent as such Company employee was entitled, before the effective time of the merger, to credit for such service under any similar benefit plan in which the Company employee participated or was eligible to participate immediately prior to the effective time of the merger, subject to certain exceptions. In addition, (a) each Company employee will be immediately eligible to participate, without any waiting time, in any and all New Plans that are health and welfare plans to the extent coverage under the plan is comparable to a benefit plan in which the Company employee participated immediately before the effective time of the merger, and (b) for purposes of each New Plan providing medical, dental, pharmaceutical, and/or vision benefits to any Company employee, (i) Parent will cause all pre-existing condition exclusions and actively-at-work requirements of the New Plan to be waived for such employee and his or her covered dependents to the extent such conditions would have been waived under the comparable plans of the Company or its subsidiaries in which such employee participated immediately prior to the effective time of the merger, and (ii) Parent will cause any eligible expenses incurred by such employee and his or her covered dependents during the portion of the plan year of the Company benefit plans ending on the date such employee’s participation in the corresponding New Plan begins to be taken into account under such New Plan for purposes of satisfying all deductible, coinsurance and maximum out-of-pocket requirements applicable to such employee and his or her covered dependents for the applicable plan year as if such amounts had been paid in accordance with such New Plan.
Pursuant to the merger agreement, the Company may establish (and has established) a cash-based retention program in the aggregate amount of  $10 million to promote retention and to incentivize efforts to consummate the merger. Under the retention program, one-half of any payments will be paid upon the 90th day following the closing date and one-half of any payments will be paid upon the 120th day following the closing date, in each case, subject to continued employment with the Company and its subsidiaries through such date; however, if an award recipient’s employment with the Company is terminated due to a qualifying termination prior to any scheduled payment date, then the unpaid portions of the payments will be paid upon the date of the individual’s qualifying termination. Amounts under the retention program will be allocated among the employees of the Company and its subsidiaries identified, and in the amounts and other terms determined, by the Chief Executive Officer of the Company (or his designees), though the retention award allocated to any employee may not exceed $650,000. If a retention award or portion thereof under the retention program is forfeited by a participant, the Chief Executive Officer of the Company (or his designees) may reallocate the retention award (or unpaid portion thereof) to existing employees or new hires of the Company and its subsidiaries (subject to the $650,000 limitation specified above).
Under the merger agreement, Parent has acknowledged that a “change of control” (or similar phrase) within the meaning of the Company’s benefit plans will occur at or prior to the effective time of the merger, as applicable, except to the extent doing so would result in “additional tax” under Section 409A of the Code.
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Efforts to Complete the Merger
Each of the parties to the merger agreement must use its reasonable best efforts to take promptly, or to cause to be taken, all actions, and to do promptly, or cause to be done, and to assist and cooperate with the other parties in doing, all things necessary, proper or advisable under applicable laws to consummate and make effective the merger and the other transactions contemplated by the merger agreement.
Each of the parties to the merger agreement was required to promptly, and in no event later than 10 business days after the date of the merger agreement, file all required Notification and Report Forms under the HSR Act and is required to, among other things, use best efforts to cause the expiration or termination of any applicable waiting periods under the HSR Act. Each of the parties to the merger agreement was also required to promptly file any and all required applications and notifications under the Competition Act (Canada), including a submission requesting an advance ruling certificate, and is required to use best efforts to cause the expiration or termination of any applicable waiting periods under the Competition Act, except that the parties will only make a filing pursuant to Part IX of the Competition Act.
Indemnification of Directors and Officers; Insurance
For a period of six years following the effective time of the merger, the surviving corporation will maintain in effect the exculpation, indemnification and advancement of expenses provisions of the Company’s and any Company subsidiary’s certificates of incorporation and bylaws or similar organizational documents as in effect immediately prior to the effective time of the merger or in indemnification or similar agreements of the Company or its subsidiaries with certain of their respective directors, officers or employees as in effect immediately prior to the effective time of the merger, and will not amend, repeal or otherwise modify any such provisions in any manner that would adversely affect the rights thereunder of any individuals who at the effective time of the merger were current or former directors or officers of the Company or any of its subsidiaries. All rights of indemnification with respect to any claim made within that six-year period will continue until the disposition of the action or resolution of the claim.
Further, each of Parent and the surviving corporation will, to the fullest extent permitted under applicable law, indemnify and hold harmless (and advance funds in respect of each of the foregoing, subject to the undertaking described below) each current and former director, officer or employee of the Company or any of its subsidiaries (and each person who served at the Company’s request as a director, officer, member, trustee or fiduciary of another corporation, partnership, joint venture, trust, pension or other employee benefit plan or enterprise) against any costs or expenses (including advancing attorneys’ fees and expenses in advance of the final disposition of any claim, suit, proceeding or investigation to each such person to the fullest extent permitted by law following receipt of an undertaking by or on behalf of such person to repay such amount if it is ultimately determined that such person was not entitled to such indemnification), judgments, fines, losses, claims, damages, liabilities and amounts paid in settlement in connection with any actual or threatened claim, action, suit, proceeding or investigation, whether civil, criminal, administrative or investigative, arising out of, relating to or in connection with any action or omission occurring or alleged to have occurred whether before or after the effective time of the merger.
For a period of six years from the effective time of the merger, Parent and the surviving corporation will cause to be maintained in effect the current policies of directors’ and officers’ liability insurance and fiduciary liability insurance maintained by the Company and its subsidiaries with respect to matters arising on or before the effective time of the merger; however, the surviving corporation will not be required to pay annual premiums in excess of 300% of the last annual premium paid by the Company prior to the date of the merger agreement. At the Company’s option, the Company may purchase, prior to the effective time of the merger, a six-year prepaid “tail” policy on terms and conditions providing substantially equivalent benefits as the current policies of directors’ and officers’ liability insurance and fiduciary liability insurance maintained by the Company and its subsidiaries with respect to matters arising on or before the effective time of the merger, covering without limitation the transactions contemplated by the merger agreement; however, the Company may not spend more than 350% of the last annual premium paid by the Company prior to the date of the merger agreement in respect of such “tail” policy and if the cost of such “tail” policy would otherwise exceed such amount, the Company will purchase as much coverage as reasonably practicable for a cost not exceeding such amount. If the Company does not elect to purchase a prepaid “tail” policy, Parent may, at its option, at or after the effective time of the merger, purchase a “tail” policy.
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Financing
Parent will take all actions to obtain the proceeds of the cash equity committed pursuant to the equity financing commitment letters and to cause the shares subject to the rollover agreement to be contributed and transferred as provided therein prior to the end date. Parent will use its reasonable best efforts to obtain the proceeds of the debt financing on the terms and conditions described in the merger agreement and in the debt commitment letter, including:

maintaining in effect the debt commitment letter;

negotiating definitive agreements with respect to the debt financing consistent with the terms and conditions contained therein or such other terms that are acceptable to Parent and would not adversely affect the ability of Parent and Merger Sub to consummate the transactions contemplated by the merger agreement; and

taking into account the expected timing of the marketing period, satisfying (or obtaining the waiver of) on a timely basis all conditions in the commitment letters and the definitive agreements regarding the debt financing and complying in all material respects with its obligations thereunder.
In the event that all conditions contained in the commitment letters (other than, with respect to the debt financing, the availability of the cash equity) have been satisfied (or upon funding will be satisfied), Parent will use its reasonable best efforts to cause each lender and will cause each equity investor to fund its respective committed portion of the financing required to consummate the transactions contemplated by the merger agreement and to pay related fees and expenses on the closing date. In the event that all conditions contained in the rollover agreement have been satisfied (or upon funding will be satisfied), Parent will cause the shares subject to rollover agreement to be transferred and contributed pursuant to the terms thereof.
Parent will not, without the prior written consent of the Company, permit any amendment or modification to, or any waiver of any provision or remedy under any commitment letters or related fee letters if such amendment, modification, waiver or remedy:

adds new conditions (or modifies any existing condition in a manner adverse to Parent or the Company or the transactions contemplated by the merger agreement);

reduces the amount of the financing;

adversely affects the ability of Parent to enforce its rights against other parties to the commitment letters or the definitive agreements regarding the debt financing as so amended, replaced, supplemented or otherwise modified, relative to the ability of Parent to enforce its rights against such other parties to the commitment letters as in effect on the date of the merger agreement or in the definitive agreements regarding the debt financing; or

taking into account the expected timing of the marketing period, would reasonably be expected to prevent, impede or delay the consummation of the merger and the other transactions contemplated by the merger agreement.
In the event that any portion of the debt financing becomes unavailable, regardless of the reason therefor Parent will:

use reasonable best efforts to obtain alternative debt financing (in an amount sufficient, when taken together with cash equity and the available portion of the debt financing to consummate the transactions contemplated by the merger agreement and to pay related fees and expenses) from the same or other sources and which do not include any conditions to the consummation of such alternative debt financing that are more onerous to Parent than the conditions set forth in the debt financing and are otherwise on terms no less favorable to Parent than such unavailable debt financing (including the “flex” provisions of the related fee letter); and

promptly notify the Company of such unavailability and the reasons therefor.
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For the purposes of the merger agreement, the term “debt commitment letters” will be deemed to include any commitment letter (or similar agreement) with respect to any alternative financing arranged in compliance with the merger agreement (and any debt commitment letter remaining in effect at the time in question).
Parent will provide the Company with prompt notice, subject to certain exceptions, of  (1) any material breach or default by any party to any commitment letters or the definitive agreements of which Parent gains knowledge or any termination of any of the commitment letters and (2) the receipt of any written notice or other written communication from any lender, equity investor, or other financing source with respect to any breach, default, termination or repudiation by any party to any commitment letters or the definitive agreements or any provision thereof.
Prior to the closing, the Company will, and will cause each of its subsidiaries to, provide and will use its reasonable best efforts to cause its representatives to provide all cooperation reasonably requested by Parent in connection with the arrangement of the debt financing (however, such requested cooperation may not unreasonably interfere with the ongoing operations of the Company and its subsidiaries), including by:

preparing and furnishing Parent, Merger Sub and their financing sources as promptly as reasonably practicable all required information and all other financial and pertinent information and disclosures regarding the Company and its subsidiaries as may be reasonably requested by Parent or Merger Sub to assist in the preparation of the offering documents and all supplements thereto and assist in the preparation of the pro forma financial statements referred to in the debt commitment letters;

participating in a reasonable number of meetings, presentations, road shows, due diligence sessions, drafting sessions and sessions with rating agencies and assisting with the preparation of materials for rating agency presentations, road show presentations, offering memoranda and bank information memoranda;

assisting reasonably in the preparation of one or more credit or other agreements, as well as any pledge and security documents, and other definitive financing documents, collateral filings or other certificates or documents as may be reasonably requested by Parent and otherwise reasonably facilitating the pledging of collateral;

executing and delivering any necessary and customary pledge and security documents, guarantees, mortgages, collateral filings, other definitive financing documents in connection with such debt financing or other certificates or documents as may reasonably be requested by Parent and reasonably facilitating the taking of all corporate actions by the Company and its subsidiaries with respect to entering such definitive financing documents and otherwise necessary to permit consummation of the debt financing;

cooperating reasonably with the lenders’ due diligence, to the extent customary and reasonable, in connection with the debt financing;

using reasonable best efforts to obtain (i) drafts of customary “comfort” letters of independent accountants of the Company (which must include customary “negative assurance” comfort) prior to the beginning of the marketing period, (ii) surveys and title insurance as reasonably requested by Parent as necessary and customary for financings similar to the debt financing, and (iii) legal opinions of in-house or “local” counsel customary for financings similar to the debt financing;

reasonably assisting Parent in procuring a public corporate credit rating and a public corporate family rating in respect of the relevant borrower or issuer under the debt financing and public ratings for the debt financing or notes to be offered in connection with the debt financing;

permitting the prospective lenders involved in the debt financing to evaluate the Company’s inventory, current assets, cash management and accounting systems, policies and procedures relating thereto for the purpose of establishing collateral arrangements and assisting Parent with the establishment of bank and other accounts and blocked account and control agreements of the Company and one or more of its subsidiaries in connection with the foregoing, in each case to the extent customary and reasonable;
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obtaining a certificate of the chief financial officer of the Company with respect to solvency matters, obtaining customary authorization letters with respect to the bank information memoranda from a senior officer of the Company, using reasonable best efforts to deliver any borrowing base certificates requested by Parent a reasonable time prior to Closing pursuant to the debt commitment letter and using reasonable best efforts to obtain consents of accountants for use of their reports in any materials relating to the debt financing; and

providing all documentation and other information about the Company that is reasonably requested by the lenders and the lenders reasonably determine is required by applicable “know your customer” and anti-money laundering rules and regulations including without limitation the USA PATRIOT Act, to the extent requested by Parent within a specified time frame.
The foregoing notwithstanding, (i) neither the Company nor its subsidiaries, nor any persons who are directors of the Company or its subsidiaries will be required to pass resolutions or consents to approve or authorize the execution of the debt financing or execute or deliver any certificate, document, instrument or agreement that is effective prior to the effective time of the merger or agree to any change or modification of any existing certificate, document, instrument or agreement that is effective prior to the effective time of the merger (other than any authorization letter with respect to the bank information memoranda), (ii) no obligation of the Company or any of its subsidiaries or any of their respective representatives pursuant to the foregoing (other than any authorization letter with respect to the bank information memoranda) will be effective until the effective time of the merger (other than any authorization letters with respect to the bank information memoranda) and (iii) none of the Company or its subsidiaries nor any of their respective representatives will be required to pay any commitment or other similar fee or incur any other cost or expense that is not promptly reimbursed by Parent in connection with the debt financing at or prior to the closing. The merger agreement does not require the Company or any of its subsidiaries, prior to the closing, to be an issuer or other obligor with respect to the debt financing.
Parent will promptly, upon request by the Company, reimburse the Company for all reasonable out-of-pocket costs incurred by the Company or its subsidiaries or their respective representatives in connection with such cooperation and will indemnify and hold harmless the Company and its subsidiaries and their respective representatives from and against any and all losses suffered or incurred by them in connection with the arrangement of the debt financing, any action taken by them at the request of Parent and any information utilized in connection therewith (other than information provided by the Company or its subsidiaries).
For the purposes of the merger agreement, “required information” means, subject to specified exceptions, (i) financial statements required pursuant to the debt commitment letter, as in effect on the date of the merger agreement, (ii) all other financial statements and financial and other data and information regarding the Company and its subsidiaries of the type and form required by Regulation S-X and Regulation S-K under the Securities Act for registered offerings of securities on Form S-1, and of the type and form and for the periods, in each case, customarily included in offering documents used to syndicate credit facilities of the type to be included in the debt financing and in offering documents used in private placements of debt securities under Rule 144A of the Securities Act and (iii) all other data that would be necessary for the underwriter or initial purchaser of an offering of such securities to receive customary “comfort” (including customary “negative assurance” comfort) from independent accountants in connection with such an offering which such auditors are prepared to provide upon completion of customary procedures.
Other Covenants
The merger agreement contains additional agreements between the Company, Parent and Merger Sub relating to, among other matters:

the filing of this proxy statement with the SEC (and cooperation in response to any comments from the SEC with respect to this proxy statement);

antitakeover statutes or regulations that become applicable to the transactions contemplated by the merger agreement;
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the coordination of press releases and other public announcements or filings relating to the transactions contemplated by the merger agreement;

restrictions on additional holders of shares rolling over such shares in exchange for equity interests in Parent;

the notification of specified matters and the settlement of stockholder litigation in connection with the merger agreement;

actions to cause the disposition of equity securities of the Company held by each individual who is a director or officer of the Company pursuant to the transactions contemplated by the merger agreement to be exempt pursuant to Rule 16b-3 promulgated under the Exchange Act;

resignations of the members of the board who are in office immediately prior to the effective time of the merger;

the de-listing of the common stock from the NASDAQ Global Select Market and the deregistration under the Exchange Act;

the treatment of certain outstanding indebtedness of the Company; and

the sale of marketable securities and transfer of cash from subsidiaries to the Company prior to the closing.
Conditions to the Merger
The obligations of the Company, Parent and Merger Sub to effect the merger are subject to the fulfillment (or waiver by Parent and the Company), at and as of the closing, of the following conditions:

the adoption of the merger agreement by the required vote of the stockholders;

the absence of any injunction or similar order by any U.S. or Canadian governmental entity of competent jurisdiction which prohibits the consummation of the merger and the absence of any law enacted, entered or promulgated by any U.S. or Canadian governmental entity after the date of the merger agreement that, in any case, prohibits or makes illegal the consummation of the merger and continues to be in effect; and

the expiration or termination of any applicable waiting period under the HSR Act and the Canadian Competition Act relating to the merger.
The obligation of Parent and Merger Sub to consummate the merger is subject to the fulfillment (or waiver by Parent and Merger Sub) of the following conditions:

(i) certain representations and warranties of the Company with respect to capital stock (including equity awards) are true and correct in all respects (except for only de minimis inaccuracies), as of the date of the merger agreement and as of the closing date, as though made on and as of such date (except to the extent any such representation and warranty expressly is made as of a different date, in which case as of such date), (ii) the representations and warranties of the Company with respect to organization, qualification, voting agreements, indebtedness, exercise price of options, corporate authority, the receipt of a fairness opinion and the applicability of certain antitakeover statutes are true and correct (without giving effect to any “materiality,” “in all material respects,” “Company material adverse effect” or similar qualifiers) in all material respects as of the date of the merger agreement and as of the closing date, as though made on and as of such date (except to the extent any such representation and warranty expressly is made as of an different date, in which case as of such date), (iii) the representations and warranties of the Company with respect to the absence of any Company material adverse effect (a) from February 2, 2014 through the date of the merger agreement and (b) since the date of the merger agreement are true and correct in all respects, as of the date of the merger agreement and as of the closing date, as though made on and as of such date (except to the extent any such representation and warranty expressly is made as of a different date, in which case as of such date) and (iv) the other representations and warranties of the Company are true and correct (without giving effect to any “materiality,” “in all material respects,” “Company material adverse effect” or similar qualifiers) as of the date of the
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merger agreement and as of the closing date, as if made at and as of such time (except to the extent any such representation and warranty expressly is made as of a different date, in which case as of such date), except with respect to this clause (iv) where the failure of such representations and warranties to be so true and correct has not had, individually or in the aggregate, a Company material adverse effect;

the Company has performed in all material respects all obligations and complied with all covenants required by the merger agreement to be performed or complied with by it prior to the effective time of the merger; and

the Company has delivered to Parent a certificate, dated as of the closing date and signed by its Chief Executive Officer or another senior officer, certifying that the conditions in the two bullets above have been satisfied.
The obligation of the Company to effect the merger is subject to the fulfillment (or waiver by the Company) of the following additional conditions:

The representations and warranties of Parent and Merger Sub are true and correct as of the date of the merger agreement and as of the closing date, as though made on and as of such date (except to the extent any such representation and warranty expressly is made as of a different date, in which case as of such date), except where the failure of such representations and warranties to be so true and correct has not had, individually or in the aggregate, a Parent material adverse effect;

Parent and Merger Sub have performed in all material respects all obligations and complied with all covenants required by the merger agreement to be performed or complied with by them prior to the effective time of the merger; and

Parent has delivered to the Company a certificate, dated as of the closing date and signed by its Chief Executive Officer or another senior officer, certifying that the conditions in the two bullets above have been satisfied.
None of the Company, Parent or Merger Sub may rely, either as a basis for not consummating the merger or terminating the merger agreement and abandoning the merger, on the failure of any condition set forth above to be satisfied if such failure was primarily caused by such party’s breach of any provision of the merger agreement.
Termination
The merger agreement may be terminated and abandoned at any time prior to the effective time of the merger:

by mutual written consent of the Company and Parent;
by either the Company or Parent, if:

the effective time of the merger has not occurred on or before the end date (June 14, 2015) and the party seeking to terminate the merger agreement pursuant to this provision: (i) has not breached in any material respect its obligations under the merger agreement in any manner that contributed to the failure to consummate the merger on or before such date and (ii) has used such efforts as may be required by the merger agreement to obtain antitrust approvals and the financing on or before such date;

any governmental entity of competent jurisdiction has issued or entered an injunction or similar order permanently enjoining or prohibiting the consummation of the merger and such injunction or order has become final and non-appealable, provided that the party seeking to terminate the merger agreement pursuant to this provision: (i) has not breached in any material respect its obligations under the merger agreement in any manner that contributed to such injunction or order and (ii) has used the efforts as may be required by the merger agreement to prevent, oppose and remove such injunction or order; or
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the Company’s stockholder meeting for the purpose of obtaining the required vote of the Company’s stockholders to adopt the merger agreement (including any adjournments or postponements thereof) has been held and been concluded and such vote has not been obtained;
by the Company:

if Parent or Merger Sub has breached or failed to perform in any material respect any of their representations, warranties, covenants or other agreements contained in the merger agreement, which breach or failure to perform, (i) results in a failure of a condition to the Company’s obligation to complete the merger or results in the failure of the closing to occur, and (ii) cannot be cured by the end date, or, if curable, is not cured within 30 business days following the Company’s delivery of written notice to Parent stating the Company’s intention to terminate the merger agreement pursuant to this provision and the basis for such termination; provided that the Company will not have a right to terminate the merger agreement pursuant to this provision if the Company is then in material breach of any representation, warranty, agreement or covenant contained in the merger agreement;

at any time prior to obtaining the Company stockholder approval and in accordance with the change of recommendation provisions described above, if and only if  (i) prior to or substantially concurrent with such termination, the Company has paid the Company termination fee (defined below) to Parent and (ii) promptly after such termination, the Company enters into a definitive agreement with respect to the superior proposal that remained a superior proposal following the Company’s compliance with the procedures (including the negotiation requirements) in the change of recommendation provisions described above; or

if  (i) the merger is not consummated within two business days of the first date upon which Parent was required to consummate the closing pursuant to the merger agreement and (ii) the Company was ready, willing and able to consummate the merger and provided written notice to Parent confirming such fact at least one business day prior to such first date that Parent was required to consummate the closing pursuant to the merger agreement; or
by Parent:

prior to the Company meeting, if there is a change of recommendation; or

if the Company has breached or failed to perform in any material respect any of its representations, warranties, covenants or other agreements contained in the merger agreement, which breach or failure to perform, (i) results in a failure of a condition to Parent’s and Merger Sub’s obligations to complete the merger or results in the failure of the closing to occur and (ii) cannot be cured by the end date, or, if curable, is not cured within 30 days following Parent’s delivery of written notice of such breach or failure to the Company stating Parent’s intention to terminate the merger agreement pursuant to this provision and the basis for such termination; provided that Parent will not have a right to terminate the merger agreement pursuant to this provision if Parent or Merger Sub is then in material breach of any representation, warranty, agreement or covenant contained in the merger agreement.
Termination Fees
Company Termination Fee
The Company will pay to Parent (or one or more of its designees) a termination fee in the event that:

the Company has terminated the merger agreement to enter into a superior proposal;

Parent has terminated the merger agreement because of a change of recommendation; or

(x) after the date of the merger agreement, any alternative proposal (substituting 50% for the 25% threshold set forth in the definition of  “alternative proposal”) (such proposal is referred to as a “qualifying transaction”) is publicly proposed or publicly disclosed prior to the Company’s stockholder meeting and not withdrawn at least two business days’ prior to the Company’s stockholder meeting with respect to a termination in the event the Company stockholder vote is
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not received, is proposed to the Company or publicly disclosed prior to the end date with respect to a termination as a result of the end date being reached or is proposed to the Company or publicly disclosed prior to the event giving rise to the termination right with respect to a termination as a result of the Company’s material breach; (y) the merger agreement is terminated by Parent or the Company because the effective time of the merger has not occurred on or before the end date (if, and only if, the Company meeting to adopt the merger agreement has not been held and concluded prior to such termination) or because the Company’s stockholder meeting has been held and concluded and the Company stockholder approval was not received or the merger agreement is terminated by Parent as a result of the Company’s material breach and (z) concurrently with or within 12 months after such termination, the Company enters into a definitive agreement providing for a qualifying transaction or completes a qualifying transaction.
The amount of the termination fee will be $255 million in cash (the “Company termination fee”) less any amounts previously paid to Parent (or its designee(s)) for reimbursement of Parent’s (and its affiliates’) expenses as described below.
Reimbursement of Parent’s Expenses
In the event the merger agreement is terminated by Parent or the Company because the Company’s stockholder meeting has been held and concluded and the Company stockholder approval was not received or the merger agreement is terminated by Parent as a result of the Company’s material breach (due to a willful and material breach of any representation or covenant by the Company), then the Company will pay to Parent all reasonable out-of-pocket expenses incurred by Parent, Merger Sub, the Buyer Group or their respective affiliates in connection with the merger agreement and the transactions contemplated by the merger agreement, which amount may not be greater than $15,000,000 in the aggregate.
Parent Termination Fee
Parent will pay to the Company a reverse termination fee of  $510 million in cash (the “Parent termination fee”) in the event that (i) the Company terminates the merger agreement as a result of Parent’s or Merger Sub’s material breach or if the merger was not consummated by the second business day after it was required to have been consummated by Parent or (ii) either Parent or the Company terminates the merger agreement as a result of the end date being reached and at such time the Company could have terminated the merger agreement as described in the preceding clause (i).
Limitations of Liability
The maximum aggregate liability of Parent, Merger Sub and their affiliates for any losses, damages or liabilities arising out of or related to the merger agreement, the transactions contemplated by the merger agreement, the failure of the closing to be consummated, the termination fee commitment letters, the commitment letters and the financings contemplated therein is limited to the amount of the Parent termination fee. The maximum aggregate liability of the Company for a breach of the merger agreement is limited to $510 million.
Expenses
All costs and expenses incurred in connection with the merger, the merger agreement and the transactions contemplated by the merger agreement will be paid by the party incurring or required to incur the expenses, except as otherwise provided above and the costs related to this proxy statement and regulatory filings will be shared equally between the Company and Parent.
Specific Performance
In the event of a breach or threatened breach of any covenant or obligation in the merger agreement, the non-breaching party will be entitled (in addition to any other remedy that may be available to it, whether in law or equity) to a decree or order of specific performance to enforce the observance and performance of such covenant or obligation and an injunction restraining such breach or threatened breach.
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Each of the parties agreed under the merger agreement not to oppose the granting of an injunction, specific performance and other equitable relief on the basis that any other party has an adequate remedy at law or that any award of specific performance is not an appropriate remedy for any reason at law or in equity. Any party seeking an injunction or injunctions to prevent breaches of the merger agreement or the financing and to enforce specifically the terms and provisions of the merger agreement or the financing will not be required to provide any bond or other security in connection with any such order or injunction.
Notwithstanding the foregoing, the Company will be entitled to seek specific performance of Parent’s obligation to cause the equity financing to be funded and the rollover equity to be transferred and contributed or to effect the closing in accordance with the terms of the merger agreement if and only if:

all of the conditions to Parent’s and Merger Sub’s obligations to close the merger have been satisfied (other than those conditions that, by their nature, are to be satisfied at the closing (but subject to the satisfaction of such conditions at the closing)) at the time when the closing is required to occur pursuant to the merger agreement;

the debt financing has been funded or will be funded at the closing on the terms set forth in the debt commitment letters if the cash equity is funded at the closing (and, with respect to the rollover equity, the cash equity has been funded or will be funded at the closing on the terms set forth in the applicable equity financing commitment letters); and

the Company has irrevocably confirmed in writing to Parent that if specific performance is granted and the cash equity and the debt financing are funded and the rollover equity contributed, then the Company will consummate the merger.
Amendments; Waiver
At any time prior to the effective time of the merger, any provision of the merger agreement may be amended or waived if, and only if, such amendment or waiver is in writing and signed, in the case of an amendment, by the Company, Parent and Merger Sub, or in the case of a waiver, by the party against whom the waiver is to be effective. However, after the adoption of the merger agreement by the Company’s stockholders, if any such amendment or waiver will by applicable law or in accordance with the rules and regulations of NASDAQ require further approval of the Company’s stockholders, the effectiveness of such amendment or waiver will be subject to the approval of the stockholders of the Company.
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ADVISORY VOTE ON NAMED EXECUTIVE OFFICER MERGER-RELATED COMPENSATION
(PROPOSAL 2)
As required by Section 14A of the Exchange Act and the applicable SEC rules issued thereunder, the Company is required to submit a proposal to the Company’s stockholders for a non-binding, advisory vote to approve the payment by the Company of certain compensation to the named executive officers of the Company that is based on or otherwise relates to the merger. This proposal, commonly known as “say-on-golden parachutes,” and which we refer to as the compensation proposal, gives the Company’s stockholders the opportunity to vote, on a non-binding, advisory basis, on the compensation that the named executive officers may be entitled to receive from the Company that is based on or otherwise relates to the merger. This compensation is summarized in the table under “The Merger (Proposal 1) — Interests of the Company’s Directors and Executive Officers in the Merger,” including the footnotes to the table.
The board encourages you to review carefully the named executive officer merger-related compensation information disclosed in this proxy statement.
The board unanimously recommends that the Company’s stockholders approve the following resolution:
“RESOLVED, that the stockholders of PetSmart, Inc. hereby approve, on a non-binding, advisory basis, the compensation to be paid or become payable by the Company to its named executive officers that is based on or otherwise relates to the merger as disclosed pursuant to Item 402(t) of Regulation S-K in the Golden Parachute Compensation table and the footnotes to that table.”
The vote on the named executive officer merger-related compensation proposal is a vote separate and apart from the vote on the proposal to adopt the merger agreement. Accordingly, you may vote to approve and adopt the merger agreement and vote not to approve the named executive officer merger-related compensation proposal and vice versa. Because the vote on the named executive officer merger-related compensation proposal is advisory only, it will not be binding on either the Company or Parent. Accordingly, if the merger agreement is adopted and the merger is completed, the compensation will be payable, subject only to the conditions applicable thereto, regardless of the outcome of the non-binding, advisory vote of the Company’s stockholders.
The above resolution approving the merger-related compensation of the Company’s named executive officers on an advisory basis will require the affirmative vote of the holders of a majority of the shares of common stock present or represented by proxy at the special meeting and entitled to vote thereon.
The board unanimously recommends a vote “FOR” the compensation proposal.
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VOTE ON ADJOURNMENT (PROPOSAL 3)
The Company’s stockholders are being asked to approve a proposal that will give us authority to adjourn the special meeting from time to time, if necessary or appropriate, for the purpose of soliciting additional proxies in favor of the merger proposal if there are not sufficient votes at the time of the special meeting to adopt the merger agreement. If this adjournment proposal is approved, the special meeting could be adjourned by the board to any date for the purpose of soliciting additional proxies in favor of the merger proposal if there are not sufficient votes at the time of the special meeting. If there is not a quorum present at the special meeting, under our bylaws the special meeting may be adjourned by the chairman of the meeting or by vote of the holders of a majority of the voting power of the shares represented at the meeting. In addition, the board could postpone the special meeting before it commences, whether for the purpose of soliciting additional proxies or for other reasons. If the special meeting is adjourned, stockholders who have already submitted their proxies will be able to revoke them at any time prior to their use. If you sign and return a proxy and do not indicate how you wish to vote on any proposal, or if you sign and return a proxy and do not indicate a choice on the adjournment proposal, your shares will be voted in favor of the adjournment proposal. PetSmart does not intend to call a vote on this proposal if the merger proposal has been approved at the special meeting.
Approval of the adjournment proposal requires the affirmative vote of the holders of a majority of the shares of common stock present or represented by proxy at the special meeting and entitled to vote thereon.
The board unanimously recommends a vote “FOR” the adjournment proposal.
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MARKET PRICE OF THE COMPANY’S COMMON STOCK
The common stock is traded on NASDAQ under the symbol “PETM.”
The following table sets forth during the periods indicated the high and low sales prices of common stock:
Market Price
High
Low
2015
First Quarter (through January 12, 2015)
$81.97
$70.05
2014
First Quarter
$ 70.12 $ 61.60
Second Quarter
$ 70.79 $ 54.69
Third Quarter
$ 73.00 $ 69.11
Fourth Quarter
$ 81.97 $ 63.39
2013
First Quarter
$ 67.54 $ 60.15
Second Quarter
$ 73.61 $ 64.63
Third Quarter
$ 76.23 $ 68.21
Fourth Quarter
$ 74.58 $ 61.47
2012
First Quarter
$ 57.83 $ 51.33
Second Quarter
$ 68.16 $ 53.64
Third Quarter
$ 70.80 $ 62.70
Fourth Quarter
$ 70.34 $ 61.46
The closing sale price of our common stock on December 12, 2014, which was the last trading day before the merger was publicly announced, was $77.67 per share. On [•], 2015, the most recent practicable date before this proxy statement was mailed to our stockholders, the closing price for our common stock was $[•] per share. You are encouraged to obtain current market quotations for our common stock in connection with voting your shares of our common stock.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial ownership of our common stock as of January 9, 2015 with respect to:

each person known by us to own beneficially greater than 5% of the outstanding shares of our common stock;

each member of our board and each named executive officer; and

the members of our board and our executive officers as a group.
Unless otherwise noted below, the address of each beneficial owner listed in the table below is 19601 North 27th Avenue, Phoenix, Arizona 85027.
We have determined beneficial ownership in accordance with the rules of the SEC. Except as indicated by the footnotes below, we believe, based on the information furnished to us, that the persons and entities named in the table below have sole voting and investment power with respect to all shares of common stock that they beneficially own, subject to applicable community property laws.
Applicable percentage ownership is based on 99,441,928 shares of common stock outstanding on January 9, 2015. In computing the number of shares of common stock beneficially owned by a person and the percentage ownership of that person, we deemed outstanding shares of common stock subject to options held by that person that are currently exercisable or exercisable within 60 days of January 9, 2015. We did not deem these shares outstanding, however, for the purpose of computing the percentage ownership of any other person.
Name and Address of Beneficial Owner
Number of Shares
Beneficially Owned
Percent of
Class
5% Stockholders:
Longview Asset Management, LLC(1)
8,214,170 8.3%
JANA Partners LLC(2)
7,616,169 7.7%
The Vanguard Group, Inc(3)
7,404,716 7.1%
(1)
Information is based solely upon a Schedule 13D/A filed by Longview Asset Management, LLC on December 19, 2014, which reported that Longview Asset Management, LLC has sole voting power with respect to 8,214,170 shares, sole dispositive power with respect to 8,214,170 shares and an aggregate beneficial ownership of 8,214,170 shares.
(2)
Information is based solely upon a Schedule 13D/A filed by JANA Partners LLC on January 9, 2015, which reported that JANA Partners LLC has sole voting power with respect to 7,616,169 shares, sole dispositive power with respect to 7,616,169 shares and an aggregate beneficial ownership of 7,616,169 shares.
(3)
Information is based solely upon a Schedule 13G/A filed by Vanguard Group Inc on February 11, 2014, which reported that Vanguard Group Inc has sole voting power with respect to 164,739 shares, sole dispositive power with respect to 7,249,877 shares and an aggregate beneficial ownership of 7,404,716 shares.
Directors and Executive Officers:
Shares
Owned
Shares
Covered by
Exercisable
Options
Shares of
Restricted
Stock
Total
Beneficial
Ownership
Percent of
Common
Stock
David K. Lenhardt*
140,869 151,743 292,612 0.3%
Dr. Angel Cabrera*
11,817 1,643 13,460 0.0%
Rita V. Foley*
23,875 1,643 25,518 0.0%
Rakesh Gangwal*
44,402 1,643 46,045 0.0%
Joseph S. Hardin, Jr.*
35,854 1,643 37,497 0.0%
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Directors and Executive Officers:
Shares
Owned
Shares
Covered by
Exercisable
Options
Shares of
Restricted
Stock
Total
Beneficial
Ownership
Percent of
Common
Stock
Gregory P. Josefowicz*
27,113 1,643 28,756 0.0%
Richard K. Lochridge*
12,764 1,643 14,407 0.0%
Barbara A. Munder*
38,663 1,643 40,306 0.0%
Elizabeth Nickels*
1,878 1,643 3,521 0.0%
Thomas G. Stemberg*
40,296 1,643 41,939 0.0%
Phil Bowman*
200 200 0.0%
Matt McAdam*
1,337 15,784 17,121 0.0%
Carrie Teffner*
5,208 5,208 0.0%
Bruce Thorn*
6,732 36,391 43,123 0.0%
Eddie Burt*
5,187 27,806 32,993 0.0%
Paulette Dodson*
7,765 7,765 0.0%
Erick Goldberg*
1,967 1,967 0.0%
Chris McCurdy*
11,779 11,779 0.0%
Mike Goodwin*
0.0%
Brock Weatherup*
0.0%
Helen Wallace*
0.0%
All directors and executive officers as a group (21 persons)
214,426 106,700 11,501 332,627 0.3%
*
Indicates ownership of less than one percent.
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RIGHTS OF APPRAISAL
The following discussion summarizes appraisal rights under the DGCL. The following discussion is not a complete statement of the law relating to appraisal rights and is qualified in its entirety by the full text of Section 262 of the DGCL, referred to as “Section 262,” which is attached to this proxy statement as Annex C. The following summary does not constitute legal or other advice, nor does it constitute a recommendation that stockholders exercise their appraisal rights under Section 262.
Under Section 262, holders of shares of common stock who do not vote in favor of the adoption of the merger agreement and who otherwise follow the procedures set forth in Section 262 will be entitled to have their shares appraised by the Delaware Court of Chancery and to receive payment in cash of the “fair value” of the shares, exclusive of any element of value arising from the accomplishment or expectation of the merger, as determined by the Delaware Court of Chancery, together with interest, if any, to be paid upon the amount determined to be the fair value.
Under Section 262, where a merger agreement is to be submitted for adoption and approval at a meeting of stockholders, the corporation, not less than 20 days prior to the meeting, must notify each of its stockholders entitled to appraisal rights that appraisal rights are available and include in the notice a copy of Section 262. This proxy statement shall constitute such notice, and the full text of Section 262 is attached to this proxy statement as Annex C.
ANY HOLDER OF COMMON STOCK WHO WISHES TO EXERCISE APPRAISAL RIGHTS, OR WHO WISHES TO PRESERVE SUCH HOLDER’S RIGHT TO DO SO, SHOULD CAREFULLY REVIEW THE FOLLOWING DISCUSSION AND ANNEX C BECAUSE FAILURE TO TIMELY AND PROPERLY COMPLY WITH THE PROCEDURES SPECIFIED WILL RESULT IN THE LOSS OF APPRAISAL RIGHTS. MOREOVER, BECAUSE OF THE COMPLEXITY OF THE PROCEDURES FOR EXERCISING THE RIGHT TO SEEK APPRAISAL OF SHARES OF COMMON STOCK, PETSMART BELIEVES THAT, IF A STOCKHOLDER CONSIDERS EXERCISING SUCH RIGHTS, SUCH STOCKHOLDER SHOULD SEEK THE ADVICE OF LEGAL COUNSEL.
Filing Written Demand
Any holder of common stock wishing to exercise appraisal rights must, before the stockholder vote on the adoption of the merger agreement at the special meeting is taken, deliver to PetSmart a written demand for the appraisal of the stockholder’s shares, and not vote in favor of the adoption of the merger agreement. A holder of common stock wishing to exercise appraisal rights must hold of record the shares on the date the written demand for appraisal is made and must continue to hold the shares of record through the effective date of the merger. The holder must not vote in favor of the adoption of the merger agreement. A proxy that is submitted and does not contain voting instructions will, unless revoked, be voted in favor of the adoption of the merger agreement, and it will effectively constitute a waiver of the stockholder’s right of appraisal and will effectively nullify any previously delivered written demand for appraisal. Therefore, a stockholder who submits a proxy and who wishes to exercise appraisal rights must submit a proxy containing instructions to vote against the adoption of the merger agreement or abstain from voting on the adoption of the merger agreement. Neither voting against the adoption of the merger agreement, nor abstaining from voting or failing to vote on the proposal to adopt the merger agreement, will in and of itself constitute a written demand for appraisal satisfying the requirements of Section 262. The written demand for appraisal must be in addition to and separate from any proxy or vote on the adoption of the merger agreement. The demand must reasonably inform PetSmart of the identity of the holder as well as the intention of the holder to demand an appraisal of the “fair value” of the shares held by the holder. A stockholder’s failure to make the written demand prior to the taking of the vote on the adoption of the merger agreement at the special meeting of stockholders will constitute a waiver of appraisal rights.
Only a holder of record of shares of common stock is entitled to demand an appraisal of the shares registered in that holder’s name. A demand for appraisal in respect of shares of common stock should be executed by or on behalf of the holder of record. The demand should set forth the registered holder’s name as it appears on the holder’s stock certificates. A demand for appraisal will be sufficient if it reasonably informs PetSmart of the identity of the stockholder and that the stockholder intends thereby to demand the
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appraisal of such stockholder’s shares. If the shares are owned of record in a fiduciary capacity, such as by a trustee, guardian or custodian, execution of the demand must be made in that capacity, and if the shares are owned of record by more than one person, as in a joint tenancy and tenancy-in-common, the demand must be executed by or on behalf of all joint owners. An authorized agent, including an agent for two or more joint owners, may execute a demand for appraisal on behalf of a holder of record; however, the agent must identify the record owner or owners and expressly disclose that, in executing the demand, the agent is acting as agent for the record owner or owners. If the shares are held in “street name” by a broker, bank or nominee, the broker, bank or nominee may exercise appraisal rights with respect to the shares held for one or more beneficial owners while not exercising the rights with respect to the shares held for other beneficial owners; in such case, however, the written demand should set forth the number of shares as to which appraisal is sought. Where no number of shares is expressly mentioned, the demand will be presumed to cover all shares of common stock held in the name of the record owner. If a stockholder holds shares of common stock through a broker who in turn holds the shares through a central securities depository nominee such as Cede & Co., a demand for appraisal of such shares must be made by or on behalf of the depository nominee and must identify the depository nominee as record holder. Stockholders who hold their shares in brokerage accounts or other nominee forms and who wish to exercise appraisal rights are urged to consult with their brokers or other nominees to determine the appropriate procedures for the making of a demand for appraisal by such a nominee.
All written demands for appraisal pursuant to Section 262 should be sent or delivered to PetSmart at:
PetSmart, Inc.
19601 North 27th Avenue
Phoenix, Arizona 85027
Attention: General Counsel and Secretary
At any time within 60 days after the effective date of the merger, any stockholder who has not commenced an appraisal proceeding or joined that proceeding as a named party may withdraw his, her or its demand for appraisal and accept the consideration offered pursuant to the merger agreement by delivering to PetSmart, as the surviving corporation, a written withdrawal of the demand for appraisal. However, any such attempt to withdraw the demand made more than 60 days after the effective date of the merger will require written approval of PetSmart, as the surviving corporation. No appraisal proceeding in the Delaware Court of Chancery will be dismissed as to any stockholder without the approval of the Delaware Court of Chancery, and such approval may be conditioned upon such terms as the Delaware Court of Chancery deems just; provided, however, that any stockholder who has not commenced an appraisal proceeding or joined that proceeding as a named party may withdraw his, her or its demand for appraisal and accept the merger consideration offered pursuant to the merger agreement within 60 days after the effective date of the merger. If PetSmart, as the surviving corporation, does not approve a request to withdraw a demand for appraisal when that approval is required, or, except with respect to any stockholder who withdraws such stockholder’s demand in accordance with the proviso in the immediately preceding sentence, if the Delaware Court of Chancery does not approve the dismissal of an appraisal proceeding with respect to a stockholder, the stockholder will be entitled to receive only the appraised value determined in any such appraisal proceeding, which value could be less than, equal to or more than the consideration being offered pursuant to the merger agreement.
Notice by the Surviving Corporation
Within ten days after the effective date of the merger, PetSmart, as the surviving corporation, must notify each holder of common stock who has complied with Section 262, and who has not voted in favor of the adoption of the merger agreement, of the date on which the merger became effective.
Filing a Petition for Appraisal
Within 120 days after the effective date of the merger, but not thereafter, PetSmart, as the surviving corporation, or any holder of common stock who has complied with Section 262 and is entitled to appraisal rights under Section 262, may commence an appraisal proceeding by filing a petition in the Delaware Court of Chancery, with a copy served upon the surviving corporation in the case of a petition filed by a stockholder, demanding a determination of the fair value of the shares held by all such holders. PetSmart,
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as the surviving corporation, is under no obligation to and has no present intention to file a petition and holders should not assume that PetSmart as the surviving corporation will file a petition. Accordingly, any holders of common stock who desire to have their shares appraised should initiate all necessary action to perfect their appraisal rights in respect of shares of common stock within the time prescribed in Section 262. Within 120 days after the effective date of the merger, any holder of common stock who has complied with the requirements of Section 262 will be entitled, upon written request, to receive from PetSmart as the surviving corporation a statement setting forth the aggregate number of shares not voted in favor of the adoption of the merger agreement and with respect to which demands for appraisal have been received and the aggregate number of holders of such shares. The statement must be mailed within ten days after a written request therefor has been received by PetSmart as the surviving corporation or within ten days after the expiration of the period for delivery of demands for appraisal, whichever is later. The foregoing notwithstanding, a person who is the beneficial owner of shares of common stock held either in a voting trust or by a nominee on behalf of such person may, in such person’s own name, file a petition or request from PetSmart as the surviving corporation the statement described in this paragraph. If a petition for appraisal is not timely filed, then the right to appraisal will cease.
If a petition for an appraisal is timely filed by a holder of shares of common stock and a copy thereof is served upon PetSmart as the surviving corporation, PetSmart as the surviving corporation will then be obligated within 20 days to file with the Delaware Register in Chancery a duly verified list containing the names and addresses of all stockholders who have demanded an appraisal of their shares and with whom agreements as to the value of their shares have not been reached. After notice to the stockholders, the Delaware Court of Chancery will conduct a hearing on the petition to determine those stockholders who have complied with Section 262 and who have become entitled to appraisal rights thereunder. The Delaware Court of Chancery may require the stockholders who demanded payment for their shares to submit their stock certificates to the Delaware Register in Chancery for notation thereon of the pendency of the appraisal proceeding; and if any stockholder fails to comply with the direction, the Delaware Court of Chancery may dismiss the proceedings as to such stockholder.
Determination of Fair Value
After the Delaware Court of Chancery determines the holders of common stock entitled to appraisal, the appraisal proceeding shall be conducted in accordance with the rules of the Delaware Court of Chancery, including any rules specifically governing appraisal proceedings. Through such proceeding, the Court shall determine the “fair value” of the shares, exclusive of any element of value arising from the accomplishment or expectation of the merger, together with interest, if any, to be paid upon the amount determined to be the fair value. The Delaware Court of Chancery shall direct the payment of the fair value of the shares, together with interest, if any, by the surviving or resulting corporation to the stockholders entitled thereto. Payment shall be so made to each such stockholder, in the case of holders of uncertificated stock forthwith, and the case of holders of shares represented by certificates upon the surrender to the corporation of the certificates representing such stock. Unless the Court in its discretion determines otherwise for good cause shown, interest from the effective date of the merger through the date of payment of the judgment shall be compounded quarterly and shall accrue at 5% over the Federal Reserve discount rate (including any surcharge) as established from time to time during the period between the effective date of the merger and the date of payment of the judgment.
In determining fair value, the Delaware Court of Chancery will take into account all relevant factors. In Weinberger v. UOP, Inc., the Supreme Court of Delaware discussed the factors that could be considered in determining fair value in an appraisal proceeding, stating that “proof of value by any techniques or methods that are generally considered acceptable in the financial community and otherwise admissible in court” should be considered, and that “fair price obviously requires consideration of all relevant factors involving the value of a company.” The Delaware Supreme Court stated that, in making this determination of fair value, the Court must consider market value, asset value, dividends, earnings prospects, the nature of the enterprise and any other facts that could be ascertained as of the date of the merger that throw any light on future prospects of the merged corporation. Section 262 provides that fair value is to be “exclusive of any element of value arising from the accomplishment or expectation of the merger.” In Cede & Co. v. Technicolor, Inc., the Delaware Supreme Court stated that such exclusion is a “narrow exclusion [that] does not encompass known elements of value,” but which rather applies only to the speculative elements of value
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arising from such accomplishment or expectation. In Weinberger, the Supreme Court of Delaware also stated that “elements of future value, including the nature of the enterprise, which are known or susceptible of proof as of the date of the merger and not the product of speculation, may be considered.”
Stockholders considering seeking appraisal should be aware that the fair value of their shares as so determined could be more than, the same as or less than the consideration they would receive pursuant to the merger if they did not seek appraisal of their shares and that an investment banking opinion as to the fairness, from a financial point of view, of the consideration payable in a sale transaction, such as the merger, is not an opinion as to, and does not otherwise address, fair value under Section 262. Although PetSmart believes that the merger consideration is fair, no representation is made as to the outcome of the appraisal of fair value as determined by the Delaware Court of Chancery, and stockholders should recognize that such an appraisal could result in a determination of a value higher or lower than, or the same as, the merger consideration. Neither Parent, Merger Sub nor PetSmart anticipate offering more than the applicable merger consideration to any stockholder of PetSmart exercising appraisal rights, and reserve the right to assert, in any appraisal proceeding, that for purposes of Section 262, the “fair value” of a share of common stock is less than the applicable merger consideration.
The costs of the action (which do not include attorneys’ fees or the fees and expenses of experts) may be determined by the Delaware Court of Chancery and taxed upon the parties as the Delaware Court of Chancery deems equitable under the circumstances. Each stockholder is responsible for his or her attorneys’ fees or the fees and expenses of experts, but, upon application of a stockholder, the Delaware Court of Chancery may order all or a portion of the expenses incurred by a stockholder in connection with an appraisal proceeding, including, without limitation, reasonable attorneys’ fees and the fees and expenses of experts utilized in the appraisal proceeding, to be charged pro rata against the value of all the shares entitled to be appraised. Any stockholder who demanded appraisal rights will not, after the effective time of the merger, be entitled to vote shares of the Company’s common stock subject to that demand for any purpose or to receive payments of dividends or any other distribution with respect to such shares, other than with respect to payment as of a record date prior to the effective time of the merger.
If any stockholder who demands appraisal of shares of common stock under Section 262 fails to perfect, successfully withdraws or loses such holder’s right to appraisal, the stockholder’s shares of common stock will be deemed to have been converted at the effective date of the merger into the right to receive the merger consideration pursuant to the merger agreement. A stockholder will fail to perfect, or effectively lose, the holder’s right to appraisal if no petition for appraisal is filed within 120 days after the effective date of the merger. In addition, as indicated above, a stockholder may withdraw his, her or its demand for appraisal in accordance with Section 262 and accept the merger consideration offered pursuant to the merger agreement.
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MULTIPLE STOCKHOLDERS SHARING ONE ADDRESS
In accordance with Rule 14a-3(e)(1) under the Exchange Act, one proxy statement will be delivered to two or more stockholders who share an address, unless PetSmart has received contrary instructions from one or more of the stockholders. PetSmart will deliver promptly upon written or oral request a separate copy of the proxy statement to a stockholder at a shared address to which a single copy of the proxy statement was delivered. Requests for additional copies of the proxy statement should be directed to PetSmart, Inc., Attn: Corporate Secretary, 19601 North 27th Avenue, Phoenix, Arizona 85027, or by calling (623) 587-2025. In addition, stockholders who share a single address, but receive multiple copies of the proxy statement, may request that in the future they receive a single copy by contacting the Company at the address and phone number set forth in the prior sentence.
SUBMISSION OF STOCKHOLDER PROPOSALS
If the merger is completed, we may not hold an annual meeting of stockholders in 2015. If the merger is not completed, you will continue to be entitled to attend and participate in our annual meetings of stockholders, and we will hold a 2015 annual meeting of stockholders, in which case we will provide notice of or otherwise publicly disclose the date on which such 2015 annual meeting will be held. If the 2015 annual meeting is held, stockholder proposals will be eligible for consideration for inclusion in the proxy statement and form of proxy for our 2015 annual meeting of stockholders in accordance with Rule 14a-8 under the Exchange Act and our bylaws, as described below.
Pursuant to the various rules promulgated by the SEC, stockholders interested in submitting a proposal for inclusion in our proxy materials and for presentation at the 2015 annual meeting of stockholders (if one is held) may do so by following the procedures set forth in Rule 14a-8 under the Exchange Act. To be eligible for inclusion in such proxy materials, stockholder proposals must have been received by our Secretary no later than January 8, 2015. In order for proposals of stockholders made outside of Rule 14a-8 under the Exchange Act to be considered “timely” within the meaning of Rule 14a-4(c) under the Exchange Act and under our bylaws, such proposals must have been received by our Secretary by January 8, 2015.
In addition to the requirements of the SEC described in the preceding paragraph, and as more specifically provided for in our bylaws, in order for a nomination of persons for election to our board or a proposal of business to be properly brought before our annual meeting of stockholders, it must be either specified in the notice of the meeting given by us or otherwise brought before the meeting by or at the direction of our board or by a stockholder entitled to vote at the meeting and who complies with the following notice procedures.
For nominations or other business to be properly brought before an annual meeting by a stockholder, the stockholder must give timely notice thereof in writing to our Secretary and such business must be a proper matter for stockholder action under the DGCL. To be timely, a stockholder’s notice must be delivered to our Secretary at our principal executive offices not later than the close of business on the 120th day prior to the date on which we first mailed our proxy materials for the prior year’s annual meeting of stockholders or any longer period provided for by applicable law. For a stockholder nomination for election to our board or a proposal of business to be considered at the 2015 annual meeting of stockholders, it should have been properly submitted to our Secretary no later than January 8, 2015. However, if the date of the 2015 Annual Meeting of stockholders is advanced by more than 30 days prior to or delayed by more than 30 days after the anniversary of the 2014 Annual Meeting, notice by the stockholder to be timely must be delivered not later than the close of business on the later of the 90th day prior to such annual meeting and the 10th day following the day on which public announcement of the date of such meeting is first made.
For each individual that a stockholder proposes to nominate as a director, such notice must set forth all of the information required to be disclosed in solicitations of proxies for elections of directors, or is otherwise required, in each case under applicable law. For any other business that a stockholder desires to bring before an annual meeting, the stockholder must provide a brief description of such business, the
83

reasons for conducting such business and any material interest in such business of the stockholder and any beneficial owner on whose behalf the stockholder has made the proposal. If a stockholder provides notice for either event described above, such notice must include the following information:

the name and address of the stockholder as it appears on our books;

the name and address of the beneficial owner, if any, as it appears on our books; and

the class or series and the number of shares of our stock that are owned beneficially and of record by the stockholder and the beneficial owner.
If we increase the number of directors to be elected at an annual meeting and there is no public announcement naming all of the nominees for director or specifying the size of the increased board made by us at least 100 days prior to the anniversary of the date the previous year’s proxy statement was first mailed to stockholders, a stockholder’s notice regarding the nominees for the new positions created by such increase will be considered timely if it is delivered to our Secretary at PetSmart, Inc., Attn: Corporate Secretary, 19601 North 27th Avenue, Phoenix, Arizona, 85027, not later than the close of business on the 10th day following the day on which the public announcement is first made.
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WHERE YOU CAN FIND ADDITIONAL INFORMATION
The Company files annual, quarterly and current reports, proxy statements and other information with the SEC. You may read and copy any reports, proxy statements or other information that we file with the SEC at the following location of the SEC:
Public Reference Room
100 F Street, N.E.
Washington, D.C. 20549
Please call the SEC at 1-800-SEC-0330 for further information on the public reference room. You may also obtain copies of this information by mail from the Public Reference Section of the SEC, 100 F Street, N.E., Washington, D.C. 20549, at prescribed rates. The Company’s public filings are also available to the public from document retrieval services and the Internet website maintained by the SEC at www.sec.gov.
The Company will make available a copy of its public reports, without charge, upon written request to PetSmart, Inc., Attn: Corporate Secretary, 19601 North 27th Avenue, Phoenix, Arizona 85027. Each such request must set forth a good faith representation that, as of the record date, the person making the request was a beneficial owner of common stock entitled to vote at the special meeting. In order to ensure timely delivery of such documents prior to the special meeting, any such request should be made promptly to the Company and in no event later than five business days prior to the date of the special meeting, or no later than [•], 2015. A copy of any exhibit may be obtained upon written request by a stockholder (for a fee limited to the Company’s reasonable expenses in furnishing such exhibit) to PetSmart, Inc., Attn: Corporate Secretary, 19601 North 27th Avenue, Phoenix, Arizona 85027.
The SEC allows us to “incorporate by reference” into this proxy statement documents we file with the SEC. This means that we can disclose important information to you by referring you to those documents. The information incorporated by reference is considered to be a part of this proxy statement, and later information that we file with the SEC will update and supersede that information. Information in documents that is deemed, in accordance with SEC rules, to be furnished and not filed shall not be deemed to be incorporated by reference into this proxy statement. We incorporate by reference the documents listed below and any documents filed by us pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this proxy statement, and prior to the date of the special meeting:

Annual Report on Form 10-K for the Fiscal Year February 2, 2014, filed with the SEC on March 27, 2014;

Quarterly Reports on Form 10-Q, filed with the SEC on May 29, 2014, August 28, 2014 and November 26, 2014;

Definitive Proxy Statement for the Company’s 2014 Annual Meeting, filed with the SEC on May 8, 2014; and

Current Reports on Form 8-K (only to the extent “filed” and not “furnished”), filed with the SEC on June 23, 2014, August 20, 2014, filed September 22, 2014, December 15, 2014, December 16, 2014 and January 12, 2015.
No persons have been authorized to give any information or to make any representations other than those contained in this proxy statement and, if given or made, such information or representations must not be relied upon as having been authorized by us or any other person. This proxy statement is dated [•], 2015. You should not assume that the information contained in this proxy statement is accurate as of any date other than that date, and the mailing of this proxy statement to stockholders shall not create any implication to the contrary.
85

Annex A​
EXECUTION VERSION
AGREEMENT AND PLAN OF MERGER
by and among
ARGOS HOLDINGS INC.,
ARGOS MERGER SUB INC.,
and
PETSMART, INC.
Dated as of December 14, 2014

Table of Contents
Page
ARTICLE I
THE MERGER
Section 1.1
The Merger
A-1
Section 1.2
Closing
A-1
Section 1.3
Effective Time
A-2
Section 1.4
Effects of the Merger
A-2
Section 1.5
Certificate of Incorporation and Bylaws of the Surviving Corporation
A-2
Section 1.6
Directors
A-2
Section 1.7
Officers
A-2
ARTICLE II
CONVERSION OF SHARES; EXCHANGE OF CERTIFICATES
Section 2.1
Effect on Capital Stock
A-2
Section 2.2
Exchange of Certificates
A-3
Section 2.3
Treatment of Stock Options and Other Stock-Based Awards
A-5
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Section 3.1
Qualification, Organization, Subsidiaries, etc.
A-6
Section 3.2
Capital Stock
A-7
Section 3.3
Corporate Authority Relative to This Agreement; No Violation
A-9
Section 3.4
Reports and Financial Statements
A-9
Section 3.5
Internal Controls and Procedures
A-10
Section 3.6
No Undisclosed Liabilities
A-10
Section 3.7
Compliance with Law; Permits
A-10
Section 3.8
Environmental Laws and Regulations
A-11
Section 3.9
Employee Benefit Plans
A-12
Section 3.10
Absence of Certain Changes or Events
A-13
Section 3.11
Investigations; Litigation
A-13
Section 3.12
Proxy Statement; Other Information
A-13
Section 3.13
Tax Matters
A-13
Section 3.14
Intellectual Property
A-14
Section 3.15
Real Property
A-15
Section 3.16
Opinion of Financial Advisors
A-15
Section 3.17
Required Vote of the Company Stockholders
A-15
Section 3.18
Contracts
A-15
Section 3.19
Finders or Brokers
A-17
Section 3.20
Suppliers
A-17
Section 3.21
Insurance
A-17
Section 3.22
Takeover Statutes
A-17
Section 3.23
Interested Party Transactions
A-17
Section 3.24
No Other Representations or Warranties
A-17
A-i

Page
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Section 4.1
Qualification, Organization, Subsidiaries, etc.
A-18
Section 4.2
Corporate Authority Relative to This Agreement; No Violation
A-18
Section 4.3
Investigations; Litigation
A-19
Section 4.4
Proxy Statement; Other Information
A-19
Section 4.5
Financing
A-19
Section 4.6
Termination Fee Commitment Letters
A-20
Section 4.7
Capitalization of Merger Sub
A-20
Section 4.8
No Vote of Parent Stockholders
A-20
Section 4.9
Finders or Brokers
A-20
Section 4.10
No Additional Representations
A-21
Section 4.11
Certain Arrangements
A-21
Section 4.12
Investment
A-21
Section 4.13
Ownership of Common Stock
A-21
Section 4.14
Solvency
A-21
ARTICLE V
COVENANTS AND AGREEMENTS
Section 5.1
Conduct of Business by the Company and Parent