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
þ
Filed by a Party other than the Registrant
o
Check the appropriate box:
þ
Preliminary Proxy Statement
o
Confidential, For Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
o
Definitive Proxy Statement
o
Definitive Additional Materials
o
Soliciting Material Pursuant to §240.14a -12
COST-U-LESS, 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):
o
No fee required.
þ
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: Common
stock of Cost-U-Less, Inc.
|
(2)
|
|
Aggregate number of securities to which transaction applies: 4,050,618
|
(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): 4,050,618 outstanding
shares of Cost-U-Less common stock multiplied by $11.75 plus 555,402
shares of Cost-U-Less common stock issuable pursuant to the
terms of outstanding options to purchase shares of Cost-U-Less common stock
having an exercise price of less than $11.75 multiplied by $ 8.49 per share (which
is the difference between $11.75 and the weighted average exercise price of
$3.26 per share).
|
(4)
|
|
Proposed maximum aggregate value of transaction: $52,310,123
|
(5)
|
|
Total fee paid: $1,606
|
o
|
|
Fee paid previously with preliminary materials:
|
o
|
|
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.:
|
|
The information in this document is not complete and can be changed.
September ,
2007
Dear Cost-U-Less, Inc. Shareholders:
You are cordially invited to attend a special meeting of
shareholders of Cost-U-Less, Inc. to be held
at ,
Pacific time,
on ,
2007,
at .
The attached notice of the special meeting and proxy statement
provide information regarding the matters to be acted on at the
special meeting, including at any adjournment or postponement
thereof.
At the special meeting you will be asked to consider and vote
upon a proposal to approve a merger and the merger agreement,
dated as of August 27, 2007, under which Cost-U-Less would
be acquired by NWC (US) Holdings, Inc. If the merger is
completed, you, as a holder of Cost-U-Less common stock, will be
entitled to receive $11.75 in cash, without interest and less
any applicable withholding taxes, for each share of Cost-U-Less
common stock you own at the effective time of the merger.
The Cost-U-Less board of directors has unanimously determined
that it is advisable and in the best interests of Cost-U-Less
and its shareholders for Cost-U-Less to consummate the merger
upon the terms and subject to the conditions set forth in the
merger agreement, and that the merger is fair to Cost-U-Less and
its shareholders.
Accordingly, the Cost-U-Less board of directors unanimously
recommends that you vote FOR the proposal to approve the merger
and the merger agreement and FOR any proposal to adjourn the
special meeting to a later date to allow time to solicit
additional proxies in favor of the adoption of the merger
agreement in the event that there are not sufficient votes
represented at the special meeting to adopt the merger agreement.
YOUR VOTE IS VERY IMPORTANT.
To approve the
merger and adopt the merger agreement, you MUST VOTE FOR the
proposal by following the instructions stated on the enclosed
proxy card. If you attend the special meeting, you may vote in
person if you wish, even though you have previously returned
your proxy.
Whether or not you plan to attend the special meeting, PLEASE
COMPLETE, SIGN, DATE AND PROMPTLY RETURN YOUR PROXY CARD IN THE
ENCLOSED POSTAGE-PAID ENVELOPE. If you do not vote at all, it
will, in effect, count as a vote against the merger and the
merger agreement.
If you have any questions or need assistance voting your shares,
please call Mackenzie Partners, Inc., our proxy solicitation
agent, toll-free at (800) 322-2885.
On behalf of the Cost-U-Less board of directors, I thank you for
your support and urge you to vote FOR the approval of the merger
and the merger agreement between Cost-U-Less Corporation and NWC
(US) Holdings, Inc.
By Order of the Board of Directors
J. Jeffrey Meder
President and Chief Executive Officer
COST-U-LESS,
INC.
3633 136th Place SE,
Suite 110
Bellevue, Washington 98006
NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS
TO BE
HELD ,
2007
Dear Cost-U-Less Shareholders:
You are cordially invited to attend a special meeting of the
shareholders of Cost-U-Less, Inc., a Washington corporation, to
be held
at ,
Pacific time,
on ,
2007,
at ,
to consider and vote upon the following matters:
|
|
|
|
|
a proposal to approve the merger and the Agreement and Plan of
Merger, dated as of August 27, 2007, by and among
Cost-U-Less, Inc., a Washington corporation, NWC (US) Holdings,
Inc., a Delaware corporation (NWC), and Cougar
Acquisition Corporation, a Washington corporation and a wholly
owned subsidiary of NWC, as it may be amended from time to time;
and
|
|
|
|
a proposal to adjourn the special meeting, if necessary or
appropriate, to allow time to solicit additional proxies if
there are insufficient votes at the time of the special meeting
to adopt the merger agreement.
|
Only shareholders who owned Cost-U-Less common stock of record
at the close of business
on ,
2007 are entitled to notice of, to vote at, and to attend the
special meeting and any adjournment or postponement of the
special meeting. A list of Cost-U-Less shareholders eligible to
vote at the special meeting will be available at our principal
offices at 3633 136th Place SE, Suite 110, Bellevue,
Washington 98006 during normal business hours for ten days prior
to the special meeting, and will also be available at the
special meeting and at any adjournment or postponement thereof.
The Cost-U-Less board of directors has unanimously
(1) determined that it is advisable and in the best
interests of Cost-U-Less and its shareholders for Cost-U-Less to
consummate the merger upon the terms and subject to the
conditions set forth in the merger agreement, and that the
merger is fair to Cost-U-Less and its shareholders, and
(2) approved the merger agreement, the merger and the
transactions contemplated by the merger agreement. Accordingly,
the Cost-U-Less board of directors unanimously recommends that
you vote FOR the proposal to approve the merger and the merger
agreement and FOR the proposal to adjourn the special meeting to
a later date to allow time to solicit additional proxies in
favor of the proposal to approve the merger and the merger
agreement if there are insufficient votes represented at the
special meeting to approve the merger and the merger agreement.
Your vote is very important regardless of the number of
shares that you own.
The merger cannot be
completed unless the merger agreement is adopted by the
affirmative vote of the holders of a majority of the outstanding
shares of Cost-U-Less common stock entitled to vote on the
proposal. The adjournment proposal requires the affirmative vote
of a majority of the shares of Cost-U-Less common stock voted
for or against the proposal. Your shares can be voted at the
special meeting only if you are present or represented by a
valid proxy. If you attend the special meeting, you may vote in
person if you wish, even though you have previously returned
your proxy.
Whether or not you plan to attend the special meeting, PLEASE
COMPLETE, SIGN, DATE AND PROMPTLY RETURN YOUR PROXY CARD IN THE
ENCLOSED POSTAGE-PAID ENVELOPE.
If you fail to return your
proxy card, it will have the same effect as a vote against the
proposal to approve the merger and the merger agreement.
Returning the proxy card will not deprive you of your right to
attend the special meeting and vote your shares in person.
Please note, however, that if your shares are held of record by
a broker, bank or other nominee and you wish to vote at the
meeting, you must obtain from the record holder a proxy issued
in your name or present evidence of your ownership of the shares
as of the record date, such as a copy of your most recent
statement.
If you receive more than one proxy card because you own shares
that are registered differently, please vote all of your shares
shown on all of your proxy cards. If you complete, sign and
submit your proxy card without indicating how you wish to vote,
your proxy will be counted as a vote in favor of the proposal to
approve the merger and the merger agreement and approval of the
proposal to adjourn the special meeting referred to above.
Cost-U-Less shareholders have the right to dissent from the
merger and obtain payment in cash of the fair value of their
shares under applicable provisions of Washington law. In order
to perfect and exercise dissenters rights, shareholders
must give written notice of intent to demand payment for their
shares before the taking of the vote on the merger at the
special meeting and must not vote in favor of the merger. A copy
of the applicable Washington statutory provisions is included as
Appendix C to the accompanying proxy statement, and a
summary of these provisions can be found under
Dissenters Rights in the accompanying proxy
statement.
PLEASE DO NOT SEND YOUR STOCK CERTIFICATES AT THIS TIME. IF THE
MERGER IS COMPLETED, YOU WILL BE SENT
INSTRUCTIONS REGARDING THE SURRENDER OF YOUR STOCK
CERTIFICATES.
The merger agreement and the merger are described in the
accompanying proxy statement. A copy of the merger agreement is
included as Appendix A to the accompanying proxy statement.
We urge you to read the entire proxy statement carefully.
By order of the board of directors,
Martin P. Moore
Secretary
,
2007
TABLE
OF CONTENTS
|
|
|
|
|
|
|
|
1
|
|
|
|
|
8
|
|
|
|
|
12
|
|
|
|
|
12
|
|
|
|
|
30
|
|
|
|
|
31
|
|
|
|
|
33
|
|
|
|
|
45
|
|
|
|
|
46
|
|
|
|
|
51
|
|
|
|
|
51
|
|
|
|
|
A-1
|
|
|
|
|
B-1
|
|
|
|
|
C-1
|
|
i
This Summary Term Sheet summarizes selected information in
the proxy statement. However, it may not contain all of the
information that may be important to your consideration of the
proposed merger. You should carefully read this entire proxy
statement and the other documents to which this proxy statement
refers you for a more complete understanding of the matters
being considered at the special meeting.
|
|
|
|
|
The Parties to the Merger.
See The
Parties to the Merger on page 30.
|
|
|
|
|
|
Cost-U-Less, Inc. operates mid-sized warehouse club-style retail
stores in the United States Territories (U.S. Territories),
foreign island countries in the Pacific and the Caribbean, the
Hawaiian Islands and Sonora, California. Cost-U-Less is a
Washington corporation, its principal executive offices are
located at 3633 136th Place SE, Suite 110, Bellevue,
Washington 98006 and its telephone number is (425) 945-0213.
References to Cost-U-Less, the
company, we, our, or
us in this proxy statement refer to Cost-U-Less,
Inc., and its subsidiaries, unless otherwise indicated by
context.
|
|
|
|
NWC (US) Holdings, Inc., a Delaware corporation, which we refer
to in this proxy statement as NWC, is a wholly owned subsidiary
of North West Company Holdings Inc., a company incorporated
under the laws of Canada. North West Company Holdings Inc. is a
wholly owned subsidiary of the North West Company Fund, an
unincorporated, open-end mutual fund trust established under the
laws of Manitoba and a leading retailer of food and everyday
products and services to rural communities and urban
neighborhoods across Canada and Alaska. The units of the North
West Company Fund trade on the Toronto Stock Exchange under the
symbol NWF.UN. NWCs principal executive
offices are located at 77 Main Street, Winnipeg, MB, Canada, R3C
2R1 and its telephone number is (204) 943-0881.
|
|
|
|
Cougar Acquisition Corporation, a Washington corporation, which
we refer to in this proxy statement as Merger Sub, is a wholly
owned subsidiary of NWC. Merger Sub was formed solely for the
purpose of effecting the merger, and will disappear upon
consummation of the merger. Merger Sub has not engaged in any
business other than activities incidental to its organization
and in connection with the transactions contemplated by the
merger agreement.
|
|
|
|
|
|
The Merger.
You are being asked to vote to
approve the merger and the Agreement and Plan of Merger, dated
as of August 27, 2007, among Cost-U-Less, NWC and Merger
Sub, which we refer to in this proxy statement as the merger
agreement, pursuant to which Merger Sub will merge with and into
Cost-U-Less, with Cost-U-Less continuing as the surviving
corporation in the merger and as a wholly owned subsidiary of
NWC. As a result of the merger, Cost-U-Less will cease to be an
independent, publicly traded company. See The Merger
Agreement beginning on page 33. A copy of the merger
agreement is attached as Appendix A to this proxy statement.
|
|
|
|
Merger Consideration.
If the merger is
completed, you will be entitled to receive $11.75 in cash,
without interest and less any applicable withholding taxes, for
each share of Cost-U-Less common stock that you own (unless you
choose to be a dissenting shareholder by exercising and
perfecting your dissenters rights under Washington law
with respect to the merger). See The Merger
Agreement Merger Consideration and
Dissenters Rights beginning on pages 34
and 48, respectively.
|
|
|
|
Treatment of Outstanding Options.
Each
outstanding option to acquire Cost-U-Less common stock granted
under Cost-U-Lesss stock option plan will become fully
vested and, to the extent not exercised and upon consummation of
the merger, will expire, be cancelled and terminate without
payment or consideration. However, each holder of an option
having an exercise price less than $11.75 per share who executes
an option cash-out agreement prior to the consummation of the
merger will be entitled to receive an amount in cash from NWC
equal to the amount obtained by (x) multiplying the
aggregate number of shares that were issuable upon exercise of
the option immediately prior to the effective time of the merger
by the excess of $11.75 over the per share exercise price, and
then (y) subtracting any applicable withholding taxes.
|
1
|
|
|
|
|
Record Date and Voting.
You are entitled to
vote at the special meeting if you owned shares of Cost-U-Less
common stock at the close of business
on ,
2007, the record date for the special meeting. Each outstanding
share of Cost-U-Less common stock on the record date entitles
the holder to one vote on each matter submitted to shareholders
for approval at the special meeting and any adjournment or
postponement thereof. As of the record date, there
were shares
of Cost-U-Less common stock entitled to be voted at the special
meeting. See The Special Meeting of
Shareholders Record Date on page 31.
|
|
|
|
Shareholder Vote Required to Adopt the Merger
Agreement.
You are being asked to consider and
vote upon a proposal to approve the merger and the merger
agreement. In order to complete the merger, shareholders holding
a majority of the shares of Cost-U-Less common stock outstanding
at the close of business on the record date and entitled to vote
thereon must vote FOR the proposal to approve the merger and the
merger agreement. Abstentions and broker non-votes will have the
effect of a vote against the proposal to approve the merger and
the merger agreement. See The Special Meeting of
Shareholders Voting Rights; Quorum; Vote Required
for Approval beginning on page 31.
|
|
|
|
Voting Information.
Before voting your shares
of Cost-U-Less common stock, we encourage you to read this proxy
statement in its entirety, including its appendices, and
carefully consider how the merger will affect you. To ensure
that your shares can be voted at the special meeting, please
complete, sign, date and mail the enclosed proxy card (which
requires no postage if mailed in the United States) as soon as
possible. If a broker holds your shares in street
name, your broker should provide you with instructions on
how to record your vote. See The Special Meeting of
Shareholders Voting and Revocation of Proxies
on page 32.
|
|
|
|
Determination of the Board of Directors.
After
careful consideration, the Cost-U-Less board of directors has
unanimously determined that it is advisable and in the best
interests of Cost-U-Less and its shareholders for Cost-U-Less to
consummate the merger upon the terms and subject to the
conditions set forth in the merger agreement, and that the
merger is fair to Cost-U-Less and its shareholders, and has
therefore unanimously approved the merger agreement, the merger
and the other transactions contemplated by the merger agreement.
See The Merger Determination of the Board of
Directors; Reasons for Approval of the Merger;
Recommendations beginning on page 16.
|
|
|
|
Recommendation of the Board of Directors.
The
Cost-U-Less board of directors unanimously recommends that you
vote FOR the proposal to approve the merger and the merger
agreement and FOR any proposal to adjourn the special meeting to
a later date to allow time to solicit additional proxies in
favor of the proposal to approve the merger and the merger
agreement in the event that there are not sufficient votes
represented at the special meeting to approve the merger and the
merger agreement.
|
|
|
|
|
|
Share Ownership of Cost-U-Less Directors and
Officers.
As
of ,
2007, the record date for the special meeting, the directors and
executive officers of Cost-U-Less beneficially owned and are
entitled to vote at the special meeting, in the aggregate,
shares of Cost-U-Less common stock representing
approximately % of the outstanding
shares of Cost-U-Less common stock. Each of the directors and
executive officers has informed Cost-U-Less that he currently
intends to vote all of his shares of Cost-U-Less common stock
FOR the proposal to approve the merger and the merger agreement
and FOR the adjournment proposal, if necessary. See The
Special Meeting of Shareholders Voting Rights;
Quorum; Vote Required for Approval beginning on
page 31. In addition, J. Jeffrey Meder, our President and
Chief Executive Officer and a director, Gary W. Nettles, a
director, and John D. Delafield, a director, collectively hold
or have voting power with respect to
approximately % of the outstanding
shares of Cost-U-Less common stock, and have executed voting
agreements pursuant to which these shares are required to be
voted FOR the proposals at the special meeting.
|
|
|
|
|
|
Voting Agreements.
As
of ,
2007, the record date for the special meeting, in addition to
Messrs. Meder, Nettles and Delafield, certain other
shareholders holding
approximately % of the outstanding
shares of Cost-U-Less common stock, have executed voting
agreements pursuant to which their shares are required to be
voted FOR the proposals at the special meeting.
|
2
|
|
|
|
|
Opinion of the Board of Directors Financial
Advisor.
The Cost-U-Less board of directors
engaged Cascadia Capital, LLC, referred to in this proxy
statement as Cascadia Capital, to assist it in connection with
its evaluation of the proposed merger. On August 24, 2007,
Cascadia Capital rendered to the Cost-U-Less board of directors
an oral opinion, which opinion was subsequently confirmed as of
August 27, 2007 in writing, to the effect that, based on
and subject to the factors and assumptions set forth in Cascadia
Capitals opinion, and other matters that Cascadia Capital
considered relevant, the consideration to be offered to the
holders of Cost-U-Less common stock in the merger was fair, from
a financial point of view, to such shareholders. The full text
of Cascadia Capitals written opinion is attached to this
proxy statement as Appendix B. We encourage you to read
this opinion carefully in its entirety for a description of the
procedures followed, assumptions made, matters considered and
limitations on the review undertaken. Cost-U-Less will pay
Cascadia Capital a fee of approximately $1,050,000 in connection
with its services as financial advisor, less retainer fees in
the aggregate amount of $130,000 and an additional fee of
$200,000 in connection with the issuance of the fairness
opinion.
Cascadia Capitals opinion was provided to
Cost-U-Lesss board of directors in connection with and for
the purposes of the boards evaluation of the merger and
does not constitute a recommendation to any shareholder of
Cost-U-Less as to how such shareholder should vote with respect
to the merger or any other matter
. See The
Merger Opinion of Cost-U-Lesss Financial
Advisor beginning on page 18 and Appendix B.
|
|
|
|
Material United States Federal Income Tax
Consequences
. The merger will be a taxable
transaction to you if you are a U.S. holder (as defined
under The Merger Material U.S. Federal
Income Tax Consequences). For U.S. federal income tax
purposes, your receipt of cash (whether as merger consideration
or pursuant to the proper exercise of appraisal rights) in
exchange for your shares of Cost-U-Less common stock generally
will cause you to recognize gain or loss measured by the
difference, if any, between the cash you receive in the merger
and your adjusted tax basis in your shares of Cost-U-Less common
stock. If your shares are held by you as capital assets, such
gain or loss will be capital gain or loss. In general, capital
gains recognized by an individual shareholder are eligible for
preferential rates of U.S. federal income taxation if the
shares have been held for more than one year as of the effective
date of the merger. If the shares have been held for one year or
less, such capital gains recognized by an individual shareholder
will be subject to taxation at ordinary income tax rates. The
payment of cash to you pursuant to the merger will be subject to
information reporting and may be subject to backup withholding
tax, unless you provide proof of an applicable exemption or a
correct taxpayer identification number, and otherwise comply
with the applicable requirements of the backup withholding
rules.
The tax consequences of the merger to you are complex
and will depend upon your particular circumstances. You should
consult your own tax advisor for a full understanding of the tax
consequences of the merger to you under federal, state, local,
non-U.S. and
other tax laws.
See The Merger Material
U.S. Federal Income Tax Consequences beginning on
page 27.
|
|
|
|
Procedures for Receiving the Merger
Consideration.
If the merger is completed, each
Cost-U-Less shareholder will receive materials from the paying
agent, Mellon Investor Services LLC. As soon as possible after
the completion of the merger, the paying agent will provide
instructions to each holder of record of shares of Cost-U-Less
common stock that will explain how to surrender stock
certificates. Each Cost-U-Less shareholder will receive cash for
his, her or its shares from the paying agent after complying
with these instructions. If the shareholders shares of
common stock are held in street name by his, her or
its broker, the shareholder will receive instructions from his,
her or its broker as to how to effect the surrender of the
street name shares and receive cash for those
shares. See The Merger Procedures for
Receiving the Merger Consideration beginning on
page 24. YOU SHOULD NOT FORWARD YOUR STOCK CERTIFICATES TO
COST-U-LESS OR NWC, NOR THE PAYING AGENT WITHOUT A LETTER OF
TRANSMITTAL, AND YOU SHOULD NOT RETURN YOUR STOCK CERTIFICATES
WITH THE ENCLOSED PROXY.
|
3
|
|
|
|
|
Dissenters Rights.
Under the Washington
Business Corporation Act, holders of Cost-U-Less common stock
who do not vote in favor of the proposal to approve the merger
and the merger agreement will have the right to seek payment of
the fair value of their shares as determined in accordance with
the statute if the merger is completed, but only if they comply
with all applicable requirements of Washington law. A summary of
the relevant provisions of Washington law is attached to this
proxy statement as Appendix C. The fair value as determined in
accordance with the statute could be more than, the same as or
less than the amount a shareholder would be entitled to receive
under the terms of the merger agreement. Holders of Cost-U-Less
common stock intending to exercise their dissenters rights
must, among other things, submit a written notice of intent to
demand payment to Cost-U-Less prior to the vote on the proposal
to approve the merger and the merger agreement and must not vote
or otherwise submit a proxy in favor of the proposal to approve
the merger and the merger agreement. Your failure to follow
exactly the procedures specified under Washington law will
result in the loss of your dissenters rights, and your
shares of Cost-U-Less common stock will instead entitle you to
receive merger consideration with respect to such shares. See
Dissenters Rights beginning on page 48
and Appendix C.
|
|
|
|
Termination of the Merger Agreement.
Under
certain circumstances, the merger agreement may be terminated
and the merger abandoned prior to the effective time of the
merger, whether before or after obtaining the required
shareholder approval. See The Merger Agreement
Termination beginning on page 39. The merger
agreement may be terminated as follows:
|
(1) by mutual written consent of Cost-U-Less and NWC;
(2) by either NWC or Cost-U-Less if:
(a) the merger shall not have been consummated on or before
December 31, 2007, except that the date of termination will
be automatically extended until January 31, 2008, if
certain regulatory
and/or
third
party approvals are the only conditions to the merger agreement
that remain to be satisfied;
(b) any permanent injunction or other order of a court or
other competent authority preventing the consummation of the
merger shall have become final and nonappealable; or
(c) the special meeting of shareholders (including any
adjournment thereof) is held and approval of the proposal to
approve the merger and the merger agreement has not been
obtained from a majority of the holders of Cost-U-Less
outstanding common stock entitled to vote on the proposal;
(3) by NWC:
(a) if the representations and warranties of Cost-U-Less
shall have become untrue, or upon a material breach of any
covenant or agreement on the part of Cost-U-Less set forth in
the merger agreement such that, as of the time of such breach,
the condition to the consummation of the merger that Cost-U-Less
shall have performed or complied in all material respects with
each of its agreements and covenants required under the merger
agreement to be performed or complied with at or prior to the
consummation of the merger would not be satisfied, and such
breach is not cured after notice and during a specified cure
period;
(b) if:
|
|
|
|
|
an alternative acquisition proposal is made and the Cost-U-Less
board does not, if so requested by NWC, reconfirm its
recommendation to vote FOR approval of the merger and the merger
agreement within a specified period;
|
|
|
|
A tender offer or exchange offer for shares of Cost-U-Less
common stock is commenced and the Cost-U-Less board recommends
that shareholders tender their shares in such offer, or fails to
recommend against acceptance of such offer;
|
4
|
|
|
|
|
there occurs any change in the Cost-U-Less boards
recommendation for the merger in a manner materially adverse to
NWC;
|
|
|
|
the Cost-U-Less board recommends, endorses, accepts or approves
any acquisition proposal other than the merger described in this
proxy statement; or
|
|
|
|
Cost-U-Less fails to comply with its obligations with regard to
alternative acquisition proposals, and such failure is not cured
after notice and during a specified cure period; and
|
(4) by Cost-U-Less:
(a) if the representations and warranties of NWC and Merger
Sub shall have become untrue, or upon a material breach of any
covenant or agreement on the part of NWC or Merger Sub set forth
in the merger agreement such that, as of the time of such
breach, the condition to the consummation of the merger that NWC
and Merger Sub shall have performed or complied in all material
respects with each of their respective agreements and covenants
required under the merger agreement to be performed or complied
with at or prior to the consummation of the merger would not be
satisfied, and such breach is not cured after notice and during
a specified cure period; or
(b) upon receipt by Cost-U-Less of a superior offer from a
third party, provided that (A) the Cost-U-Less board has
determined that it desires to approve entering into a written
agreement providing for such superior offer and has notified NWC
in writing of such desire; (B) Cost-U-Less has reasonably
cooperated with NWC during a specified period to enable NWC to
make an offer that is at least as favorable from a financial
point of view to the Cost-U-Less shareholders as such superior
offer; (C) NWC has not made a written offer that the
Cost-U-Less board determines to be more favorable from a
financial point of view to the Cost-U-Less shareholders than the
superior offer during such specified period; and (D) at the
end of the specified period the Cost-U-Less board continues to
believe that the superior offer is more favorable from a
financial point of view to the Cost-U-Less shareholders than the
merger.
|
|
|
|
|
Effect of Termination; Termination Fee.
Except
in certain specified circumstances, if the merger agreement is
terminated, neither Cost-U-Less nor NWC will have any liability
to the other under the merger agreement. If Cost-U-Less or NWC
terminates the merger agreement under certain circumstances
specified in the merger agreement, Cost-U-Less will be required
to reimburse NWC for out-of-pocket costs and expenses, and may
be required to pay a termination fee of $1.5 million to
NWC. If Cost-U-Less or NWC terminates the merger agreement under
certain circumstances specified in the merger agreement, NWC
will be required to reimburse Cost-U-Less for out-of-pocket
costs and expenses. See The Merger Agreement
Fees and Expenses; Termination Fee on page 41.
|
|
|
|
Conditions to the Merger.
The obligation to
consummate the merger is subject to the satisfaction or waiver
of a number of conditions. See The Merger
Agreement Conditions to Completing the Merger
beginning on page 43. Those conditions include the
following:
|
|
|
|
|
|
the merger agreement shall have been adopted by the affirmative
vote of the holders of a majority of the outstanding shares of
Cost-U-Less common stock entitled to vote on the proposal;
|
|
|
|
no statute, rule, order, decree or regulation shall have been
enacted or promulgated by any governmental authority of
competent jurisdiction that prohibits the consummation of the
merger;
|
|
|
|
there shall be no order or injunction of any governmental entity
of competent jurisdiction in effect precluding, restraining,
enjoining or prohibiting consummation of the merger;
|
|
|
|
the representations and warranties of each of Cost-U-Less, NWC
and Merger Sub shall be true and correct in all material
respects as of the closing date;
|
|
|
|
Cost-U-Less shall have performed in all material respects all
obligations required to be performed by it under the merger
agreement on or prior to the consummation of the merger;
|
5
|
|
|
|
|
there shall not have occurred since August 27, 2007, any
event that has had a material adverse effect with respect to
Cost-U-Less and its subsidiaries, taken as a whole;
|
|
|
|
Cost-U-Less shall have received or obtained certain specified
third-party consents and approvals;
|
|
|
|
Cost-U-Less shall have received and delivered to NWC estoppel
certificates with respect to certain specified store
leases; and
|
|
|
|
Cost-U-Less shall have caused certain specified actions to be
taken with respect to its store under construction in the Cayman
Islands.
|
|
|
|
|
|
Alternative Acquisition Proposals.
From and
after August 27, 2007, Cost-U-Less has agreed that neither
it nor any of its subsidiaries shall, directly or indirectly:
|
(1) take any action to solicit or intentionally encourage
any alternative acquisition proposal; or
(2) engage in any discussions or negotiations with, or
disclose any nonpublic information relating to Cost-U-Less or
any of its subsidiaries to, or afford access to the books or
records of Cost-U-Less or any of its subsidiaries to, any person
(other than NWC or to any Cost-U-Less shareholder as required by
applicable law or legal process) that has advised Cost-U-Less
that it may be considering making, or that has made, an
alternative acquisition proposal.
See The Merger Background of the Merger
beginning on page 12 and The Merger
Agreement Alternative Acquisition Proposals
beginning on page 39.
Notwithstanding these restrictions, under certain circumstances,
the Cost-U-Less board of directors may respond to a bona fide
unsolicited written alternative acquisition proposal so long as
Cost-U-Less complies with certain terms of the merger agreement
described under The Merger Agreement
Alternative Acquisition Proposals beginning on
page 39. These terms include Cost-U-Lesss board
determining in good faith, after obtaining advice from
Cost-U-Lesss financial advisor and outside legal counsel,
that such alternative acquisition proposal is, or is likely to
result in, a proposal that is more favorable from a financial
point of view to the Cost-U-Less shareholders than the merger
consideration, is reasonably capable of being completed and is
not conditioned upon obtaining additional financing, and that it
is necessary for the Cost-U-Less board of directors to comply
with its fiduciary obligations to the Cost-U-Less shareholders
under applicable law. To date, no party has made a proposal to
acquire Cost-U-Less since the execution of the merger agreement.
|
|
|
|
|
Financing of the Merger.
There is no financing
condition to the merger. Cost-U-Less estimates that the total
amount of funds necessary to consummate the merger is
approximately $52.2 million. NWC is expected to provide
that amount through NWCs working capital credit facilities
and cash on hand. The North West Company Fund has guaranteed (as
primary obligor and not merely as surety) to Cost-U-Less the
prompt and complete payment in full of all sums (including fees
and expenses) which may become payable by NWC under the merger
agreement. See The Merger Financing on
page 42.
|
|
|
|
Interests of Cost-U-Less Directors and Executive
Officers
. In considering the recommendations of
the board of directors, shareholders should be aware that
certain of our directors and executive officers have interests
in the transaction that are different from,
and/or
in
addition to, the interests of Cost-U-Less shareholders
generally. The board of directors was aware of these potential
conflicts of interest and considered them, among other matters,
in reaching their decisions and recommendations with respect to
the merger agreement and related matters.
|
|
|
|
|
|
At the effective time of the merger, shares of Cost-U-Less
common stock held by our executive officers and directors will
be converted into cash consideration on the same terms as all
shares of Cost-U-Less common stock are converted.
|
|
|
|
Unless earlier exercised, the outstanding options held by
executive officers and directors will expire, be cancelled and
terminate at the effective time without payment of additional
consideration. However, those executive officers and directors
who are the beneficial owners of options having an exercise
price less than $11.75, whether vested or unvested, and who have
signed option cash-out
|
6
agreements, will be entitled to receive an amount in cash from
NWC equal to the amount obtained by (x) multiplying the
aggregate number of shares that were issuable upon exercise of
the option immediately prior to the effective time of the merger
by the excess of $11.75 over the per share exercise price, and
then (y) subtracting any applicable withholding taxes.
|
|
|
|
|
We do not expect J. Jeffrey Meder, our President and Chief
Executive Officer, Roy W. Sorensen, our Vice President, Chief
Operating Officer and Martin P. Moore, our Vice President, Chief
Financial Officer, Secretary and Treasurer, to continue as
employees of the surviving corporation following the merger. In
accordance with the executive severance plan adopted by
Cost-U-Less in April 2003, Mr. Meder would receive a
severance payment of $385,000, Mr. Sorensen would receive a
severance payment of $220,000 and Mr. Moore would receive a
severance payment of $197,000. They would also be entitled to
continued health and other group insurance benefits for twelve
months after termination of their employment.
|
|
|
|
Our executive officers and directors will also benefit from the
indemnification provisions contained in the merger agreement
with respect to their acts or omissions as executive officers or
directors. See The Merger Interests of
Cost-U-Less Directors and Executive Officers in the Merger
beginning on page 25.
|
|
|
|
|
|
Market Price of Cost-U-Less Common Stock.
The
closing price of Cost-U-Less common stock on the Nasdaq Capital
Market on August 27, 2007, the last trading date prior to
announcement of the proposed merger, was $10.51 per share.
|
7
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 proposed merger. These questions and answers
may not address all questions that may be important to you as a
shareholder of Cost-U-Less. Please refer to the more detailed
information contained elsewhere in this proxy statement and the
appendices to this proxy statement.
|
|
|
Q:
|
|
Why am I receiving this proxy statement?
|
|
A:
|
|
Cost-U-Less and NWC have agreed that NWC will acquire
Cost-U-Less through the merger of Merger Sub with and into
Cost-U-Less, subject to certain conditions. Cost-U-Less is
holding a special meeting of shareholders in order to obtain
shareholder approval of the merger and the merger agreement. The
merger cannot be completed unless our shareholders approve this
proposal. We have included in this proxy statement important
information about the merger, the merger agreement and the
special meeting. You should read this information carefully and
in its entirety. We have attached a copy of the merger agreement
as Appendix A. The enclosed voting materials allow you to
vote your shares of Cost-U-Less common stock without attending
the special meeting. Your vote is very important and we
encourage you to vote your proxy as soon as possible.
|
|
Q:
|
|
Where and when is the special meeting?
|
|
A:
|
|
The special meeting will be held
at .M.,
Pacific time,
on ,
2007, .
|
|
Q:
|
|
Who can vote on whether or not to adopt the merger
agreement?
|
|
A:
|
|
You are entitled to vote at the special meeting (in person or by
proxy) if you owned shares of Cost-U-Less common stock at the
close of business
on ,
2007, the record date for the special meeting. Each outstanding
share of Cost-U-Less common stock on the record date entitles
the holder to one vote on each matter submitted to shareholders
for approval at the special meeting.
|
|
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 approve the merger and the merger agreement; and
|
|
|
|
to adjourn the special meeting, if necessary or
appropriate, to allow time to solicit additional proxies if
there are insufficient votes at the time of the special meeting
to adopt the merger agreement, which proposal we also refer to
as the adjournment proposal.
|
|
Q:
|
|
What will be the effect of the merger?
|
|
A:
|
|
Under the merger agreement, Merger Sub will be merged with and
into Cost-U-Less, with Cost-U-Less being the surviving
corporation and a wholly owned subsidiary of NWC. Accordingly,
after the merger, you will no longer have an equity interest in
Cost-U-Less and will not participate in any potential future
earnings or growth of Cost-U-Less.
|
|
Q:
|
|
What will I receive in the merger?
|
|
A:
|
|
If the merger is completed, you will be entitled to receive
$11.75 in cash, without interest and less any applicable
withholding taxes, for each share of Cost-U-Less common stock
that you own (unless you choose to be a dissenting shareholder
by exercising and perfecting your appraisal rights under
Washington law with respect to the merger).
|
|
Q:
|
|
How does the Cost-U-Less board of directors recommend that I
vote?
|
|
A:
|
|
The Cost-U-Less board of directors has unanimously recommended
that you vote:
|
|
|
|
FOR
the proposal to approve the merger and
the merger agreement; and
|
|
|
|
FOR
the adjournment proposal.
|
8
|
|
|
Q:
|
|
How do Cost-U-Lesss directors and executive officers
intend to vote?
|
|
A:
|
|
Each of our directors and executive officers has informed us
that he currently intends to vote all of his shares of
Cost-U-Less common stock in favor of the proposal to approve the
merger and the merger agreement and in favor of the adjournment
proposal. In addition, J. Jeffrey Meder, our President and Chief
Executive Officer and a director, Gary W. Nettles, a director,
and John D. Delafield, a director, collectively hold or have
voting power with respect to approximately % of
the outstanding shares of Cost-U-Less common stock as of the
record date, and have executed voting agreements pursuant to
which these shares are required to be voted FOR the proposals at
the special meeting.
|
|
Q:
|
|
What vote of our shareholders is required to approve the
merger and the merger agreement and to approve the adjournment
proposal?
|
|
A:
|
|
In order to complete the merger, shareholders holding a majority
of the shares of Cost-U-Less common stock outstanding at the
close of business on the record date and entitled to vote on the
proposal must vote in favor of the proposal to approve the
merger and the merger agreement. A failure to vote or an
abstention will have the same effect as a vote against the
proposal to approve the merger and the merger agreement.
Shareholders holding % of the outstanding
shares of common stock of Cost-U-Less as of the record date have
executed voting agreements pursuant to which their shares will
be voted in favor of the merger and the merger agreement.
|
|
|
|
Approval of the adjournment proposal will require that the votes
cast in favor of the proposal exceed the votes cast against the
proposal.
|
|
Q:
|
|
What is a quorum?
|
|
A:
|
|
A quorum of the holders of the outstanding shares of Cost-U-Less
common stock must be present for the special meeting to be held.
A quorum will be present if the holders of a majority of the
outstanding shares of Cost-U-Less common stock entitled to vote
are present at the meeting, either in person or represented by
proxy. Withheld votes, abstentions and broker non-votes are
counted as present for the purpose of determining whether a
quorum is present.
|
|
Q:
|
|
Who is soliciting my vote?
|
|
A:
|
|
This proxy solicitation is being made by the Cost-U-Less board
of directors and is being paid for by Cost-U-Less. We have
engaged Mackenzie Partners, Inc. to assist in the solicitation
of proxies and provide related advice and informational support
at a cost of approximately $7,500 plus reasonable out-of-pocket
expenses. In addition to soliciting shareholders by mail through
our employees, we may request brokers and other fiduciaries to
forward proxy solicitation material to the beneficial owners of
shares of Cost-U-Less common stock that brokers and fiduciaries
hold of record. We will reimburse them for their reasonable
out-of-pocket expenses. We may use the services of our officers,
directors and others to solicit proxies, personally or by
telephone, without additional compensation.
|
|
Q:
|
|
What do I need to do now?
|
|
A:
|
|
After carefully reading and considering the information
contained in this proxy statement, if you hold your shares in
your own name as the shareholder of record, please submit your
proxy by completing, signing, dating and returning the enclosed
proxy card. You can also attend the special meeting and vote, or
change your prior vote, in person. Even if you plan to attend
the special meeting, if you hold your shares in your own name as
the shareholder of record, please vote your shares using the
enclosed proxy card.
Do NOT enclose or return your stock
certificate(s) with your proxy
.
|
|
|
|
If you hold your shares in street name through a
broker, bank or other nominee, then you received this proxy
statement from the nominee, along with the nominees proxy
card which includes voting instructions and instructions on how
to change your vote.
|
|
Q:
|
|
If my shares are held in street name by my
broker, bank or other nominee, will my broker, bank or other
nominee vote my shares for me?
|
|
A:
|
|
Yes, but only if you provide instructions to your broker, bank
or other nominee on how to vote. You should follow the
directions provided by your broker, bank or other nominee
regarding how to instruct your
|
9
|
|
|
|
|
broker 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 approve the merger and the merger
agreement.
|
|
Q:
|
|
How are votes counted?
|
|
A.
|
|
You may vote FOR, AGAINST or ABSTAIN as to the proposal to
approve the merger and the merger agreement. This proposal
requires the affirmative vote of the holders of a majority of
all outstanding shares of Cost-U-Less common stock entitled to
vote on the proposal. Abstentions will not count as votes cast
on the proposal to approve the merger and the merger agreement,
but will count for the purpose of determining whether a quorum
is present.
As a result, if you ABSTAIN, it will have the
same effect as if you vote AGAINST the proposal to approve the
merger and the merger agreement
.
|
|
|
|
For the adjournment proposal, you may vote FOR, AGAINST or
ABSTAIN. Abstentions will not count as votes cast and will have
no effect on the adjournment proposal but will count for the
purpose of determining whether a quorum is present.
|
|
|
|
If you sign your proxy card without indicating your vote, your
shares will be voted FOR the proposal to approve the merger and
the merger agreement, and FOR the adjournment proposal. If any
other matters are properly brought before the special meeting,
the enclosed proxy gives discretionary authority to the persons
named in it to vote the shares in their best judgment.
|
|
|
|
A broker non-vote generally occurs when a broker, bank or other
nominee holding shares on your behalf does not vote on a
proposal because the nominee has not received your voting
instructions and lacks discretionary power to vote the shares.
Broker non-votes will not count as votes cast on a proposal, but
will count for the purpose of determining whether a quorum is
present. As a result, broker non-votes will have the same effect
as a vote AGAINST the proposal to approve the merger and the
merger agreement but will have no effect on the adjournment
proposal.
|
|
Q:
|
|
How do I revoke or change my vote?
|
|
A:
|
|
You can change your vote at any time before your proxy is voted
at the special meeting. You may revoke your proxy if you are a
shareholder of record by notifying the Corporate Secretary of
Cost-U-Less in writing or by delivering a new proxy, 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, however, will not revoke your proxy. If you have
instructed a broker to vote your shares, the above-described
options for changing your vote do not apply, and instead you
must follow the instructions received from your broker to change
your vote.
|
|
Q:
|
|
What does it mean if I get more than one proxy card?
|
|
A:
|
|
If your shares are registered differently and are in more than
one account, you will receive more than one proxy card. Please
complete and return all of the proxy cards you receive to ensure
that all of your shares are voted.
|
|
Q:
|
|
When do you expect the merger to be completed?
|
|
A:
|
|
We anticipate that the merger will be completed in the fourth
calendar quarter of 2007, subject to receipt of shareholder
approval at the special meeting and the satisfaction of the
other closing conditions under the merger agreement.
|
|
Q:
|
|
What is required to complete the merger?
|
|
A:
|
|
We are not required to complete the merger unless a number of
conditions are satisfied or waived. These conditions include
receipt of approval from Cost-U-Lesss shareholders. For a
more complete summary of the conditions that must be satisfied
or waived prior to completion of the merger, see The
Merger Agreement Conditions to Completing the
Merger beginning on page 43.
|
|
Q:
|
|
Should I send in my stock certificates now?
|
|
A:
|
|
No. Shortly after the merger is completed, you will receive
a letter of transmittal with instructions informing you how to
send in your stock certificates to the paying agent in order to
receive the merger consideration to which you are entitled. You
should use the letter of transmittal to exchange stock
certificates for
|
10
|
|
|
|
|
that merger consideration. YOU SHOULD NOT FORWARD YOUR STOCK
CERTIFICATES TO THE PAYING AGENT WITHOUT A LETTER OF TRANSMITTAL
AND YOU SHOULD NOT RETURN YOUR STOCK CERTIFICATES WITH THE
ENCLOSED PROXY.
|
|
Q:
|
|
What if my stock is uncertificated?
|
|
A:
|
|
If your shares are held in street name by your
broker, bank or other nominee, you will receive instructions
from your broker, bank or other nominee shortly after the merger
is completed as to how to effect the surrender of your
street name shares in exchange for the merger
consideration to which you are entitled. See The
Merger Procedures for Receiving the Merger
Consideration beginning on page 24. Shortly after the
merger is completed, your broker, bank or other nominee will
receive a letter of transmittal with instructions informing them
how to send to the paying agent book-entry account statements
reflecting the ownership of such street name stock in order to
receive the appropriate merger consideration. See The
Merger Procedures for Receiving the Merger
Consideration beginning on page 24.
|
|
Q:
|
|
What if I own options?
|
|
A:
|
|
All outstanding options will expire, be cancelled and terminate
at the effective time of the merger without payment of
additional consideration. However, if you are the beneficial
owner of options having an exercise price less than $11.75,
whether vested or unvested, and you have signed an option
cash-out agreement, the paying agent will pay the merger
consideration to which you are entitled by delivering the
payment to you, without interest and less any applicable
withholding taxes, shortly after the merger is completed at the
address reflected in our records. See The
Merger Procedures for Receiving the Merger
Consideration and The Merger Agreement
Treatment of Options beginning on pages 24 and 34,
respectively.
|
|
Q:
|
|
Will the merger be taxable to me?
|
|
A:
|
|
Yes. The receipt of cash pursuant to the merger will be a
taxable transaction for U.S. federal income tax purposes and may
also be a taxable transaction under applicable state, local or
foreign income or other tax laws.
You should consult your own
tax advisor for a full understanding of the tax consequences of
the merger to you under federal, state, local,
non-U.S.
and
other tax laws.
See The Merger Material
U.S. Federal Income Tax Consequences beginning on
page 27.
|
|
Q:
|
|
Am I entitled to dissenters rights?
|
|
A:
|
|
Yes. If you are a shareholder who objects to the merger, and if
you comply with the required procedures under Washington law,
you will be entitled to dissenters rights under Washington
law. See Dissenters Rights beginning on
page 48 and Appendix C.
|
|
Q:
|
|
How can I obtain additional information about Cost-U-Less?
|
|
A:
|
|
We will provide a copy of our Annual Report on
Form 10-K
for the fiscal year ended December 31, 2006, excluding
certain of its exhibits, and other subsequent filings with the
SEC without charge to any shareholder who delivers a written
request to 3633
136
th
Place SE, Suite 110, Bellevue, Washington 98006, attention:
Secretary. Our Annual Report on
Form 10-K
and other SEC filings also may be accessed on the Internet at
www.sec.gov or on the investor relations page of our website at
www.costuless.com/investors. The information provided on our
website is not part of this proxy statement, and therefore is
not incorporated by reference. For a more detailed description
of the information available, please refer to Where You
Can Find Additional Information on page 51.
|
|
Q:
|
|
Who can help answer my other questions?
|
|
A:
|
|
If you have more questions about the merger, need assistance in
submitting your proxy or voting your shares, or need additional
copies of the proxy statement or the enclosed proxy card, you
should contact Mackenzie Partners, Inc., our proxy solicitation
agent, by telephone at (800) 322-2885.
|
|
|
|
You may also wish to consult your own legal, tax and/or other
financial advisors with respect to the merger agreement, the
merger or other matters described in this proxy statement.
|
11
CAUTIONARY
STATEMENT CONCERNING FORWARD-LOOKING INFORMATION
This proxy statement, and the documents to which we refer you to
in this proxy statement, contain forward-looking statements,
within the meaning of the federal securities laws. These
forward-looking statements include without limitation statements
regarding our expectations and beliefs about the market and
industry; our goals, plans, and expectations regarding our
business strategy, attributes for successful stores,
merchandising and distribution; our beliefs regarding the future
success of our stores and our merchandising strategy; our
expectations and beliefs regarding competition, competitors, the
basis of competition and our ability to compete; our beliefs
regarding our ability to hire and retain personnel and the labor
costs associated with island wages; our beliefs regarding period
to period results of operations; our expectations regarding
future growth and financial performance; our expectations
regarding international sales and our revenues; our expectations
and beliefs regarding revenue and revenue growth; our
expectations regarding our strategies; our expectations
regarding fluctuations in revenues, operating results and
comparable store sales; our beliefs and expectations regarding
our existing facilities and the availability of additional space
in the future; our intent to use all available funds for the
expansion and the operation of our business and not to declare
or pay any cash dividends; our beliefs and expectations
regarding our results of operation and financial position; our
intentions and expectations regarding utilization of tax
benefits and credits; our beliefs and expectations regarding
liquidity and capital resources and that amounts available under
our various credit facilities, existing cash available for
working capital purposes and cash flow from operations will be
sufficient to meet our cash requirements; and our expectations
regarding the impact of recent accounting pronouncements and
revenue recognition matters. These statements are subject to
risks and uncertainties that could cause actual results and
events to differ materially from those anticipated. These risks
and uncertainties include those described in this proxy
statement. We undertake no obligation to update forward-looking
statements to reflect events or circumstances occurring after
the date of this proxy statement.
As used in this proxy statement, unless the context otherwise
requires, the terms we, us,
our, the Company, and
Cost-U-Less refer to Cost-U-Less, Inc., a
Washington corporation, and its subsidiaries.
Background
of the Merger
Cost-U-Less has for many years continually explored ways to
maximize long-term value for our shareholders, including ways to
increase sales, gross margins and earnings, and respond to
competition. In recent years, we have also persistently explored
other strategic alternatives as a means of maximizing value for
our shareholders. Our strategic inquiries have been motivated by
a number of fundamental realities inherent in our business,
including: our niche business and geographic models which make
it difficult to expand our store base very rapidly; our lack of
access to expansion capital on acceptable terms, thereby
limiting us to internally generated funds and senior debt
secured by largely offshore collateral; the disproportionate
negative impact that the increased costs of being a public
company have had on our earnings; and our small public float and
low trading volumes which limit the realistic ability of all of
our shareholders to achieve liquidity at the quoted trading
price, let alone realize a premium over the quoted trading
price.
As a result of these factors, our board of directors has on
several occasions over the past six years engaged professional
financial advisers to assist in evaluating strategic
alternatives. Since conducting our initial public offering in
1998, our board of directors has formally engaged three outside
financial advisers, on four separate occasions, during the
period from 2000 to 2004, and most recently in 2006. These
engagements were primarily broad mandates to examine a range of
potential strategic opportunities, and in some cases involved
assessment of specific opportunities that were under
consideration. Strategic alternatives examined have included not
only potential business combinations but also acquisition or
divestiture opportunities, strategic partnering opportunities
and potential equity financings, as well as alternative uses for
our cash and borrowing capacity such as possible expansion of
the stock repurchase programs we have implemented periodically
since 2001.
12
In December 2002, we engaged Delafield Hambrecht, Inc., a
Seattle-based investment banker, to help identify and assess
potential acquirors and other strategic opportunities. Delafield
Hambrecht had largely concluded this initial assignment by
mid-2003. Later, in December 2003, our board of directors
renewed its engagement of Delafield Hambrecht for an additional
12-month
period.
In November 2005, Delafield Hambrechts chief executive
officer, John D. Delafield, announced in an SEC filing that he
and his firm and other related parties had acquired beneficial
ownership of more than 7% of the shares of our outstanding
common stock. In September 2006, Chadwick Capital Management LLC
filed SEC documents reflecting that it and other related
parties, including Monarch Activist Partners LP, had acquired
beneficial ownership of more than 5% of the shares of our
outstanding common stock.
In November 2006, we engaged our current financial adviser,
Cascadia Capital, LLC, to assist our board of directors in
exploring a range of strategic alternatives. Cascadia Capital is
a Seattle-based investment bank focused on serving emerging
growth and middle market companies.
In late 2006 and early 2007, the Delafield Hambrecht group
disclosed in SEC filings that if had increased its beneficial
ownership to 9.5% of our outstanding common stock, and also
included letters to our management suggesting, among other
things, that we hire an investment banker to explore strategic
alternatives. Chadwick Capital Management, through its affiliate
Monarch Activist Partners, also sent letters to our management
suggesting that we hire an investment banker to explore
strategic alternatives. During the same period of time, Cascadia
Capital facilitated unsuccessful discussions with one party
regarding a potential strategic combination.
In January 2007, Cascadia Capital began to explore on an
anonymous basis certain potential strategic relationships with
companies doing business in the Caribbean market who were deemed
to have potential interest in acquiring Cost-U-Less.
On February 28, 2007, we entered into separate letter
agreements with Delafield Hambrecht and Chadwick Capital
Management pursuant to which, among other things, we agreed to
nominate and support Mr. Delafield for election to our
board of directors at our 2007 annual meeting of shareholders.
We entered into these agreements to avoid what we believed would
be unnecessary expenses, distraction of managements time
and disruption of our business as a result of a proxy contest.
In addition, in order to maintain independence and flexibility
in analyzing and investigating various alternatives, our board
of directors established a special committee comprised only of
our four independent directors, to investigate, analyze and, if
necessary, oversee the negotiation of any strategic alternatives
that the committee deemed appropriate and in the best interests
of our shareholders.
In March 2007, the special committee expanded our engagement of
Cascadia Capital to include the exploration of a broader
selection of potential buyers of the company. The process of
seeking an acquiror was initiated only partially in response to
suggestions by Delafield Hambrecht, Chadwick Capital Management
and other shareholders. The primary reasons we decided to seek a
broader range of acquisition opportunities were the perceived
limits on our ability to continue increasing long-term value for
our shareholders through organic means, and the inability of our
shareholders to realize a premium over the quoted trading price
of our common stock other than in connection with a sale of the
company. In addition, our board of directors believed that the
environment for mergers and acquisitions was favorable from both
an activity level and a valuation standpoint. The board of
directors believed that our investigations of possible sale
alternatives in prior years had demonstrated that the number of
potential strategic buyers of the company was likely to be
limited, which made it all the more important to start and
finish any eventual sale process during a period when the
mergers and acquisitions market would likely include financial
bidders, whose participation could contribute to an auction
environment more likely to result in fair pricing of any
transaction.
At the special committees request, Cascadia Capital
ultimately marketed the transaction to 49 prospective buyers,
including 17 strategic buyers and 32 financial buyers. Twelve
parties signed non-disclosure agreements and received detailed
non-public information regarding Cost-U-Less. These parties were
invited to submit initial indications of interest before
May 1, 2007. Six parties submitted initial indications of
interest and one
13
additional party indicated that it was interested in a
transaction at a valuation range that Cascadia Capital felt was
competitive.
Following receipt of these initial indications of interest, the
special committee directed Cascadia Capital to conduct a second
phase of the marketing process with the objective of increasing
transaction valuations, assessing probability to close, and
understanding key deal points. Cascadia Capital invited each of
the seven interested parties to participate in the second phase
of the sale process and, following the execution of
confidentiality agreements, provided each party access to an
online data room containing more detailed information about the
company. Of the seven interested parties, one party declined to
proceed further. Cascadia Capital set a deadline of
June 29, 2007, for the submission of final, written
proposals from the six remaining interested parties. Cascadia
Capital later extended the deadline for submitting final
proposals to July 17, 2007, to allow for further due
diligence by the interested parties.
In early June 2007, each of the six remaining interested parties
conducted in-person meetings with members of our senior
management and representatives of Cascadia Capital in Seattle,
Washington. On June 7, 2007, our management team, including
Messrs. Meder, Sorensen, Moore and Scalzo and
representatives from Cascadia Capital met with the management
team from The North West Company at the offices of our legal
counsel in Seattle. Our management team presented background and
operational information about the company and responded to
questions.
On June 13, 2007, Mr. Meder, received a call from
Edward Kennedy, The North West Companys president and
chief executive officer. The purpose of the call was to discuss
The North West Companys intention to open a store in the
Guam market if the merger does not occur. Messrs. Meder and
Kennedy also discussed our plans or operations in other markets,
including Hilo, Hawaii, the Cayman Islands and the Caribbean
generally.
On July 5, 2007, the management team of The North West
Company met with Messrs. Meder, Sorensen, Moore and Scalzo
via videoconference to further discuss our operations and plans
for growth in each of our target markets. During this
videoconference, the parties reviewed the lease negotiations
relating to our Hilo store, and discussed the costs associated
with development of our new building in Grand Cayman, the
Curacao store and market, our competitive position in the St.
Thomas market, and our strengths in island markets generally.
On July 10, 2007, Messrs. Meder and Moore participated
in a telephone conference with Leo Charrière, The North
West Companys executive vice president and chief financial
officer. The parties discussed the effects of foreign currencies
on our business, our bank relationships, our anticipated capital
expenditures for the remainder of 2007, details of our joint
venture agreement in Grand Cayman, and our lease in Aruba.
On July 17, 2007, Cascadia Capital received written
proposals from two parties, The North West Company and Delafield
Hambrecht, as well as verbal indications of interest from four
other parties. At the direction of the special committee,
Cascadia Capital contacted those parties that had not submitted
written proposals, in an effort to keep them in the process.
However, each of these parties declined to submit written
proposals.
On July 18, 2007, the special committee met to discuss the
written proposals received from The North West Company and
from Delafield Hambrecht. The North West Companys proposal
indicated a per share purchase price of $11.25 to be paid in
cash for all of the outstanding shares of our common stock.
Delafield Hambrechts proposed per share purchase price
consisted of $7.00 cash and $7.00 in subordinated Cost-U-Less
notes. Cascadia Capital provided the special committee with a
detailed review of each proposal, including its analysis of the
current value of each of the proposals. Cascadia Capital
indicated that it valued Delafield Hambrechts proposal at
between $10.50 and $11.00 per share when taking into account the
current value of the subordinated notes. Following this
discussion, the special committee determined that The North West
Companys proposal appeared to represent a greater value
for our shareholders and directed Cascadia Capital to explore
whether The North West Company would raise its offer above
$11.25 per share. At the direction of the special committee,
Cascadia Capital also informed Delafield Hambrecht that its
offer was not the highest offer received by Cost-U-Less.
14
During late July and early August 2007, Cascadia Capital engaged
in discussions and met several times with representatives from
D.A. Davidson & Co., The North West Companys
financial advisor, in an effort to obtain a higher per share
price from The North West Company. The special committee also
met several times during this period to discuss the terms of The
North West Companys proposal and ongoing negotiations.
On July 27, 2007, the chairman of the Cost-U-Less board of
directors, Mr. Textor, spoke with Mr. Kennedy on the
telephone to discuss various issues related to the potential
merger, including management retention, consolidation of
operations following the merger, and the combined companys
opportunities in various markets after the merger.
Messrs. Textor and Kennedy also discussed how The North
West Company arrived at the per share price in its proposal and
whether The North West Company could increase its offer above
the proposed price of $11.25 per share. Mr. Kennedy
indicated that he believed The North West Company could increase
its offer between $0.25 and $0.50 per share.
On July 31, 2007, Cascadia Capital provided an update to
the special committee, including a detailed review of the entire
sale process. Cascadia Capital also provided an in-depth
analysis of the current proposals from The North West Company
and Delafield Hambrecht. Cascadia Capital informed the special
committee that Delafield Hambrecht had indicated that it would
no longer participate in the sale process; as a result, the
board of directors subsequently added Mr. Delafield to the
special committee.
On August 3, 2007, Mr. Textor spoke again with
Mr. Kennedy on the telephone to discuss various issues
related to the potential merger, including the proposed
termination fee structure and the companys expected
capital expenditures related to the Grand Cayman store.
Mr. Kennedy informed Mr. Textor that The North West
Company would increase its per share offer price to $11.75 on
the condition that Cost-U-Less immediately agree to negotiate
exclusively with The North West Company. Mr. Textor
provided an update to the special committee regarding his
discussion with Mr. Kennedy. The special committee
discussed the higher per share offer price, as well as the
proposed structure of the termination fee and the deal
protection measures as a whole, including the proposed
stockholder voting agreements. The special committee authorized
each of Messrs. Donegan and Enger to execute an agreement
to negotiate exclusively with The North West Company for a
transaction at the $11.75 per share price, on the condition that
The North West Company revise the structure of the proposed
termination fee from a break-up fee to a
topping fee. The special committee directed Cascadia
Capital to contact D.A. Davidson with this information.
On August 4, 2007, Mr. Kennedy called Mr. Meder
to say that The North West Company was focused on getting the
merger agreement completed and executed as quickly as possible,
and to discuss various business issues.
On August 8, 2007, Cascadia Capital updated the special
committee on its conversations with D.A. Davidson and circulated
a proposed agreement for exclusive negotiations prepared by The
North West Company.
On August 9, 2007, Cascadia Capital reported to the special
committee that it had spoken with D.A. Davidson again and that
The North West Company had agreed to revise the structure of the
proposed termination fee. Mr. Donegan then executed an
agreement whereby we agreed to negotiate exclusively with The
North West Company, for a period ending on August 24, 2007.
From August 10, 2007, through August 27, 2007, the
parties met several times to discuss transition planning,
coordination for signing the merger agreement and issuing a
press release and related issues. In addition, the parties
legal and financial advisors engaged in extensive negotiations
regarding the terms and conditions of the definitive agreements
relating to the proposed merger.
On August 13, 2007, the special committee met with legal
counsel and Cascadia Capital to review The North West
Companys proposed changes to the draft merger agreement.
On August 14, 2007, legal counsel for Cost-U-Less updated
the special committee regarding its discussions with The North
West Companys legal advisors, indicating that the material
open issues included provision for certainty of The North West
Companys financial ability to close the transaction,
conditions on
15
our operations during the period from signing of the merger
agreement to the closing of the merger, indemnification of our
officers and directors, and capital expenditures related to our
Grand Cayman store.
On August 20, 2007, the special committee received a
further update from legal counsel regarding the proposed merger
agreement and remaining open issues.
On August 22, 2007, the special committee met with legal
counsel and Cascadia Capital to review the status of
negotiations with respect to the merger agreement and the
ancillary agreements. Cascadia Capital also reviewed its
preliminary financial analysis and other financial information
as well as its draft fairness opinion.
On August 24, 2007, the special committee met
telephonically to consider approval of the merger and adoption
of the merger agreement. At this meeting, representatives of
Cascadia Capital presented its financial analysis and other
financial information with respect to the proposed transaction.
At that time, Cascadia Capital rendered an oral opinion, which
was subsequently confirmed by a written opinion dated as of
August 27, 2007, that, as of the latter date and based upon
and subject to the factors and assumptions set forth in the
opinion, the merger consideration to be received by Cost-U-Less
shareholders in connection with the proposed transaction was
fair, from a financial point of view, to the Cost-U-Less
shareholders. Legal counsel to Cost-U-Less presented information
to the special committee regarding the terms and conditions of
the merger that had changed since the special committee last met
on August 22, 2007, and advised the board regarding legal
considerations relating to the transaction, including a review
of the fiduciary obligations of the members of the special
committee and the board of directors.
Representatives of Cost-U-Less and The North West Company
negotiated the remaining open items and finalized the definitive
merger agreement in the early afternoon of August 27, 2007,
at which time the special committee and our board of directors
unanimously determined that the merger and the terms of the
merger agreement were advisable and fair to, and in the best
interests of, Cost-U-Less and our shareholders, and recommended
that our shareholders vote in favor of adopting the merger and
the merger agreement.
On August 27, 2007, Cost-U-Less and The North West Company
executed the merger agreement and issued a joint press release
announcing the execution of the merger agreement.
Determination
of the Board of Directors; Reasons for Approval of the Merger;
Recommendations.
Board of Directors.
After careful
consideration, on August 27, 2007, the Cost-U-Less board of
directors unanimously (1) determined that it is advisable
and in the best interests of Cost-U-Less and its shareholders
for Cost-U-Less to consummate the merger upon the terms and
subject to the conditions set forth in the merger agreement, and
that the merger is fair to Cost-U-Less and its shareholders, and
(2) approved the merger agreement, the merger and the other
transactions contemplated thereby. Accordingly, the Cost-U-Less
board of directors unanimously recommends that shareholders vote
FOR the proposal to approve the merger and the merger agreement
and FOR the adjournment proposal.
Reasons for the Merger.
The material factors
that led our board of directors to explore the potential for a
sale of Cost-U-Less over the past six years included the
following:
|
|
|
|
|
our niche business and geographic models make it difficult to
expand the store base very rapidly;
|
|
|
|
our lack of access to expansion capital on acceptable terms,
thereby limiting us to internally generated funds and senior
debt secured by largely offshore collateral;
|
|
|
|
the increased costs of being a public company have a
disproportionate negative impact on our earnings;
|
|
|
|
our small public float and low trading volumes limit the
realistic ability of all shareholders to achieve liquidity at
the quoted trading price; and
|
|
|
|
without selling the company, our shareholders have no ability to
realize a premium over the quoted trading price of our common
stock.
|
16
In addition, in recent years it had become increasingly evident
to our board that, while our business model presents
opportunities for continued expansion and improvements in
profitability, our ability to achieve overall growth and capture
improved operating results is increasingly constrained by the
current scale of our business. For example, at the same time
that we continue to identify growth opportunities in promising
new markets, we also face increasing competition from larger
direct competitors in some of our more mature markets such as in
Kauai, as well as planned competition from The North West
Company itself in other Pacific markets, and increasing
investment costs and associated capital needs for any stores
that we choose to open, expand or refurbish. Despite our success
in recent years at identifying and achieving significant
operating margin improvements, we have also found it
increasingly difficult to achieve continued margin improvements
without the added buying power and other benefits that would
accompany a larger scale business. In markets where larger
competitors also choose to do business, lesser buying power is a
disadvantage that can lead to reduced sales and, in turn, even
less buying power. Similarly, while we have developed core
competencies in dealing with the particular risks that pertain
to our business, such as construction techniques to protect our
buildings from severe weather, the occurrence of adverse events
or disruptions in only one or a few of our stores can have a
significant adverse impact on our operating results and stock
price, due to our relatively small overall store base.
The current proposal, by one of the few potential strategic
buyers currently available, reflects a premium our board of
directors considers attractive and appropriate in light of our
future opportunities and risks, and also in light of the current
trading level of our common stock, which has traded near the
upper end of the trading range for the last several years. In
addition, since the proposed merger consideration is payable in
cash, from readily available funds and not subject to a
financing condition, our board of directors believes that the
proposal provides a high degree of certainty of delivering this
premium value to all of our shareholders.
Our board also considered a number of material risks or
potentially adverse factors in making its determination and
recommendation, including:
|
|
|
|
|
the fact that, following the merger, our current shareholders
will no longer participate in any of Cost-U-Lesss
potential future earnings or growth;
|
|
|
|
the interests of certain of our directors and executive officers
that may be different from, or in addition to, the interests of
our other shareholders;
|
|
|
|
the fact that the merger consideration to be received by our
shareholders who are U.S. persons will be taxable to them
for federal income tax purposes; and
|
|
|
|
the possibility of disruption to our operations following the
announcement of the merger, and the potential effects on our
business and our stock trading price if the merger does not
close.
|
After taking all of the foregoing considerations into account,
our board of directors believes it is in the best interests of
our shareholders to approve the merger and the merger agreement
at this time, rather than continue to face the increasing
competition and other risks of remaining an independent company,
including the uncertainties inherent in todays public
stock markets, credit markets and the overall mergers and
acquisitions market.
The foregoing discussion of the information and factors
considered by our board is intended to be illustrative and not
exhaustive, but includes the material reasons and factors
considered. In view of the wide variety of reasons and factors
considered, our board did not find it practical to, and did not,
quantify or otherwise assign relative weights to the specified
factors considered in reaching its determinations or the reasons
for such determinations. Individual directors may have given
differing weights to different factors or may have had different
reasons for their ultimate determination. In addition, our board
did not reach any specific conclusion with respect to any of the
factors or reasons considered. Instead, our board conducted an
overall analysis of the factors and reasons described above and
determined that, in the aggregate, the potential benefits
considered outweighed the potential risks or possible negative
consequences of the merger.
17
The
Cost-U-Less board of directors unanimously recommends that you
vote FOR the proposal to approve the merger and the merger
agreement and FOR the adjournment proposal.
Opinion
of Cost-U-Less Financial Advisor
Cascadia Capital, LLC acted as financial advisor to our board of
directors in connection with the merger agreement and evaluated
the fairness of the offered merger consideration of $11.75 per
share of common stock.
In a meeting of the special committee of the board of directors
on August 24, 2007, held to evaluate the proposed
transaction, Cascadia Capital delivered to the special committee
its oral opinion, subsequently followed by delivery of a written
opinion on August 27, 2007, that, as of that date and based
on (i) the assumptions made, (ii) the matters
considered, and (iii) the limitations on the review
undertaken and described in the written opinion, the purchase
price of $11.75 per share of common stock was fair, from a
financial point of view, to the holders of Cost-U-Less common
stock.
In connection with rendering its opinion, Cascadia Capital,
among other things:
|
|
|
|
|
reviewed certain publicly available financial statements and
other business and financial information of Cost-U-Less;
|
|
|
|
reviewed certain internal financial statements and other
financial operating data concerning Cost-U-Less prepared by our
management;
|
|
|
|
reviewed certain financial projections prepared by our
management;
|
|
|
|
discussed the past and current operations of and financial
condition and the prospects of Cost-U-Less with our senior
executives;
|
|
|
|
reviewed the reported prices and trading activity for our common
stock;
|
|
|
|
compared the financial performance of Cost-U-Less and the prices
and trading activity of our common stock with that of the
securities of certain other publicly traded companies;
|
|
|
|
reviewed the financial terms, to the extent publicly available,
of certain comparable acquisition transactions;
|
|
|
|
participated in discussions and negotiations among
representatives of Cost-U-Less, The North West Company, and
their financial and legal advisors;
|
|
|
|
reviewed the financial terms and conditions set forth in the
merger agreement and certain related documents; and
|
|
|
|
performed such other analyses and considered such other factors
as Cascadia Capital deemed appropriate.
|
The full text of the Cascadia Capital opinion, which sets forth,
among other things, assumptions made, matters considered and
limitations on the review undertaken, is attached to this proxy
statement as Appendix B. The summary of the Cascadia
Capital opinion set forth in this proxy statement is qualified
in its entirety by reference to the full text of the Cascadia
Capital opinion. We encourage you to read the Cascadia Capital
opinion in its entirety. The Cascadia Capital opinion was
prepared for the benefit and use of the special committee of our
board of directors in connection with its evaluation of the
transaction and is not intended to be, and does not constitute,
a recommendation to any shareholder of Cost-U-Less as to how
such shareholder should vote, or take any other action, with
respect to the merger.
The Cascadia Capital opinion does not address:
|
|
|
|
|
the relative merits of the merger as compared to other business
strategies or transactions that might be available to us; or
|
|
|
|
the underlying business decision of Cost-U-Less to effect the
merger.
|
18
Cascadia Capital did not express any opinion as to:
|
|
|
|
|
whether any alternative transaction might produce consideration
for our shareholders in excess of the amount contemplated in the
merger agreement;
|
|
|
|
the value of any employee agreement or other arrangement entered
into in connection with the merger;
|
|
|
|
any tax or other consequences that might result from the
merger; or
|
|
|
|
the terms of the merger agreement or the form of the merger.
|
In its review and analysis, and in arriving at its opinion,
Cascadia Capital assumed and relied upon the accuracy and
completeness of all of the financial and other information
provided to it (including information furnished to it orally by
our management ) or publicly available. Cascadia Capital did not
verify, and does not assume responsibility for verifying, any
such information. Cascadia Capital relied upon the assurances of
our management that they were not aware of any facts that would
make such information inaccurate or misleading.
Furthermore, Cascadia Capital did not obtain or make, or assume
any responsibility for obtaining or making, any independent
evaluation or appraisal of the properties, assets or liabilities
(contingent or otherwise) of Cost-U-Less, nor was Cascadia
Capital furnished with any such evaluation or appraisal.
Cascadia Capital assumed that all material assets and
liabilities (contingent or otherwise) of Cost-U-Less were as set
forth in the financial statements or other information made
available to Cascadia Capital. With respect to the financial
forecasts and projections (and the assumptions and bases
therefor) for Cost-U-Less that Cascadia Capital reviewed, upon
the advice of our management Cascadia Capital assumed that such
forecasts and projections had been reasonably prepared in good
faith on the basis of reasonable assumptions and reflected
managements best currently available estimates and
judgments as to our future financial condition and performance.
Cascadia Capital further assumed that such projections and
forecasts would be realized in the amounts and in the time
periods then estimated.
In addition, Cascadia Capital assumed that the merger would be
consummated upon the terms set forth in the last draft of the
merger agreement reviewed by Cascadia Capital without material
alteration thereof or waiver of any material terms thereof.
Cascadia Capital expressed no opinion regarding whether the
necessary approvals or other conditions to the transaction would
be obtained or satisfied and assumed that obtaining any
necessary regulatory approvals or third party consents would not
have an adverse effect on the transaction or any parties
thereto. In addition, Cascadia Capital assumed that our
historical financial statements reviewed by Cascadia Capital had
been prepared and fairly presented in accordance with
U.S. generally accepted accounting principles consistently
applied and that the representations and warranties of each
party contained in the merger agreement were true and correct.
Cascadia Capital is not a legal, tax or regulatory advisor and
relied upon, without independent verification, the assessment of
Cost-U-Less and its legal, tax or regulatory advisors with
respect to such matters.
The Cascadia Capital opinion is necessarily based upon market,
economic and other conditions as in effect on, and information
made available to Cascadia Capital as of, the date of its
opinion. Subsequent developments may affect the conclusion
expressed in the opinion and Cascadia Capital has disclaimed any
undertaking or obligation to advise any person of any change in
any matter affecting the opinion which may come or be brought to
its attention after the date of the opinion. The Cascadia
Capital opinion is limited to the fairness of the purchase price
offered of $11.75 per share of common stock, from a financial
point of view and as of the date thereof, to the holders of the
shares of Cost-U-Less common stock.
Summary
of Cascadia Capitals Financial Analyses
The following is a summary of the material financial analyses
performed by Cascadia Capital in connection with rendering its
opinion. This summary of financial analyses is not a complete
description of all the analyses performed by Cascadia Capital.
Certain of the information in this section is presented in a
tabular form. In order to understand the financial analyses
performed by Cascadia Capital better, these tables must be read
together with the text of each summary. The Cascadia Capital
opinion is based upon the totality of the
19
various analyses performed by Cascadia Capital and no particular
portion of the analyses has any merit standing alone.
Comparable Companies Analysis.
Using publicly
available information, Cascadia Capital compared certain
financial measures and metrics of Cost-U-Less to those of the
following publicly traded companies in the hypermarket and
supercenter, multi-regional grocery, and regional grocery
markets, believed by Cascadia Capital to have some similarities
to Cost-U-Less. These financial measures and metrics included
the market value, enterprise value, book value, enterprise value
as a multiple of earnings before interest, taxes, depreciation
and amortization, or EBITDA, long term growth forecasts and
market value as a multiple of earnings.
Hypermarket and Supercenter:
|
|
|
|
|
Aeon Co.
|
|
|
|
BJs Wholesale Club
|
|
|
|
Carrefour SA
|
|
|
|
Cencosud SA
|
|
|
|
Controladora Comercial Mexicana SA
|
|
|
|
Costco Wholesale Corp.
|
|
|
|
Grupo Gigante SA de CV
|
|
|
|
North West Company Fund
|
|
|
|
PriceSmart Inc.
|
|
|
|
Siam Makro plc
|
|
|
|
Target Corp.
|
|
|
|
Wal-Mart de Mexico SA
|
|
|
|
Wal-Mart Stores Inc.
|
Multi-Regional Grocery:
|
|
|
|
|
Delhaize Group
|
|
|
|
Kroger Co.
|
|
|
|
Safeway Inc.
|
|
|
|
Supervalu Inc.
|
Regional Grocery:
|
|
|
|
|
Ingles Markets Inc.
|
|
|
|
Ruddick Corp.
|
|
|
|
The Great Atlantic & Pacific Tea Company Inc.
|
|
|
|
Village Super Market Inc.
|
|
|
|
Weis Markets Inc.
|
Cascadia Capital concluded that these companies securities
trade primarily based on each individual companys ratio of
enterprise value to EBITDA and price to earnings per share.
Cascadia Capital applied the financial measures and metrics
discussed herein to Cost-U-Less and the comparable companies for
the last twelve-month period publicly available, as well as
estimated amounts for the 2007 calendar year and 2008 calendar
year time periods. For purposes of estimated calendar year
financial performance of comparable
20
companies, Cascadia Capital utilized projections provided by
various privately maintained databases and publicly available
equity analyst research reports.
The following table reflects Cascadia Capitals findings as
to comparable companies value based upon multiples of
financial performance for the most recent publicly available
twelve-month period as well as projected financial performance
for calendar years 2007 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Price/Book
|
|
|
|
Enterprise Value/EBITDA
|
|
|
Price/Earnings
|
|
|
Value
|
|
|
|
|
|
|
Estimated
|
|
|
Estimated
|
|
|
|
|
|
Estimated
|
|
|
Estimated
|
|
|
|
|
|
|
Last 12
|
|
|
Calendar
|
|
|
Calendar
|
|
|
Last 12
|
|
|
Calendar
|
|
|
Calendar
|
|
|
Last 12
|
|
|
|
Months
|
|
|
Year 2007
|
|
|
Year 2008
|
|
|
Months
|
|
|
Year 2007
|
|
|
Year 2008
|
|
|
Months
|
|
|
Low
|
|
|
5.9
|
x
|
|
|
5.9
|
x
|
|
|
5.0
|
x
|
|
|
12.1
|
x
|
|
|
13.8
|
x
|
|
|
12.0
|
x
|
|
|
0.4
|
x
|
Mean
|
|
|
9.6
|
x
|
|
|
8.9
|
x
|
|
|
8.0
|
x
|
|
|
19.9
|
x
|
|
|
18.2
|
x
|
|
|
15.8
|
x
|
|
|
1.7
|
x
|
Median
|
|
|
8.2
|
x
|
|
|
8.1
|
x
|
|
|
7.1
|
x
|
|
|
18.3
|
x
|
|
|
17.4
|
x
|
|
|
14.7
|
x
|
|
|
1.6
|
x
|
High
|
|
|
17.5
|
x
|
|
|
14.9
|
x
|
|
|
12.7
|
x
|
|
|
39.0
|
x
|
|
|
26.9
|
x
|
|
|
20.7
|
x
|
|
|
3.3
|
x
|
Cascadia Capital observed that the per share price of $11.75
offered in the proposed merger was within the implied value
range for the public market comparables based on EBITDA,
earnings and book value multiples, which were $10.64 to $23.33
in the hypermarket and supercenter market, $8.14 to $17.16 in
the multi-regional grocery market, and $9.48 to $22.20 in the
regional grocery market.
Cascadia Capital also observed that the transaction equity value
of approximately $52.3 million offered in the proposed
merger was within the implied equity value range for the public
market comparables in the multi-regional grocery market based on
EBITDA and earnings multiples, which were $48.0 million to
$56.0 million and $53.0 million to $60.0 million,
respectively.
No company compared in the comparable companies analysis is
identical to Cost-U-Less. Accordingly, an analysis of the
results of the foregoing is not entirely mathematical and
involves complex considerations and judgments concerning
differences in financial and operating characteristics and other
factors that could affect the transaction, public trading, and
other values of the comparable companies or Cost-U-Less.
Precedent Transaction Analysis.
Using publicly
available information, Cascadia Capital analyzed the
consideration offered and the implied enterprise value, as a
multiple of the target companies prior twelve months
financial performance, in the following selected acquisition
transactions deemed to be generally relevant to the merger:
Controlling Interest Acquisitions:
|
|
|
|
|
Coles Group/Wesfarmers Ltd. (June 30, 2007)
|
|
|
|
Alfa Retailindo/Ramayana Lestari Sentosa (June 26, 2007)
|
|
|
|
S.A.C.I. Falabella/Distribucion y Servicio SA (May 17, 2007)
|
|
|
|
York-Benimaru/Seven & I Holdings Co. (April 11,
2006)
|
|
|
|
Almacenes Exito SA/Casino Guichard Perrachon & Cie SA
(April 1, 2007)
|
|
|
|
Pathmark Stores/The Great Atlantic & Pacific Tea
Company (March 4, 2007)
|
|
|
|
Wild Oats Markets/Whole Foods Market (February 21, 2007)
|
|
|
|
Smart & Final/Apollo Management (February 20,
2007)
|
|
|
|
Homever/Private Equity Investor Consortium (April 28, 2006)
|
|
|
|
Marsh Supermarkets/Sun Capital Partners (April 20, 2006)
|
|
|
|
Albertsons/SuperValu (January 22, 2006)
|
|
|
|
Hyparlo SA/Carrefour SA (December 21, 2005)
|
21
|
|
|
|
|
Sonae Distribuicao Brasil SA/Wal-Mart Stores (December 14,
2005)
|
|
|
|
Fresh Brands/Certified Grocers Midwest (December 5, 2005)
|
|
|
|
Somerfield plc/Private Equity Investor Consortium
(October 14, 2005)
|
|
|
|
Disco SA/Cencosud SA (March 5, 2004)
|
|
|
|
Safeway plc/WM Morrison Supermarkets plc (December 15, 2003)
|
|
|
|
Santa Isabel SA/Cencosud SA (July 31, 2003)
|
Minority Interest Acquisitions:
|
|
|
|
|
J. Sainsbury plc/Delta Two Limited (June 15, 2007)
|
|
|
|
Sobeys/Empire (April 26, 2007)
|
|
|
|
Jiadeli Supermarket/ARC Capital Holdings (February 14, 2007)
|
|
|
|
Almacences Exito SA/Casino Guichard Perrachon & Cie SA
(January 16, 2007)
|
|
|
|
Almacences Exito SA/Cencosud SA (October 19, 2006)
|
|
|
|
Modelo Continente SA/Sonae SA (September 6, 2006)
|
|
|
|
Jiangsu Times Supermarket/Wumart Stores (August 29, 2006)
|
|
|
|
Modelo Continente SA/Sonae SA (April 20, 2006)
|
|
|
|
Foodarama Supermarkets/Founding Family (December 2, 2005)
|
|
|
|
Hero Supermarket/Dairy Farm International (September 8,
2005)
|
|
|
|
A&P Canada/Metro (July 19, 2005)
|
|
|
|
Somerfield plc/Individual Investor (July 8, 2005)
|
|
|
|
Modelo Continente SA/Carrefour SA (June 9, 2005)
|
|
|
|
Chris Cash & Carry/Carrefour SA (May 19, 2005)
|
|
|
|
Companhia Brasiliera de Distribuicao/Casino Guichard
Perrachon & Cie SA (May 4, 2005)
|
|
|
|
Hero Supermarket/Dairy Farm International (December 2, 2004)
|
|
|
|
Modelo Continente SA/Sonae SA (November 16, 2004)
|
|
|
|
Shop n Save/Cold Storage Singapore (November 14, 2003)
|
In analyzing these precedent transactions, Cascadia Capital
compared, among other things, the implied enterprise value as a
multiple of various metrics from the target companys
previous twelve months financial operating performance. All
multiples for the precedent transactions were based on public
information available at the time of the announcements of the
respective transactions.
The following table reflects Cascadia Capitals findings
regarding the transaction value associated with these precedent
transactions as a multiple of EBITDA for the last available
twelve months:
|
|
|
|
|
|
|
Deal Value/LTM
|
|
|
|
EBITDA
|
|
|
Low
|
|
|
5.5
|
x
|
Mean
|
|
|
10.0
|
x
|
Median
|
|
|
9.2
|
x
|
High
|
|
|
16.5
|
x
|
22
Cascadia Capital observed that the transaction value of
Cost-U-Less implied by the proposed merger consideration is
within the range of comparable transactions based on a multiple
of EBITDA for the last available twelve months.
Historical Range Analysis.
Cascadia Capital
performed a historical trading analysis with respect to the
share prices of Cost-U-Less common stock. Cascadia Capital
reviewed the closing prices of Cost-U-Less common stock for
various periods ending August 24, 2007. Cascadia Capital
observed the following with respect to the implied percentage
premium that the offering price of $11.75 per common equity
share represents when compared to various average prices over
the timelines indicated:
|
|
|
|
|
|
|
|
|
|
|
Price
|
|
|
Premium
|
|
|
Prior 5 Calendar Day Average
|
|
$
|
10.67
|
|
|
|
10.12
|
%
|
Prior 10 Calendar Day Average
|
|
$
|
10.61
|
|
|
|
10.79
|
%
|
Prior 30 Calendar Day Average
|
|
$
|
10.44
|
|
|
|
12.54
|
%
|
Prior 60 Calendar Day Average
|
|
$
|
10.74
|
|
|
|
9.41
|
%
|
Prior 90 Calendar Day Average
|
|
$
|
10.53
|
|
|
|
11.57
|
%
|
Calendar Year to Date Average
|
|
$
|
9.58
|
|
|
|
22.64
|
%
|
Prior 1 Year Average
|
|
$
|
9.20
|
|
|
|
27.71
|
%
|
Discounted Cash Flow Analysis.
Using a
discounted cash flow analysis, Cascadia Capital estimated the
net present value of the free cash flows that Cost-U-Less could
produce on a stand-alone basis over a five-year period from 2007
to 2011. Free cash flow was defined as earnings before interest,
but after taxes, plus depreciation and amortization less capital
expenditures and increases in working capital. In estimating
these cash flows, Cascadia Capital used the forecasts provided
by Cost-U-Lesss management for the years 2007 through
2011. Cascadia Capital also calculated an enterprise value for
Cost-U-Less at the conclusion of the five-year period ending in
2011, commonly referred to as the terminal value, of between
$129.1 million and $146.3 million. In calculating the
terminal value, Cascadia Capital assumed multiples of enterprise
value to EBITDA ranging from 7.5x to 8.5x, which Cascadia
Capital believed to be appropriate for this analysis. The annual
cash flows and terminal value were discounted at rates between
18% and 20% (based on a weighted average cost of capital
analysis) to determine a net present value of the equity value
of Cost-U-Less of approximately $46.5 million to
$59.3 million, or an implied value for Cost-U-Less common
stock of between $10.46 to $13.32 per share.
General.
This summary is not a complete
description of the analysis performed by Cascadia Capital. The
preparation of a fairness opinion involves determinations about
the most appropriate and relevant methods of financial analysis
and the application of these methods in particular
circumstances. As a result, a fairness opinion is not easily
summarized. The preparation of a fairness opinion does not
involve a mathematical evaluation or weighing of the results of
the individual analyses performed, but requires Cascadia Capital
to exercise its professional judgment, based on its experience
and expertise, in considering a wide variety of analyses taken
as a whole. Cascadia Capital did not form a conclusion as to
whether any individual analysis, considered in isolation,
supported or failed to support an opinion about the fairness of
the merger consideration. Rather, in reaching its conclusion,
Cascadia Capital considered the results of the analyses in light
of each other and ultimately reached its opinion based on the
results of all analyses taken as a whole. Cascadia Capital did
not place particular reliance or weight on any particular
analysis, but instead concluded that its analyses, taken as a
whole, supported its determination. Cascadia Capital believes
that its analyses must be considered as a whole. Selecting
portions of Cascadia Capitals analyses and the factors
considered by it, without considering all analyses and factors,
may create an incomplete view of the evaluation process
underlying its opinion. No company or transaction used in the
above analyses as a comparison is directly comparable to
Cost-U-Less. In performing its analyses, Cascadia Capital made
numerous assumptions with respect to industry performance,
business and economic conditions and other matters. The analyses
performed by Cascadia Capital are not necessarily indicative of
future actual values and future results, which may be
significantly more or less favorable than suggested by these
analyses.
23
Cascadia Capital has acted as financial advisor to the board of
directors of Cost-U-Less in connection with the merger and will
receive a fee equal to two percent of the transaction value in
connection with the merger, or approximately $1,050,000. This
fee is payable upon consummation of the merger, and previously
paid monthly retainer fees totaling $130,000, as well as a fee
of $200,000 in connection with the issuance of its fairness
opinion, will be deducted from this amount.
Effects
of the Merger
If the shareholders adopt the merger agreement and the other
conditions to the closing of the merger are either satisfied or
waived, Merger Sub will be merged with and into Cost-U-Less,
with Cost-U-Less being the surviving corporation. Immediately
after the merger, NWC will directly own all of the capital stock
of Cost-U-Less.
When the merger is completed, each share of our common stock
issued and outstanding immediately prior to the effective time
of the merger (other than shares held by NWC or Merger Sub and
shares held by our shareholders who choose to be dissenting
shareholders by exercising and perfecting their appraisal rights
under Washington law with respect to the merger) will be
converted into the right to receive $11.75 in cash without
interest and less any applicable withholding taxes.
At the effective time of the merger, current shareholders will
cease to have ownership interests in Cost-U-Less or rights as
Cost-U-Less shareholders. Therefore, such shareholders will not
participate in any future earnings or growth of Cost-U-Less and
will not benefit from any appreciation in value of Cost-U-Less.
Our common stock is currently registered under the Securities
Exchange Act of 1934, as amended, which we refer to as the
Exchange Act in this proxy statement, and is quoted on the
Nasdaq Capital Market under the symbol CULS. As a
result of the merger, NWC will own all of the capital stock of
Cost-U-Less. After the merger, Cost-U-Less common stock will
cease to be quoted on the Nasdaq Capital Market. In addition,
registration of Cost-U-Less common stock under the Exchange Act
will be terminated. This termination will make certain
provisions of the Exchange Act, such as the requirement of
furnishing a proxy or information statement in connection with
shareholders meetings and the requirement to file periodic
reports with the SEC, no longer applicable to Cost-U-Less.
At the effective time of the merger, the directors of Merger Sub
will become the directors of the surviving corporation and the
officers of Merger Sub immediately prior to the effective time
of the merger will become the officers of the surviving
corporation. The certificate of incorporation of Cost-U-Less
will be amended to be the same as the certificate of
incorporation of Merger Sub as in effect immediately prior to
the effective time of the merger, except that the name of the
surviving corporation will remain Cost-U-Less, Inc. The bylaws
of Merger Sub in effect immediately prior to the effective time
of the merger will become the bylaws of the surviving
corporation.
Procedures
for Receiving the Merger Consideration
After the completion of the merger, Mellon Investor Services
LLC, the paying agent, will provide instructions to each holder
of record of shares of Cost-U-Less common stock that will
explain how to surrender stock certificates. Each shareholder
will receive cash for his, her or its shares from the paying
agent after complying with these instructions. If your shares of
common stock are held in street name by your broker,
you will receive instructions from your broker as to how to
effect the surrender of the street name shares and
receive cash for those shares. YOU SHOULD NOT FORWARD YOUR STOCK
CERTIFICATES TO THE PAYING AGENT WITHOUT A LETTER OF
TRANSMITTAL, AND YOU SHOULD NOT RETURN YOUR STOCK CERTIFICATES
WITH THE ENCLOSED PROXY. See The Merger
Agreement Payment for Shares and Exchange
Procedures beginning on page 34.
Effects
on Cost-U-Less if the Merger is not Completed
In the event that our shareholders do not adopt the merger
agreement or if the merger is not completed for any other
reason, you will not receive any payment for your shares in
connection with the merger or
24
pursuant to any dissenters rights. Instead, Cost-U-Less
will remain an independent public company and our common stock
will continue to be listed and traded on the Nasdaq Capital
Market and registered under the Exchange Act. In addition, if
the merger is not completed, we expect that management will
operate the business in a manner similar to that in which it is
being operated today and that our shareholders will continue to
be subject to the same risks and opportunities as they currently
are, including, among other things, general industry, economic
and market conditions. Accordingly, if the merger is not
consummated, there can be no assurance as to the effect of these
risks and opportunities on the future value of your common
stock. From time to time, our board of directors will evaluate
and review our business operations, properties, dividend policy
and capitalization, among other things, make such changes as are
deemed appropriate and continue to seek to identify strategic
alternatives to maximize shareholder value. If our shareholders
do not adopt the merger agreement or if the merger is not
consummated for any other reason, there can be no assurance that
any other transaction acceptable to our board of directors as
fair to, and in the best interests of, our shareholders will be
offered, or that the business, prospects or results of
operations, financial condition, or cash flows of Cost-U-Less
will not be adversely impacted.
In addition, if the merger agreement is terminated under certain
circumstances, we will be obligated to reimburse NWC for its
fees and expenses incurred in connection with the merger
agreement and the transactions contemplated thereby, up to an
aggregate of $500,000, and we may also be obligated to pay a
termination fee of $1.5 million to NWC. See The
Merger Agreement Fees and Expenses; Termination
Fee on page 41.
Interests
of Cost-U-Less Directors and Executive Officers in the
Merger
In considering the recommendations of our board of directors,
our shareholders should be aware that certain of our directors
and executive officers have interests in the transaction that
are different from, or in addition to, the interests of
shareholders generally. The board of directors was aware of
these potential conflicts of interest and considered them, among
other matters, in reaching its decisions and recommendations
with respect to the merger agreement and related matters.
Employment
In April 2003, we adopted an executive severance plan, which
provides severance and other benefits in connection with a
change in control to certain key employees designated by the
board of directors. The merger will be deemed a change of
control under the severance plan. The severance plan covers our
Chief Executive Officer, Chief Operating Officer, Chief
Financial Officer, and our senior management-level employees who
are classified as vice presidents.
Under the severance plan, if the employment of our Chief
Executive Officer, our Chief Operating Officer or our Chief
Financial Officer is terminated involuntarily (other than for
death, disability or cause) or terminates for good reason in
connection with or within twelve months after the merger, he
will receive a lump sum cash severance payment in an amount
equal to twelve months salary. If the employment of a
senior management-level employee who is classified as a vice
president is terminated involuntarily (other than for death,
disability or cause) or terminates for good reason in connection
with or within twelve months after the merger, he or she will
receive a lump sum cash severance payment in an amount equal to
one month of base salary for each year of service, with a
maximum of twelve months salary and a minimum of six
months salary.
Mr. Meders employment agreement provides similar
severance payments upon involuntary termination or a termination
for good reason within twelve months after a change in control,
including a lump sum payment of twelve months salary.
Assuming the employment of our chief executive officer and four
most highly compensated executive officers (other than the chief
executive officer) who were serving as executive officers at the
end of our last completed fiscal year were to be terminated
involuntarily or terminates their employment for good reason in
25
connection with or within twelve months after the merger, they
would be entitled to payments in the amounts set forth opposite
their name in the following table:
|
|
|
|
|
Officer
|
|
Cash Severance
|
|
|
J. Jeffrey Meder
|
|
$
|
385,000
|
|
Roy W. Sorensen
|
|
$
|
220,000
|
|
Martin P. Moore
|
|
$
|
197,000
|
|
Michael T. Scalzo
|
|
$
|
208,372
|
|
William T. Lofgren
|
|
$
|
183,750
|
|
Treatment
of Stock and Options
In addition, the table below sets forth, as of
September 18, 2007, for each of our executive officers, and
our non-employee directors as a group:
|
|
|
|
|
the number of stock options with exercise prices below $11.75
per share held by such persons and the exercise price of such
options; and
|
|
|
|
the cash payment that will be made to such persons in respect of
such stock options upon consummation of the merger, assuming
such persons execute an option cash-out agreement with respect
to such stock options.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Securities
|
|
|
|
|
|
|
|
|
|
Underlying
|
|
|
|
|
|
|
|
|
|
Unexercised Options
|
|
|
Option
|
|
|
|
|
Name and Position
|
|
Exercisable (#)
|
|
|
Exercise Price ($)
|
|
|
Resulting Consideration
|
|
|
J. Jeffrey Meder
|
|
|
50,000
|
|
|
$
|
1.88
|
|
|
$
|
493,500.00
|
|
President and Chief Executive
Officer
|
|
|
50,000
|
|
|
$
|
1.50
|
|
|
$
|
512,500.00
|
|
|
|
|
66,667
|
|
|
$
|
2.65
|
|
|
$
|
606,669.70
|
|
|
|
|
8,000
|
|
|
$
|
3.08
|
|
|
$
|
69,360.00
|
|
|
|
|
66,667
|
|
|
$
|
5.38
|
|
|
$
|
424,668.79
|
|
Roy W. Sorensen
|
|
|
30,000
|
|
|
$
|
1.88
|
|
|
$
|
296,100.00
|
|
Vice President, Chief Operating
Officer
|
|
|
30,000
|
|
|
$
|
1.50
|
|
|
$
|
307,500.00
|
|
|
|
|
8,000
|
|
|
$
|
3.08
|
|
|
$
|
69,360.00
|
|
Martin P. Moore
|
|
|
2,500
|
|
|
$
|
4.75
|
|
|
$
|
17,500.00
|
|
Vice President, Chief Financial
Officer,
|
|
|
2,500
|
|
|
$
|
4.75
|
|
|
$
|
17,500.00
|
|
Secretary and Treasurer
|
|
|
40,000
|
|
|
$
|
1.50
|
|
|
$
|
410,000.00
|
|
|
|
|
8,000
|
|
|
$
|
3.08
|
|
|
$
|
69,360.00
|
|
Michael T. Scalzo
|
|
|
10,000
|
|
|
$
|
4.875
|
|
|
$
|
68,750.00
|
|
Vice President, Merchandising
& Marketing
|
|
|
5,000
|
|
|
$
|
2.625
|
|
|
$
|
45,625.00
|
|
|
|
|
5,000
|
|
|
$
|
1.50
|
|
|
$
|
51,250.00
|
|
|
|
|
8,000
|
|
|
$
|
3.08
|
|
|
$
|
69,360.00
|
|
|
|
|
20,000
|
|
|
$
|
5.77
|
|
|
$
|
119,600.00
|
|
William W. Lofgren
|
|
|
2,000
|
|
|
$
|
5.50
|
|
|
$
|
12,500.00
|
|
Vice President, Information Systems
|
|
|
10,000
|
|
|
$
|
4.875
|
|
|
$
|
68,750.00
|
|
|
|
|
8,000
|
|
|
$
|
3.08
|
|
|
$
|
69,360.00
|
|
All Non-Employee Directors as a
Group (5 persons)
|
|
|
2,000
|
|
|
$
|
1.80
|
|
|
$
|
19,900.00
|
|
|
|
|
1,000
|
|
|
$
|
1.875
|
|
|
$
|
9,875.00
|
|
|
|
|
2,000
|
|
|
$
|
1.88
|
|
|
$
|
19,740.00
|
|
|
|
|
2,000
|
|
|
$
|
2.05
|
|
|
$
|
19,400.00
|
|
|
|
|
4,000
|
|
|
$
|
4.875
|
|
|
$
|
27,500.00
|
|
|
|
|
3,000
|
|
|
$
|
5.64
|
|
|
$
|
18,330.00
|
|
|
|
|
10,000
|
|
|
$
|
6.10
|
|
|
$
|
56,500.00
|
|
|
|
|
26,564
|
|
|
$
|
7.00
|
|
|
$
|
126,179.00
|
|
|
|
|
4,000
|
|
|
$
|
8.09
|
|
|
$
|
14,640.00
|
|
|
|
|
4,000
|
|
|
$
|
8.11
|
|
|
$
|
14,560.00
|
|
26
Indemnification
and Insurance
Pursuant to the terms of the merger agreement, NWC has agreed
that:
|
|
|
|
|
after the effective time of the merger, NWC will cause the
surviving corporation to honor and fulfill in all respects the
obligations of Cost-U-Less under its articles of incorporation,
bylaws and any and all indemnification agreements in effect
immediately prior to August 27, 2007, between Cost-U-Less
and any of its current or former directors or officers; and
|
|
|
|
neither NWC nor the surviving corporation will take any action
to amend, repeal or modify the policy of directors and
officers liability insurance with a tail period of six
years from the closing date obtained by Cost-U-Less prior to the
effective time of the merger.
|
See The Merger Agreement Directors and
Officers Indemnification and Insurance beginning on
page 42.
Material
U.S. Federal Income Tax Consequences
The following is a summary of the material U.S. federal
income tax consequences of the merger to U.S. holders (as
defined below) of Cost-U-Less common stock whose shares are
converted into the right to receive cash in the merger. The
summary is for general information only and does not purport to
consider all aspects of federal income taxation that might be
relevant to beneficial holders of Cost-U-Less common stock. The
summary is based on current provisions of the Internal Revenue
Code of 1986, as amended (the Code), existing, proposed and
temporary regulations promulgated thereunder, rulings,
administrative pronouncements and judicial decisions, all as in
effect on the date hereof and all of which are subject to
change, including retroactively.
This summary applies only to beneficial holders of Cost-U-Less
common stock who own such stock as capital assets within the
meaning of Section 1221 of the Code and may not apply to
beneficial holders who:
|
|
|
|
|
acquired their shares prior to the effective time of the merger
pursuant to the exercise of employee stock options or other
compensation arrangements with Cost-U-Less; or
|
|
|
|
hold their shares as part of a hedge, straddle or conversion
transaction or who are subject to special tax treatment under
the Code (such as dealers in securities or foreign currency,
insurance companies, other financial institutions, regulated
investment companies, tax-exempt entities, S corporations,
partnerships and taxpayers subject to the alternative minimum
tax).
|
This summary also does not address the U.S. federal income
tax consequences of the merger to a U.S. holder who
receives merger consideration as the result of the vesting
and/or
the
deemed exercise of stock options.
In addition, this summary does not address the federal income
tax consequences to a beneficial holder of Cost-U-Less common
stock who is not a U.S. holder, such as a non-resident
alien individual, a foreign corporation, or a foreign estate or
trust, nor does it consider the effect of any state, local or
foreign tax laws. If these circumstances that are not addressed
apply to you, you should consult your own tax advisor.
The United States federal income tax consequences summarized
below are not intended to constitute a complete description of
all tax consequences relating to the merger. Because individual
circumstances may differ, each U.S. holder of Cost-U-Less
common stock and anyone else who may receive merger
consideration is urged to consult such persons own tax
advisor as to the particular tax consequences to such person of
the merger, including the application and effect of state,
local, foreign and other tax laws.
As used in this discussion, a U.S. holder is any beneficial
owner of shares who is treated for U.S. federal income tax
purposes as:
|
|
|
|
|
an individual citizen or resident of the United States;
|
|
|
|
a corporation or other entity treated as a corporation for
U.S. federal income tax purposes that is, in each case,
created or organized in or under the laws of the United States,
any state thereof or the District of Columbia;
|
27
|
|
|
|
|
an estate, the income of which is subject to U.S. federal
income tax regardless of its source; or
|
|
|
|
a trust that (A) is subject to the primary supervision of a
U.S. court and the control of one or more U.S. persons
or (B) has validly elected to be treated as a
U.S. person for U.S. federal income tax purposes.
|
If a partnership (or other entity treated as a partnership for
U.S. federal income tax purposes) holds shares, the tax
treatment of its partners generally will depend on a
partners status and the activities of the partnership.
Partnerships and their partners should consult their tax
advisors regarding the U.S. federal income tax consequences
to them of the merger.
Tax
Consequences of the Merger
The receipt of cash for Cost-U-Less common stock pursuant to the
merger by a U.S. holder will be a taxable transaction for
United States federal income tax purposes. In general, a
U.S. holder who receives cash in exchange for shares
pursuant to the merger will recognize gain or loss for
U.S. federal income tax purposes equal to the difference,
if any, between the amount of cash received and the
U.S. holders adjusted tax basis in the shares
surrendered for cash pursuant to the merger. Gain or loss will
be determined separately for each block of shares (that is,
shares acquired at the same price per share in a single
transaction) surrendered for cash pursuant to the merger. Such
gain or loss will be capital gain or loss, and will be long-term
capital gain or loss if the U.S. holders holding
period for such shares is more than one year at the time of
consummation of the merger. The maximum federal income tax rate
on net long-term capital gain recognized by individuals is 15%
under current law. The maximum federal income tax rate on net
long-term capital gain recognized by a corporation is 35%.
Capital losses are subject to limitations on deductibility for
both corporations and individuals.
In general, U.S. holders who exercise appraisal rights will
also recognize gain or loss. Any holder considering exercising
statutory appraisal rights should consult his, her or its own
tax advisor.
Information
Reporting and Backup Withholding Requirements
Payments made to a U.S. holder in connection with the
merger will be subject to information reporting and may be
subject to backup withholding, currently at a 28% rate. Backup
withholding generally will apply only if the beneficial holder
fails to furnish a correct taxpayer identification number or
otherwise fails to comply with applicable backup withholding
rules and certification requirements. Each U.S. holder
should complete and sign the substitute
Form W-9
that will be part of the letter of transmittal to be returned to
the payment agent in order to provide the information and
certification necessary to avoid backup withholding, unless an
applicable exemption exists and is otherwise proved in a manner
acceptable to the payment agent. Backup withholding is not an
additional tax. Any amounts withheld under the backup
withholding rules will be allowable as a refund or credit
against a U.S. holders United States federal income
tax liability provided the required information is furnished to
the Internal Revenue Service in a timely manner.
Last
Twelve Months Results and Financial Projections
Cost-U-Lesss management does not as a matter of course
make public projections as to future performance or earnings
beyond the current fiscal year. We provided the board of
directors, Cascadia Capital and NWC with various non-public
financial information. Set forth below is a summary of the
projections that were shared with the board of directors,
Cascadia Capital and NWC. The projections were prepared by our
management for internal use and to assist NWC and Cascadia
Capital with their respective due diligence investigations of
Cost-U-Less, and were not prepared with a view toward public
disclosure or compliance with published guidelines of the SEC or
the American Institute of Certified Public Accountants regarding
forward-looking information or generally accepted accounting
principles.
Neither our independent auditors nor any other independent
accountants have compiled, examined or performed any procedures
with respect to the prospective financial information contained
in the projections, nor have they expressed any opinion or given
any form of assurance on the projections or their achievability.
28
Cascadia Capital and NWC did not prepare the information in the
table below, have no responsibility therefor, and may have
varied some of the assumptions underlying such information for
purposes of their analyses. Furthermore, the projections:
|
|
|
|
|
necessarily make numerous assumptions, many of which are beyond
our control and may not prove to have been, or may no longer be,
accurate;
|
|
|
|
except as indicated below, do not necessarily reflect revised
prospects for our business, changes in general business or
economic conditions, or any other transaction or event that has
occurred or that may occur and that was not anticipated at the
time the projections were prepared;
|
|
|
|
are not necessarily indicative of current values or future
performance, which may be significantly more favorable or less
favorable than as set forth below; and
|
|
|
|
should not be regarded as a representation that they will be
achieved.
|
We believe the assumptions our management used as a basis for
the projections were reasonable at the time such information was
prepared, given the information our management had at the time.
The projections are not a guarantee of performance. They involve
risks, uncertainties and assumptions. The future financial
results and shareholder value of Cost-U-Less may materially
differ from those expressed in the projections due to factors
that are beyond our ability to control or predict. We cannot
assure you that the projections will be realized or that our
future financial results will not materially vary from the
projections. We do not intend to update or revise the
projections.
In light of the foregoing, as well as the uncertainties inherent
in any financial projections, you are expressly cautioned not to
place undue reliance on these financial projections. The
projections are forward-looking statements inherently subject to
the general risks that we face in our business, including those
discussed in Item 1A. Risk Factors in our Annual Report on
Form 10-K
incorporated herein by reference, and the factors described
under Cautionary Statement Concerning Forward-Looking
Information beginning on page 12 of this proxy
statement.
The projections have been prepared on a non-GAAP basis, which
excludes stock-based compensation expenses and amortization of
acquired intangible assets and assumes an income tax rate based
on determination of the annual effective income tax rate based
on the estimated annual non-GAAP taxable income.
Non-GAAP Projections (in thousands, except percentages
and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
|
(In thousands)
|
|
Statement of Operations
Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales
|
|
$
|
234,006
|
|
|
$
|
281,429
|
|
|
$
|
308,331
|
|
|
$
|
344,598
|
|
|
$
|
364,352
|
|
Gross profit
|
|
|
45,342
|
|
|
|
55,695
|
|
|
|
61,048
|
|
|
|
68,116
|
|
|
|
72,052
|
|
Operating expenses
|
|
|
40,255
|
|
|
|
46,228
|
|
|
|
49,564
|
|
|
|
54,916
|
|
|
|
57,596
|
|
Operating income
|
|
|
5,087
|
|
|
|
9,467
|
|
|
|
11,484
|
|
|
|
13,200
|
|
|
|
14,455
|
|
Other Finnacial Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA(1)
|
|
$
|
7,770
|
|
|
$
|
12,397
|
|
|
$
|
14,243
|
|
|
$
|
16,110
|
|
|
$
|
17,215
|
|
Depreciation expense
|
|
|
2,750
|
|
|
|
3,261
|
|
|
|
3,197
|
|
|
|
3,395
|
|
|
|
3,290
|
|
Other fees(2)
|
|
|
(67
|
)
|
|
|
(331
|
)
|
|
|
(438
|
)
|
|
|
(485
|
)
|
|
|
(530
|
)
|
|
|
(1)
|
EBITDA is defined to be operating income less other fees plus
depreciation expense. 2008 through 2011 EBITDA excludes public
company related costs.
|
|
(2)
|
Other fees include foreign exchange fees and joint venture
division fees.
|
29
In preparing the projections, Cost-U-Less made a number of
assumptions, including assumptions regarding the following:
|
|
|
|
|
the timing and number of new store openings;
|
|
|
|
sales and profit contributions for new stores;
|
|
|
|
sales and profit projections for currently operating stores; and
|
|
|
|
an overall improvement in total company store and corporate
overhead expenses as a percentage of sales.
|
THE
PARTIES TO THE MERGER
Cost-U-Less,
Inc.
Cost-U-Less is a Washington corporation that was formed in
November 1993. We operate mid-sized warehouse club-style
stores in the United States Territories, foreign island
countries in the Pacific and the Caribbean, the Hawaiian Islands
and Sonora, California. Our primary strategy is to operate in
island markets, offering predominantly U.S. branded goods.
We currently operate eleven retail stores as follows: two stores
in each of Hawaii and Guam, and one store in each of St. Thomas,
St. Croix, American Samoa, Fiji, Curacao, St. Maarten
and Sonora, California.
Our principal executive offices are located at 3633
136th Place SE, Suite 110, Bellevue,
Washington 98006 and our telephone number is
(425) 945-0213.
Our common stock is publicly traded on the Nasdaq Capital Market
under the symbol CULS.
NWC (US)
Holdings, Inc. and Cougar Acquisition Corporation
NWC is a wholly owned subsidiary of North West Company Holdings
Inc., which in turn is a wholly owned subsidiary of the North
West Company Fund. The North West Company is a leading retailer
of food and everyday products and services to rural communities
and urban neighborhoods across Canada and Alaska. The North West
Company has annualized revenue of approximately Cdn.
$1 billion and operates 206 stores under a number of
trading names including Northern, NorthMart, Giant Tiger, and AC
Value Center, while providing catalogue shopping services
through its
Selections
catalogue in northern Canada. The
units of the North West Company Fund trade on the Toronto Stock
Exchange (TSX) under the symbol NWF.UN.
NWCs principal executive office is located at 77 Main
Street, Winnipeg, Manitoba, Canada, R3C 2R1 and its telephone
number is (204) 943-0881.
Merger Sub is a Washington corporation and was organized solely
for the purpose of entering into the merger agreement and
consummating the transactions contemplated by the merger
agreement. It has not conducted any activities to date other
than activities incidental to its organization and in connection
with the transactions contemplated by the merger agreement.
Merger Sub is wholly owned by NWC.
Under the terms of the merger agreement, Merger Sub will merge
with and into Cost-U-Less. Cost-U-Less will survive the merger
and Merger Sub will cease to exist.
30
THE
SPECIAL MEETING OF SHAREHOLDERS
This proxy statement is furnished in connection with the
solicitation of proxies by Cost-U-Lesss board of directors
in connection with the special meeting of our shareholders
relating to the merger.
Date,
Time and Place of the Special Meeting
The special meeting is scheduled to be held as follows:
Date: ,
2007
Time: .M.,
Pacific time
Place:
Proposals
to be Considered at the Special Meeting
At the special meeting, you will be asked to consider and vote
on the following proposals:
|
|
|
|
|
to approve the merger and the merger agreement; and
|
|
|
|
to adjourn the special meeting, if necessary or appropriate, to
allow time to solicit additional proxies if there are
insufficient votes at the time of the special meeting to adopt
the merger agreement.
|
Record
Date
Our board of directors has fixed the close of business
on ,
2007, as the record date for the special meeting, and only
holders of record of our common stock on the record date are
entitled to vote (in person or by proxy) at the special meeting.
On the record date, there
were shares
of our common stock outstanding and entitled to vote at the
special meeting.
Voting
Rights; Quorum; Vote Required for Approval
Each share of our common stock outstanding on the record date
entitles its holder to one vote on all matters properly coming
before the special meeting. The presence in person or
representation by proxy of shareholders entitled to cast a
majority of the votes of all such issued and outstanding shares
at the special meeting shall constitute a quorum for the purpose
of considering the proposals. Shares of voting common stock
represented at the special meeting but not voted, including
shares of common stock for which proxies have been received but
for which shareholders have abstained, will be treated as
present at the special meeting for purposes of determining the
presence or absence of a quorum for the transaction of all
business. In the event that a quorum is not present at the
special meeting, it is expected that the meeting will be
adjourned or postponed to allow time to solicit additional
proxies.
Approval of the merger and the merger agreement requires the
affirmative vote of the holders of a majority of the outstanding
shares of Cost-U-Less common stock entitled to vote on the
proposal. For the proposal to approve the merger and the merger
agreement, you may vote FOR, AGAINST or ABSTAIN. Abstentions
will not be counted as votes cast or shares voting on the
proposal to approve the merger and the merger agreement, but
will count for the purpose of determining whether a quorum is
present. If you ABSTAIN, it will have the same effect as if you
vote AGAINST the proposal to approve the merger and the merger
agreement. In addition, if your shares are held in the name of a
broker, bank or other nominee, your broker, bank or other
nominee will not be entitled to vote your shares in the absence
of specific instructions. These non-voted shares, or
broker non-votes, will be counted for purposes of
determining a quorum, but will have the same effect as a vote
AGAINST the proposal to approve the merger and the merger
agreement. Your broker, bank or nominee will vote your shares
only if you provide instructions on how to vote by following the
instructions provided to you by your broker, bank or nominee.
Approval of the adjournment proposal requires that the number of
votes cast in favor of the proposal exceed the number of votes
cast against it. For the adjournment proposal, you may vote FOR,
AGAINST or
31
ABSTAIN. Abstentions and broker non-votes will count for the
purpose of determining whether a quorum is present, but
abstentions and broker non-votes will have no effect on the vote
on the adjournment proposal.
Voting
and Revocation of Proxies
Shareholders of record may submit proxies by mail. Shareholders
who wish to submit a proxy should mark, date, sign and return
the proxy card by mail in the envelope furnished. Shareholders
who hold shares beneficially through a nominee (such as a bank
or broker) may be able to submit a proxy by mail, if that
service is offered by the nominee.
Proxies received at any time before the special meeting, and not
revoked or superseded before being voted, will be voted at the
special meeting. Where a specification is indicated by the
proxy, it will be voted in accordance with the specification. If
you sign your proxy card without indicating your vote, your
shares will be voted FOR the proposal to approve the
merger and the merger agreement and FOR the
adjournment proposal.
You have the right to revoke your proxy at any time before the
vote taken at the special meeting:
|
|
|
|
|
if you hold your shares in your name as a shareholder of record:
|
|
|
|
|
|
by notifying Cost-U-Lesss Corporate Secretary at 3633
136th Place SE, Suite 110, Bellevue, Washington 98006;
|
|
|
|
by attending the special meeting and voting in person (your
attendance at the meeting will not, by itself, revoke your
proxy; you must vote in person at the meeting);
|
|
|
|
by submitting a later-dated proxy card; or
|
|
|
|
|
|
if you have instructed a broker, bank or other nominee to vote
your shares, by following the directions received from your
broker, bank or other nominee to change those instructions.
|
Please do not send in your stock certificates with your proxy
card.
When the merger is completed, a separate
letter of transmittal will be mailed to you that will enable you
to receive the merger consideration.
To Attend
the Special Meeting
You do not need to make a reservation to attend the special
meeting. However, please note that to be admitted to the meeting
you will need to demonstrate that you are a Cost-U-Less
shareholder entitled to vote at the meeting or the holder of a
valid proxy granted by a Cost-U-Less shareholder entitled to
vote at the meeting. If your shares are held in the name of your
broker, bank or other nominee, you will need to bring evidence
of your ownership of the shares, such as your most recent
account statement. If you do not have proof that you own
Cost-U-Less common stock or hold a valid proxy, you may not be
admitted to the meeting.
Rights of
Shareholders Who Object to the Merger
Shareholders of Cost-U-Less are entitled to dissenters
rights under Washington law in connection with the merger. This
means that you are entitled to demand payment of the fair value
of your shares as determined in accordance with Washington law
and to receive payment based on that valuation. The ultimate
amount you receive as a dissenting shareholder may be more than,
the same as or less than the amount you would have received
under the merger agreement.
To exercise your dissenters rights, you must submit a
written notice of intent to demand payment before the vote is
taken on the merger and the merger agreement and you must not
vote in favor of the proposal to approve the merger and the
merger agreement. Your failure to follow exactly the procedures
specified under Washington law will result in the loss of your
dissenters rights. See Dissenters Rights
beginning on page 48 and the text of the Washington
dissenters rights statute reproduced in its entirety as
Appendix C.
32
Solicitation
of Proxies
This proxy solicitation is being made on behalf of our board of
directors and paid for by Cost-U-Less. We have engaged MacKenzie
Partners, Inc. to assist in the solicitation of proxies and
provide related advice and informational support, for a service
fee of approximately $7,500 plus reasonable out-of-pocket
expenses. Our directors, officers and employees may also solicit
proxies by personal interview, mail,
e-mail,
telephone, facsimile or other means of communication. These
persons will not be paid additional remuneration for their
efforts. We will also request brokers and other fiduciaries to
forward proxy solicitation material to the beneficial owners of
shares of our common stock that the brokers and fiduciaries hold
of record. We will reimburse them for their reasonable
out-of-pocket expenses.
Other
Business
Under our bylaws, business transacted at the special meeting is
limited to the purposes stated in the notice of the special
meeting, which is provided at the beginning of this proxy
statement.
Questions
and Additional Information
If you have more questions about the merger or how to submit
your proxy, or if you need additional copies of this proxy
statement or the enclosed proxy card or voting instructions,
please call MacKenzie Partners, Inc., our proxy solicitor, at
(800) 322-2885.
The following is a summary of the material terms of the merger
agreement, which is qualified in its entirety by the merger
agreement, a copy of which is attached to this proxy statement
as Appendix A and is incorporated herein by reference. This
summary may not contain all of the information that is important
to you. Shareholders are urged to read the merger agreement in
its entirety for a complete description of the terms and
conditions to the merger.
Structure
of the Merger
At the effective time of the merger, Merger Sub will merge with
and into Cost-U-Less and Cost-U-Less will be the surviving
corporation and a wholly owned subsidiary of NWC.
Effective
Time of the Merger
The merger will become effective upon the filing of articles of
merger with the Secretary of State of the State of Washington or
at such later time as is specified in the articles of merger,
which time is referred to as the effective time of the merger.
Articles
of Incorporation; Bylaws; and Directors and Officers of
Cost-U-Less and the Surviving Corporation
At the effective time of the merger:
|
|
|
|
|
the articles of incorporation of Cost-U-Less will be amended and
restated in its entirety to be identical to the articles of
incorporation of Merger Sub as in effect immediately prior to
the effective time of the merger, except that the name of the
surviving corporation will be Cost-U-Less, Inc.;
|
|
|
|
the bylaws of Cost-U-Less will be amended and restated in their
entirety to be identical to the bylaws of Merger Sub as in
effect immediately prior to the effective time of the merger;
|
|
|
|
the directors of Merger Sub immediately prior to the effective
time of the merger will be the initial directors of the
surviving corporation; and
|
|
|
|
the officers of Merger Sub immediately prior to the effective
time of the merger will be the initial officers of the surviving
corporation.
|
33
Merger
Consideration
At the effective time of the merger, each share of Cost-U-Less
common stock issued and outstanding immediately prior to the
effective time of the merger will be cancelled and cease to
exist and will be converted into the right to receive $11.75 in
cash per share without interest and less any applicable
withholding taxes, which amount is referred to as the merger
consideration, other than shares held by shareholders who have
properly demanded and perfected, and have not timely withdrawn,
dissenters rights with respect to such shares, which are
referred to as dissenting shares.
After the effective time of the merger, each holder of a
certificate representing shares of Cost-U-Less common stock
(other than dissenting shares) will no longer have any rights
with respect to such shares other than the right to receive the
merger consideration in accordance with Washington law.
Common
Stock of Merger Sub
Each share of common stock of Merger Sub issued and outstanding
immediately prior to the effective time of the merger will be
converted into one validly issued, fully paid and nonassessable
share of common stock of the surviving corporation.
Treatment
of Options
At the effective time of the merger, each outstanding option to
acquire Cost-U-Less common stock granted under
Cost-U-Lesss stock option plan will become fully vested
and, to the extent not exercised prior to consummation of the
merger, will expire, be cancelled and terminate without payment
or consideration. However, each holder of an option having an
exercise price less than $11.75 per share who executes an option
cash-out agreement prior to the consummation of the merger will
be entitled to receive an amount in cash from NWC equal to the
positive product obtained by multiplying (x) the aggregate
number of shares that were issuable upon exercise of the option
immediately prior to the effective time of the merger and
(y) the excess, if any, of $11.75 over the per share
exercise price which amount shall be less any applicable
withholding taxes.
Payment
for Shares and Exchange Procedures
NWC has selected Mellon Investor Services LLC to act as the
paying agent in the merger. Promptly after the effective time of
the merger, NWC will make available or cause the Merger Sub to
make available to the paying agent the funds to pay the merger
consideration.
Promptly after the effective time of the merger, NWC will cause
the paying agent to mail to each holder of record (as of the
effective time of the merger) of a certificate for shares of
Cost-U-Less that were converted into the right to receive the
merger consideration (a) a letter of transmittal and
(b) instructions for use in effecting the surrender of the
certificates in exchange for the merger consideration.
When certificates are surrendered for cancellation to the paying
agent together with a completed and validly executed letter of
transmittal and such other documents as may be required by the
paying agent, the holder of the certificates will be entitled to
receive the amount of cash (after taking into account all
certificates surrendered by such holder) to which such holder is
entitled and the surrendered certificates will be canceled. YOU
SHOULD NOT FORWARD YOUR STOCK CERTIFICATES TO THE PAYING AGENT
WITHOUT A LETTER OF TRANSMITTAL AND YOU SHOULD NOT RETURN YOUR
STOCK CERTIFICATES WITH THE ENCLOSED PROXY.
If payment of the merger consideration is to be made to someone
other than the person in whose name the surrendered certificates
are registered, it will be a condition of the payment that the
certificates will be properly endorsed and otherwise in proper
form for transfer and that the persons requesting the exchange
will have paid any taxes required.
Each of NWC, the paying agent and the surviving corporation will
be entitled to deduct and withhold from any consideration
payable such amounts as may be required to be deducted or
withheld under the
34
Internal Revenue Code, or any other applicable law. To the
extent any amount is deducted or withheld, that amount will be
treated as having been paid to the person to whom such
consideration would otherwise have been paid.
Any portion of the merger fund that remains undistributed
180 days after the effective time of the merger will, at
the request of NWC, be delivered to NWC, and any holders of
certificates who have not surrendered their certificates may
only look to NWC for the merger consideration. Neither NWC,
Merger Sub, the paying agent nor the surviving corporation will
be liable to anyone for any amount properly paid to a public
official pursuant to any applicable abandoned property, escheat
or similar law.
Representations
and Warranties
The merger agreement contains various representations and
warranties made by Cost-U-Less to NWC and Merger Sub and by NWC
and Merger Sub to Cost-U-Less. The assertions embodied in those
representations and warranties were made solely for purposes of
the merger agreement and are subject to qualifications and
limitations agreed by the parties in connection with negotiating
its terms.
Moreover, certain representations and warranties were made as of
a specified date, may be subject to a contractual standard of
materiality or material adverse effect different from that
generally applicable to public disclosures to shareholders, or
may have been used for the purpose of allocating risk between
the parties to the merger agreement rather than establishing
matters of fact. For the foregoing reasons, you should not rely
on the representations and warranties contained in the merger
agreement as statements of factual information.
Representations and Warranties of
Cost-U-Less.
In the merger agreement, Cost-U-Less
made representations and warranties to NWC and Merger Sub,
subject to identified exceptions and qualifications, including
those relating to:
|
|
|
|
|
the due organization and valid existence of Cost-U-Less and its
subsidiaries;
|
|
|
|
the valid issuance of outstanding Cost-U-Less capital stock;
|
|
|
|
the capital structure of Cost-U-Less;
|
|
|
|
the necessary corporate power and authority of Cost-U-Less to
enter into, and perform its obligations under, the merger
agreement and to consummate the transactions contemplated
thereby;
|
|
|
|
the governmental consents or approvals required as a result of
the merger agreement or the consummation of the transactions
contemplated thereby;
|
|
|
|
The absence of any conflict with or violation of the articles of
incorporation or bylaws of Cost-U-Less or any of the similar
organizational documents of any of its subsidiaries;
|
|
|
|
Cost-U-Lesss SEC filings since the beginning of its fiscal
year 2006 and this proxy statement;
|
|
|
|
the absence of undisclosed liabilities of Cost-U-Less or its
subsidiaries;
|
|
|
|
the absence of certain changes in the respective business of
Cost-U-Less and its subsidiaries between July 1, 2007 and
August 27, 2007;
|
|
|
|
the absence of any litigation and governmental investigations
pending or, to Cost-U-Lesss knowledge, threatened against
Cost-U-Less or any of its subsidiaries;
|
|
|
|
the compliance by Cost-U-Less and its subsidiaries with
applicable laws and with notices, reports and other filings to
or with governmental entities;
|
|
|
|
employee benefits plans;
|
|
|
|
the representation of employees of Cost-U-Less and its
subsidiaries by labor unions and other labor matters;
|
|
|
|
environmental matters;
|
35
|
|
|
|
|
the payment, and compliance with laws related to the payment, of
taxes by Cost-U-Less and its subsidiaries, and other tax matters;
|
|
|
|
the ownership, license and lawful use of intellectual property
used by Cost-U-Less and its subsidiaries, and other intellectual
property matters;
|
|
|
|
the disclosure of certain material contracts and obligations of
Cost-U-Less, and its subsidiaries, and the absence of certain
defaults thereunder or notifications of termination thereof;
|
|
|
|
certain insurance matters as they relate to Cost-U-Less and its
subsidiaries;
|
|
|
|
the real property leased by Cost-U-Less and its subsidiaries and
other real estate matters;
|
|
|
|
the absence of certain affiliated contracts and affiliated
transactions;
|
|
|
|
absence of brokers and finders fees (other than the
fee to Cascadia Capital);
|
|
|
|
the taking of actions necessary to avoid application of a
shareholder rights agreement to the merger;
|
|
|
|
the vote required to adopt the merger agreement and to
consummate the merger;
|
|
|
|
the receipt by Cost-U-Lesss board of directors of an
opinion from their financial advisor; and
|
|
|
|
the recommendation by Cost-U-Lesss board of directors that
Cost-U-Less shareholders adopt the merger agreement.
|
Company Material Adverse Effect.
Some of the
representations and warranties referred to above are qualified
by a material adverse effect standard. As used in the merger
agreement, a material adverse effect means with respect to
Cost-U-Less, any material event, change, condition, occurrence,
development or effect that, individually or when aggregated with
other similar events or changes, is materially adverse to
(x) the ability of Cost-U-Less to perform obligations
under, or to consummate the transactions contemplated by, the
merger agreement or, with respect to any person (y) the
operations, properties, assets, liabilities, condition
(financial or otherwise), operating results or cash flow of such
person. However, a material adverse effect does not include any
of the following or any combination of the following:
(i) any event, change, condition, effect or circumstance
that results from or is attributable to the announcement,
pendency or consummation of the merger agreement or the merger;
(ii) any change in the market price or trading volume of
Cost-U-Less common stock after August 27, 2007; or
(iii) any event, change, condition, effect or circumstance
resulting primarily from changes in general economic, regulatory
or political conditions, conditions in the United States or
worldwide capital markets, any act of terrorism, any decrease in
tourism or air travel, any increase in energy or fuel
surcharges, any volatile weather conditions or natural
disasters, or any outbreak or continuation of hostilities or
war, except to the extent that any such event, change,
condition, effect or circumstance has a disproportionately
adverse effect on Cost-U-Less as compared to other comparable
businesses.
Representations and Warranties of NWC and Merger
Sub.
The merger agreement also contains various
representations and warranties made by NWC and Merger Sub to
Cost-U-Less, subject to identified exceptions and
qualifications, including those relating to:
|
|
|
|
|
the due organization, valid existence and good standing of NWC
and Merger Sub;
|
|
|
|
the requisite corporate power and authority of NWC and Merger
Sub to enter into, and perform its obligations under, the merger
agreement and to consummate the transactions contemplated
thereby;
|
|
|
|
the governmental consents or approvals required as a result of
the merger agreement or the consummation of the transactions
contemplated thereby;
|
|
|
|
the absence of any conflict with or violation of the
organizational documents or any statute, code, ordinance, rule,
regulation, judgment, order, writ, decree or injunction
applicable to NWC or Merger Sub or any of their properties or
assets as a result of the merger agreement or the consummation
of the merger;
|
|
|
|
absence of brokers and finders fees;
|
36
|
|
|
|
|
the information supplied by NWC and Merger Sub for inclusion or
incorporation into this proxy statement; and
|
|
|
|
the financial capability of NWC and Merger Sub in connection
with and for the purpose of consummating the transactions
contemplated by the merger agreement.
|
|
|
|
the absence of any litigation and governmental investigations
pending or, to NWCs and Merger Subs knowledge,
threatened against NWC or Merger Sub;
|
|
|
|
the absence of any actions on the part of NWC or Merger Sub that
would trigger restrictions under the rights agreement or the
Washington anti-takeover statute with respect to the execution
of the merger agreement or the consummation of the
merger; and
|
|
|
|
The execution of a guarantee by the guarantor with respect to
the performance of NWC and Merger Sub of their respective
obligations under the merger agreement.
|
Covenants
Relating to Conduct of Business Pending the Merger
Covenants of Cost-U-Less.
Except as
contemplated or permitted by the merger agreement or as required
by law, from August 27, 2007 to the effective time of the
merger, or until termination of the merger agreement,
Cost-U-Less and each of its subsidiaries will, unless consented
to in writing by NWC:
|
|
|
|
|
conduct its business and maintain its books of account and
records in the usual, regular and ordinary course consistent
with past practice; and
|
|
|
|
use commercially reasonable efforts to maintain and preserve
intact its business organization and the goodwill of those
having business relationships with it and retain the services of
its present officers and key employees.
|
In addition, subject to exceptions referred to in the merger
agreement, from the date of the merger agreement to the
effective time of the merger, or until termination of the merger
agreement, Cost-U-Less and each of its subsidiaries will not,
unless consented to in writing by NWC:
|
|
|
|
|
amend its articles of incorporation or bylaws;
|
|
|
|
issue, deliver or sell or authorize or propose the issuance,
delivery or sale of, or purchase or propose the purchase of, any
securities of Cost-U-Less, other than pursuant to the exercise
of stock options, warrants or other rights outstanding as of
August 27, 2007;
|
|
|
|
declare or pay any dividends on or make any other distributions
in respect of any of its capital stock, or split, combine or
reclassify any of its capital stock or issue or authorize the
issuance of any other securities in respect of, in lieu of or in
substitution for shares of its capital stock, or repurchase or
otherwise acquire, directly or indirectly, any shares of its
capital stock except from former employees, directors and
consultants in accordance with agreements providing for the
repurchase of shares in connection with any termination of
service to Cost-U-Less or its subsidiaries;
|
|
|
|
incur any indebtedness for borrowed money or guarantee any such
indebtedness or make any loans, advances or capital
contributions to, or investments in, any person other than
Cost-U-Less or its subsidiaries other than for working capital
purposes in the ordinary course of business consistent with past
practice or for certain specified capital expenditures;
|
|
|
|
sell, transfer, mortgage, encumber or otherwise dispose of any
of its properties or assets in an aggregate amount in excess of
$50,000 (other than to a direct or indirect wholly-owned
subsidiary of Cost-U-Less), except those relating to sales of
products or inventory in the ordinary course of business and
with respect to obsolete or worthless assets;
|
|
|
|
make any acquisition or investment in another business entity
either by purchase of stock or securities, merger or
consolidation, contributions to capital, property transfers, or
purchases of any property or assets of any other individual,
corporation or other entity, other than a wholly-owned
subsidiary of Cost-U-Less;
|
37
|
|
|
|
|
make any change to its accounting methods, principles, policies,
procedures or practices in effect at December 31, 2006,
except as may be required by GAAP, Regulation S-X promulgated by
the SEC or applicable statutory accounting principles;
|
|
|
|
make or change any material election in respect of taxes, adopt
or change any accounting method in respect of taxes, file any
material tax return or any amendment to a material tax return,
enter into any closing agreement, settle any claim or assessment
in respect of taxes, or consent to any extension or waiver of
the limitation period applicable to any claim or assessment in
respect of taxes;
|
|
|
|
materially reduce the amount of any material insurance coverage
provided by existing insurance policies;
|
|
|
|
enter into any contract or commitment, or violate, amend or
otherwise modify or waive any of the terms of any of its
contracts, other than in the ordinary course of business
consistent with past practice and in no event shall such
contract, commitment, amendment, modification or waiver (other
than those relating to sales of products or purchases of
supplies or inventory in the ordinary course of business)
involve the payment by Cost-U-Less or its subsidiaries in excess
of $100,000;
|
|
|
|
pay, discharge or satisfy an amount in excess of $100,000 in any
one case, any claim, liability or obligation (absolute, accrued,
asserted or unasserted, contingent or otherwise) arising other
than those relating to sales of products or purchases of
supplies or inventory in the ordinary course of business, or
fail to pay accounts payable or other obligations in the
ordinary course of business;
|
|
|
|
accelerate the collection of receivables or modify the payment
terms of any receivables;
|
|
|
|
except for certain specified amounts and purposes, make any
capital expenditures, capital additions or capital improvements
that exceed $50,000 individually or $250,000 in the aggregate;
|
|
|
|
commence a lawsuit other than (i) for the routine
collection of bills, (ii) in such cases where Cost-U-Less
in good faith determines that failure to commence suit would
result in the material impairment of a valuable aspect of its
business, provided that it consults with NWC prior to the filing
of such a suit, (iii) for a breach of the merger agreement,
or (iv) to clarify its obligations under the merger
agreement;
|
|
|
|
increase the compensation payable or to become payable to its
directors, officers or employees (other than increases payable
to non-officer employees made in the ordinary course of business
consistent with past practice), make any loan, advance or
capital contribution, or grant any severance or termination pay
to, or enter into or amend any employment or severance agreement
with, any director, officer or other employee of Cost-U-Less or
any of its subsidiaries, establish, adopt, enter into or amend
any collective bargaining, bonus, profit sharing, thrift,
compensation, stock option, restricted stock, pension,
retirement, deferred compensation, employment, termination,
severance or other plan, agreement, trust, fund, policy or
arrangement for the benefit of any current or former directors,
officers or employees of Cost-U-Less or any of its subsidiaries,
pay any discretionary bonuses to any officer of Cost-U-Less
(including under any of the Cost-U-Lesss bonus plans),
materially change any actuarial assumption or other assumption
used to calculate funding obligations with respect to any
pension or retirement plan, or change the manner in which
contributions to any such plan are made or the basis on which
such contributions are determined, except, in each case, as may
be required by law or contractual commitments which are existing
as of August 27, 2007; or
|
|
|
|
take or agree in writing or otherwise to take, any of the
foregoing actions, or any action that would make any of
Cost-U-Less representations or warranties contained in the
merger agreement untrue or incorrect in any material respect.
|
Access to
Information; Confidentiality
From August 27, 2007 to the effective time of the merger,
or until termination of the merger agreement, Cost-U-Less will
afford NWC and NWCs accountants, counsel and other
representatives reasonable access during normal business hours
to its properties, books, contracts, records and personnel. All
information will be subject to the confidentiality agreement
previously entered into by Cost-U-Less and NWC.
38
Alternative
Acquisition Proposals
No Solicitation.
From and after
August 27, 2007, Cost-U-Less has agreed that neither it nor
any of its subsidiaries shall, directly or indirectly solicit or
intentionally encourage or, except as necessary for the
Cost-U-Less board of directors to comply with its fiduciary
obligations, engage in any discussions or negotiations with, or
disclose any nonpublic information relating to Cost-U-Less or
any of its subsidiaries to, or afford access to the books or
records of Cost-U-Less or any of its subsidiaries to, any person
that has advised Cost-U-Less that it may be considering making,
or that has made, an acquisition proposal (as defined below).
Notwithstanding the restrictions described above, if the
Cost-U-Less board:
|
|
|
|
|
receives an unsolicited acquisition proposal that provides for
consideration to be received by the holders of all of the
outstanding shares of Cost-U-Less stock; and
|
|
|
|
determines in good faith after advice from its financial advisor
and legal counsel that the acquisition proposal involves
consideration that is, or is reasonably likely to lead to a
proposal that is, more favorable from a financial point of view
to the Cost-U-Less shareholders than the merger; and is
reasonably capable of being completed and is not conditioned
upon obtaining additional financing; and
|
|
|
|
determines in good faith after advice from legal counsel that it
is necessary for the Cost-U-Less board to comply with its
fiduciary obligations to the Cost-U-Less shareholders under
applicable law;
|
then Cost-U-Less may furnish nonpublic information to the party
making such acquisition proposal and engage in discussions and
negotiations with such party, and the Cost-U-Less board may
withdraw its recommendation to approve the merger and the merger
agreement and instead endorse the acquisition proposal, subject
to certain notification obligations to NWC.
As used in the merger agreement, an acquisition
proposal means any offer or proposal for, or any
indication of interest in, a merger or other business
combination involving Cost-U-Less or any of its subsidiaries or
the acquisition of 50% or more of the outstanding shares of
capital stock of Cost-U-Less, or all or substantially all of the
assets of Cost-U-Less, other than the transactions contemplated
by the merger agreement.
Termination
The merger agreement may be terminated and the merger abandoned
at any time prior to the effective time of the merger as follows:
(1) by mutual written consent of Cost-U-Less and NWC.
(2) by either NWC or Cost-U-Less if:
(a) the merger shall not have been consummated on or before
December 31, 2007, except that the date of termination will
be automatically extended until January 31, 2008, if
certain regulatory
and/or
third
party approvals are the only conditions to the merger agreement
that remain to be satisfied;
(b) any permanent injunction or other order of a court or
other competent authority preventing the consummation of the
merger shall have become final and nonappealable; or
(c) the special meeting of shareholders (including any
adjournment thereof) is held and approval of the proposal to
approve the merger and the merger agreement has not been
obtained from a majority of the holders of outstanding
Cost-U-Less common stock entitled to vote on the proposal.
(3) by NWC:
(a) if the representations and warranties of Cost-U-Less
shall have become untrue, or upon a material breach of any
covenant or agreement on the part of Cost-U-Less set forth in
the merger agreement such that, as of the time of such breach,
the condition to the consummation of the merger
39
that Cost-U-Less shall have performed or complied in all
material respects with each of its agreements and covenants
required under the merger agreement to be performed or complied
with at or prior to the consummation of the merger would not be
satisfied, and such breach is not cured after notice and during
a specified cure period;
(b) if:
|
|
|
|
|
an alternative acquisition proposal is made and the Cost-U-Less
board does not, if so requested by NWC, reconfirm its
recommendation to vote for approval of the merger and the merger
agreement within a specified period;
|
|
|
|
A tender offer or exchange offer for shares of Cost-U-Less
common stock is commenced and the Cost-U-Less board recommends
that shareholders tender their shares in such offer, or fails to
recommend against acceptance of such offer;
|
|
|
|
there occurs any change in the Cost-U-Less boards
recommendation for the merger in a manner materially adverse to
NWC;
|
|
|
|
the Cost-U-Less board recommends, endorses, accepts or approves
any acquisition proposal other than the merger described in this
proxy statement;
|
|
|
|
Cost-U-Less has failed to comply with its obligations with
regard to alternative acquisition proposals, and such failure is
not cured after notice and during a specified cure period.
|
(4) by Cost-U-Less:
(a) if the representations and warranties of NWC and Merger
Sub shall have become untrue, or upon a material breach of any
covenant or agreement on the part of NWC or Merger Sub set forth
in the merger agreement such that, as of the time of such
breach, the condition to the consummation of the merger that NWC
and Merger Sub shall have performed or complied in all material
respects with each of their respective agreements and covenants
required under the merger agreement to be performed or complied
with at or prior to the consummation of the merger would not be
satisfied, and such breach is not cured after notice and during
a specified cure period;
(b) upon receipt by Cost-U-Less of a superior offer from a
third party, provided that (A) the Cost-U-Less board has
determined that it desires to approve entering into a written
agreement providing for such superior offer and has notified NWC
in writing of such desire; (B) Cost-U-Less has reasonably
cooperated with NWC during a specified period to enable NWC to
make an offer that is at least as favorable from a financial
point of view to the Cost-U-Less shareholders as such superior
offer; (C) NWC has not made a written offer that the
Cost-U-Less board determines to be more favorable from a
financial point of view to the Cost-U-Less shareholders than the
superior offer during such specified period; and (D) at the
end of the specified period the Cost-U-Less board continues to
believe that the superior offer is more favorable from a
financial point of view to the Cost-U-Less shareholders than the
merger.
Fees and
Expenses; Termination Fee
Except for the termination fee and the limited circumstances
under which a party would be obligated to reimburse the other
party for its fees and expenses described below, each party will
pay all fees and expenses incurred by it in connection with the
merger agreement and the transactions contemplated thereby,
whether or not the merger is consummated.
Under the merger agreement, Cost-U-Less shall reimburse NWC for
all of the out-of-pocket costs and expenses (including, without
limitation, the fees and expenses of its advisors, accountants
and legal counsel and financing commitment fees) reasonably
incurred by NWC in connection with the merger agreement the
transactions contemplated thereby and the due diligence review
of Cost-U-Less by NWC, up to a maximum amount of $500,000 in the
aggregate (or $250,000 in the aggregate if NWC terminates the
merger agreement
40
because total capital expenditures by Cost-U-Less for the Cayman
Islands store under construction exceeds a stated amount), if:
|
|
|
|
|
NWC terminates the merger agreement because Cost-U-Less
shareholders fail to approve the merger;
|
|
|
|
NWC terminates the merger agreement because the representations
and warranties of Cost-U-Less have become untrue, or Cost-U-Less
has materially breached a covenant or agreement on the part of
Cost-U-Less set forth in the merger agreement, and such breach
is not cured after notice and during a specified cure period;
|
|
|
|
NWC terminates the merger agreement because any of the events
described in paragraph 3(b) under The Merger
Agreement Termination above shall have
occurred; or
|
|
|
|
Cost-U-Less terminates the merger agreement because the events
described in paragraph 4(b) under The Merger
Agreement Termination above shall have
occurred.
|
In addition, under the merger agreement, Cost-U-Less shall pay
NWC a non-refundable fee equal to $1,500,000 if:
|
|
|
|
|
NWC terminates the merger agreement because any of the events
described in paragraph 3(b) under The Merger
Agreement Termination above shall have
occurred or Cost-U-Less terminates the merger agreement because
the events described in paragraph 4(b) under The
Merger Agreement Termination above shall have
occurred and, in each case, within 12 months following the
termination of the merger agreement; and
|
|
|
|
prior to such termination of the merger agreement, either
(i) any person or group acquires beneficial ownership of
securities representing 25 percent or more of the
outstanding shares of any class of capital stock or voting
securities of Cost-U-Less, or a tender or exchange offer or
other initiative or open market purchase program is publicly
announced, following the successful consummation of which such
person or group would have beneficial ownership of securities
representing 25% or more of the outstanding shares of any class
of capital stock or voting power of Cost-U-Less, any of which is
referred to as a trigger event, or (ii) a
superior offer has been made and not withdrawn or abandoned by
the offeror; and
|
|
|
|
Within twelve months of such termination of the merger agreement
the transaction contemplated by the trigger event, or the
transaction contemplated by the superior offer if such
transaction results in a merger or other business combination
involving Cost-U-Less or the acquisition of 25% or more of the
outstanding shares of capital stock of Cost-U-Less, or sale or
transfer of all or substantially all assets of Cost-U-Less or
any of its subsidiaries, is consummated.
|
In the event that Cost-U-Less terminates the merger agreement
because the representations and warranties of NWC and Merger Sub
shall have become untrue, or because NWC or Merger Sub
materially breached a covenant or agreement on the part of NWC
or Merger Sub set forth in the merger agreement, and such breach
is not cured after notice and during a specified cure period,
NWC shall reimburse Cost-U-Less for all of the out-of-pocket
costs and expenses (including, without limitation, the fees and
expenses of its advisors, accountants and legal counsel)
reasonably incurred by Cost-U-Less in connection with the merger
agreement the transactions contemplated thereby and the due
diligence review of NWC by Cost-U-Less, up to a maximum amount
of $500,000 in the aggregate.
Directors
and Officers Indemnification and Insurance
Pursuant to the terms of the merger agreement, NWC has agreed
that all rights to indemnification and exculpation from
liabilities for acts or omissions occurring at or prior to the
effective time of the merger existing in favor of the current or
former directors or officers of Cost-U-Less, as provided in the
articles of incorporation and bylaws of Cost-U-Less or in
separate agreements between Cost-U-Less and individual officers
and directors, shall continue to be binding upon the surviving
corporation. NWC has agreed to fulfill and honor in all respects
such obligations, and not to amend, repeal or modify any of the
rights to indemnification as they exist on August 27, 2007
so as to adversely affect any current or former officer or
41
director of Cost-U-Less. NWC has also acknowledged that
Cost-U-Less will, prior to the closing of the merger, obtain a
policy of directors and officers liability insurance
with a tail period of six years from the closing date of the
merger, and agreed that neither NWC nor the surviving
corporation shall take any action to amend, repeal or modify
such policy in any manner.
Publicity
Cost-U-Less and NWC have agreed to consult with each other
before issuing any press release or otherwise making any public
statement or making any other public disclosure regarding the
terms of the merger agreement and the transactions contemplated
by the merger agreement, and have agreed that neither of
Cost-U-Less or NWC shall issue any such press release or make
any such statement or disclosure without the prior approval of
the other (which approval shall not be unreasonably withheld),
except as may be required by law or any listing agreement with
or rules of the Nasdaq Capital Market or the Toronto Stock
Exchange.
Consents
and Approvals
NWC and Cost-U-Less have agreed to use their commercially
reasonable efforts to take or cause to be taken all actions
necessary, proper or advisable to comply with all legal
requirements that may be imposed on such party or its
subsidiaries with respect to the merger and to consummate the
transactions contemplated under the merger agreement. NWC and
Cost-U-Less have also agreed to obtain any consent,
authorization, order or approval of, or any exemption by, any
governmental entity and any other third party that is required
to be obtained by Cost-U-Less or NWC or any of their respective
subsidiaries in connection with the merger and the other
transactions contemplated by the merger agreement, and to comply
with the terms and conditions of any such consent,
authorization, order or approval.
Each of NWC and Cost-U-Less has agreed to use its commercially
reasonable efforts to take or cause to be taken all actions, and
to do or cause to be done all things necessary, proper or
advisable to consummate and make effective, as soon as
practicable after August 27, 2007, the transactions
contemplated by the merger agreement, including, without
limitation, using commercially reasonable efforts to lift or
rescind any injunction or restraining order or other order
adversely affecting the ability of the parties to consummate the
transactions contemplated by the merger agreement and using
commercially reasonable efforts to defend any litigation seeking
to enjoin, prevent or delay the consummation of the transactions
contemplated by the merger agreement or seeking material damages.
Financing
Pursuant to the merger agreement, NWC has agreed to use its best
efforts to cause sufficient funds required to pay the aggregate
merger consideration to be and remain available under its
existing working capital lines of credit until the effective
time of the merger. NWC has agreed that it will promptly (and in
any event within two business days) notify Cost-U-Less in
writing if (i) any of its working capital lines of credit
has been withdrawn, amended or terminated in any manner;
(ii) NWC has become aware or has received notice (whether
written or oral) that a lender or lenders under the lines of
credit intends to withdraw, amend or terminate line of credit in
any manner; or (iii) any of the representations and
warranties of NWC relating to the availability of funds to
enable NWC to meet its obligations under the merger agreement
shall no longer be true and correct in any material respect.
In addition, The North West Company Inc. and the North West
Company Fund have absolutely, irrevocably and unconditionally
guaranteed (as primary obligor and not merely as surety) to
Cost-U-Less the prompt and complete payment in full of all sums
(including fees and expenses) which may become payable by NWC
under the merger agreement with respect to (i) the merger
consideration, and (ii) a breach of NWCs
representations, warranties and certain specified covenants
under the merger agreement.
Director
Resignations; Transfer of Qualifying Shares
Cost-U-Less agreed in the merger agreement that it shall use its
best efforts to (i) obtain and deliver to NWC prior to the
closing date of the merger the resignation of each director of
Cost-U-Less and each of its
42
subsidiaries (in each case, in their capacities as officers,
directors, and not as employees) as NWC shall specify not less
than 30 days prior to the closing date; and (ii) cause
any shares of a subsidiary of Cost-U-Less owned by a Cost-U-Less
director as qualifying shares to be transferred (effective as of
the effective time of the merger) by such director without
additional consideration to the person designated by NWC not
less than 30 days prior to the closing date of the merger.
2007
Incentive Bonus Plan Awards
Under the merger agreement, NWC agreed that it shall authorize
and pay all awards under the
Cost-U-Less
2007 Incentive Bonus Plan following the completion of fiscal
year 2007 consistent with the attainment of the specified levels
of financial and individual performance approved by the
Cost-U-Less board of directors in February 2007, consistent with
Cost-U-Lesss past practice, except that such awards may be
prorated with respect to any employee who is employed for less
than the entire fiscal year 2007. Each executive officer
entitled to receive a bonus payment may enforce this provision
of the merger agreement.
Conditions
to Completing the Merger
Conditions to Each Partys
Obligation.
The obligations of Cost-U-Less, NWC
and Merger Sub to effect the merger are subject to the
satisfaction or waiver of each of the following conditions:
|
|
|
|
|
the merger agreement and the merger shall have been approved at
a special meeting of shareholders by the affirmative vote of the
holders of a majority of the outstanding shares of Cost-U-Less
common stock entitled to vote on the proposal;
|
|
|
|
no statute, rule, order, decree or regulation shall have been
enacted or promulgated by any governmental entity or authority
of competent jurisdiction that prohibits the consummation of the
merger; and
|
|
|
|
no order or injunction of any governmental entity of competent
jurisdiction in effect precluding, restraining, enjoining or
prohibiting consummation of the merger exists.
|
Conditions to the Obligation of NWC and Merger
Sub.
The obligation of NWC and Merger Sub to
effect the merger is subject to the satisfaction or waiver of
each of the following additional conditions, any or all of which
may be waived by NWC and Merger Sub:
|
|
|
|
|
the representations and warranties of Cost-U-Less in the merger
agreement shall be true and correct in all material respects
(except for such representations and warranties that are
qualified by their terms by a reference to materiality, which
representations and warranties as so qualified shall be true and
correct in all respects) both on August 27, 2007 and on and
as of the effective time of the merger as though such
representations and warranties were made on and as of such time,
and Cost-U-Less shall have performed and complied in all
material respects with all covenants, obligations and conditions
of the merger agreement required to be performed and complied
with by it as of the effective time of the merger;
|
|
|
|
no change that, individually or when aggregated with other
similar changes, is materially adverse to (x) the ability
of Cost-U-Less to perform obligations under, or to consummate
the transactions contemplated by, the merger agreement or
(y) the operations, properties, assets, liabilities,
condition (financial or otherwise), operating results or cash
flow of Cost-U-Less, shall have occurred since August 27,
2007;
|
|
|
|
The Cost-U-Less stock option plan shall have been terminated
effective as of or prior to the effective time of the merger,
and all options granted thereunder shall have been exercised or
shall terminate not later than the effective time of the merger;
|
|
|
|
Cost-U-Less shall have received or obtained certain specified
third-party consents and approvals, in each case on terms
reasonably satisfactory to NWC;
|
|
|
|
Cost-U-Less shall have received and delivered to NWC an estoppel
certificate with respect to certain specified store leases,
dated no more than sixty (60) days prior to the closing
date of the merger;
|
43
|
|
|
|
|
NWC or its affiliates and Cost-U-Less shall have received or
obtained certain specified governmental and regulatory consents,
approvals, licenses and authorizations;
|
|
|
|
with respect to the Cost-U-Less store under construction in the
Cayman Islands, (i) total capital expenditures (excluding
capitalized interest) by Cost-U-Less for the store and related
facilities shall not have exceeded $15,600,000, (ii) that
certain Shareholders Agreement dated July 11, 2005, shall
be in full force and effect on the closing date of the merger,
and the parties to the Shareholders Agreement shall have entered
into the a management services agreement in form and substance
reasonably satisfactory to NWC, and (iii) all material
business licenses required to operate Cost-U-Lesss
warehouse store and any related facilities in the Cayman Islands
shall have been obtained and any consents required for such
licenses to continue in full force and effect upon consummation
of the merger shall have been obtained; and
|
|
|
|
Cost-U-Less shall have delivered to NWC a legal opinion from DLA
Piper US LLP, counsel to Cost-U-Less, on the closing date of the
merger, addressed to NWC.
|
Conditions to the Obligation of
Cost-U-Less.
The obligation of Cost-U-Less to
complete the merger is subject to the following additional
conditions, any or all of which may be waived by Cost-U-Less:
|
|
|
|
|
each of the representations and warranties of NWC and Merger Sub
in the merger agreement shall be true and correct in all
material respects (except for such representations and
warranties that are qualified by their terms by a reference to
materiality, which representations and warranties as so
qualified shall be true and correct in all respects) both on
August 27, 2007 and on and as of the effective time of the
merger as though such representations and warranties were made
on and as of such time and NWC and Merger Sub shall have
performed and complied in all material respects with all
covenants, obligations and conditions of the merger agreement
required to be performed and complied with by them as of the
effective time of the merger; and
|
|
|
|
NWC shall have delivered to Cost-U-Less a legal opinion from
Heller Ehrman LLP, counsel to NWC and Merger Sub, on the closing
date of the merger, addressed to Cost-U-Less.
|
Amendment
The merger agreement may be amended only by written agreement of
NWC, Merger Sub and Cost-U-Less. After the merger is approved by
the Cost-U-Less shareholders, no amendment shall alter or change
(i) the amount or kind of consideration to be received on
conversion of Cost-U-Less common stock, (ii) any term of
the articles of incorporation of the surviving corporation to be
effected by the merger, (iii) the indemnification
provisions in the merger agreement; or (iv) any other terms
or conditions of the merger agreement if such alteration or
change would materially adversely affect the holders of
Cost-U-Less common stock or Merger Sub common stock.
Waiver
At any time prior to the effective time of the merger, any party
to the merger agreement may, to the extent legally allowed,
extend the time for the performance of any of the obligations or
other acts of the other parties to the merger agreement, waive
any inaccuracies in the representations and warranties made to
such party in the merger agreement and waive compliance with any
of the agreements or conditions for the benefit of such party in
the merger agreement. No failure or delay by any party in
exercising any right under the merger agreement shall operate as
a waiver of those rights. The rights and remedies provided in
the merger agreement are cumulative and not exclusive of any
rights or remedies provided by law.
Assignment
No party to the merger agreement may assign the merger agreement
or any of its rights, interests or obligations under the merger
agreement without the prior written consent of the other parties
to the merger agreement, except that NWC may assign, in its sole
discretion, any or all of its rights, interests and obligations
under the merger agreement to any direct or indirect wholly
owned subsidiary of NWC.
44
Voting
Agreements
In connection with the merger, certain directors and other
shareholders of Cost-U-Less have entered into voting agreements
with NWC. The terms of the voting agreements provide that the
shareholders will vote all shares of Cost-U-Less common stock
beneficially owned by them in favor of the approval of the
merger and the merger agreement and against any competing
proposal.
The voting agreements also required the shareholders to deliver
an irrevocable proxy to NWC. The irrevocable proxy enables NWC
to vote the shareholders shares at every annual, special
or adjourned meeting of the shareholders of Cost-U-Less and in
every written consent in lieu of such meeting to approve the
merger. As of the record date for the special meeting, the
Cost-U-Less shareholders who entered into the voting agreements
collectively
held shares
of Cost-U-Less common stock which represents
approximately % of the
outstanding Cost-U-Less common stock entitled to vote at the
special meeting. None of the shareholders who are parties to the
voting agreements was paid additional consideration in
connection with the voting agreements.
45
OTHER
IMPORTANT INFORMATION REGARDING COST-U-LESS
Price
Range of Common Stock
Our common stock is quoted on the Nasdaq Capital Market under
the symbol CULS. The following table sets forth for
the periods indicated the high and low sale prices per share of
our common stock as reported on the Nasdaq Capital Market, the
principal market in which the common stock is traded. Such
prices reflect inter-dealer prices, without retail
mark-up,
mark-down or commission and may not necessarily represent actual
transactions.
|
|
|
|
|
|
|
|
|
|
|
Stock Price
|
|
Year
|
|
High
|
|
|
Low
|
|
|
Fiscal 2007
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
9.50
|
|
|
$
|
7.97
|
|
Second Quarter
|
|
|
11.60
|
|
|
|
8.79
|
|
Third Quarter (through
September 14, 2007)
|
|
|
11.64
|
|
|
|
9.21
|
|
Fiscal 2006 (ended
December 31, 2006)
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
8.75
|
|
|
$
|
7.13
|
|
Second Quarter
|
|
|
8.72
|
|
|
|
7.65
|
|
Third Quarter
|
|
|
9.41
|
|
|
|
7.27
|
|
Fourth Quarter
|
|
|
9.45
|
|
|
|
7.75
|
|
Fiscal 2005 (ended January 1,
2006)
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
10.96
|
|
|
$
|
6.26
|
|
Second Quarter
|
|
|
11.94
|
|
|
|
7.05
|
|
Third Quarter
|
|
|
9.05
|
|
|
|
6.01
|
|
Fourth Quarter
|
|
|
7.85
|
|
|
|
5.58
|
|
On August 27, 2007, the last trading day prior to the
public announcement of the execution of the merger agreement,
the high and low sales prices of our common stock were $10.60
and $10.51 per share, respectively, and the closing price was
$10.51 per share. On September 14, 2007, the high and low
reported sales prices of our common stock were $11.48 and
$11.42, respectively, and the closing price was $11.47 per share.
Security
Ownership of Certain Beneficial Owners and Management
The following table sets forth, as of September 14, 2007,
certain information regarding the beneficial ownership of
Cost-U-Less common stock by:
|
|
|
|
|
each shareholder known by us to be the beneficial owner of 5% or
more of our common stock;
|
|
|
|
each director and nominee for our board of directors;
|
|
|
|
each executive officer whom compensation information is given in
the summary compensation table in this proxy statement; and
|
|
|
|
all of our directors and executive officers as a group.
|
46
To our knowledge, except as otherwise indicated, the persons
named in this table have sole voting and investment power with
respect to all shares of common stock shown as beneficially
owned by them, subject to community property laws where
applicable and to the information contained in the footnotes to
this table.
|
|
|
|
|
|
|
|
|
|
|
Outstanding Shares
|
|
|
|
|
|
|
of Common Stock
|
|
|
Percent of
|
|
Beneficial Owner(1)
|
|
Beneficially Owned(2)
|
|
|
Class(3)
|
|
|
Whitebox Advisors, LLC(4)
3033 Excelsior Boulevard, 300
Minneapolis, Minnesota 55416
|
|
|
274,587
|
|
|
|
6.8
|
%
|
Chadwick Capital Management,
LLC(5)
4510 Executive Drive, Suite 200
San Diego, CA 92121
|
|
|
266,946
|
|
|
|
6.6
|
%
|
Delafield Hambrecht, Inc.(6)
701 Fifth Avenue, Suite 3800
Seattle, Washington 98104
|
|
|
237,683
|
|
|
|
5.9
|
%
|
Advisory Research, Inc.(7)
180 North Stetson Street, Suite 5500
Chicago, Illinois 60601
|
|
|
202,505
|
|
|
|
5.0
|
%
|
John D. Delafield(8)
|
|
|
232,383
|
|
|
|
5.7
|
%
|
J. Jeffrey Meder(9)
|
|
|
261,334
|
|
|
|
6.5
|
%
|
Gary W. Nettles(10)
|
|
|
77,076
|
|
|
|
1.9
|
%
|
Roy W. Sorensen(11)
|
|
|
68,000
|
|
|
|
1.7
|
%
|
Martin P. Moore(12)
|
|
|
64,000
|
|
|
|
1.6
|
%
|
Michael T. Scalzo(13)
|
|
|
52,451
|
|
|
|
1.3
|
%
|
George C. Textor(14)
|
|
|
21,282
|
|
|
|
*
|
|
William W. Lofgren(15)
|
|
|
20,000
|
|
|
|
*
|
|
Robert C. Donegan(16)
|
|
|
12,000
|
|
|
|
*
|
|
David A. Enger(17)
|
|
|
7,000
|
|
|
|
*
|
|
All directors and executive
officers as a group (10 persons)(18)
|
|
|
815,526
|
|
|
|
20.1
|
%
|
|
|
|
*
|
|
Less than 1% of the outstanding shares of common stock.
|
|
(1)
|
|
Except as noted above, all beneficial owners can be reached
c/o Cost-U-Less,
Inc., 3633 136th Place SE, Suite 110, Bellevue, Washington
98006.
|
|
(2)
|
|
Under the rules of the Securities and Exchange Commission, a
person is deemed to be the beneficial owner of shares that can
be acquired by such person within 60 days upon the exercise
of options or warrants.
|
|
(3)
|
|
Calculated on the basis of 4,050,618 shares of common stock
outstanding as of September 18, 2007, provided that any
additional shares of common stock that a shareholder has the
right to acquire within 60 days after September 18,
2007, are deemed to be outstanding for the purpose of
calculating that shareholders percentage beneficial
ownership.
|
|
(4)
|
|
Based on a Schedule 13G/A filed by Whitebox Advisors, LLC
with the SEC on February 14, 2007. Includes
228,731 shares of common stock held by Whitebox Intermarket
Partners, L.P. and 45,856 shares of common stock held by
HFR RVA Combined Master Trust. Whitebox Advisors is an
investment advisor to HFR RVA Combined Master Trust and is the
managing member and sole owner of Whitebox Intermarket Advisors,
LLC, a Delaware limited liability company. Whitebox Intermarket
Advisors manages accounts for the benefit of its clients
Whitebox Intermarket Partners, L.P., a British Virgin Islands
limited partnership, Whitebox Intermarket Fund, L.P., a Delaware
limited partnership, and Whitebox Intermarket Fund, Ltd., a
British Virgin Islands international business company. Each of
these entities shares voting and dispositive power over the
shares held by Whitebox Advisors. Jonathon D. Wood is the Chief
Financial Officer of Whitebox Advisors LLC, Whitebox Intermarket
Advisors LLC, Whitebox Intermarket Partners LP, Whitebox
Intermarket Fund LP, and Whitebox Intermarket Fund Ltd.
|
|
(5)
|
|
Based on a Schedule 13D/A filed by Chadwick Capital
Management, LLC with the SEC on March 8, 2007. James M.
Chadwick and Sohail Malad are Managers of Chadwick Capital
Management, LLC.
|
47
|
|
|
|
|
Includes 259,746 shares of common stock held by Chadwick
Capital Management, LLC and Monarch Activist Partners, LP and
7,200 shares of common stock held by Nadel and Gussman
Combined Funds, LLC. Chadwick Capital Management, LLC is the
General Partner of Monarch Activist Partners, LP.
|
|
|
|
(6)
|
|
Based on a Schedule 13D/A filed by Delafield Hambrecht,
Inc. with the SEC on September 10, 2007. Includes shares
held by Delafield Hambrecht, Inc., Delafield Hambrecht Partners,
LLC, Delafield Hambrecht Partners Fund, LP, John D. Delafield,
Colin M. Hutchinson, and Delafield Hambrecht Micro-Cap Value
Fund, LP. Delafield Hambrecht Partners is a wholly-owned
subsidiary of Delafield Hambrecht, Inc. and is the general
partner of Delafield Hambrecht Partners Fund and Delafield
Hambrecht Micro-Cap Value Fund. John D. Delafield is
the chairman, chief executive officer and president of Delafield
Hambrecht, Inc. and a managing member of Delafield Hambrecht
Partners and Delafield Hambrecht Partners Fund.
Andrew H. Lufkin is managing member of Delafield
Hambrecht Partners and Delafield Hambrecht Micro-Cap Value Fund.
Colin M. Hutchinson is a principal with Delafield Hambrecht,
Inc. Delafield Hambrecht shares voting and dispositive power
over the shares with these entities and individuals, except
where noted in the Schedule 13D/A filing.
|
|
(7)
|
|
Based on a Schedule 13G filed by Advisory Research, Inc.
with the SEC on February 21, 2007. Brien M. OBrien is
President of Advisory Research, Inc.
|
|
(8)
|
|
Based on a Schedule 13D/A filed by Delafield Hambrecht, Inc.
with the SEC on September 10, 2007. Includes shares held by
Delafield Hambrecht, Inc., Delafield Hambrecht Partners, LLC,
Delafield Hambrecht Partners Fund, LP, John D. Delafield, and
Delafield Hambrecht Micro-Cap Value Fund, LP. Delafield
Hambrecht Partners is a wholly-owned subsidiary of Delafield
Hambrecht, Inc. and is the general partner of Delafield
Hambrecht Partners Fund and Delafield Hambrecht Micro-Cap Value
Fund. John D. Delafield is the chairman, chief
executive officer and president of Delafield Hambrecht, Inc. and
a managing member of Delafield Hambrecht Partners and Delafield
Hambrecht Partners Fund. Andrew H. Lufkin is managing
member of Delafield Hambrecht Partners and Delafield Hambrecht
Micro-Cap Value Fund. Colin M. Hutchinson is a principal with
Delafield Hambrecht, Inc. Mr. Delafield shares voting and
dispositive power over the shares with these entities and
individuals, except where noted in the Schedule 13D/A filing.
|
|
(9)
|
|
Includes 241,334 shares subject to options exercisable
within 60 days of September 14, 2007.
|
|
|
|
(10)
|
|
Based on our most recent information and publicly filed
information. Includes 11,807 shares held by the Alyce
Christene Gangwish Irrevocable Trust of 1995, 20,000 shares
held by The Lenz Grandchildrens Irrevocable Trust of 2000,
8,855 shares held by the Brittney Elizabeth Lenz
Irrevocable Trust of 1995, and 8,855 shares held by the
Cody Allan Lenz Irrevocable Trust of 1995 (for each of which
Mr. Nettles acts as Co-Trustee), 677 shares held by
Guchereau & Nettles SEP and 20,282 shares subject
to options exercisable within 60 days
of ,
2007.
|
|
(11)
|
|
Represents 68,000 shares subject to options exercisable
within 60 days of September 14, 2007.
|
|
(12)
|
|
Includes 53,000 shares subject to options exercisable
within 60 days of September 14, 2007.
|
|
(13)
|
|
Includes 48,000 shares subject to options exercisable
within 60 days of September 14, 2007.
|
|
(14)
|
|
Includes 19,282 shares subject to options exercisable
within 60 days of September 14, 2007.
|
|
(15)
|
|
Represents 20,000 shares subject to options exercisable
within 60 days of September 14, 2007.
|
|
(16)
|
|
Represents 12,000 shares subject to options exercisable
within 60 days of September 14, 2007.
|
|
(17)
|
|
Represents 7,000 shares subject to options exercisable
within 60 days of September 14, 2007.
|
|
(18)
|
|
Includes 517,349 shares subject to options exercisable
within 60 days of September 14, 2007.
|
DISSENTERS
RIGHTS
The following is a brief summary of the rights of holders of our
common stock to dissent from the merger and receive cash equal
to the fair value of their shares of common stock. This summary
is not a complete statement of the law, and you should read the
applicable sections of Chapter 23B.13 of the Washington
Business Corporation Act, which is attached as Appendix C
to this proxy statement in its entirety. If you are
contemplating the possibility of dissenting from the merger, you
should carefully review the text of Appendix C,
particularly the procedural steps required to perfect
dissenters rights, which are complex. You
48
should also consult your legal counsel. If you do not fully and
precisely satisfy the procedural requirements of the Washington
Business Corporation Act, you will lose your dissenters
rights.
Requirements
for Exercising Dissenters Rights
To exercise dissenters rights, you must:
|
|
|
|
|
deliver to us before the vote is taken at the special meeting
written notice of your intent to demand the fair value for your
shares of common stock if the merger is consummated; and
|
|
|
|
not vote your shares of our common stock at the special meeting
in favor of the proposal to approve the merger and the merger
agreement.
|
If you do not satisfy each of these requirements, you cannot
exercise dissenters rights and will be bound by the terms
of the merger agreement. Submitting a proxy card that does not
direct how the shares of common stock represented by that proxy
is to be voted will constitute a vote in favor of the merger and
the merger agreement and a waiver of your statutory
dissenters rights. In addition, voting against the
proposal to approve the merger and the merger agreement will not
satisfy the notice requirement referred to above. You must file
the written notice of your intent to exercise dissenters
rights with Cost-U-Less, Inc. at 3633 136th Place SE,
Suite 110, Bellevue, Washington 98006, Attention: Secretary.
Appraisal
Procedure
Within ten days after the effective time of the merger, we
will send a written notice to all shareholders who have given
written notice under the dissenters rights provisions and
have not voted in favor of the merger as described above. The
notice will contain:
|
|
|
|
|
the address where the demand for payment must be sent and where
and when certificates representing shares of common stock must
be deposited;
|
|
|
|
any restrictions on transfer of uncertificated shares that will
apply after the demand for payment is received;
|
|
|
|
a form for demanding payment that states the date of the first
announcement to the news media or to shareholders of the terms
of the proposed merger and requires certification of the date
the shareholder, or the beneficial owner on whose behalf the
shareholder dissents, acquired the shares of common stock or an
interest in it;
|
|
|
|
the date by which we must receive the demand for
payment; and
|
|
|
|
a copy of Chapter 23B.13 of the Washington Business
Corporation Act.
|
If you wish to assert dissenters rights, you must demand
payment and deposit your share certificates within 30 days
after the notice is given. If you fail to make demand for
payment and deposit your share certificates within the
30-day
period, you will lose the right to receive fair value for your
shares under the dissenters rights provisions, even if you
filed a timely notice of intent to demand payment.
Except as provided below, within 30 days of the later of
the effective time of the merger or our receipt of a valid
demand for payment, we will remit to each dissenting shareholder
who complied with the requirements of the Washington Business
Corporation Act the amount we estimate to be the fair value of
the shareholders common stock, plus accrued interest. We
will include the following information with the payment:
|
|
|
|
|
financial data relating to us;
|
|
|
|
an explanation of how we estimated the fair value of the shares;
|
|
|
|
an explanation of how the interest was calculated;
|
|
|
|
a copy of Chapter 23B.13 of the Washington Business
Corporation Act; and
|
|
|
|
a brief description of the procedures to be followed in
demanding supplemental payment.
|
49
For dissenting shareholders who were not the beneficial owner of
the shares of our common stock before August 28, 2007, we
may withhold payment and instead send a statement setting forth
our estimate of the fair value of their shares and offering to
pay such amount, with interest, as a final settlement of the
dissenting shareholders demand for payment.
If you are dissatisfied with your payment or offer, you may,
within 30 days of the payment or offer for payment, notify
us in writing of and demand payment of your estimate of fair
value of your shares and the amount of interest due. If any
dissenting shareholders demand for payment is not settled
within 60 days after receipt by us of his or her payment
demand, we must commence a proceeding in King County Superior
Court and petition the court to determine the fair value of the
shares and accrued interest, naming all the dissenting
shareholders whose demands remain unsettled as parties to the
proceeding. The court may appoint one or more appraisers to
receive evidence and make recommendations to the court as to the
amount of the fair value of the shares. The fair value of the
shares as determined by the court is binding on all dissenting
shareholders.
If the court determines that the fair value of the shares is in
excess of any amount remitted by us then the court will enter a
judgment for cash in favor of the dissenting shareholders in an
amount by which the value determined by the court, plus
interest, exceeds the amount previously remitted.
The court will determine the costs and expenses of the court
proceeding and assess them against us except that the court may
assess part or all of the costs against any dissenting
shareholders whose actions in demanding supplemental payments
are found by the court to be arbitrary, vexatious or not in good
faith. If the court finds that we did not substantially comply
with the relevant provisions of sections 23B.13.200 through
23B.13.280 of the Washington Business Corporation Act, the court
may also assess against us any fees and expenses of attorneys or
experts that the court deems equitable. The court may also
assess those fees and expenses against any party if the court
finds that the party has acted arbitrarily, vexatiously or not
in good faith in bringing the proceedings. The court may award,
in its discretion, fees and expenses of the attorney for any
dissenting shareholders out of the amount awarded to the
shareholders if it finds the services of the attorney were of
substantial benefit to the other dissenting shareholders and
that those fees should not be assessed against us.
A shareholder of record may assert dissenters rights as to
fewer than all of the shares registered in the
shareholders name only if he or she dissents with respect
to all shares beneficially owned by any one person and notifies
us in writing of the name and address of each person on whose
behalf he or she asserts dissenters rights. The rights of
the partially dissenting shareholder are determined as if the
shares as to which he or she dissents and his or her other
shares were registered in the names of different shareholders.
Beneficial owners of our common stock who desire to exercise
dissenters rights themselves must obtain and submit the
registered owners written consent to the dissent at or
before the time they file the notice of intent to demand fair
value and must exercise those rights with respect to all shares
of which they are beneficial owners or over which they have the
power to direct the vote.
For purposes of the Washington Business Corporation Act,
fair value means the value of our common stock
immediately before the effective time of the merger, excluding
any appreciation or depreciation in anticipation of the merger,
unless that exclusion would be inequitable. Under
section 23B.13.020 of the Washington Business Corporation
Act, a shareholder has no right, at law or in equity, to set
aside the approval of the merger agreement or the consummation
of the merger except if the approval, adoption or consummation
fails to comply with the procedural requirements of
Chapter 23B.13 of the Washington Business Corporation Act,
Revised Code of Washington sections 25.10.900 through
25.10.955, our articles of incorporation or bylaws, or was
fraudulent with respect to that shareholder or Cost-U-Less.
50
Additional
Information
You should be aware that, although the board of directors has
not made a determination of the current fair value of shares of
our common stock, if it were required to do so it would likely
take into account a number of factors, including but not limited
to:
|
|
|
|
|
general economic conditions and the uncertain outlook for
improvement within the mid-sized warehouse club-style retail
stores industry;
|
|
|
|
our relative strength in comparison to our competitors; and
|
|
|
|
the fact that the trading price of our stock has been below
$11.75 per share.
|
In addition, our board of directors will likely consider the
risks and limitations of our business that led us to seek an
acquirer, as described in further detail under The
Merger Background of the Merger beginning on
page 12. Our board of directors will make its fair
value determination after considering all relevant
information and obtaining valuation advice. We cannot offer any
assurance to dissenting shareholders that the fair
value determined by the board will bear any relationship
to the book value of our shares, or will not be less than the
quoted trading prices for our shares in public securities
markets. While statutory procedures exist for shareholders to
contest the boards determination of fair
value, there is little certainty of outcome in such
proceedings, which may involve considerable time and legal
expense.
Other
Business at the Special Meeting
Under our bylaws, business transacted at the special meeting is
limited to the purposes stated in the notice of the special
meeting, which is provided at the beginning of this proxy
statement.
WHERE
YOU CAN FIND ADDITIONAL INFORMATION
We file 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 SECs Public Reference Room located at
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 rooms.
Our public filings are also available to the public from
document retrieval services and the Internet website maintained
by the SEC at www.sec.gov and our investor relations website at
http://www.costuless.com/investors.php.
The information contained in this proxy statement speaks only as
of the date indicated on the cover of this proxy statement
unless the information specifically indicates that another date
applies.
Any person, including any beneficial owner, to whom this proxy
statement is delivered may request copies of reports, proxy
statements or other information concerning us, without charge,
by written or telephonic request directed to Cost-U-Less to 3633
136
th
Place SE, Suite 110, Bellevue, Washington 98006, Attention:
Secretary, telephone: (425) 945-0213.
This proxy statement does not constitute the solicitation of a
proxy in any jurisdiction to or from any person to whom or from
whom it is unlawful to make such proxy solicitation in that
jurisdiction. You should rely only on the information contained
in this proxy statement or incorporated by reference in this
proxy statement to vote your shares at the special meeting. 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 ,
2007. You should not assume that the information contained in
this
51
proxy statement is accurate as of any date other than that date,
and the mailing of this proxy statement to shareholders shall
not create any implication to the contrary.
52
AGREEMENT
AND PLAN OF MERGER
by and among
NWC (US) HOLDINGS, INC.,
a Delaware corporation
COUGAR ACQUISITION CORPORATION,
a Washington corporation
and
COST-U-LESS, INC.,
a Washington corporation
Dated as of August 27, 2007
A-1
AGREEMENT
AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (the
Agreement
), is made and entered into as of
August 27, 2007, by and among NWC (US) Holdings, Inc., a
Delaware corporation (
Parent
), Cougar
Acquisition Corporation, a Washington corporation
(
Merger Sub
) and wholly owned subsidiary of
Parent, and Cost-U-Less, Inc., a Washington corporation
(
Company
).
RECITALS
A. The Boards of Directors of Company, Parent and Merger
Sub believe that it is in the best interests of their respective
companies and the shareholders of their respective companies
that Company and Merger Sub combine into a single company
through the statutory merger of Merger Sub with and into Company
(the
Merger
) and, in furtherance thereof,
have approved the Merger.
B. Pursuant to the Merger, among other things, the
outstanding shares of common stock of Company, par value $0.001
per share (
Company Common Stock
), will be
converted into the right to receive the Merger Consideration (as
defined in Section 2.1(a)).
C. Contemporaneously with the execution and delivery of
this Agreement, and as a condition and inducement to
Parents and Merger Subs willingness to enter into
this Agreement, certain shareholders of Company (each, a
Shareholder
) are entering into a Voting
Agreement in substantially the form of
Exhibit A
attached hereto (the
Voting Agreement
),
pursuant to which each such Shareholder has agreed, among other
things, to grant Parent a proxy with respect to the voting of
the shares of Company Common Stock owned by such Shareholder in
favor of the Merger upon the terms and subject to the conditions
set forth therein.
D. Concurrently with the execution of this Agreement, and
as a condition and inducement to Companys willingness to
enter into this Agreement, the North West Company Fund and The
North West Company Inc. (collectively,
Guarantor
) has provided a guarantee (the
Guarantee
) in favor of Company, in the form
of
Exhibit B
attached hereto, with respect to the
performance by Parent and Merger Sub, respectively, of their
obligations under this Agreement.
E. Company, Parent and Merger Sub desire to make certain
representations, warranties, covenants and agreements in
connection with the Merger.
NOW, THEREFORE, in consideration of the covenants and
representations set forth herein, and for other good and
valuable consideration the receipt and sufficiency of which is
hereby acknowledged, the parties hereto agree as follows:
ARTICLE I
THE MERGER
1.1
The Merger
.
At the Effective
Time (as defined in Section 1.2) and subject to and upon
the terms and conditions of this Agreement and the Articles of
Merger (as defined in Section 1.2), and in accordance with
the applicable provisions of the Washington Business Corporation
Act (
Washington Law
), Merger Sub shall be
merged with and into Company and the separate corporate
existence of Merger Sub shall cease and Company shall continue
as the successor or surviving corporation. Company as the
surviving corporation after the Merger is hereinafter sometimes
referred to as the
Surviving Corporation
.
1.2
Effective Time
.
The parties
hereto shall cause the Merger to be consummated by filing
Articles of Merger, in a form reasonably satisfactory to Parent
and Company (the
Articles of Merger
), with
the Secretary of State of the State of Washington, in accordance
with the relevant provisions of Washington Law (the time of such
filing being the
Effective Time
).
1.3
Closing
.
The closing of the
Merger (the
Closing
) shall take place as soon
as practicable after satisfaction or waiver of each of the
conditions set forth in Article VI hereof or at such other
time as the
A-2
parties hereto agree (the
Closing Date
). The
Closing shall take place at the offices of DLA Piper US LLP,
701 Fifth Avenue, Suite 7000, Seattle, Washington
98104, or at such other location as the parties hereto agree.
1.4
Effect of the Merger
.
At the
Effective Time, the effect of the Merger shall be as provided in
this Agreement, the Articles of Merger and the applicable
provisions of Washington Law. Without limiting the generality of
the foregoing, and subject thereto, at the Effective Time, all
the property, rights, privileges, powers and franchises of
Company and Merger Sub shall remain vested in the Surviving
Corporation, and all debts, liabilities and duties of Company
and Merger Sub shall remain as debts, liabilities and duties of
the Surviving Corporation.
1.5
Articles of Incorporation; Bylaws
.
(a) At the Effective Time, the Articles of Incorporation of
Company shall be amended so as to read in its entirety as set
forth in
Exhibit A-1
to the Articles of Merger and as so amended shall be the
Articles of Incorporation of the Surviving Corporation until
thereafter amended as provided by Washington Law and such
Articles of Incorporation.
(b) The Bylaws of Merger Sub, as in effect immediately
prior to the Effective Time, shall be the Bylaws of the
Surviving Corporation until thereafter amended.
1.6
Directors and Officers of the Surviving
Corporation
.
At the Effective Time, the
directors of the Surviving Corporation shall be those persons
who were the directors of Merger Sub, in each case until their
successors are elected or appointed and qualified or until their
earlier resignation or removal. The officers of the Surviving
Corporation shall be those persons who were the officers of
Merger Sub, in each case until their respective successors are
duly elected or appointed and qualified or until their earlier
resignation or removal.
1.7
Taking of Necessary Action; Further
Action
.
If, at any time after the Effective
Time, any further action is necessary or desirable to carry out
the purposes of this Agreement and to vest the Surviving
Corporation with full right, title and possession to all assets,
property, rights, privileges, powers and franchises of Company
and Merger Sub, the officers and directors of Company and Merger
Sub are fully authorized in the name of their respective
corporations or otherwise to take, and will take, all such
lawful and necessary action, so long as such action is not
inconsistent with this Agreement.
ARTICLE II
EFFECT OF
MERGER ON CAPITAL STOCK
2.1
Effect on Capital Stock
.
By
virtue of the Merger and without any action on the part of
Merger Sub, Company or the holders of any of the following
securities:
(a)
Conversion of Company Common
Stock
.
At the Effective Time, each share of
Company Common Stock issued and outstanding immediately prior to
the Effective Time (other than any shares of Company Common
Stock to be canceled pursuant to Section 2.1(b) and any
Dissenting Common Stock (as defined in Section 2.3)), will
be converted automatically into the right to receive $11.75 in
cash (the
Merger Consideration
), payable to
the holder thereof, without interest thereon, less any
applicable withholding of taxes, upon surrender of the
certificate formerly representing such share of Company Common
Stock in the manner provided in Section 2.2. All such
shares of Company Common Stock, when so converted, shall no
longer be outstanding and shall automatically be canceled and
extinguished and shall cease to exist, and each holder of a
certificate representing any such shares of Company Common Stock
shall cease to have any rights with respect thereto, except the
right to receive the Merger Consideration therefor upon the
surrender of such certificate in accordance with
Section 2.2.
(b)
Cancellation of Company Common Stock Owned by
Parent or Company
.
At the Effective Time,
each share of Company Common Stock owned by Parent or any direct
or indirect affiliate or subsidiary of Parent or of Company
immediately prior to the Effective Time shall be canceled and
extinguished without any conversion thereof. As used in this
Agreement, the word
subsidiary
, when used
with respect to any party, means any corporation, partnership or
other organization, whether incorporated or
A-3
unincorporated, of which at least a majority of the securities
or other interests having by their terms voting power to elect a
majority of the board of directors or others performing similar
functions with respect to such corporation or other organization
is directly or indirectly beneficially owned or controlled by
such party or by any one or more of its subsidiaries, or by such
party and one or more of its subsidiaries.
(c)
Capital Stock of Merger
Sub
.
At the Effective Time, each share of
common stock of Merger Sub (
Merger Sub Common
Stock
) issued and outstanding immediately prior to the
Effective Time shall be converted into and exchanged for one
validly issued, fully paid and nonassessable share of common
stock of the Surviving Corporation, and the Surviving
Corporation shall be a wholly owned subsidiary of Parent. Each
stock certificate of Merger Sub evidencing ownership of any such
shares shall continue to evidence ownership of such shares of
capital stock of the Surviving Corporation.
(d)
Adjustments to Merger
Consideration
.
The Merger Consideration shall
be adjusted to reflect fully the effect of any stock split,
reverse split, stock dividend (including any dividend or
distribution of securities convertible into Company Common
Stock), reorganization, recapitalization or other like change
with respect to Company Common Stock occurring after the date
hereof and prior to the Effective Time, so as to provide holders
of Company Common Stock the same economic effect as contemplated
by this Agreement prior to such stock split, reverse split,
stock dividend, reorganization, recapitalization or like change.
2.2
Exchange of Certificates
.
(a)
Paying Agent
.
At or prior to
the Effective Time, Parent shall appoint a commercial bank or
trust company reasonably acceptable to Company to act as
exchange and paying agent (the
Paying Agent
)
for the purpose of (i) making the payments of the funds to
which holders of shares of Company Common Stock (the
Company Shareholders
) shall become entitled
pursuant to Section 2.1(a), and (ii) making payment of
the aggregate Option Consideration (as defined in
Section 2.4(b)) to which holders of Options (as defined in
Section 2.4(a)) (the
Company Option
Holders
) shall become entitled pursuant to
Section 2.4(b).
(b)
Parent and Merger Sub to Provide
Cash
.
Prior to the Effective Time, Merger Sub
shall deposit with the Paying Agent, or Parent shall otherwise
take all steps necessary to cause to be deposited with the
Paying Agent, in trust for the benefit of the Company
Shareholders and the Company Option Holders, cash in an
aggregate amount equal to the sum of (i) the product of
(A) the number of shares of Company Common Stock issued and
outstanding at the Effective Time and (B) the Merger
Consideration, and (ii) the amount necessary for the
payment in full of the Option Consideration (such aggregate
amount being hereinafter referred to as the
Payment
Fund
). For purposes of determining the Merger
Consideration to be deposited, Merger Sub and Parent shall
assume that no Company Shareholder will perfect his, her or its
right to appraisal of his, her or its shares of Company Common
Stock under Washington Law. The Paying Agent shall, pursuant to
instructions provided by Merger Sub and Parent, make the
payments provided for in Sections 2.2 and 2.4 out of the
Payment Fund (it being understood that any and all interest
earned on funds made available to the Paying Agent pursuant to
this Agreement shall be turned over to the Surviving
Corporation). The Payment Fund shall not be used for any other
purpose except as provided in this Agreement. Such funds shall
be invested by the Paying Agent as directed by Parent or the
Surviving Corporation.
(c)
Exchange Procedures
.
Promptly
after the Effective Time, but in no event more than five
(5) days thereafter, Parent shall cause the Paying Agent to
mail to each holder of record of a certificate or certificates,
which immediately prior to the Effective Time represented
outstanding shares of Company Common Stock (the
Certificates
), whose shares were converted
into the right to receive the Merger Consideration pursuant to
Section 2.1(a), (i) a letter of transmittal in a form
reasonably satisfactory to Parent and Company (the
Letter of Transmittal
), and
(ii) instructions for use in effecting the surrender of the
Certificates in exchange for payment of the Merger
Consideration. Upon surrender of a Certificate for cancellation
to the Paying Agent or to such other agent or agents as may be
appointed by Parent, together with the Letter of Transmittal,
duly completed and validly executed in accordance with the
instructions thereto, the holder of such Certificate shall be
entitled to receive in exchange therefor the Merger
Consideration (subject to subsection (g), below) for each share
of Company Common Stock formerly represented by such Certificate
and the Certificate so
A-4
surrendered shall forthwith be canceled. Notwithstanding any
other provision of this Agreement, no interest will be paid or
will accrue on any cash payable to holders of Certificates
pursuant to the provisions of this Article II. If payment
of the Merger Consideration is to be made to a person other than
the person in whose name the surrendered Certificate is
registered, it shall be a condition of payment that the
Certificate so surrendered shall be properly endorsed and
otherwise in proper form for transfer and that the person
requesting such payment shall have paid to Parent or any agent
designated by it any transfer or other taxes required by reason
of the payment of the Merger Consideration to a person other
than the registered holder of the Certificate surrendered, or
shall have established to the satisfaction of Parent or any
agent designated by it that such tax either has been paid or is
not payable. Until surrendered as contemplated by this
Section 2.2, each Certificate (other than Certificates
representing Dissenting Common Stock (as defined in
Section 2.3) or shares of Company Common Stock to be
cancelled pursuant to Section 2.1(b)) shall be deemed at
any time after the Effective Time to represent only the right to
receive the Merger Consideration in cash as contemplated by this
Section 2.2.
(d)
Lost, Stolen or Destroyed
Certificates
.
In the event that any
Certificate shall have been lost, stolen or destroyed, the
Paying Agent shall issue in exchange for such lost, stolen or
destroyed Certificate, upon the making of an affidavit of that
fact by the holder thereof, the Merger Consideration payable in
respect thereof pursuant to Section 2.1;
provided
,
however
, that Parent may, in its discretion and as a
condition precedent to the payment of such Merger Consideration,
require the owner of such lost, stolen or destroyed Certificate
to deliver a bond in such sum as it may reasonably direct as
indemnity against any claim that may be made against Parent, the
Surviving Corporation or the Paying Agent with respect to the
Certificate alleged to have been lost, stolen or destroyed.
(e)
Transfer Books; No Further Ownership Rights in
Company Common Stock
.
At the Effective Time,
the stock transfer books of Company shall be closed and
thereafter there shall be no further registration of transfers
on the records of Company or the Surviving Corporation of shares
of Company Common Stock which were outstanding immediately prior
to the Effective Time. From and after the Effective Time, the
holders of Certificates evidencing ownership of shares of
Company Common Stock outstanding immediately prior to the
Effective Time shall cease to have any rights with respect to
such shares, except as otherwise provided for herein or by
applicable law. If, after the Effective Time, Certificates are
presented to the Surviving Corporation for any reason, they
shall be canceled and exchanged as provided in this
Article II.
(f)
Return of Funds; No
Liability
.
At any time following 180 calendar
days after the Effective Time, Parent shall be entitled to
require the Paying Agent to deliver to it any portion of funds
(including any interest earned thereon) which have not been
disbursed to holders of Certificates or Company Option Holders
pursuant to this Article II, and holders of Certificates
who have not theretofore complied with the exchange procedures
set forth in and contemplated by Section 2.2(c) shall
thereafter look only to Parent (subject to abandoned property,
escheat or other similar laws) as general creditors thereof with
respect to the payment of any Merger Consideration that may be
payable upon surrender of any Certificates such shareholder
holds, as determined pursuant to this Agreement, without any
interest thereon. Notwithstanding anything to the contrary in
this Section 2.2, none of the Paying Agent, the Surviving
Corporation, Parent or any party hereto shall be liable to any
person for any amount properly paid to a public official
pursuant to any applicable abandoned property, escheat or
similar law.
(g)
Withholding Taxes
.
Parent, the
Surviving Corporation and the Paying Agent shall be entitled to
deduct and withhold from the consideration otherwise payable to
a Company Shareholder or Company Option Holder pursuant to this
Agreement such amounts as Parent, the Surviving Corporation or
the Paying Agent is required to deduct and withhold with respect
to the making of such payment under the Internal Revenue Code of
1986, as amended, or the rules and regulations promulgated
thereunder (the
Code
) or any provision of
state, local, provincial or foreign tax law. To the extent
amounts are so withheld, such withheld amounts shall be treated
for all purposes of this Agreement as having been paid to the
Company Shareholder or Company Option Holder in respect of which
such deduction and withholding was made.
2.3
Dissenting
Shares
.
Notwithstanding any provision of this
Agreement to the contrary, shares of Company Common Stock that
are issued and outstanding immediately prior to the Effective
Time and that are
A-5
held by holders of such shares of Company Common Stock who as of
the Effective Time have properly exercised appraisal rights with
respect thereto (
Dissenting Common Stock
) in
accordance with Washington Law shall not be exchangeable for the
right to receive the Merger Consideration, and holders of such
shares of Dissenting Common Stock shall be entitled to receive
payment of the appraised value of such shares of Dissenting
Common Stock in accordance with the provisions of Washington Law
unless and until such holders fail to perfect or effectively
withdraw or otherwise lose their rights to appraisal and payment
under Washington Law. If, after the Effective Time, any such
holder fails to perfect or effectively withdraws or loses such
right, such shares of Dissenting Common Stock shall thereupon be
treated as if they had been converted into, at the Effective
Time, the right to receive the Merger Consideration, without any
interest thereon. Notwithstanding anything to the contrary
contained in this Section 2.3, if this Agreement is
terminated prior to the Effective Time, then the right of any
Company Shareholder to be paid the fair value of such
holders Dissenting Common Stock pursuant to Washington Law
shall cease. Company shall give Parent (i) prompt written
notice of any demands received by Company for appraisals of, or
payment of the fair value for, shares of Dissenting Common
Stock, withdrawals of such demands, and any other instruments
served pursuant to Washington Law received by Company and
(ii) the opportunity to direct all negotiations and
proceedings with respect to demands for appraisal under
Washington Law. Company shall not, except with the prior written
consent of Parent, make any payment with respect to any demands
for appraisals or offer to settle or settle any such demands.
2.4
Stock Options and Company Stock Option
Plan
.
(a) Subject to the provisions of this Agreement and the
terms of the instruments granting Options (as defined below), by
virtue of the Merger and without any action on the part of
Merger Sub, Company or the holders of options to purchase
Company Common Stock (an
Option
) outstanding
under the Company Stock Option Plan (as defined in
Section 3.2), each Option that is outstanding as of the
Effective Time shall automatically accelerate so that each
Option shall, immediately before the Effective Time, become 100%
vested and exercisable in accordance with the provisions of the
Company Stock Option Plan. Shares of Company Common Stock shall
be issued upon exercise of all Options exercised any time prior
to, or contingent upon, the Effective Time, and such shares of
Company Common Stock shall be subject to the terms of this
Agreement.
(b) Company shall use its commercially reasonable efforts
to cause each holder of an Option that has an exercise price per
share lower than the Merger Consideration to execute, prior to
and effective conditionally on consummation of the Merger, an
agreement in the form approved by Parent and Company (the
Option Cash-Out Agreement
) providing that
such Option be cancelled as of the consummation of the Merger,
and that such holder be entitled to receive from Parent upon
consummation of the Merger, in respect of each share of Company
Common Stock subject to such Option, an amount in cash equal to
the excess of the Merger Consideration over the exercise price
per share thereof (the
Option Consideration
)
(such payment to be net of applicable withholding taxes). With
respect to any such holder who does not execute an Option
Cash-Out Agreement prior to the consummation of the Merger with
respect to an Option with an exercise price per share lower than
the Merger Consideration, and with respect to any holder of an
Option which has an exercise price per share equal to or greater
than the Merger Consideration, such holders Options shall,
if not properly exercised prior to, or contingent on, the
Effective Time, expire, terminate and be cancelled at the time
provided by the terms thereof, but in no event later than the
Effective Time.
(c) Promptly after the Effective Time, but in no event more
than five (5) days thereafter, Parent shall cause the
Paying Agent to mail to each holder of an Option Cash-Out
Agreement who is entitled to receive the Option Consideration
pursuant to Section 2.4(b), appropriate materials and
instructions for use in effecting the surrender of such Option
Cash-Out Agreement in exchange for payment of the Option
Consideration. Upon surrender of an Option Cash-Out Agreement to
the Paying Agent or to such other agent or agents as may be
appointed by Parent, the holder of such Option Cash-Out
Agreement shall be entitled to receive in exchange therefor the
Option Consideration for each share of Company Common Stock
subject to the Option referenced in the Option Cash-Out
Agreement. Notwithstanding any other provision of this
Agreement, no interest will be paid or accrue on any cash
payable to Company Option Holders pursuant to the provisions of
this Article II. If any Company Option Holder is unable to
surrender such holders Option Cash-Out
A-6
Agreement because such Option Cash-Out Agreement has been lost,
mutilated or destroyed, such holder may deliver in lieu thereof
an affidavit and indemnity bond in form and substance and with
surety reasonably satisfactory to the Parent.
(d) Company shall use its commercially reasonable efforts
to cause the Company Stock Option Plan and all Options to
terminate as of the Effective Time, and all rights under any
provision of any other plan, program, agreement or arrangement
providing for the issuance or grant of any other interest in
respect of the capital stock of Company or any subsidiary of
Company shall be terminated as of the Effective Time. Company
shall take all actions necessary to ensure that, upon
termination of the Company Stock Option Plan as provided in the
immediately preceding sentence, no person shall have any right
under the Company Stock Option Plan or any other plan, program,
agreement or arrangement with respect to equity securities of
Company, or any direct or indirect subsidiary of Company.
ARTICLE III
REPRESENTATIONS
AND WARRANTIES OF COMPANY
In this Agreement, any reference to any event, change, condition
or effect being
material
with respect to any
person means any material event, change, condition, occurrence,
development or effect (each, a Change) related to
the operations, properties, assets, liabilities, condition
(financial or otherwise), operating results or cash flow of such
person and its subsidiaries, taken as a whole. As used in this
Agreement, the term
Material Adverse Effect
means, with respect to Company, any Change that, individually or
when aggregated with other similar Changes, is materially
adverse to (x) the ability of Company to perform
obligations under, or to consummate the transactions
contemplated by, this Agreement or, with respect to any person
(y) the operations, properties, assets, liabilities,
condition (financial or otherwise), operating results or cash
flow of such person; provided, however, that a Material
Adverse Effect with respect to Company shall not include
any of the following or any combination of the following:
(i) any event, change, condition, effect or circumstance
that results from or is attributable to the announcement,
pendency or consummation of this Agreement or the transactions
contemplated hereby; (ii) any change in the market price or
trading volume of Companys common stock after the date
hereof; or (iii) any event, change, condition, effect or
circumstance resulting primarily from changes in general
economic, regulatory or political conditions, conditions in the
United States or worldwide capital markets, any act of
terrorism, any decrease in tourism or air travel, any increase
in energy or fuel surcharges, any volatile weather conditions or
natural disasters, or any outbreak or continuation of
hostilities or war, except to the extent that any such event,
change, condition, effect or circumstance has a
disproportionately adverse effect on Company as compared to
other comparable businesses. With respect to Company, for
purposes of determining whether or not something is
material or there has been a Material Adverse
Effect, the term Company shall mean Company
and its subsidiaries, taken as a whole.
In this Agreement, any reference to a partys
knowledge
means such partys actual
knowledge assuming a reasonable level of inquiry appropriate to
the responsibilities of the executive officers identified on
Schedule 3 hereto and directors of such party.
Except as set forth in that section of the disclosure schedule
of even date herewith delivered by Company to Parent in
connection with delivery of this Agreement (the
Company
Disclosure Schedule
) corresponding to the section of
this Agreement to which any of the following representations and
warranties specifically relate, or as disclosed in another
section of the Company Disclosure Schedule if it is readily
apparent from such disclosure that it is applicable to another
section of this Agreement, Company represents and warrants to
Parent and Merger Sub as follows:
3.1
Corporate Organization, Standing and
Power
.
Each of Company and its subsidiaries
is a corporation duly organized and validly existing and no
articles of dissolution have been filed under the laws of its
jurisdiction of organization. Each of Company and its
subsidiaries has the requisite power and authority to own or
lease its properties and to carry on its business as it is now
being conducted and is duly authorized or qualified to do
business in each jurisdiction in which the failure to be so
qualified would reasonably be
A-7
expected to have a Material Adverse Effect on Company. The
copies of the Articles of Incorporation (the
Company
Articles of Incorporation
) and Bylaws (the
Company Bylaws
) of Company, as most recently
filed with Company SEC Documents (as defined in
Section 3.5), are true and correct copies of such
documents, each as amended to date, and are in full force and
effect. Neither Company nor any of its subsidiaries is in
violation of any of the provisions of its respective charter or
bylaws or equivalent organizational documents.
3.2
Capitalization
.
(a) The authorized capital stock of Company consists of
25,000,000 shares of Company Common Stock and
2,000,000 shares of Preferred Stock, par value $0.001 per
share (the
Preferred Stock
). At the date
hereof, there are 4,050,618 shares of Company Common Stock
issued and outstanding and no shares of Preferred Stock issued
or outstanding. There are no other outstanding shares of capital
stock or voting securities and no outstanding commitments to
issue any shares of capital stock or voting securities as of or
after the date hereof, other than pursuant to the exercise of
options outstanding as of such date under Companys Amended
and Restated 1998 Stock Incentive Compensation Plan (the
Company Stock Option Plan
), or pursuant to
Companys Rights Agreement, dated March 15, 1999,
between Company and Chase Mellon Shareholder Services, L.L.C.,
as Rights Agent (the
Rights Agreement
). All
outstanding shares of Company Common Stock have been duly
authorized and validly issued and are fully paid and
non-assessable and are free of any liens or encumbrances other
than any liens or encumbrances imposed upon the holders thereof,
and are not subject to preemptive rights or rights of first
refusal created by statute, the Company Articles of
Incorporation or Company Bylaws or any agreement to which
Company is a party. As of the close of business on
August 24, 2007, Company has reserved
(i) 1,000,000 shares of Company Common Stock for
issuance to employees, consultants and directors pursuant to the
Company Stock Option Plan, of which 444,242 shares have
been issued pursuant to stock option exercises or direct stock
purchases, 555,401 shares are subject to outstanding,
unexercised options, and 357 shares are available for
issuance thereunder, and (ii) 40,506 shares of
Preferred Stock for issuance pursuant to the Rights Agreement,
of which no shares have been issued. Except for the rights
created pursuant to this Agreement, the Company Stock Option
Plan, the Rights Agreement and Companys rights to
repurchase any unvested shares under the Company Stock Option
Plan or the stock option agreements thereunder, there are no
other options, warrants, calls, rights, commitments or
agreements of any character to which Company is a party or by
which it is bound obligating Company to issue, deliver, sell,
repurchase or redeem, or cause to be issued, delivered, sold,
repurchased or redeemed, any shares of capital stock of Company.
There are no contracts, commitments or agreements relating to
voting, purchase or sale of Companys capital stock between
or among Company and any of its shareholders and, to
Companys knowledge, between or among any of Companys
shareholders.
(b) Company owns, directly or indirectly, all of the issued
and outstanding shares of capital stock of each of its
subsidiaries (as defined below), free and clear of any liens,
charges, encumbrances, adverse rights or claims and security
interests whatsoever (
Liens
), and all of such
shares are duly authorized and validly issued and are fully paid
and non-assessable. None of the subsidiaries of Company has or
is bound by any outstanding subscriptions, options, warrants,
calls, commitments or agreements of any character calling for
the purchase or issuance of any security of such subsidiary,
including any securities representing the right to purchase or
otherwise receive any shares of capital stock or any other
equity security of such subsidiary. Except as disclosed in the
Company SEC Documents (as defined in Section 3.5), Company
does not directly or indirectly own any corporation,
partnership, joint venture or other business association or
entity.
3.3
Authority
.
Company has all
necessary corporate power and authority to execute and deliver
this Agreement and to consummate the transactions contemplated
hereby, subject only to obtaining the approval of holders of a
majority of the shares of Company Common Stock prior to the
consummation of the Merger in accordance with Washington Law and
the Company Articles of Incorporation. The execution, delivery
and performance by Company of this Agreement, and the
consummation by it of the transactions contemplated hereby, have
been duly authorized by all necessary corporate action on the
part of Company, subject only to the adoption of this Agreement
by the Company Shareholders as contemplated by Section 5.3.
This Agreement has been duly executed and delivered by Company
and, assuming due and valid authorization, execution and
delivery hereof by the other parties thereto, constitutes a
valid and binding obligation of Company enforceable
A-8
against Company in accordance with its terms, except as
enforceability may be limited by bankruptcy, insolvency,
moratorium or other similar laws affecting or relating to the
enforcement of creditors rights generally or general
principles of equity.
3.4
Consents and Approvals; No Conflict
.
(a) Except for (i) the filing with the Securities and
Exchange Commission (the
SEC
) and the
National Association of Securities Dealers, Inc. (the
NASD
) of the Proxy Statement (as defined in
Section 5.3); (ii) the filing of the Articles of
Merger with the Secretary of State of the State of Washington;
(iii) the adoption of this Agreement by the requisite vote
of Company Shareholders; (iv) the filing of a Current
Report on
Form 8-K
with the SEC; and (v) such other filings, permits,
authorizations, consents and approvals as may be required under,
and other applicable requirements of, the Securities Exchange
Act of 1934, as amended (the
Exchange Act
),
the Securities Act of 1933, as amended (the
Securities
Act
), state securities laws and the securities laws of
any foreign country or the rules of The Nasdaq Stock Market,
Inc.; no consents or approvals of, or filings, declarations or
registrations with, any federal, state or local court,
administrative or regulatory agency or commission or other
governmental authority or instrumentality, domestic or foreign
(each a
Governmental Entity
), or other third
party, are necessary for the consummation by Company of the
transactions contemplated hereby, other than such other
consents, approvals, filings, declarations or registrations
that, if not obtained, made or given, would not reasonably be
expected to have a Material Adverse Effect on Company.
(b) Neither the execution and delivery of this Agreement by
Company nor the consummation by Company of the transactions
contemplated hereby, nor compliance by Company with any of the
terms or provisions hereof, will (i) conflict with or
violate any provision of the Company Articles of Incorporation
or Company Bylaws or any of the similar organizational documents
of any of its subsidiaries or (ii) assuming that the
authorizations, consents and approvals referred to in
Section 3.4(a) and the authorization hereof by the Company
Shareholders are duly obtained in accordance with Washington
Law, violate any statute, code, ordinance, rule, regulation,
judgment, order, writ, decree or injunction applicable to
Company or any of its subsidiaries or any of their respective
properties or assets.
3.5
SEC Documents
.
Since the
beginning of fiscal 2006, Company has filed all required
reports, schedules, forms and registration statements with the
SEC (collectively, and in each case including all exhibits and
schedules thereto and documents incorporated by reference
therein, the
Company SEC Documents
). As of
their respective filing dates, the Company SEC Documents
complied in all material respects with the requirements of the
Securities Act or the Exchange Act, as the case may be, and none
of the Company SEC Documents as of such dates contained any
untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make
the statements made therein, in light of the circumstances in
which they were made, not misleading, except to the extent
corrected by a subsequently filed SEC Document. Each of the
financial statements of Company contained or incorporated by
reference in the Company SEC Documents (the
Company
Financial Statements
), as of their respective dates,
complied as to form in all material respects with applicable
accounting requirements and the published rules and regulations
of the SEC with respect thereto, were prepared in accordance
with United States generally accepted accounting principles
(
GAAP
) applied on a consistent basis (except
as may be indicated in the notes thereto or, in the case of
unaudited financial statements included in Quarterly Reports on
Form 10-Q,
as permitted by
Form 10-Q
of the Exchange Act). The Company Financial Statements fairly
present the consolidated financial condition and operating
results of Company and its subsidiaries at the dates and during
the periods indicated therein (subject, in the case of unaudited
quarterly statements, to normal year-end adjustments). There has
been no change in Company accounting policies since
December 31, 2006, except as described in the notes to the
Company Financial Statements. The chief executive officer and
chief financial officer of Company have made all certifications
required by the Sarbanes-Oxley Act of 2002 and any related rules
and regulations promulgated by the SEC, and the statements
contained in any such certifications are complete and correct.
Company and its subsidiaries have implemented and maintained a
system of internal accounting controls and financial reporting
(as required by
Rule 13a-15(a)
under the Exchange Act) that are designed to provide reasonable
assurances regarding the reliability of financial reporting and
the preparation of financial statements
A-9
in accordance with GAAP. Company maintains disclosure controls
and procedures required by
Rule 13a-15
or
15d-15
under the Exchange Act.
3.6
Absence of Undisclosed
Liabilities
.
Company has no material
obligations or liabilities of any nature (matured or unmatured,
fixed or contingent) other than (i) those set forth or
adequately provided for in the unaudited balance sheet included
in Companys Quarterly Report on
Form 10-Q
for the fiscal quarter ended July 1, 2007 (including the
notes thereto) (the
Company Balance Sheet
),
(ii) those incurred in the ordinary course of business and
not required to be set forth in the Company Balance Sheet,
(iii) those described in the Company SEC Documents,
(iv) those incurred in the ordinary course of business
since July 1, 2007 (the
Company Balance Sheet
Date
) and not reasonably likely to have a Material
Adverse Effect on Company, and (v) those incurred in
connection with or in preparation for the execution of this
Agreement and the transactions contemplated herein.
3.7
Absence of Certain
Changes
.
Except as set forth in the Company
SEC Documents, since the Company Balance Sheet Date, Company has
conducted its business in the ordinary course consistent with
past practice and there has not occurred (i) any change,
event or condition (whether or not covered by insurance) that
has resulted in a Material Adverse Effect on Company;
(ii) any declaration, payment or setting aside for payment
of a dividend or other distribution (whether in cash, stock or
property) or any redemption or other acquisition by Company of
any shares of capital stock or securities of Company;
(iii) any change in accounting methods or practices
(including any change in depreciation or amortization policies
or rates) by Company or any revaluation by Company of any of its
material assets; (iv) any amendment or change to the
Company Articles of Incorporation or Company Bylaws;
(v) any acquisition, sale or transfer of any material asset
of Company; (vi) any increase in or modification of the
compensation or benefits payable, or to become payable, by
Company to any of its directors or employees, other than in
connection with the Merger or pursuant to scheduled annual
performance reviews, provided that any resulting modifications
are in the ordinary course of business and consistent with
Companys past practices; (vii) any damage,
destruction or loss (whether or not covered by insurance) with
respect to any property or asset of Company that would
reasonably be expected to have a Material Adverse Effect on
Company; (viii) any incurrence of indebtedness for borrowed
money or any issuance of any debt securities by Company;
(ix) any loan or advance by Company to any third party,
except for advances to employees of business expenses in the
ordinary course of business and consistent with past practice;
(x) any authorization of, or commitment to make, any
material capital expenditures; (xi) any revaluation by
Company of any of its assets, including without limitation,
writing down the value of inventory or writing off notes or
accounts receivable other than in the ordinary course of
business consistent with past practice, in terms of both
frequency and amount; (xii) any delay or postponement by
Company of the payment of any accounts payable or commissions or
agreed or negotiated with any party to extend the payment date
of any accounts payable or commissions or accelerated the
collection of (or discounted) any accounts or notes receivable;
(xiii) any agreement or arrangement by Company prohibiting
or restricting it from freely engaging in any business or
otherwise restricting the conduct of its business anywhere in
the world; (xiv) any facility closing or other layoff of
employees by company that could implicate the Worker Adjustment
and Retraining Notification Act, as amended, or to
Companys knowledge, any similar foreign, state or local
law, regulation or ordinance; (xv) any settlement with tax
authorities regarding audits, reviews or other tax related
matters; or (xvi) to Companys knowledge, any other
material transaction by Company, other than those relating to
sales of products or purchases of supplies or inventory in the
ordinary course of business. Company has not agreed since the
Company Balance Sheet Date to do any of the things described in
the preceding clauses (i) through (xvi) and is not
currently involved in any negotiations to do any of the things
described in the preceding clauses (i) through (xvi) (other
than negotiations with Parent and its representatives regarding
the transactions contemplated by this Agreement).
3.8
Legal Proceedings
.
Except as
set forth in Company SEC Documents, there are no claims,
actions, suits, proceedings or, to the knowledge of Company,
governmental investigations, inquiries or subpoenas (other than
any actions, suits, proceedings, investigations, inquiries or
subpoenas challenging or otherwise arising from or relating to
the Merger or any of the other transactions contemplated by this
Agreement) (a) pending against Company or any of its
subsidiaries or any properties or assets of Company or of any of
its subsidiaries, (b) to the knowledge of Company,
threatened against Company or any of its subsidiaries, or any
properties or
A-10
assets of Company or of any of its subsidiaries, or
(c) whether filed or threatened, that have been settled or
compromised by Company or any subsidiary within the three
(3) years prior to the date of this Agreement; other than
such claims, actions, suits, proceedings, investigations,
inquiries or subpoenas that would not be reasonably likely to
have a Material Adverse Effect on Company. Neither Company nor
any of its subsidiaries is subject to any outstanding order,
writ, injunction or decree that would reasonably be expected to
have a Material Adverse Effect on Company or would reasonably be
expected to prevent or delay the consummation of the
transactions contemplated by this Agreement. There has not been
since January 1, 2005, nor are there currently any internal
investigations or inquiries being conducted by Company, its
Board of Directors (or any committee thereof) or any third party
at the request of any of the foregoing concerning any financial,
accounting, tax, conflict of interest, self-dealing, fraudulent
or deceptive conduct or other misfeasance or malfeasance issues.
3.9
Compliance with Applicable
Law
.
Company and its subsidiaries are and
have been in compliance with and are not in default or violation
of (and have not received any notice of non-compliance, default
or violation with respect to) any law, rule, regulation, order,
judgment or decree applicable to Company or any of its
subsidiaries or by which any of their respective properties is
bound, except where such non-compliance, default or violation
thereunder would not be reasonably likely to have a Material
Adverse Effect on Company. Company and each of its subsidiaries
hold all licenses, franchises, permits and authorizations from
any Governmental Entity necessary for the lawful conduct of its
business as presently conducted and are in compliance with the
terms thereof, except where the failure to hold such license,
franchise, permit or authorization or such noncompliance would
not, when aggregated with all other such failures or
noncompliance, reasonably be expected to have a Material Adverse
Effect on Company (such material licenses, franchises, permits
and authorizations held by Company and its subsidiaries, the
Company Permits
). A complete list of Company
Permits is set forth on
Schedule 3.9
. The Company
Permits are in full force and effect, have not been violated in
any material respect and, to Companys knowledge, no
suspension, revocation or cancellation thereof has been
threatened, and there is no action, proceeding or investigation
pending or, to Companys knowledge, threatened, seeking the
suspension, revocation or cancellation of any Company Permits.
No Company Permit shall cease to be effective as a result of the
consummation of the transactions contemplated by this Agreement,
except where such cessation would not reasonably be expected to
have a Material Adverse Effect on Company.
3.10
Proxy Statement
.
The
information supplied by Company for inclusion in the proxy
statement to be sent to the shareholders of Company in
connection with the meeting of Companys shareholders to
consider the Merger and the transactions contemplated by this
Agreement (the
Company Shareholder Meeting
)
(such proxy statement as amended or supplemented is referred to
herein as the
Proxy Statement
), on the date
the Proxy Statement is first mailed to Companys
shareholders and at the time of the Company Shareholder Meeting
and at the Effective Time, will comply as to form in all
material respects with the requirements of the Exchange Act and
the rules and regulations of the SEC promulgated thereunder
applicable to the Proxy Statement, and the Proxy Statement as of
such dates will not contain any untrue statement of a material
fact or omit to state a material fact required to be stated
therein pursuant to applicable SEC disclosure requirements. If
at any time prior to the Effective Time any material event or
information should be discovered by Company that should be set
forth in an amendment or supplement to the Proxy Statement,
Company shall promptly inform Parent and Merger Sub.
Notwithstanding the foregoing, Company makes no representation,
warranty or covenant with respect to any information supplied by
Parent or Merger Sub or any other third party which contained in
any of the foregoing documents.
3.11
Employee Benefit Plans
.
(a)
Schedule 3.11
lists, with respect to
Company, all employment, severance, bonus,
change-in-control,
compensation, stock option, stock purchase or other employee
benefit agreements or other arrangements currently maintained or
contributed to or required to be contributed to by Company or
any of its ERISA Affiliates (as defined below), for the benefit
or welfare of any director, officer, employee or former employee
of Company or any of its ERISA Affiliates (such plans and
arrangements being collectively the
Company Benefit
Plans
). Each of the Company Benefit Plans is in
compliance with all applicable laws including ERISA and the Code
except where such noncompliance could not reasonably be expected
to have a Material
A-11
Adverse Effect on Company. Company has made available to Parent
a copy of each of the Company Benefit Plans and related material
plan documents (including trust documents, insurance policies or
contracts, employee booklets, summary plan descriptions and
other authorizing documents, and any material employee
communications relating thereto) and has, with respect to each
Company Benefit Plan which is subject to ERISA reporting
requirements, provided copies of the Form 5500 reports
filed for the last three (3) plan years.
ERISA
Affiliate
means, with respect to any person, any trade
or business, whether or not incorporated, that together with
such person would be deemed a single employer within
the meaning of Section 4001(a)(15) of the Employee
Retirement Income Security Act of 1974, as amended
(
ERISA
).
(b) Any Company Benefit Plan intended to be qualified under
Section 401(a) of the Code (i) has either obtained
from the Internal Revenue Service a favorable determination
letter as to its qualified status under the Code, or has applied
to the Internal Revenue Service for such a determination letter
prior to the expiration of the requisite period under applicable
Treasury Regulations or Internal Revenue Service pronouncements
in which to apply for such determination letter, or
(ii) uses a prototype or volume submitter plan document
that is the subject of a favorable Internal Revenue Service
opinion or advisory letter, as applicable. All required reports
of the Company Benefit Plans have been timely filed with the
applicable governmental entity, and all notices required by
ERISA or the Code with respect to the Company Benefit Plans have
been appropriately given.
(c) The liabilities accrued under each such plan are
reflected on the Company Balance Sheet in accordance with GAAP.
There are no pending or, to Companys knowledge,
threatened, claims (other than routine claims for benefits or
immaterial claims) by, on behalf of or against any of the
Company Benefit Plans or any trusts related thereto that could
reasonably be expected to have a Material Adverse Effect on
Company.
(d) Neither Company nor any of its ERISA Affiliates
maintains, contributes to, or has ever maintained or contributed
to, a pension plan subject to Title IV of ERISA or a
multiemployer plan as defined in Section 3(37) of ERISA,
and no Company Benefit Plan provides health or welfare benefits
to former employees of Company or any of Companys ERISA
Affiliates other than as necessary to comply with
Section 4980B of the Code or other similar law.
(e) No prohibited transaction (as defined in
Section 4975 of the Code or Section 406 of ERISA) has
occurred that involves the assets of any Company Benefit Plan
and that is reasonably likely to subject Company, any of
Companys ERISA Affiliates, or any of their employees to a
material tax or penalty on prohibited transactions imposed by
Section 4975 of the Code or a material sanction imposed
under Title I of ERISA.
(f) Other than routine claims for benefits, there are no
actions, audits, investigations, suits, or claims pending, or
threatened against any Company Benefit Plan, or to
Companys knowledge, any fiduciary of any Company Benefit
Plan or against the assets of any Company Benefit Plan.
(g) Each Company Benefit Plan (other than individual
severance arrangements) may be unilaterally amended or
terminated in its entirety without liability except as to
benefits accrued thereunder prior to such amendment or
termination. The execution of this Agreement and the
consummation of the transactions contemplated by this Agreement
will not (either alone or in connection with the termination of
employment or change of position of any employee following or in
connection with the consummation of the sale of the Shares)
constitute an event under any Company Benefit Plan that will or
may result in any material payment (whether severance pay or
otherwise), acceleration of payment, forgiveness of
indebtedness, vesting, distribution, increase in benefits.
(h) Each Company Benefit Plan that satisfies the
requirements to avoid the consequences set forth in
Section 409A(a)(1) of the Code and neither the Company nor
an ERISA Affiliate has: (i) since October 4, 2004,
granted to any person an interest in any Company Benefit Plan
which interest has been or, upon the lapse of a substantial risk
of forfeiture with respect to such interest, will be subject to
the additional tax (including interest) imposed by
Section 409A(a)(1)(B) or (b)(4)(A) of the Code;
(ii) granted to any person an interest in any Company
Benefit Plan which interest has been or will be, because of the
lapse of a substantial risk of forfeiture with respect to such
interest after December 31, 2004, or because such interest
is earned after
A-12
December 31, 2004, subject to the additional tax (including
interest) imposed by Section 409A(a)(1)(B) or (b)(4)(A) of
the Code; or (iii) since October 4, 2004, modified the
terms of any Company Benefit Plan in a manner that could cause
an interest previously granted under such Company Benefit Plan
to become subject to the additional tax (including interest)
imposed by Section 409A(1)(B) or (b)(4) of the Code.
3.12
Employee
Matters
.
Schedule 3.12
contains a
true and complete list of (i) the names and titles of all
consultants, independent contractors, full-time, part-time or
casual employees employed by Company or any of its subsidiaries
(collectively,
Employees
), together with
their status and location of their employment; (ii) a list
of all written employment, consulting or service contracts
between Company or any of its subsidiaries and Employees;
(iii) the rate of annual remuneration of each Employee at
the date hereof, any bonuses paid with respect to the last
completed fiscal year and all other bonuses, incentive schemes
and benefits to which such Employee is entitled as of the date
hereof; (iv) the amount of vacation pay or number of weeks
of vacation to which each Employee is entitled as of the date
hereof; and (v) particulars of all other material terms and
conditions of employment or engagement of Employees and the
positions, title or classification held by them. There are no
pending claims against Company or any of its subsidiaries for
any material amounts under any workers compensation plan or
policy or for long term disability. Neither Company nor any of
its subsidiaries has any obligations under the Consolidated
Omnibus Budget Reconciliation Act of 1985 with respect to any
former Employees or qualifying beneficiaries thereunder, except
for obligations that are not material in amount. Company and
each of its subsidiaries are in compliance in all material
respects with all applicable laws respecting employment,
employment practices and occupational safety and health, terms
and conditions of employment and wages and hours, and are not
engaged in any unfair labor practices; (b) there are no
controversies pending or, to Companys knowledge,
threatened, between Company or any of its subsidiaries and any
of their respective employees, consultants or independent
contractors, which controversies would reasonably be expected to
have a Material Adverse Effect on Company; (c) neither
Company nor any of its subsidiaries is a party to any collective
bargaining agreement or other labor union contract applicable to
persons employed by Company or its subsidiaries, nor does
Company know of any activities or proceedings of any labor union
to organize any such employees; and (d) there are no, and
Company has no knowledge of, any labor disputes, strikes,
slowdowns, work stoppages, lockouts, or threats thereof, by or
with respect to any employees of, or consultants or independent
contractors to, Company or any of its subsidiaries.
3.13
Environmental
Matters
.
(i) Company and its
subsidiaries are and have been in material compliance with all
Environmental Laws; (ii) there has been no release or, to
Companys knowledge, threatened release, of any pollutant,
contaminant or toxic or hazardous material, substance or waste,
or petroleum or any fraction thereof, (each a
Hazardous
Substance
) on, upon, into or from any site currently
or heretofore owned, leased or otherwise used by Company or its
subsidiaries; (iii) there have been no Hazardous Substances
generated by Company or its subsidiaries that have been disposed
of or come to rest at any site that has been included in any
published U.S. federal, state or local
superfund site list or any other similar list of
hazardous or toxic waste sites published by any Governmental
Entity within or outside the United States; (iv) there are
no underground storage tanks located on, no polychlorinated
biphenyls (PCBs) or PCB-containing equipment used or
stored on, and no hazardous waste as defined by the Resource
Conservation and Recovery Act, as amended, stored on, any site
owned or operated by Company or its subsidiaries, except for the
storage of hazardous waste in compliance with Environmental
Laws; and (v) Company and its subsidiaries have made
available to Parent true and correct copies of all environmental
records, reports, notifications, certificates of need, permits,
pending permit applications, correspondence, engineering
studies, and environmental studies or assessments in the
possession of Company, any of its subsidiaries, or any of their
respective representatives or advisors. For purposes of this
Section 3.13,
Environmental Laws
means
any law, regulation, or other applicable requirement (whether
domestic or foreign) relating to (i) releases or threatened
release of Hazardous Substance; (ii) pollution or
protection of employee health or safety, public health or the
environment; or (iii) the manufacture, handling, transport,
use, treatment, storage, or disposal of Hazardous Substances.
3.14
Taxes
.
Company and each of
its subsidiaries have filed all Tax Returns (as defined below)
required to be filed by them and have paid all Taxes (as defined
below) shown to be due on such Tax Returns or have provided (or,
as to subsidiaries, Company has made provision on behalf of such
subsidiaries) reserves in its financial statements for any Taxes
that have not been paid, whether or not shown as being due on
any Tax
A-13
Returns. Company and each of its subsidiaries have withheld with
respect to its employees all federal and state Taxes required to
be withheld. The accruals and reserves for Taxes (exclusive of
any accruals for deferred taxes or similar items
that reflect timing differences between tax and financial
accounting principles) reflected in Company Balance Sheet are
adequate to cover all Taxes accruable through the date thereof
(including interest and penalties, if any, thereon and Taxes
being contested). Neither Company nor any of its subsidiaries
has granted any request that remains in effect for waivers of
the time to assess any Taxes. No claim for unpaid Taxes has been
asserted against Company or any of its subsidiaries in writing
by a Tax authority that, if resolved in a manner unfavorable to
Company or any of its subsidiaries, as the case may be, could
reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect on Company. There are no
Liens for Taxes upon the assets of Company or any subsidiary of
Company, except for Liens for Taxes not yet due and payable or
for Taxes that are being disputed in good faith by appropriate
proceedings and with respect to which adequate reserves have
been taken. No audit of any Tax Return of Company or any of its
subsidiaries is being conducted by a Tax authority. As used
herein,
Taxes
shall mean all taxes of any
kind, including, without limitation, those on or measured by or
referred to as income, gross receipts, sales, use, ad valorem,
franchise, profits, license, value added, property or windfall
profits taxes, customs, duties or similar fees, assessments or
charges of any kind whatsoever, together with any interest and
any penalties, additions to tax or additional amounts imposed by
any governmental authority, domestic or foreign. As used herein,
Tax Return
shall mean any return, report or
statement required to be filed with any governmental authority
with respect to Taxes.
3.15
Intellectual Property
.
(a) Company or one of its subsidiaries owns or is licensed
to use the following material to conduct its business as now
conducted: (i) all computer programs, specifications,
source code, object code, databases, data compilations,
graphics, devices, techniques, algorithms, methods, processes,
procedures, formulae, drawings, designs, improvements,
discoveries, concepts, user interfaces, hardware, software,
development tools, inventions (whether or not patentable or
copyrightable and whether or not reduced to practice), know-how,
concepts and other technology and content with respect to all of
the foregoing, with respect to all products or services marketed
or sold by Company or one of its subsidiaries; (ii) all
rights in the items set forth in clause (i), above, including,
without limitation, all trade names, trademarks, domain names,
service marks, logos, brand names and other identifiers, trade
secrets, trade dress, copyrights, and domestic and foreign
letters patent, and the registrations, applications, renewals,
extensions and continuations (in whole or in part) thereof, all
goodwill associated therewith, and all rights and causes of
action for infringement, misappropriation, misuse, dilution or
unfair trade practices associated therewith (collectively, the
Company Technology
).
(b) Company owns all right, title and interest in all
material software and databases used by Company or any of its
subsidiaries (collectively, the
Company Third Party
Technologies
), and all license agreements or other
contracts pertaining thereto (the
Company Third Party
Licenses
). Company or one of its subsidiaries has the
lawful right to use (free of any material restriction not
expressly set forth in Company Third Party Licenses)
(i) all Company Third Party Technology that is incorporated
in or used in the development or production of Company
Technology and (ii) all other Company Third Party
Technology necessary for the conduct of the business of Company
and its subsidiaries as now conducted, except where such failure
to obtain such lawful right could not reasonably be expected to
have, individually or in the aggregate, a Material Adverse
Effect on Company.
(c) All Company Third Party Licenses are valid, binding and
in full force and effect subject to the effect of applicable
bankruptcy, insolvency, moratorium or other similar laws
affecting or relating to the enforcement of creditors
rights generally and to general principles of equity. Each other
party thereto has performed in all material respects their
obligations thereunder, and neither Company nor any of its
subsidiaries, or, to Companys knowledge, any other party
thereto, is in default under any of Company Third Party
Licenses, nor has there occurred any event or circumstance that
with notice or lapse of time or both would constitute a default
or event of default on the part of Company or any of its
subsidiaries or any other party thereto or give to any other
party thereto the right to terminate or modify any Company Third
Party License. Neither Company nor any of its subsidiaries has
received notice that any party to any Company Third Party
License
A-14
intends to cancel, terminate or refuse to renew (if renewable)
such Company Third Party License or to exercise or decline to
exercise any option or right thereunder.
(d) Company owns all material registered trademarks, trade
names, brand names, service marks, logos or other identifiers
currently used by Company or its subsidiaries in their
businesses, each of which is identified and set forth on
Schedule 3.15
hereto.
(e) Company or one of its subsidiaries owns all right,
title and interest, free and clear of any Liens, in and to
Company patents, patent applications, copyright registrations
(and applications therefor) and trademark or service mark
registrations (and applications therefor) collectively, the
Company IP Registrations
), each of which is
identified and set forth on
Schedule 3.15
hereto.
(f) Neither Company nor any of its subsidiaries has
conducted its business in a manner that would result in the
abandonment, cancellation or unenforceability of any item of
Company IP Registrations, and neither Company nor any of its
subsidiaries has taken (or failed to take) any action that would
result in the forfeiture or relinquishment of any Company IP
Registrations, in each case where such abandonment,
cancellation, unenforceability, forfeiture or relinquishment
could reasonably be expected to have a Material Adverse Effect
on Company.
(g) Neither Company nor any of its subsidiaries has
received any written notice or claim challenging Companys
ownership or rights in Company Technology, Company IP
Registrations or Company Domain Names (as defined below)
alleging any conflict or infringement of any third party
property rights; and, to Companys knowledge, no other
person or entity is infringing or misappropriating or otherwise
making any unauthorized use of Company Technology or Company IP
Registrations.
(h) All officers and all other employees of, and
consultants to, Company have entered into a valid and binding
written agreement with Company sufficient to vest title in
Company of all Company Technology, including all accompanying
intellectual property rights, created by such employee or
consultant in the scope of his or her employment with, or
provision of services to, Company, except where such failure to
enter into such agreement would not reasonably be expected to
have, individually or in the aggregate, a Material Adverse
Effect on Company.
(i) Company or one of its subsidiaries owns all right,
title and interest, free and clear of any Liens, in and to all
Internet domain name registrations used by Company or any of its
subsidiaries to conduct its business on the Internet
(collectively, the
Company Domain Names
)
currently used in the operation of its business, each of which
is identified and set forth on
Schedule 3.15
hereto.
3.16
Material
Agreements
.
Schedule 3.16
lists
all agreements to which Company or any of its subsidiaries is a
party which are not disclosed in the Company SEC Documents and
(i) is outside of the ordinary course of business of
Company or its subsidiaries, (ii) involves the payment or
receipt by Company or one of its subsidiaries, subsequent to the
date of this Agreement, of more than $100,000, or (iii) is
not terminable without penalty by Company or such subsidiary
party thereto on fewer than 180 days notice (together
with the agreements filed as exhibits to the Company SEC
Documents, the
Material Agreements
). Each of
the agreements set forth in the Company SEC Documents has not
been amended or modified in any respect since the date of its
filing. Except for any such breaches or defaults that would not
reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect on Company, neither Company
nor any of its affiliates is in breach or default under any
Material Agreement, nor, to the knowledge of Company, is there
any basis for any valid claim of breach or default.
3.17
Insurance
.
Schedule 3.17
lists all of Companys insurance policies relating to the
assets, business, officers or directors of Company and its
subsidiaries. All fire and casualty, general liability, business
interruption, product liability, sprinkler and water damage
insurance policies and other forms of insurance maintained by
Company or any of its subsidiaries are in character and amount
and with such deductibles and retained amounts as are generally
carried by persons engaged in similar businesses and subject to
the same or similar perils or hazards. There is no material
claim pending under any of such policies as to which coverage
has been questioned, denied or disputed by the underwriters of
such policies or in respect of which such underwriters have
reserved their rights. All premiums due and payable under all
such policies have been paid
A-15
and Company is otherwise in compliance in all material respects
with the terms of such policies. Company has no knowledge of any
threatened termination of, or material premium increase with
respect to, any of such policies.
3.18
Properties; Encumbrances
.
Company and each of its subsidiaries has good, valid and
marketable title to, or a valid leasehold interest in, all the
properties and assets which it purports to own or lease (real,
personal and mixed, tangible and intangible), including, without
limitation, all the properties and assets reflected in Company
Balance Sheet (except for personal property sold since the date
of Company Balance Sheet in the ordinary course of business
consistent with past practice). All properties and assets
reflected in Company Balance Sheet are free and clear of all
Liens, except for Liens reflected on Company Balance Sheet and
Liens for current taxes not yet due and other Liens would not
reasonably be expected to have a Material Adverse Effect on
Company. The consummation of the Merger will not constitute a
breach of or a default under any of Companys leaseholds.
Schedule 3.18
sets forth a true, complete and
correct list of all real property owned, leased, subleased or
licensed by Company and the location of such premises. Company
and each of its subsidiaries is and has been in compliance with
the material provisions of each lease or sublease for the real
property which is set forth in
Schedule 3.18
.
3.19
Related Party Transactions
.
Except as disclosed in the Company SEC Documents, there are no
material contracts, commitments, agreements or arrangements
between Company or any of its subsidiaries, on the one hand, and
any (i) present or former officer or director of Company or
any of its subsidiaries or any of their immediate family members
(including their spouses), (ii) record or beneficial owner
of five percent or more of the voting securities of Company, or
(iii) affiliate of any such officer, director, family
members or beneficial owner, on the other hand.
3.20
Brokers Fees
.
Except
for the services of Cascadia Capital LLC, neither Company nor
any subsidiary of Company nor any of its officers or directors
on behalf of Company or such subsidiaries has employed any
financial advisor, broker or finder or incurred any liability
for any brokers fees, commissions or finders fees in
connection with any of the transactions contemplated hereby.
Company has provided to Parent a copy of all agreements between
Company and Cascadia Capital LLC pursuant to which such firm
would be entitled to any payment relating to the Merger.
3.21
Rights Agreement
.
The Board
of Directors of Company has taken all actions necessary such
that the Rights Agreement will not apply to the execution and
delivery of this Agreement, and will not apply, as of the
Effective Time, to Parent, Merger Sub, or the consummation of
the Merger or the other transactions contemplated by this
Agreement. Company has not redeemed any rights under the Rights
Agreement.
3.22
Vote Required
.
The
affirmative vote of the holders of at least a majority of the
shares of Company Common Stock outstanding on the record date
set for the Company Shareholder Meeting is the only vote of the
holders of any of Companys capital stock necessary to
approve this Agreement and the transactions contemplated hereby.
3.23
Complete Copies of
Materials
.
Company has delivered or made
available true and complete copies of each document that has
been requested by Parent or its counsel in connection with their
legal and accounting review of Company and its subsidiaries.
3.24
Opinion of Financial
Advisor
.
Company has received the written
opinion of its financial advisor, Cascadia Capital LLC, to the
effect that, as of the date hereof, the consideration to be
received by the Company Shareholders is fair, from a financial
point of view, to the Company Shareholders. Company has provided
a true, complete and correct copy of such opinion to Parent.
Such opinion has not been withdrawn, revoked or modified.
3.25
Board Approval
.
Subject to
Section 5.2, the Board of Directors of Company has
(i) approved this Agreement and the Merger;
(ii) determined that this Agreement and the Merger are
advisable and in the best interests of the Company Shareholders
and are on terms that are fair to such shareholders,
(iii) recommended that the Company Shareholders approve
this Agreement and the consummation of the Merger; and
(iv) taken all action necessary to provide that the
restrictions applicable to business combinations contained in
RCW 23B.19.040 are not, and will not be, applicable to the
Merger.
A-16
3.26
Representations Complete
.
None of the representations or warranties made by Company herein
or in any Schedule hereto, including the Company Disclosure
Schedule, or certificate furnished by Company pursuant to this
Agreement, or the Company SEC Documents, when all such documents
are read together in their entirety, contains or will contain at
the Effective Time any untrue statement of a material fact, or
omits or will omit at the Effective Time to state any material
fact necessary in order to make the statements contained herein
or therein, in the light of the circumstances under which they
are made, not misleading.
ARTICLE IV
REPRESENTATIONS
AND WARRANTIES OF PARENT
AND MERGER
SUB
Except as set forth in that section of the disclosure schedule
of even date herewith delivered by Parent to Company in
connection with delivery of this Agreement (the
Parent
Disclosure Schedule
) corresponding to the section of
this Agreement to which any of the following representations and
warranties specifically relate or as disclosed in another
section of the Parent Disclosure Schedule if it is readily
apparent from such disclosure that it is applicable to another
section of this Agreement, Parent and Merger Sub represent and
warrant to Company as follows:
4.1
Corporate Organization, Standing and
Power
.
Each of Parent and Merger Sub is a
corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its organization
and has the requisite power and authority to own or lease its
properties and to carry on its business as it is now being
conducted and is duly authorized or qualified to do business in
each jurisdiction in which the failure to be so qualified would
reasonably be expected to have a Material Adverse Effect on
Parent or Merger Sub, as the case may be. Neither Parent nor
Merger Sub is in violation of any of the provisions of its
respective charter or bylaws or equivalent organizational
documents.
4.2
Authority
.
Parent and Merger
Sub have all necessary corporate power and authority to execute
and deliver this Agreement and to consummate the transactions
contemplated hereby. The Boards of Directors of Parent and
Merger Sub and the shareholders of Merger Sub have duly
authorized and approved this Agreement and the Merger. The
execution, delivery and performance of this Agreement, and the
consummation of the transactions contemplated hereby, have been
duly authorized and approved by Parent and Merger Sub and no
other corporate action on the part of Parent, Merger Sub or the
shareholders of Merger Sub is necessary to authorize the
execution and delivery by Parent and Merger Sub of this
Agreement and the consummation by it of the transactions
contemplated hereby. No vote or consent of any holders of
Parents capital stock is required to consummate the
transactions contemplated by this Agreement. This Agreement has
been duly executed and delivered by Parent and Merger Sub and,
assuming due and valid authorization, execution and delivery
hereof by Company, constitutes a valid and binding obligation of
Parent and Merger Sub, enforceable against each in accordance
with its terms, except as may be limited by bankruptcy,
insolvency, moratorium or other similar laws affecting or
relating to the enforcement of creditors rights generally
or general principles of equity.
4.3
Consents and Approvals; No
Conflict
.
(a) Except for (i) the filing of the Articles of
Merger with the Secretary of State of the State of Washington,
and (ii) filings, permits, authorizations, consents and
approvals as may be required under, and other applicable
requirements of, the Exchange Act and the Securities Act, no
consents or approvals of, or filings, declarations or
registrations with, any Governmental Entity are necessary for
the consummation by Parent and Merger Sub of the transactions
contemplated hereby, other than such other consents, approvals,
filings, declarations or registrations that, if not obtained,
made or given, would not reasonably be expected to have a
Material Adverse Effect on Parent. No vote or consent of any
holders of Parents capital stock is required to consummate
the transactions contemplated by this Agreement.
(b) Neither the execution and delivery of this Agreement by
Parent or Merger Sub, nor the consummation by Parent and Merger
Sub of the transactions contemplated hereby, nor compliance by
Parent and Merger Sub with any of the terms or provisions
hereof, will (i) conflict with or violate any provision of
the organizational documents of Parent or Merger Sub or
(ii) assuming that the authorizations, consents and
approvals referred to
A-17
in Section 4.3(a) are obtained, violate any statute, code,
ordinance, rule, regulation, judgment, order, writ, decree or
injunction applicable to Parent or Merger Sub or any of their
properties or assets.
4.4
Brokers Fees
.
Neither
Parent nor any subsidiary of Parent nor any of their respective
officers or directors on behalf of Parent or such subsidiaries
has employed any financial advisor, broker or finder in a manner
that would result in any liability of Company (if the Merger is
not consummated) for any brokers fees, commissions or
finders fees in connection with any of the transactions
contemplated hereby or that would result in any reduction of the
consideration payable to the shareholders of Company.
4.5
Proxy Statement Information
.
The information supplied by Parent for inclusion in the Proxy
Statement, or in any other document filed with any other
Governmental Entity in connection herewith, at the respective
time filed with the SEC or such other Governmental Entity and,
in addition, in the case of the Proxy Statement, at the date it
or any amendment or supplement is mailed to holders of the
Shares, at the time of the Company Shareholder Meeting and at
the Effective Time, will not contain any untrue statement of a
material fact or omit to state a material fact necessary to make
the statements therein, in light of the circumstances in which
they are made, not misleading; or omit to state any material
fact necessary to correct any statement in any earlier
communication with respect to the solicitation of proxies for
the Company Shareholder Meeting which has become false or
misleading. If at any time prior to the Effective Time any event
or information should be discovered by Parent or Merger Sub
which should be set forth in an amendment or supplement to the
Proxy Statement, Parent or Merger Sub will promptly inform
Company.
4.6
Financing; Solvency
.
Parent
has sufficient funds to enable Parent to pay the maximum
out-of-pocket costs and expenses specified in
Section 7.3(c). Parent will have at the Effective Time
sufficient funds to enable Parent to pay for all outstanding
shares of Company Common Stock (including the Option
Consideration) converted into the right to receive cash pursuant
to the Merger, to perform Parents obligations under this
Agreement and to pay all fees and expenses related to the
transactions contemplated by this Agreement payable by it.
Parent has received and furnished to Company letters from the
lenders under its various working capital lines (the
Financing) setting forth the maximum amount
available under such lines, the amount outstanding under the
lines as of August , 2007, and confirming that
the Financing is available for use in the transactions
contemplated by this Agreement. The Financing will be available
to deposit the aggregate Merger Consideration with the Paying
Agent pursuant to Section 2.2(b) hereof. Parent does not
intend, to use, directly or indirectly, pledge or grant any
security interest in, any of Companys assets principally
to fund, repay or secure any portion of the Financing, or any
replacement thereof, or any portion of the Merger Consideration.
Based on Parents knowledge of Companys liabilities,
financial condition and projected capital requirements, and
Parents knowledge of its own financial condition, the
details of the Financing, and Parents intent with respect
to the operation of the Surviving Corporation, after giving
effect to the Merger, the Surviving Corporation will be able to
pay its debts as they mature, and will not be left with
unreasonably small capital with which to satisfy its debts.
Without limiting the generality of the foregoing, Parent and
Merger Sub acknowledge and agree that any event, action or
change in circumstance inconsistent in a material way with any
of the representations or warranties set forth in this
Section 4.6, whether or not resulting from any action by
Parent or Merger Sub, shall be deemed to constitute a breach of
this Section 4.6 by Parent and Company may terminate this
Agreement pursuant to Section 7.1(d) as a result of such
breach.
4.7
Litigation
.
As of the date
hereof, there are no legal, administrative, arbitration or other
formal proceedings or governmental investigations pending or, to
the knowledge of Parent or Merger Sub, threatened
(i) against Parent or Merger Sub or any of their
subsidiaries that seek to restrain or enjoin the consummation of
the Merger or seek other relief that would reasonably be
expected to have a Material Adverse Effect or (ii) that
challenge the validity of this Agreement or any action taken or
to be taken by Parent or Merger Sub or any of their subsidiaries
in connection with this Agreement, other than such of the
foregoing that would not reasonably be expected to have a
Material Adverse Effect.
4.8
Rights Agreement and Washington Anti-takeover
Statute
.
Neither Parent nor Merger Sub nor
any of their respective affiliates have taken any action such
that (i) Parent or Merger Sub or any of their respective
affiliates may be deemed to be an Acquiring Person under the
Rights Agreement, or (ii) the restrictions set forth in
Chapter 23B.19 of Washington Law applicable to
significant business transactions (as defined in
A-18
Chapter 23B.19) will apply to the execution and delivery of
this Agreement or to the consummation of the Merger or the other
transactions contemplated by this Agreement.
4.9
Guarantee
.
Concurrently with
the execution of this Agreement, the Guarantor has delivered to
Company the Guarantee dated as of the date of this Agreement, in
favor of Company, with respect to the performance by Parent and
Merger Sub, respectively, of their obligations under this
Agreement.
4.10
Representations Complete
.
None of the representations or warranties made by Parent or
Merger Sub herein or in any Schedule hereto, including the
Parent Disclosure Schedule, or certificate furnished by Parent
or Merger Sub pursuant to this Agreement, when all such
documents are read together in their entirety, contains or will
contain at the Effective Time any untrue statement of a material
fact, or omits or will omit at the Effective Time to state any
material fact necessary in order to make the statements
contained herein or therein, in the light of the circumstances
under which they are made, not misleading.
ARTICLE V
ADDITIONAL
AGREEMENTS
5.1
Conduct of Businesses Prior to the Effective
Time
.
Except as expressly contemplated or
permitted by this Agreement, or as required by applicable law,
rule or regulation, during the period from the date of this
Agreement to the Effective Time, unless Parent otherwise agrees
in writing, Company shall, and shall cause the subsidiaries of
Company to, in all material respects, (i) conduct its
business and maintain its books of account and records in the
usual, regular and ordinary course consistent with past practice
and (ii) use commercially reasonable efforts to maintain
and preserve intact its business organization and the goodwill
of those having business relationships with it and retain the
services of its present officers and key employees. Without
limiting the generality of the foregoing, and except as set
forth in Schedule 5.1 of the Company Disclosure Schedule,
as expressly contemplated or permitted by this Agreement, or
pursuant to the Company Stock Option Plan, or as required by
applicable law, rule or regulation, during the period from the
date of this Agreement to the Effective Time (or the earlier
termination of this Agreement pursuant to Article VII),
Company shall not, and shall not permit any subsidiary of
Company to, without the prior written consent of Parent:
(a)
Charter Documents
.
Amend the
Company Articles of Incorporation or Company Bylaws;
(b)
Issuance of Securities
.
Issue, deliver or sell or authorize or propose the issuance,
delivery or sale of, or purchase or propose the purchase of, any
shares of its capital stock or securities convertible into, or
subscriptions, rights, warrants, or options to acquire, or other
agreements or commitments of any character obligating it to
issue any such shares or other convertible securities, other
than the issuance of shares of Company Common Stock pursuant to
the exercise of stock options, warrants or other rights therefor
outstanding as of the date hereof.
(c)
Dividends; Changes in Capital
Stock
.
Declare or pay any dividends on or
make any other distributions (whether in cash, stock or
property) in respect of any of its capital stock, or split,
combine or reclassify any of its capital stock or issue or
authorize the issuance of any other securities in respect of, in
lieu of or in substitution for shares of its capital stock, or,
except as set forth in Section 6.2, repurchase or otherwise
acquire, directly or indirectly, any shares of its capital stock
except from former employees, directors and consultants in
accordance with agreements providing for the repurchase of
shares in connection with any termination of service to it or
its subsidiaries;
(d)
Indebtedness
.
Incur any
indebtedness for borrowed money or guarantee any such
indebtedness or make any loans, advances or capital
contributions to, or investments in, any other person other than
Company or its subsidiaries other than for working capital
purposes in the ordinary course of business consistent with past
practice or for capital expenditures in accordance with
Schedule 5.1(d);
(e)
Dispositions
.
Sell, transfer,
mortgage, encumber or otherwise dispose of any of its properties
or assets in an aggregate amount in excess of $50,000 (other
than to a direct or indirect wholly-owned
A-19
subsidiary of Company), except those relating to those relating
to sales of products or inventory in the ordinary course of
business and with respect to obsolete or worthless assets;
(f)
Acquisitions
.
Make any
acquisition or investment in another business entity either by
purchase of stock or securities, merger or consolidation,
contributions to capital, property transfers, or purchases of
any property or assets of any other individual, corporation or
other entity, other than a wholly-owned subsidiary of Company;
(g)
Accounting Policies and
Procedures
.
Make any change to its
accounting methods, principles, policies, procedures or
practices in effect at December 31, 2006, except as may be
required by GAAP,
Regulation S-X
promulgated by the SEC or applicable statutory accounting
principles;
(h)
Taxes
.
Make or change any
material election in respect of Taxes, adopt or change any
accounting method in respect of Taxes, file any material Tax
Return or any amendment to a material Tax Return, enter into any
closing agreement, settle any claim or assessment in respect of
Taxes, or consent to any extension or waiver of the limitation
period applicable to any claim or assessment in respect of Taxes;
(i)
Insurance
.
Materially reduce
the amount of any material insurance coverage provided by
existing insurance policies;
(j)
Material Contracts
.
Enter
into any contract or commitment, or violate, amend or otherwise
modify or waive any of the terms of any of its contracts, other
than in the ordinary course of business consistent with past
practice and in no event shall such contract, commitment,
amendment, modification or waiver (other than those relating to
sales of products or purchases of supplies or inventory in the
ordinary course of business) involve the payment by Company or
its subsidiaries in excess of $100,000;
(k)
Payment of Obligations
.
Pay,
discharge or satisfy an amount in excess of $100,000 in any one
case, any claim, liability or obligation (absolute, accrued,
asserted or unasserted, contingent or otherwise) arising other
than those relating to sales of products or purchases of
supplies or inventory in the ordinary course of business, or
fail to pay accounts payable or other obligations in the
ordinary course of business;
(l)
Collection of Receivables
.
Accelerate the collection of receivables or modify the payment
terms of any receivables;
(m)
Capital Expenditures
.
Other
than as set forth on
Schedule 5.1(m)
, make any
capital expenditures, capital additions or capital improvements
that exceed $50,000 individually or $250,000 in the aggregate;
(n)
Lawsuits
.
Commence a lawsuit
other than (i) for the routine collection of bills,
(ii) in such cases where Company in good faith determines
that failure to commence suit would result in the material
impairment of a valuable aspect of its business, provided that
it consults with Parent prior to the filing of such a suit,
(iii) for a breach of this Agreement, or (iv) to
clarify its obligations under this Agreement;
(o)
Employee Matters
.
Increase
the compensation payable or to become payable to its directors,
officers or employees (other than increases payable to
non-officer employees made in the ordinary course of business
consistent with past practice), make any loan, advance or
capital contribution, or grant any severance or termination pay
to, or enter into or amend any employment or severance agreement
with, any director, officer or other employee of Company or any
of its subsidiaries, establish, adopt, enter into or amend any
collective bargaining, bonus, profit sharing, thrift,
compensation, stock option, restricted stock, pension,
retirement, deferred compensation, employment, termination,
severance or other plan, agreement, trust, fund, policy or
arrangement for the benefit of any current or former directors,
officers or employees of Company or any of its subsidiaries, pay
any discretionary bonuses to any officer of Company (including
under any of the Companys bonus plans), materially change
any actuarial assumption or other assumption used to calculate
funding obligations with respect to any pension or retirement
plan, or change the manner in which contributions to any such
plan are made or the basis on which such contributions are
determined, except, in each case, as may be required by law or
contractual commitments which are existing as of the date of
this Agreement and listed in Schedule 3.11;
A-20
(p)
Other
.
Take or agree in
writing or otherwise to take, any of the actions described in
Sections 5.1(a) through (o) above, or any action that
would make any of its representations or warranties contained in
this Agreement untrue or incorrect in any material respect.
Notwithstanding the foregoing, nothing contained in this
Agreement shall give to Parent, directly or indirectly, rights
to control or direct the operations of Company prior to the
Effective Time. Prior to the Effective Time, Company shall
exercise, consistent with the terms and conditions of this
Agreement, complete control and supervision of its and its
subsidiaries business and operations.
5.2
No Solicitation
.
(a) Company and its subsidiaries and the officers,
directors, employees or other agents of Company and its
subsidiaries (collectively, the
Company
Representatives
) will not, directly or indirectly,
(i) take any action to solicit or intentionally encourage
an Acquisition Proposal (as defined in Section 5.2(b)) or
(ii) subject to the terms of the immediately following
sentence, engage in any discussions or negotiations with, or
disclose any nonpublic information relating to Company or any of
its subsidiaries to, or afford access to the books or records of
Company or any of its subsidiaries to, any person (other than
Parent or to any Company Shareholder as required by applicable
law or legal process) that has advised Company that it may be
considering making, or that has made, an Acquisition Proposal;
provided
, that nothing herein shall prohibit
Companys Board of Directors from complying with
Rules 14d-9
and
14e-2
promulgated under the Exchange Act.
(b) Notwithstanding Section 5.2(a), if, prior to
approval of this Agreement by Company Shareholders, a written
Acquisition Proposal that (i) provides for consideration to
be received by the holders of all, but not less than all, of the
outstanding shares of Company and (ii) was submitted on an
unsolicited basis and not in any violation of this
Section 5.2 shall be received by the Board of Directors of
Company, then, to the extent the Board of Directors determines
in good faith (after advice from its financial advisor and legal
counsel) that the Acquisition Proposal (x) involves
consideration to the holders of the Shares that is, or is
reasonably likely to lead to a proposal that is, more favorable
from a financial point of view to the Company Shareholders than
the consideration from the transaction contemplated by this
Agreement, (y) is reasonably capable of being completed and
is not conditioned upon obtaining additional financing, in each
case taking into account, among other things, conditions to
consummation, required regulatory approvals and any fees payable
to Parent hereunder (any such more favorable Acquisition
Proposal being referred to in this Agreement as a
Superior Proposal
), and the Board of
Directors of Company determines in good faith after advice from
legal counsel that it is necessary for the Board of Directors of
Company to comply with its fiduciary obligations to the Company
Shareholders under applicable law, Company Representatives may
furnish in connection therewith nonpublic information to the
party making such Superior Proposal and engage in discussions
and negotiations with such party, and such actions shall not be
considered a breach of this Section 5.2 or any other
provisions of this Agreement;
provided
, that in each such
event Company (i) notifies Parent of such determinations by
the Board of Directors of Company and provides Parent with a
true and complete copy of the Superior Proposal received from
such third party, (ii) enters into a confidentiality
agreement with such party on terms that are no less favorable to
Company than that certain Nondisclosure Agreement dated as of
April 11, 2007 (the
Confidentiality
Agreement
), by and between Cascadia Capital, LLC and
Alaska Commercial Company, and (iii) provides (or has
provided) Parent with all documents containing or referring to
nonpublic information of Company that are supplied to such third
party; and
provided
,
further
, that Company may,
and may permit any of its officers, directors, employees or
other representatives, as agents, to agree to or endorse any
Acquisition Proposal or withdraw its recommendation of the
Merger and adoption of this Agreement if Company has provided
Parent at least two (2) business days prior notice thereof.
Company will promptly (and in any event within 24 hours)
notify Parent in writing of any written Acquisition Proposal
that is received by Company or by any of the Company
Representatives from any third person or entity (other than
Parent), of any request for nonpublic information in connection
an Acquisition Proposal or for access to the properties, books
or records of Company or any of its subsidiaries by any person
or entity that informs Company that it is considering making, or
has made , an Acquisition Proposal. Such notice to Parent shall
be made orally and in writing and shall indicate in reasonable
detail the identity of the offeror and the terms and conditions
of such proposal, inquiry or contact. Company shall keep Parent
informed on a current basis (and in any event within
A-21
24 hours) of all developments and the status of any
Acquisition Proposal, any negotiations or discussions with
respect to any Acquisition Proposal or any request for nonpublic
information in connection with any Acquisition Proposal or for
access to the properties, books or records of Company or any of
its subsidiaries by any person or entity that is considering
making, or has made, an Acquisition P roposal. Company shall
provide Parent with copies of all documents received from or
delivered or sent to any person or entity that is considering
making or has made an Acquisition Proposal. Company will
promptly provide to Parent any non-public information concerning
Company provided to any other person in connection with an
Acquisition Proposal which was not previously provided to
Parent. Company shall immediately cease and cause to be
terminated all existing discussions or negotiations with any
persons conducted heretofore with respect to a possible
Acquisition Proposal.
(c) For purposes of this Agreement,
Acquisition
Proposal
means any offer or proposal for, or any
indication of interest in, a merger or other business
combination involving Company or any of its subsidiaries or the
acquisition of 50% or more of the outstanding shares of capital
stock of Company, or all or substantially all of the assets of
Company, other than the transactions contemplated by this
Agreement.
5.3
Proxy Statement
.
As promptly
as practicable after the execution of this Agreement, Company
shall prepare and file with the SEC, preliminary proxy materials
relating to the approval of the Merger and the transactions
contemplated hereby by the shareholders of Company. As promptly
as practicable following receipt of SEC comments thereon,
Company shall file with the SEC definitive proxy materials that
comply in form with applicable SEC requirements. Parent shall
provide Company with the information concerning Parent required
to be included in the Proxy Statement. Company and Parent will
notify each other promptly of the receipt of any comments from
the SEC or its staff and of any request by the SEC or its staff
or any other government officials for amendments or supplements
to the Proxy Statement or any other filing or for additional
information and will supply each other with copies of all
correspondence between such party or any of its representatives,
on the one hand, and the SEC, or its staff or any other
government officials, on the other hand, with respect to the
Proxy Statement or other filing. Whenever any event occurs that
is required to be set forth in an amendment or supplement to the
Proxy Statement or any other filing, Company shall promptly
inform Parent of such occurrence and cooperate in filing with
the SEC or its staff or any other government officials,
and/or
mailing to shareholders of Company, such amendment or
supplement. Subject to the right of the Board of Directors of
Company to withdraw its recommendation of the Merger and
adoption of this Agreement as permitted under Section 5.2,
the Proxy Statement shall solicit the adoption of this Agreement
by shareholders of Company and shall include the approval of
this Agreement and the Merger by the Board of Directors of
Company and the recommendation of the Board of Directors of
Company to Companys shareholders that they vote in favor
of adoption of this Agreement and the Merger.
5.4
Meeting of Shareholders
.
Company shall as promptly as practicable after the date hereof
take (and in any event within 90 days of the date hereof,
or 105 days of the date hereof in the event Company
receives SEC comments with respect to the Proxy Statement) all
action necessary in accordance with Washington Law and the
Company Articles of Incorporation and Company Bylaws to convene
the Company Shareholder Meeting and shall use its commercially
reasonable efforts to solicit from the Company Shareholders
proxies in favor of adoption of this Agreement and the Merger
and shall take all other commercially reasonable actions
necessary or advisable to secure the vote or consent of the
Company Shareholders required to effect the Merger. Subject to
Section 5.2(b), to the fullest extent permitted by
applicable law (including that pertaining to Companys
Board of Directors fiduciary duties),
(i) Companys Board of Directors shall recommend
adoption and approval of this Agreement and the Merger by the
Company Shareholders and include such recommendation in the
Proxy Statement, and (ii) neither Companys Board of
Directors nor any committee thereof shall withdraw or modify, or
propose or resolve to withdraw or modify in a manner adverse to
Parent, the recommendation of Companys Board of Directors
that the Company Shareholders vote in favor of the adoption and
approval of this Agreement and the Merger. Unless such
recommendation shall have been modified or withdrawn in
accordance with Section 5.2(b), Company shall take all
action that is both reasonable and lawful to solicit from its
shareholders proxies in favor of the proposal to adopt and
approve this Agreement and the Merger and shall take all other
action necessary or advisable to secure the vote or consent of
the Company Shareholders that are required by Washington Law.
Notwithstanding anything to the
A-22
contrary contained in this Agreement, Company, after
consultation with Parent, may adjourn or postpone the Company
Shareholder Meeting to the extent necessary to ensure that any
required supplement or amendment to the Proxy Statement is
provided to the Company Shareholders or, if as of the time for
which the Company Shareholder Meeting is originally scheduled
(as set forth in the Proxy Statement), there are insufficient
shares of Company Common Stock represented (either in person or
by proxy) to constitute a quorum necessary to conduct the
business of the Company Shareholder Meeting. Parent shall vote,
or cause to be voted, all of the shares of Company Common Stock
then owned by it or any of its subsidiaries and affiliates in
favor of the approval of the Merger and the adoption of this
Agreement. Notwithstanding anything to the contrary in this
Section 5.4 or elsewhere in this Agreement, if Company or
any of its officers, directors, employees or other
representatives, as agents, agrees to or endorses any
Acquisition Proposal or withdraws its recommendation of the
Merger and adoption of this Agreement as permitted under
Section 5.2, Company shall not be required to convene the
Company Shareholder Meeting nor to solicit from the Company
Shareholders proxies in favor of this Agreement and the Merger.
5.5
Publicity
.
Unless otherwise
permitted by this Agreement, Parent and Company shall consult
with each other before issuing any press release or otherwise
making any public statement or making any other public (or
non-confidential) disclosure (whether or not in response to an
inquiry) regarding the terms of this Agreement and the
transactions contemplated hereby, and neither shall issue any
such press release or make any such statement or disclosure
without the prior approval of the other (which approval shall
not be unreasonably withheld), except as may be required by law
or by obligations pursuant to any listing agreement with NASDAQ
or the Toronto Stock Exchange, in which case the party proposing
to issue such press release or make such public statement or
disclosure shall use its commercially reasonable efforts to
consult with the other party before issuing such press release
or making such public statement or disclosure.
5.6
Access to Information
.
Upon
reasonable notice and subject to applicable laws relating to the
exchange of information, Company shall, and shall cause each of
its subsidiaries to, afford to the officers, employees,
accountants, counsel and other representatives of Parent, during
normal business hours during the period prior to the Effective
Time, reasonable access to all its properties, books, contracts,
commitments and records, and to its officers, employees,
accountants, counsel and other representatives and, during such
period, Company shall, and shall cause its subsidiaries to, make
available to Parent (i) a copy of each report, schedule,
registration statement and other document filed or received by
it during such period pursuant to the requirements of federal
securities laws and (ii) all other information concerning
its business, properties and personnel as Parent may reasonably
request. No investigation by any of the parties or their
respective representatives shall affect the representations,
warranties, covenants or agreements of the other set forth
herein.
5.7
Further Assurances
.
(a) Subject to the terms and conditions of this Agreement,
each of Parent and Company shall, and shall cause its
subsidiaries to, use commercially reasonable efforts (i) to
take, or cause to be taken, all actions necessary, proper or
advisable to comply promptly with all legal requirements that
may be imposed on such party or its subsidiaries with respect to
the Merger and, subject to the conditions set forth in
Article VI hereof, to consummate the transactions
contemplated by this Agreement, including, without limitation,
the Merger, as promptly as practicable and (ii) to obtain
(and to cooperate with the other party to obtain) any consent,
authorization, order or approval of, or any exemption by, any
Governmental Entity and any other third party that is required
to be obtained by Company or Parent or any of their respective
subsidiaries in connection with the Merger and the other
transactions contemplated by this Agreement, and to comply with
the terms and conditions of any such consent, authorization,
order or approval.
(b) Subject to the terms and conditions of this Agreement,
each of Parent and Company shall use commercially reasonable
efforts to take, or cause to be taken, all actions, and to do,
or cause to be done, all things necessary, proper or advisable
to consummate and make effective, as soon as practicable after
the date of this Agreement, the transactions contemplated
hereby, including, without limitation, using commercially
reasonable efforts to lift or rescind any injunction or
restraining order or other order adversely affecting the ability
of the parties to consummate the transactions contemplated
hereby and using commercially reasonable
A-23
efforts to defend any litigation seeking to enjoin, prevent or
delay the consummation of the transactions contemplated hereby
or seeking material damages.
(c) Notwithstanding subsections (a) and
(b) above, nothing in this Section 5.7 will prevent
Company
and/or
its
officers and directors from acting in accordance with
Section 5.2 of this Agreement.
(d) Notwithstanding subsections (a) and
(b) above, in no event shall Parent be required to
guarantee any of the obligations of Company or the Surviving
Corporation under any Lease or Material Agreement, or otherwise.
5.8
Indemnification
.
(a) All rights to indemnification and exculpation from
liabilities for acts or omissions occurring at or prior to the
Effective Time existing in favor of the current or former
directors or officers of Company (each, an
Indemnified
Party
) as provided in the Company Articles of
Incorporation, the Company Bylaws or in separate agreements
between Company and individual officers and directors, shall
continue to be binding upon by the Surviving Corporation, and,
after the Effective Time, Parent will fulfill and honor in all
respects such obligations in accordance with the terms thereof
in each case in effect on the date hereof, and such rights will
continue in full force and effect in accordance with their
respective terms and shall not be amended, repealed or modified
so as to adversely affect any Indemnified Party; provided that
such indemnification shall be subject to any limitation imposed
from time to time under applicable law. Any Indemnified Party
wishing to claim indemnification under this Section 5.8,
upon learning of any such claim, action, suit, proceeding or
investigation, shall promptly notify Parent and the Surviving
Corporation, and shall deliver to Parent and the Surviving
Corporation the undertaking contemplated by Washington Law;
provided that the failure to so notify shall not affect the
obligations of the Surviving Corporation under this
Section 5.8 except (and only) to the extent such failure to
notify materially prejudices the Surviving Corporation. In
addition to the foregoing, Parent acknowledges that, in
connection with consummation of the Merger, Company will obtain
prior to Closing a policy of directors and officers
liability insurance with a tail period of six (6) years
from the Closing Date. Neither Parent nor the Surviving
Corporation shall take any action to amend, repeal or modify
such policy in any manner.
(b) This Section 5.8 shall survive consummation of the
Merger and is intended to be for the benefit of, and shall be
enforceable by, each Indemnified Party, his or her heirs and
representatives and Company (whether or not parties to this
Agreement) and shall not be amended on or after the Effective
Time without the consent of all Indemnified Parties. The rights
of this Section 5.8 shall be in addition to any rights such
persons may have under the Company Articles of Incorporation or
Company Bylaws or the articles or certificate of incorporation
or bylaws of any subsidiary of Company, or under Washington Law
or any other applicable laws or under any agreement of any
Indemnified Party with Company or any of its subsidiaries.
(c) In the event the Surviving Corporation or any of its
successors or assigns (i) consolidates with or merges into
any other person and shall not be the continuing or surviving
corporation or entity of such consolidation or merger, or
(ii) transfers all or substantially all of its properties
and assets to any person, then, and in each such case, proper
provision shall be made so that such successors and assigns
assume the obligations set forth in this Section 5.8.
5.9
Shareholder Litigation
.
Unless and until the Board of Directors of Company has withdrawn
its recommendation of the Merger, Company shall give Parent the
opportunity to participate at its own expense in the defense of
any shareholder litigation against Company
and/or
its
directors relating to the transactions contemplated by this
Agreement.
5.10
Confidentiality
.
The parties
acknowledge that (i) Cascadia Capital, LLC and Alaska
Commercial Company have previously executed the Confidentiality
Agreement, (ii) the terms and conditions of the
Confidentiality Agreement inure to the benefit of and are
binding upon Parent and Company, and (iii) the
Confidentiality Agreement shall continue in full force and
effect in accordance with its terms, except that
paragraphs 15 and 16 of the Confidentiality Agreement shall
be superseded by the terms of this Agreement.
A-24
5.11
Financing
.
Parent will use
its best efforts to cause sufficient funds required to pay the
aggregate Merger Consideration (including the Option
Consideration) to be and remain available under the Financing
until the Effective Time. Parent will promptly (and in any event
within two (2) business days) notify Company in writing if
(i) the Financing has been withdrawn, amended or terminated
in any manner; (ii) Parent has become aware or has received
notice (whether written or oral) that a lender or lenders under
the Financing intends to withdraw, amend or terminate the
Financing in any manner; or (iii) any of the
representations and warranties contained in Section 4.6
(Financing; Solvency) shall no longer be true and correct in any
material respect;
provided
,
however
, that such
notice from Parent shall not prohibit Company from terminating
this Agreement pursuant to Section 7.1(d).
5.12
Director Resignations
.
Company shall use its best efforts to (i) obtain and
deliver to Parent prior to the Closing Date (to be effective as
of the Effective Time) the resignation of each director of
Company and each of its subsidiaries (in each case, in their
capacities as officers, directors, and not as employees) as
Parent shall specify not less than thirty (30) days prior
to the Closing Date; and (ii) cause any shares of a
subsidiary of Company owned by a Company director as qualifying
shares to be transferred (effective as of the Effective Time) by
such director without additional consideration to the person
designated by Parent not less than thirty (30) days prior
to the Closing Date.
5.13
Additional Agreements
.
In
case at any time after the Effective Time any further action is
necessary or desirable to carry out the purposes of this
Agreement or to vest the Surviving Corporation with full title
to all properties, assets, rights, approvals, immunities and
franchises of any of the parties to the Merger, the proper
officers and directors of each party to this Agreement and their
respective subsidiaries shall take all such necessary action as
may be reasonably requested by, and at the sole expense of,
Parent.
5.14
2007 Incentive Bonus Plan
.
Parent shall authorize and pay all awards under Companys
2007 Incentive Bonus Plan (the
Bonus Plan
)
following the completion of fiscal year 2007 consistent with the
attainment of the specified levels of financial and individual
performance approved by the Companys Board of Directors in
February 2007, consistent with Companys past practice,
provided
, that such awards may be prorated with respect
to any employee who is employed for less than the entire fiscal
year 2007. This Section 5.14 shall survive consummation of
the Merger and is intended to be for the benefit of, and shall
be enforceable by, each executive officer entitled to receive a
bonus payment under the Bonus Plan, his or her heirs and
representatives and Company (whether or not parties to this
Agreement) and shall not be amended on or after the Effective
Time without the consent of all Indemnified Parties.
ARTICLE VI
CONDITIONS
TO THE MERGER
6.1
Conditions to the Obligations of Each Party to
Effect the Merger
.
The respective
obligations of each party to this Agreement to consummate and
effect this Agreement and the transactions contemplated hereby
shall be subject to the satisfaction at or prior to the Closing
Date of each of the following conditions, any of which may be
waived, in writing, by agreement of all the parties hereto:
(a)
Shareholder Approval
.
This
Agreement and the Merger shall have been approved and adopted by
the requisite vote of the Company Shareholders under Washington
Law.
(b)
Statutes
.
No statute, rule,
order, decree or regulation shall have been enacted or
promulgated by any Governmental Entity or authority of competent
jurisdiction that prohibits the consummation of the Merger.
(c)
Injunctions
.
There shall be
no order or injunction of any Governmental Entity of competent
jurisdiction in effect precluding, restraining, enjoining or
prohibiting consummation of the Merger;
provided
,
however
, that each of the parties hereto shall have used
its commercially reasonable efforts to prevent the entry of any
such injunction or other order and to appeal as promptly as
possible any injunction or other order that may be entered.
A-25
6.2
Additional Conditions to the Obligations of
Parent and Merger Sub to Effect the Merger
.
The obligations of Parent and Merger Sub to consummate and
effect this Agreement and the transactions contemplated hereby
shall be subject to the satisfaction at or prior to the Closing
Date of each of the following conditions, any of which may be
waived, in writing, by Parent:
(a)
Representations, Warranties and
Covenants
.
(i) Each of the
representations and warranties of Company in this Agreement
shall be true and correct in all material respects (except for
such representations and warranties that are qualified by their
terms by a reference to materiality, which representations and
warranties as so qualified shall be true and correct in all
respects) both when made and on and as of the Effective Time as
though such representations and warranties were made on and as
of such time and (ii) Company shall have performed and
complied in all material respects with all covenants,
obligations and conditions of this Agreement required to be
performed and complied with by it as of the Effective Time
(b)
Certificate of Company
.
Parent shall have been provided with a certificate executed on
behalf of Company by its President and Chief Financial Officer
certifying that the conditions set forth in Section 6.2(a)
shall have been fulfilled.
(c)
Material Adverse Effect
.
No
Material Adverse Effect with respect to Company shall have
occurred since the date of this Agreement.
(d)
Stock Option Plans
.
The
Company Stock Option Plan shall have been terminated effective
as of or prior to the Effective Time, and all Options shall have
been exercised or shall terminate not later than the Effective
Time.
(e)
Consents
.
Company shall have
received or obtained those third-party consents and approvals
described on
Schedule 6.2(e)
(the
Third-Party Approvals
), in each case on terms
reasonably satisfactory to Parent.
(f)
Estoppel Certificates
.
Company
shall have received and delivered to Parent an estoppel
certificate with respect to the store leases described on
Schedule 6.2(f)
, dated no more than sixty
(60) days prior to the Closing, and in the form attached
hereto as
Exhibit C
, or in such other form that
provides substantially similar information or is otherwise
reasonably satisfactory to Parent.
(g)
Permits and Approvals
.
Parent
(or any Affiliate of Parent) and Company shall have received or
obtained those governmental and regulatory consents, approvals,
licenses and authorizations described on
Schedule 6.2(g)
(the
Governmental
Approvals
).
(h)
Cayman Islands Store
.
With
respect to the store under construction in the Cayman Islands,
the following shall have occurred:
(i) Total capital expenditures (excluding capitalized
interest) by Company for the store and related facilities shall
not have exceeded $15,600,000;
(ii) That certain Shareholders Agreement dated
July 11, 2005 (the
Shareholders
Agreement
), shall be in full force and effect on the
Closing Date, and the parties to the Shareholders Agreement
shall have entered into the Management Services Agreement in
form and substance substantially as set forth in
Exhibit D
hereto with the formula in
Section 3.1 of the Management Services Agreement reasonably
satisfactory to Parent; and
(iii) All material business licenses required to operate
Companys warehouse store and any related facilities in the
Cayman Islands shall have been obtained and any consents
required for such licenses to continue in full force and effect
upon consummation of the Merger shall have been obtained.
(i)
Legal Opinion
.
Company shall
have delivered to Parent a legal opinion from DLA Piper US LLP,
counsel to Company, on the Closing Date, addressed to Parent, in
substantially the form of
Exhibit E
.
A-26
6.3
Conditions to Obligations of Company to Effect
the Merger
.
The obligations of Company to
consummate and effect this Agreement and the transactions
contemplated hereby shall be subject to the satisfaction at or
prior to the Closing Date of each of the following conditions,
any of which may be waived, in writing, by Company:
(a)
Representations, Warranties and
Covenants
.
(i) Each of the
representations and warranties of Parent and Merger Sub in this
Agreement shall be true and correct in all material respects
(except for such representations and warranties that are
qualified by their terms by a reference to materiality, which
representations and warranties as so qualified shall be true and
correct in all respects) both when made and on and as of the
Effective Time as though such representations and warranties
were made on and as of such time and (ii) Parent and Merger
Sub shall have performed and complied in all material respects
with all covenants, obligations and conditions of this Agreement
required to be performed and complied with by them as of the
Effective Time.
(b)
Certificate of Parent
.
Company
shall have been provided with a certificate executed on behalf
of Parent and Merger Sub by an authorized officer certifying
that the conditions set forth in Section 6.3(a) shall have
been fulfilled.
(c)
Legal Opinion
.
Parent shall
have delivered to Company a legal opinion from Heller Ehrman
LLP, counsel to Parent and Merger Sub, on the Closing Date,
addressed to Company, in substantially the form of
Exhibit F
.
ARTICLE VII
TERMINATION,
AMENDMENT AND WAIVER
7.1
Termination
.
At any time prior
to the Effective Time, whether before or after approval of the
matters presented in connection with the Merger by the Company
Shareholders, this Agreement may be terminated:
(a) by mutual written consent of Parent and Company;
(b) by either Parent or Company if the Merger shall not
have been consummated on or before December 31, 2007 (the
Final Date
), provided, that if (x) the
Effective Time has not occurred by the Final Date by reason of
nonsatisfaction of any of the conditions set forth in
Section 6.1(b), 6.1(c), 6.2(e), 6.2(f), 6.2(g) or 6.2(h),
and (y) all other conditions set forth in Article VI
have heretofore been satisfied or waived or are then capable of
being satisfied, then such date shall automatically be extended
to January 31, 2008, or such later date as may be agreed
upon in writing by the parties hereto (which shall then be the
Final Date
) (unless the failure to consummate
the Merger is attributable to a failure on the part of the party
seeking to terminate this Agreement to perform any material
obligation required to be performed by such party at or prior to
the Effective Time);
(c) by either Parent or, if Company has not breached the
provisions of Section 5.4, Company, if at the Company
Shareholder Meeting (giving effect to any adjournment or
postponement thereof), the requisite vote of the shareholders of
Company in favor of this Agreement and the Merger shall not have
been obtained, provided that the right to terminate this
Agreement under this Section 7.1(c) shall not be available
to Company if:
(i) at such time Company is in breach of or has failed to
fulfill its obligations under this Agreement; or
(ii) Company shall have not paid to Parent in full the fee
and expense reimbursement described in Section 7.3;
(d) by Parent, by written notice to Company, if (x)(i) any
of Companys representations and warranties in this
Agreement would be inaccurate if made as of the time of such
notice, or Company shall have materially breached any of its
covenants, agreements or obligations in this Agreement, and
(ii) the condition set forth in Section 6.2(a) would
not be satisfied if such inaccuracy or breach were to
A-27
remain uncured, and (iii) such inaccuracy or breach, if
curable, shall not have been cured within fifteen
(15) business days of receipt by Company of written notice
of such inaccuracy or breach (and Parent shall not have
willfully breached any of its covenants hereunder, which breach
is not cured) or (y) any of the conditions in
Sections 6.2 (e), (g) or (h) have not been
satisfied or fulfilled by the Final Date;
(e) by Company, by written notice to Parent, if
(i) any of Parents representations and warranties
contained in Article IV of this Agreement would be
inaccurate in any material respect if made as of the time of
such notice, or Parent shall have materially breached any of its
covenants, agreements or obligations in this Agreement, and
(ii) the condition set forth in Section 6.3(a) would
not be satisfied if such inaccuracy or breach were to remain
uncured, and (iii) such inaccuracy or breach, if curable,
shall not have been cured within fifteen (15) business days
of receipt by Parent of written notice of such inaccuracy or
breach (and Company shall not have willfully breached any of its
covenants hereunder, which breach is not cured);
(f) by Parent, by written notice to Company, if:
(i) an Acquisition Proposal shall have been made and shall
not have been absolutely and unconditionally abandoned or
withdrawn, and the Board of Directors of Company, if so
requested by Parent, does not within ten (10) days of such
request reconfirm its unanimous recommendation of this Agreement
and the transactions contemplated hereby, (ii) a tender
offer or exchange offer for outstanding shares of Company Common
Stock shall have been commenced (other than by Parent or an
Affiliate of Parent) and Companys Board of Directors (or
any committee thereof) recommends that the shareholders of
Company tender their shares in such tender or exchange offer or,
within ten (10) business days after the commencement of
such tender or exchange offer, fails to recommend against
acceptance of such offer; (iii) the Board of Directors (or
any committee thereof) of Company shall have failed to recommend
that the Company Shareholders vote to approve the Merger and
adopt this Agreement (a
Recommendation
), or
shall have withdrawn (including any failing to include such
Recommendation in the Proxy Statement) or modified its
Recommendation in a manner materially adverse to Parent, or
shall have resolved to do any of the foregoing; (iv) the
Board of Directors (or any committee thereof) shall have
recommended, endorsed, accepted, approved, or otherwise agreed
to an Acquisition Proposal (other than the Merger) or shall have
resolved to do any of the foregoing; or (v) Company shall
have failed in any material respect to comply with
Section 5.2 and such failure to comply, if curable, shall
not have been cured within five (5) business days of
receipt by Company of written notice of such failure to comply;
(g) by either Parent or Company, by written notice to the
other party, if: (i) any permanent injunction or other
order of a court or other competent authority preventing the
consummation of the Merger shall have become final and
nonappealable (provided such party used commercially reasonable
efforts to have such injunction or other order lifted); or
(ii) the Company Shareholder Meeting (including any
adjournments and postponements thereof) shall have been held and
completed and the Company Shareholders shall have voted on a
proposal to adopt this Agreement, and this Agreement shall not
have been adopted at such meeting (and shall not have been
adopted at any adjournment or postponement thereof) by the
required shareholder vote; or
(h) by Company, by written notice to Parent and compliance
with the provisions of this Section 7.1(h), if:
(i) Company has received an Acquisition Proposal
constituting a Superior Proposal, the Board of Directors in
accordance with Section 5.2 has determined that it desires
to approve entering into a written agreement providing for such
Superior Proposal and has notified Parent in writing of such
desire; (ii) five (5) business days have elapsed after
Parents receipt of such written notification (which
notification shall include a copy of such Superior Proposal and
a description of any additional material modifications thereof),
and during such five (5) business day period Company has
reasonably cooperated with Parent with the intent of enabling
Parent to make an offer that is at least as favorable from a
financial point of view to the Company Shareholders as such
Superior Proposal; (iii) prior to
6:00 p.m. Pacific time on the fifth business day of
such five (5) business day period Parent has not made a
written offer that the Board of Directors of Company determines
to be more favorable from a financial point of view to the
Company Shareholders than such Superior Proposal; and
(iv) at the end of such five (5) business day period
the Board of Directors of Company believes that such Acquisition
Proposal continues to be a Superior Proposal.
A-28
7.2
Effect of Termination
.
In the
event of termination of this Agreement as provided in
Section 7.1, this Agreement shall forthwith become void and
there shall be no liability or obligation on the part of Parent,
Merger Sub or Company or their respective officers, directors,
shareholders or affiliates; provided that, the provisions of
Section 5.11 (Confidentiality), Section 7.3 (Expenses
and Termination Fees), this Section 7.2 and
Article VIII shall remain in full force and effect and
survive any termination of this Agreement.
7.3
Expenses and Termination Fees
.
(a) Subject to subsections (b), (c), (d), and (e) of
this Section 7.3, whether or not the Merger is consummated,
all costs and expenses incurred in connection with this
Agreement and the transactions contemplated hereby (including,
without limitation, the fees and expenses of its advisers,
accountants and legal counsel) shall be paid by the party
incurring such expense.
(b) In the event that: (i) Parent shall terminate this
Agreement pursuant to Section 7.1 (c), (d) or
(f) or (ii) Company shall terminate this Agreement
pursuant to Section 7.1(h), then Company shall promptly
reimburse Parent, but no more than $500,000 in the aggregate (or
no more than $250,000 in the aggregate in the event Parent
terminates this Agreement pursuant to Section 7.1(d) due to
the non-satisfaction of the condition set forth in
Section 6.2(h)(i)), for all of the out-of-pocket costs and
expenses (including, without limitation, the fees and expenses
of its advisors, accountants and legal counsel and financing
commitment fees) reasonably incurred by Parent in connection
with this Agreement the transactions contemplated hereby and the
due diligence review of Company by Parent. Any payment required
to be paid pursuant to this Section 7.3(b) will be made
promptly by wire transfer of same day funds but in no event
later than three (3) business days following such
termination pursuant to Section 7.1.
(c) In addition to any amount payable in accordance with
Section 7.3(b), Company shall pay Parent a non-refundable
fee equal to $1,500,000 but only if: (A) Parent shall
terminate this Agreement pursuant to Section 7.1(f), or
Company shall terminate this Agreement pursuant to
Section 7.1(h); (B) prior to such termination pursuant
to Section 7.1(f) or 7.1(h), there shall have been either
(x) a Trigger Event with respect to Company, or (y) an
Acquisition Proposal with respect to Company which shall not
have been rejected by Company and which has been determined by
the Board of Directors of Company to be a Superior Proposal, in
either case which at the time of such termination shall not have
been withdrawn or abandoned by the other party thereto; and
(C) within twelve (12) months of such termination the
transaction contemplated by such Trigger Event or Acquisition
Proposal is consummated. Any payment required to be paid
pursuant to this Section 7.3(c) will be made by wire
transfer of same day funds within three (3) business days
after the consummation of such Acquisition Proposal or Trigger
Event.
(d) In the event that Company shall terminate this
Agreement pursuant to Section 7.1(e), then Parent shall
promptly reimburse Company, but no more than $500,000 in the
aggregate, for all of the out-of-pocket costs and expenses
(including, without limitation, the fees and expenses of its
advisors, accountants and legal counsel) reasonably incurred by
Company in connection with this Agreement and the transactions
contemplated hereby and the due diligence review of Parent by
Company. Any payment required to be paid pursuant to this
Section 7.3(d) will be made promptly by wire transfer of
same day funds but in no event later than three
(3) business days following such termination pursuant to
Section 7.1.
(e) As used herein, a
Trigger Event
means the acquisition by any person or group of beneficial
ownership of securities representing twenty-five percent (25%)
or more of the outstanding shares of any class of capital stock
or voting securities of Company, or the commencement or public
announcement of a tender or exchange offer, other publicly
announced initiative or open market purchase program following
the successful consummation of which such person or group would
have beneficial ownership of securities representing twenty-five
percent (25%) or more of the outstanding shares of any class of
capital stock or voting power of Company. For purposes of this
definition, the terms person, group and
beneficial ownership have the meanings ascribed to
them in the Exchange Act and the rules and regulations of the
SEC thereunder.
(f) For purposes of Sections 7.3(c) and 7.3(e) above,
(i)
consummation
of an Acquisition Proposal
shall occur on the closing date with respect to a merger or
other business combination involving Company or the acquisition
of twenty-five percent (25%) or more of the outstanding shares
of capital stock of Company, or
A-29
sale or transfer of all or substantially all assets (excluding
the sale or disposition of assets in the ordinary course of
business) of Company or any of its subsidiaries, and (ii)
consummation
of a Trigger Event shall occur
on the date any person or any of its affiliates or associates
beneficially owns securities representing twenty-five percent
(25%) or more of the outstanding shares of any class of capital
stock or voting securities of Company, following a tender or
exchange offer or other similar transaction.
7.4
Amendment
.
The Boards of
Directors of the parties hereto may cause this Agreement to be
amended at any time by execution of an instrument in writing
signed on behalf of each of the parties hereto;
provided
that an amendment made subsequent to adoption of the Agreement
by the shareholders of Company or Merger Sub shall not
(i) alter or change the amount or kind of consideration to
be received on conversion of Company Common Stock,
(ii) alter or change any term of the Articles of
Incorporation of the Surviving Corporation to be effected by the
Merger, (iii) alter or change any of the terms of
Section 5.8, or (iv) alter or change any of the other
terms and conditions of the Agreement if such alteration or
change would materially adversely affect the holders of Company
Common Stock or Merger Sub Common Stock.
7.5
Extension; Waiver
.
(a) At any time prior to the Effective Time any party
hereto may, to the extent legally allowed, (i) extend the
time for the performance of any of the obligations or other acts
of the other parties hereto, (ii) waive any inaccuracies in
the representations and warranties made to such party contained
herein or in any document delivered pursuant hereto and
(iii) waive compliance with any of the agreements or
conditions for the benefit of such party contained herein. Any
agreement on the part of a party hereto to any such extension or
waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party.
(b) No failure or delay by any party in exercising any
right, power or privilege hereunder shall operate as a waiver
thereof nor shall any single or partial exercise thereof
preclude any other or further exercise thereof or the exercise
of any other right, power or privilege. The rights and remedies
herein provided shall be cumulative and not exclusive of any
rights or remedies provided by Law.
ARTICLE VIII
GENERAL
PROVISIONS
8.1
Non-survival of Representations and
Warranties
.
None of the representations,
warranties or agreements in this Agreement or in any schedule,
instrument or other document delivered pursuant to this
Agreement, nor any express or implied right or remedy arising
thereunder, shall survive the Effective Time, except that the
agreements set forth in Article I, Section 5.7
(Further Assurances), Section 5.8 (Indemnification),
Section 5.10 (Confidentiality), Section 7.3 (Expenses
and Termination Fees), Section 7.4 (Amendment), and this
Article VIII shall survive the Effective Time.
8.2
Notices
.
All notices and other
communications hereunder shall be in writing (including
facsimile transmission) and shall be deemed given (i) when
delivered after mailing by certified mail (postage prepaid,
return receipt requested), (ii) when delivered by hand,
(iii) upon confirmation of receipt by facsimile or
(iv) one business day after sending by overnight delivery
service to the respective parties at the following addresses (or
at such other address for a party as is specified in a notice
given in accordance with this Section 8.2):
if to Parent or Merger Sub, to:
NWC (US) Holdings, Inc.
77 Main Street
Winnipeg, MB
Canada RC3 2R1
Attention: Leo Charriere
Telephone No.:
(800) 782-0391
Facsimile No.:
(204) 934-1455
A-30
with a copy to:
Heller Ehrman LLP
701 Fifth Avenue, Suite 6100
Seattle, WA 98104
Attention: David R. Wilson
Telephone No.:
(206) 447-0900
Facsimile No.:
(206) 447-0849
if to Company, to:
Cost-U-Less, Inc.
3633 136th Place SE, Suite 100
Bellevue, WA 98006
Attention: President
Telephone No.:
(425) 945-0213
Facsimile No.:
(425) 945-0214
with a copy to:
DLA Piper US LLP
701 Fifth Avenue, Suite 7000
Seattle, WA 98104
Attention: W. Michael Hutchings
Telephone No.:
(206) 839-4800
Facsimile No.:
(206) 839-4801
8.3
Counterparts
.
This Agreement
may be executed in two or more counterparts, all of which shall
be considered one and the same agreement and shall become
effective when two or more counterparts have been signed by each
of the parties and delivered to the other parties, it being
understood that all parties need not sign the same counterpart.
8.4
Entire Agreement; Third Party
Beneficiaries
.
This Agreement (including the
Guarantee and the other documents and the instruments referred
to herein) (a) constitutes the entire agreement and
supersedes all prior agreements and understandings, both written
and oral, among the parties with respect to the subject matter
hereof, and (b) except as provided in Sections 5.8 and
5.14, is not intended to confer upon any person other than the
parties hereto any rights or remedies hereunder.
8.5
Severability
.
If any term,
provision, covenant or restriction of this Agreement is held by
a court of competent jurisdiction or other authority to be
invalid, void, unenforceable or against its regulatory policy,
the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and
effect and shall in no way be affected, impaired or invalidated
so long as the economic or legal substance of the transactions
contemplated hereby is not affected in any manner materially
adverse to any party. Upon such a determination by mutual
agreement of the parties, the parties shall negotiate in good
faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in a mutually
acceptable manner so that the transactions contemplated hereby
may be consummated as originally contemplated to the fullest
extent possible.
8.6
Governing Law and Jurisdiction
.
(a) This Agreement shall be governed by, and construed in
accordance with the laws of the State of Washington without
giving effect to any choice of law or conflict provision or rule
that would cause the laws of any jurisdiction other than
Washington to be applied.
(b) Each of Parent, Company and Merger Sub hereby
irrevocably submits to the exclusive jurisdiction of the state
courts of the State of Washington and to the jurisdiction of the
United States District Court for the Western District of
Washington, for the purpose of any action or proceeding arising
out of or relating to this Agreement, and each of Parent,
Company and Merger Sub hereby irrevocably agrees that all claims
in respect to such action or proceeding shall be heard and
determined exclusively in any Washington state or federal court
sitting in King County, Washington. Each of Parent, Company and
Merger Sub agrees that a final
A-31
judgment in any action or proceeding shall be conclusive and may
be enforced in other jurisdictions by suit on the judgment or in
any other manner provided by law.
(c) Each of Parent, Company and Merger Sub irrevocably
consents to the service of the summons and complaint and any
other process in any other action or proceeding relating to the
transactions contemplated by this Agreement, on behalf of itself
or its property, by the personal delivery of copies of such
process to such party. Nothing in this Section 8.6 shall
affect the right of any party to serve legal process in any
other manner permitted by law.
8.7
Facsimile Signatures
.
This
Agreement and any other document or agreement executed in
connection herewith (other than any document for which an
originally executed signature page is required by applicable
law) may be executed by delivery of a facsimile copy of an
executed signature page with the same force and effect as the
delivery of an originally executed signature page.
8.8
Assignment
.
Neither this
Agreement nor any of the rights, interests or obligations
hereunder shall be assigned by any of the parties hereto
(whether by operation of law or otherwise) without the prior
written consent of the other parties, except that Parent may
assign, in its sole discretion, any or all of its rights,
interests and obligations hereunder to any direct or indirect
wholly-owned subsidiary of Parent. Subject to the preceding
sentence, this Agreement shall be binding upon, inure to the
benefit of and be enforceable by the parties and their
respective successors and assigns.
8.9
Headings; Interpretation
.
The
descriptive headings used herein are inserted for convenience of
reference only and are not intended to be part of or to affect
the meaning or interpretation of this Agreement.
Include, includes, and
including shall be deemed to be followed by
without limitation whether or not they are in fact
followed by such words or words of like import.
8.10
Enforcement
.
The parties
agree that irreparable damage would occur in the event that any
of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached.
It is accordingly agreed that the parties shall be entitled to
an injunction or injunctions to prevent breaches of this
Agreement and to enforce specifically the terms and provisions
of this Agreement in any court of the State of Washington or of
the United States located in the State of Washington in the
event any dispute arises out of this Agreement or any of the
transactions contemplated by this Agreement, and each party will
not attempt to deny or defeat personal jurisdiction or venue in
any such court by motion or other request for leave from any
such court.
8.11
Definitions
.
As used in this
Agreement, the following capitalized terms shall have the
meanings indicated below:
Acquisition Proposal
has the meaning
ascribed to it in Section 5.2(b).
Agreement
has the meaning ascribed to
it in the forepart of this Agreement.
Articles of Merger
has the meaning
ascribed to it in Section 1.2.
Certificates
has the meaning ascribed
to it in Section 2.2(c).
Closing
has the meaning ascribed to it
in Section 1.3.
Closing Date
has the meaning ascribed
to it in Section 1.3.
Code
has the meaning ascribed to it in
Section 2.2(g).
Commitment Letter
has the meaning
ascribed to it in Section 4.6.
Company
has the meaning ascribed to it
in the forepart of this Agreement.
Company Articles of Incorporation
has
the meaning ascribed to it in Section 3.1.
Company Balance Sheet
has the meaning
ascribed to it in Section 3.6.
Company Balance Sheet Date
has the
meaning ascribed to it in Section 3.6.
A-32
Company Benefit Plans
has the meaning
ascribed to it in Section 3.11(a).
Company Bylaws
has the meaning
ascribed to it in Section 3.1.
Company Common Stock
has the meaning
ascribed to it in Paragraph B of the Recital.
Company Disclosure Schedule
has the
meaning ascribed to it in the third paragraph of
Article III.
Company Financial Statements
has the
meaning ascribed to it in Section 3.5.
Company IP Registrations
has the
meaning ascribed to it in Section 3.15(e).
Company Option Holders
has the meaning
ascribed to it in Section 2.2(a).
Company Representatives
has the
meaning ascribed to it in Section 5.2(a).
Company SEC Documents
has the meaning
ascribed to it in Section 3.5.
Company Shareholder Meeting
has the
meaning ascribed to it in Section 3.10.
Company Shareholders
has the meaning
ascribed to it in Section 2.2(a).
Company Stock Option Plan
has the
meaning ascribed to it in Section 3.2(a).
Company Technology
has the meaning
ascribed to it in Section 3.15(a).
Company Third Party Licenses
has the
meaning ascribed to it in Section 3.15(b).
Company Third Party Technologies
has
the meaning ascribed to it in Section 3.15(b).
Confidentiality Agreement
has the
meaning ascribed to it in Section 5.2(a).
Consummation
has the meaning ascribed
to it in Section 7.1(g).
Dissenting Common Stock
has the
meaning ascribed to it in Section 2.3.
Effective Time
has the meaning
ascribed to it in Section 1.2.
Employees
has the meaning ascribed to
it in Section 3.12.
ERISA
has the meaning ascribed to it
in Section 3.11.
ERISA Affiliate
has the meaning
ascribed to it in Section 3.11.
Exchange Act
has the meaning ascribed
to it in Section 3.4(a).
Final Date
has the meaning ascribed to
it in Section 7.1(b).
Financing
has the meaning ascribed to
it in Section 4.6.
GAAP
has the meaning ascribed to it in
Section 3.5.
Governmental Entity
has the meaning
ascribed to it in Section 3.4(a).
Guarantee
has the meaning ascribed to
it in the forepart of this Agreement.
Guarantor
has the meaning ascribed to
it in the forepart of this Agreement.
Indemnified Party
has the meaning
ascribed to it in Section 5.8(a).
Intellectual Property
has the meaning
ascribed to it in Section 3.15(a).
Knowledge
has the meaning ascribed to
it in the second paragraph of Article III.
Law
has the meaning ascribed to it in
Section 3.9.
Letter of Transmittal
has the meaning
ascribed to it in Section 2.2(c).
Liens
has the meaning ascribed to it
in Section 3.2(b).
A-33
Material
has the meaning ascribed to
it in the first paragraph of Article III.
Material Adverse Effect
has the
meaning ascribed to it in the first paragraph of
Article III.
Material Agreements
has the meaning
ascribed to it in Section 3.16(a).
Merger
has the meaning ascribed to it
in Paragraph A of the Recital.
Merger Consideration
has the meaning
ascribed to it in Section 2.1(a).
Merger Sub
has the meaning ascribed to
it in the forepart of this Agreement.
Merger Sub Common Stock
has the
meaning ascribed to it in Section 2.1(c).
NASD
has the meaning ascribed to it in
Section 3.4(a).
Option
has the meaning ascribed to it
in Section 2.4(a).
Option Cash-Out Agreement
has the
meaning ascribed to it in Section 2.4(b).
Option Consideration
has the meaning
ascribed to it in Section 2.4(b).
Parent
has the meaning ascribed to it
in the forepart of this Agreement.
Parent Disclosure Schedule
has the
meaning ascribed to it in the first paragraph of Article IV.
Paying Agent
has the meaning ascribed
to it in Section 2.2(a).
Payment Fund
has the meaning ascribed
to it in Section 2.2(b).
Preferred Stock
has the meaning
ascribed to it in Section 3.2(a).
Proxy Statement
has the meaning
ascribed to it in Section 3.10.
Recommendation
has the meaning
ascribed to it in Section 7.1(e).
Rights Agreement
has the meaning
ascribed to it in Section 3.2(a).
SEC
has the meaning ascribed to it in
Section 3.4(a).
Securities Act
has the meaning
ascribed to it in Section 3.4(a).
Shareholder
has the meaning ascribed
to it in the forepart of this Agreement.
Subsidiary
has the meaning ascribed to
it in Section 2.1(b).
Superior Proposal
has the meaning
ascribed to it in Section 5.2(a).
Surviving Corporation
has the meaning
ascribed to it in Section 1.1.
Tax Return
has the meaning ascribed to
it in Section 3.14.
Taxes
has the meaning ascribed to it
in Section 3.14.
Trigger Event
has the meaning ascribed
to it in Section 7.3(d).
Voting Agreement
has the meaning
ascribed to it in the forepart of this Agreement.
Washington Law
has the meaning
ascribed to it in Section 1.1.
[Signature Page Follows]
A-34
IN WITNESS WHEREOF, Company, Parent and Merger Sub have caused
this Agreement and Plan of Merger to be executed and delivered
by their respective officers thereunto duly authorized as of the
date first written above.
COMPANY:
COST-U-LESS, INC.
Name:
PARENT:
NWC (US) HOLDINGS, INC.
Name:
MERGER SUB:
COUGAR ACQUISITION CORPORATION
Name:
A-35
TABLE OF
CONTENTS
|
|
|
|
|
|
|
Page
|
|
ARTICLE I THE MERGER
|
|
|
A-2
|
|
1.1 The Merger
|
|
|
A-2
|
|
1.2 Effective Time
|
|
|
A-2
|
|
1.3 Closing
|
|
|
A-2
|
|
1.4 Effect of the Merger
|
|
|
A-3
|
|
1.5 Articles of Incorporation;
Bylaws
|
|
|
A-3
|
|
1.6 Directors and Officers of
the Surviving Corporation
|
|
|
A-3
|
|
1.7 Taking of Necessary Action;
Further Action
|
|
|
A-3
|
|
|
|
|
|
|
ARTICLE II EFFECT OF MERGER
ON CAPITAL STOCK
|
|
|
A-3
|
|
2.1 Effect on Capital Stock
|
|
|
A-3
|
|
(a) Conversion of Company Common
Stock
|
|
|
A-3
|
|
(b) Cancellation of Company Common
Stock Owned by Parent or Company
|
|
|
A-3
|
|
(c) Capital Stock of Merger Sub
|
|
|
A-4
|
|
(d) Adjustments to Merger
Consideration
|
|
|
A-4
|
|
2.2 Exchange of Certificates
|
|
|
A-4
|
|
(a) Paying Agent
|
|
|
A-4
|
|
(b) Parent and Merger Sub to
Provide Cash
|
|
|
A-4
|
|
(c) Exchange Procedures
|
|
|
A-4
|
|
(d) Lost, Stolen or Destroyed
Certificates
|
|
|
A-5
|
|
(e) Transfer Books; No Further
Ownership Rights in Company Common Stock
|
|
|
A-5
|
|
(f) Return of Funds; No Liability
|
|
|
A-5
|
|
(g) Withholding Taxes
|
|
|
A-5
|
|
2.3 Dissenting Shares
|
|
|
A-5
|
|
2.4 Stock Options and Company
Stock Option Plan
|
|
|
A-6
|
|
|
|
|
|
|
ARTICLE III REPRESENTATIONS
AND WARRANTIES OF COMPANY
|
|
|
A-7
|
|
3.1 Corporate Organization,
Standing and Power
|
|
|
A-7
|
|
3.2 Capitalization
|
|
|
A-8
|
|
3.3 Authority
|
|
|
A-8
|
|
3.4 Consents and Approvals; No
Conflict
|
|
|
A-9
|
|
3.5 SEC Documents
|
|
|
A-9
|
|
3.6 Absence of Undisclosed
Liabilities
|
|
|
A-10
|
|
3.7 Absence of Certain Changes
|
|
|
A-10
|
|
3.8 Legal Proceedings
|
|
|
A-10
|
|
3.9 Compliance with Applicable Law
|
|
|
A-11
|
|
3.10 Proxy Statement
|
|
|
A-11
|
|
3.11 Employee Benefit Plans
|
|
|
A-11
|
|
3.12 Employee Matters
|
|
|
A-13
|
|
3.13 Environmental Matters
|
|
|
A-13
|
|
3.14 Taxes
|
|
|
A-13
|
|
3.15 Intellectual Property
|
|
|
A-14
|
|
3.16 Material Agreements
|
|
|
A-15
|
|
3.17 Insurance
|
|
|
A-15
|
|
i
|
|
|
|
|
|
|
Page
|
|
3.18 Properties; Encumbrances
|
|
|
A-16
|
|
3.19 Related Party Transactions
|
|
|
A-16
|
|
3.20 Brokers Fees
|
|
|
A-16
|
|
3.21 Rights Agreement
|
|
|
A-16
|
|
3.22 Vote Required
|
|
|
A-16
|
|
3.23 Complete Copies of Materials
|
|
|
A-16
|
|
3.24 Opinion of Financial Advisor
|
|
|
A-16
|
|
3.25 Board Approval
|
|
|
A-16
|
|
3.26 Representations Complete
|
|
|
A-17
|
|
|
|
|
|
|
ARTICLE IV REPRESENTATIONS
AND WARRANTIES OF PARENT AND MERGER SUB
|
|
|
A-17
|
|
4.1 Corporate Organization,
Standing and Power
|
|
|
A-17
|
|
4.2 Authority
|
|
|
A-17
|
|
4.3 Consents and Approvals; No
Conflict
|
|
|
A-17
|
|
4.4 Brokers Fees
|
|
|
A-18
|
|
4.5 Proxy Statement Information
|
|
|
A-18
|
|
4.6 Financing; Solvency
|
|
|
A-18
|
|
4.7 Litigation
|
|
|
A-18
|
|
4.8 Rights Agreement and
Washington Anti-takeover Statute
|
|
|
A-18
|
|
4.9 Guarantee
|
|
|
A-19
|
|
4.10 Representations Complete
|
|
|
A-19
|
|
|
|
|
|
|
ARTICLE V ADDITIONAL
AGREEMENTS
|
|
|
A-19
|
|
5.1 Conduct of Businesses Prior to
the Effective Time
|
|
|
A-19
|
|
(a) Charter Documents
|
|
|
A-19
|
|
(b) Issuance of Securities
|
|
|
A-19
|
|
(c) Dividends; Changes in Capital
Stock
|
|
|
A-19
|
|
(d) Indebtedness
|
|
|
A-19
|
|
(e) Dispositions
|
|
|
A-19
|
|
(f) Acquisitions
|
|
|
A-20
|
|
(g) Accounting Policies and
Procedures
|
|
|
A-20
|
|
(h) Taxes
|
|
|
A-20
|
|
(i) Insurance
|
|
|
A-20
|
|
(j) Material Contracts
|
|
|
A-20
|
|
(k) Payment of Obligations
|
|
|
A-20
|
|
(l) Collection of Receivables
|
|
|
A-20
|
|
(m) Capital Expenditures
|
|
|
A-20
|
|
(n) Lawsuits
|
|
|
A-20
|
|
(o) Employee Matters
|
|
|
A-20
|
|
(p) Other
|
|
|
A-21
|
|
5.2 No Solicitation
|
|
|
A-21
|
|
5.3 Proxy Statement
|
|
|
A-22
|
|
5.4 Meeting of Shareholders
|
|
|
A-22
|
|
5.5 Publicity
|
|
|
A-23
|
|
5.6 Access to Information
|
|
|
A-23
|
|
ii
|
|
|
|
|
|
|
Page
|
|
5.7 Further Assurances
|
|
|
A-23
|
|
5.8 Indemnification
|
|
|
A-24
|
|
5.9 Shareholder Litigation
|
|
|
A-24
|
|
5.10 Confidentiality
|
|
|
A-24
|
|
5.11 Financing
|
|
|
A-25
|
|
5.12 Director Resignations
|
|
|
A-25
|
|
5.13 Additional Agreements
|
|
|
A-25
|
|
|
|
|
|
|
ARTICLE VI CONDITIONS TO THE
MERGER
|
|
|
A-25
|
|
6.1 Conditions to the Obligations
of Each Party to Effect the Merger
|
|
|
A-25
|
|
(a) Shareholder Approval
|
|
|
A-25
|
|
(b) Statutes
|
|
|
A-25
|
|
(c) Injunctions
|
|
|
A-25
|
|
6.2 Additional Conditions to the
Obligations of Parent and Merger Sub to Effect the Merger
|
|
|
A-26
|
|
(a) Representations, Warranties
and Covenants
|
|
|
A-26
|
|
(b) Certificate of Company
|
|
|
A-26
|
|
(c) Material Adverse Effect
|
|
|
A-26
|
|
(d) Stock Option Plans
|
|
|
A-26
|
|
(e) Consents
|
|
|
A-26
|
|
(f) Estoppel Certificates
|
|
|
A-26
|
|
(h) Cayman Islands Store
|
|
|
A-26
|
|
(i) Legal Opinion
|
|
|
A-26
|
|
6.3 Conditions to Obligations of
Company to Effect the Merger
|
|
|
A-27
|
|
(a) Representations, Warranties
and Covenants
|
|
|
A-27
|
|
(b) Certificate of Parent
|
|
|
A-27
|
|
(c) Legal Opinion
|
|
|
A-27
|
|
|
|
|
|
|
ARTICLE VII TERMINATION,
AMENDMENT AND WAIVER
|
|
|
A-27
|
|
7.1 Termination
|
|
|
A-27
|
|
7.2 Effect of Termination
|
|
|
A-29
|
|
7.3 Expenses and Termination Fees
|
|
|
A-29
|
|
7.4 Amendment
|
|
|
A-30
|
|
7.5 Extension; Waiver
|
|
|
A-30
|
|
|
|
|
|
|
ARTICLE VIII GENERAL
PROVISIONS
|
|
|
A-30
|
|
8.1 Non-survival of
Representations and Warranties
|
|
|
A-30
|
|
8.2 Notices
|
|
|
A-30
|
|
8.3 Counterparts
|
|
|
A-31
|
|
8.4 Entire Agreement; Third Party
Beneficiaries
|
|
|
A-31
|
|
8.5 Severability
|
|
|
A-31
|
|
8.6 Governing Law and Jurisdiction
|
|
|
A-31
|
|
8.7 Facsimile Signatures
|
|
|
A-32
|
|
8.8 Assignment
|
|
|
A-32
|
|
8.9 Headings; Interpretation
|
|
|
A-32
|
|
8.10 Enforcement
|
|
|
A-32
|
|
8.11 Definitions
|
|
|
A-32
|
|
iii
August 27, 2007
CONFIDENTIAL
The Board of Directors
Cost-U-Less, Inc.
3633 136th Place SE, Suite 110
Bellevue, WA 98006
Dear Members of the Board:
You have asked us to advise you with respect to the fairness,
from a financial point of view, to Cost-U-Less, Inc.
(Cost-U-Less or the Company) of
the Merger Consideration (as defined in the Agreement) to be
received by Cost-U-Less shareholders pursuant to the Stock
Purchase Agreement (the Agreement) by and among The
North West Company (North West), and the Company.
Pursuant to the Agreement, among other things, North West will
purchase all of the issued and outstanding equity securities of
Cost-U-Less, including payment of Option Consideration (as
defined in the Agreement) (the Purchase).
We have acted as financial advisor to the Board of Directors of
Cost-U-Less in connection with the Purchase and will receive a
fee for our services, a substantial portion of which is
contingent upon the consummation of the Purchase.
In arriving at our opinion, we have, among other things:
(i) reviewed certain internal financial information and
other data relating to the Company and its financial prospects
that were provided to us by the management of the Company,
including the financial statements and financial forecasts and
estimates prepared by the management of the Company (together,
the Prospective Financial Information);
(ii) conducted discussions with members of the senior
management of Cost-U-Less and the Board of Directors and Special
Committee of Cost-U-Less concerning the businesses and financial
prospects of the Company;
(iii) reviewed publicly-available financial and stock
market data with respect to certain companies in lines of
businesses that we believe to be generally relevant to this
purchase;
(iv) compared the financial terms of the Purchase with
publicly-available financial terms of certain other transactions
that we believe to be generally relevant;
(v) performed a discounted cash flow analysis based on the
Companys Prospective Financial Information and assumptions
around costs of capital and relative future exit multiples;
(vi) performed a market-based survey as to the interest
level and valuation related to a purchase of the Company with
forty-nine companies;
(vii) reviewed a draft of the Agreement dated
August 26, 2007; and
(viii) conducted such other financial studies, analyses and
investigations, and considered such other information financial,
economic and market criteria, as we deemed necessary or
appropriate.
Our opinion does not address the relative merits of the Purchase
as compared to other business strategies or transactions that
might be available to Cost-U-Less or the underlying business
decision of Cost-U-Less to affect the Purchase. Moreover, we
express no opinion as to whether any alternative transaction
might produce consideration for Cost-U-Lesss shareholders
in excess of the amount contemplated in the Agreement. We have
not been asked to, nor do we, offer any opinion as to the terms
of the Agreement or the form of the Purchase.
B-1
In our review and analysis and in formulating our opinion, we
have assumed and relied upon, without independent verification,
the accuracy and completeness of the financial and other
information provided to or discussed with or reviewed by us for
the purpose of this opinion. With respect to the Prospective
Financial Information, we have assumed and relied without
independent verification upon the reasonableness and accuracy of
the Prospective Financial Information provided to us and that
such Prospective Financial Information has been reasonably
prepared in good faith and on bases reflecting the best
currently available judgments and estimates of
Cost-U-Lesss management. We express no opinion with
respect to such Prospective Financial Information or the
assumptions upon which it is based. We have not reviewed any of
the books and records of Cost-U-Less, assumed any responsibility
for conducting a physical inspection of the properties or
facilities of Cost-U-Less nor made any independent valuation or
appraisal of the assets or liabilities of Cost-U-Less.
In rendering our opinion, we have, with your consent, made the
following assumptions: (i) that the Merger Consideration
will not be reduced as a result of any provisions in the
Agreement; (ii) that North West has at its disposal
sufficient funds to complete the purchase; (iii) that
Cost-U-Less and North West will comply with all material terms
of the Agreement, (iv) that the purchase by North West of
all shares of Cost-U-Less Common Stock not owned by it will be
accomplished as described in the Agreement, (v) that the
Purchase will be consummated in accordance with the terms of the
Agreement without waiver, modification or amendment,
(vi) that the final executed form of the Agreement will not
differ in any material respect from the draft of the Agreement
reviewed by us, and (vii) that all governmental, regulatory
or other consents and approvals necessary for the consummation
of the Purchase will be obtained without any adverse effect on
the Purchase.
Our opinion expressed herein is provided solely for the
information of the Board of Directors of Cost-U-Less in its
evaluation of the proposed Purchase and may not be relied upon
by any third party or used for any other purpose. This opinion
may not be disclosed, referred to, or communicated (in whole or
in part) to any third party for any purpose whatsoever except
with our prior written consent in each instance; provided that
our opinion may be included in the proxy statement of
Cost-U-Less. Our opinion is necessarily based on economic,
market and other conditions and circumstances as in effect on
the date of this letter and the information made available to us
as of such date. Subsequent developments may affect this opinion
and we do not undertake, nor do we have, any obligation to
update, revise, or reaffirm this opinion.
Based upon and subject to the foregoing, including the various
assumptions and limitations set forth herein, we are of the
opinion on the date hereof that the Merger Consideration to be
received by Cost-U-Less shareholders in connection with the
Purchase pursuant to the Agreement is fair, from a financial
point of view, to Cost-U-Less shareholders.
Very truly yours,
CASCADIA CAPITAL, LLC
B-2
Revised
Code of Washington
Title 23B Washington Business Corporation Act
Chapter 13 Dissenters Rights
23B.13.010
Definitions.
As used in this chapter:
(1) Corporation means the issuer of the shares
held by a dissenter before the corporate action, or the
surviving or acquiring corporation by merger or share exchange
of that issuer.
(2) Dissenter means a shareholder who is
entitled to dissent from corporate action under RCW
23B.13.020
and who exercises that right when and in the
manner required by RCW
23B.13.200
through
23B.13.280.
(3) Fair value, with respect to a
dissenters shares, means the value of the shares
immediately before the effective date of the corporate action to
which the dissenter objects, excluding any appreciation or
depreciation in anticipation of the corporate action unless
exclusion would be inequitable.
(4) Interest means interest from the effective
date of the corporate action until the date of payment, at the
average rate currently paid by the corporation on its principal
bank loans or, if none, at a rate that is fair and equitable
under all the circumstances.
(5) Record shareholder means the person in
whose name shares are registered in the records of a corporation
or the beneficial owner of shares to the extent of the rights
granted by a nominee certificate on file with a corporation.
(6) Beneficial shareholder means the person who
is a beneficial owner of shares held in a voting trust or by a
nominee as the record shareholder.
(7) Shareholder means the record shareholder or
the beneficial shareholder.
23B.13.020
Right to dissent.
(1) A shareholder is entitled to dissent from, and obtain
payment of the fair value of the shareholders shares in
the event of, any of the following corporate actions:
(a) Consummation of a plan of merger to which the
corporation is a party (i) if shareholder approval is
required for the merger by RCW 23B.11.030, 23B.11.080, or the
articles of incorporation, and the shareholder is entitled to
vote on the merger, or (ii) if the corporation is a
subsidiary that is merged with its parent under RCW 23B.11.040;
(b) Consummation of a plan of share exchange to which the
corporation is a party as the corporation whose shares will be
acquired, if the shareholder is entitled to vote on the plan;
(c) Consummation of a sale or exchange of all, or
substantially all, of the property of the corporation other than
in the usual and regular course of business, if the shareholder
is entitled to vote on the sale or exchange, including a sale in
dissolution, but not including a sale pursuant to court order or
a sale for cash pursuant to a plan by which all or substantially
all of the net proceeds of the sale will be distributed to the
shareholders within one year after the date of sale;
(d) An amendment of the articles of incorporation, whether
or not the shareholder was entitled to vote on the amendment, if
the amendment effects a redemption or cancellation of all of the
shareholders shares in exchange for cash or other
consideration other than shares of the corporation; or
C-1
(e) Any corporate action taken pursuant to a shareholder
vote to the extent the articles of incorporation, bylaws, or a
resolution of the board of directors provides that voting or
nonvoting shareholders are entitled to dissent and obtain
payment for their shares.
(2) A shareholder entitled to dissent and obtain payment
for the shareholders shares under this chapter may not
challenge the corporate action creating the shareholders
entitlement unless the action fails to comply with the
procedural requirements imposed by this title, RCW 25.10.900
through 25.10.955, the articles of incorporation, or the bylaws,
or is fraudulent with respect to the shareholder or the
corporation.
(3) The right of a dissenting shareholder to obtain payment
of the fair value of the shareholders shares shall
terminate upon the occurrence of any one of the following events:
(a) The proposed corporate action is abandoned or rescinded;
(b) A court having jurisdiction permanently enjoins or sets
aside the corporate action; or
(c) The shareholders demand for payment is withdrawn
with the written consent of the corporation.
23B.13.030
Dissent by nominees and beneficial owners.
(1) A record shareholder may assert dissenters rights
as to fewer than all the shares registered in the
shareholders name only if the shareholder dissents with
respect to all shares beneficially owned by any one person and
delivers to the corporation a notice of the name and address of
each person on whose behalf the shareholder asserts
dissenters rights. The rights of a partial dissenter under
this subsection are determined as if the shares as to which the
dissenter dissents and the dissenters other shares were
registered in the names of different shareholders.
(2) A beneficial shareholder may assert dissenters
rights as to shares held on the beneficial shareholders
behalf only if:
(a) The beneficial shareholder submits to the corporation
the record shareholders consent to the dissent not later
than the time the beneficial shareholder asserts
dissenters rights, which consent shall be set forth either
(i) in a record or (ii) if the corporation has
designated an address, location, or system to which the consent
may be electronically transmitted and the consent is
electronically transmitted to the designated address, location,
or system, in an electronically transmitted record; and
(b) The beneficial shareholder does so with respect to all
shares of which such shareholder is the beneficial shareholder
or over which such shareholder has power to direct the vote.
23B.13.200
Notice of dissenters rights.
(1) If proposed corporate action creating dissenters
rights under RCW
23B.13.020
is submitted to a vote at a
shareholders meeting, the meeting notice must state that
shareholders are or may be entitled to assert dissenters
rights under this chapter and be accompanied by a copy of this
chapter.
(2) If corporate action creating dissenters rights
under RCW
23B.13.020
is taken without a vote of
shareholders, the corporation, within ten days after the
effective date of such corporate action, shall deliver a notice
to all shareholders entitled to assert dissenters rights
that the action was taken and send them the notice described in
RCW
23B.13.220.
23B.13.210
Notice of intent to demand payment.
(1) If proposed corporate action creating dissenters
rights under RCW
23B.13.020
is submitted to a vote at a
shareholders meeting, a shareholder who wishes to assert
dissenters rights must (a) deliver to the corporation
before the vote is taken notice of the shareholders intent
to demand payment for the shareholders shares if the
proposed action is effected, and (b) not vote such shares
in favor of the proposed action.
C-2
(2) A shareholder who does not satisfy the requirements of
subsection (1) of this section is not entitled to payment
for the shareholders shares under this chapter.
23B.13.220
Dissenters rights Notice.
(1) If proposed corporate action creating dissenters
rights under RCW
23B.13.020
is authorized at a
shareholders meeting, the corporation shall deliver a
notice to all shareholders who satisfied the requirements of RCW
23B.13.210.
(2) The notice must be sent within ten days after the
effective date of the corporate action, and must:
(a) State where the payment demand must be sent and where
and when certificates for certificated shares must be deposited;
(b) Inform holders of uncertificated shares to what extent
transfer of the shares will be restricted after the payment
demand is received;
(c) Supply a form for demanding payment that includes the
date of the first announcement to news media or to shareholders
of the terms of the proposed corporate action and requires that
the person asserting dissenters rights certify whether or
not the person acquired beneficial ownership of the shares
before that date;
(d) Set a date by which the corporation must receive the
payment demand, which date may not be fewer than thirty nor more
than sixty days after the date the notice in subsection (1)
of this section is delivered; and
(e) Be accompanied by a copy of this chapter.
23B.13.230
Duty to demand payment.
(1) A shareholder sent a notice described in RCW
23B.13.220
must demand payment, certify whether the
shareholder acquired beneficial ownership of the shares before
the date required to be set forth in the notice pursuant to RCW
23B.13.220
(2)(c), and deposit the shareholders
certificates, all in accordance with the terms of the notice.
(2) The shareholder who demands payment and deposits the
shareholders share certificates under subsection (1)
of this section retains all other rights of a shareholder until
the proposed corporate action is effected.
(3) A shareholder who does not demand payment or deposit
the shareholders share certificates where required, each
by the date set in the notice, is not entitled to payment for
the shareholders shares under this chapter.
23B.13.240
Share restrictions.
(1) The corporation may restrict the transfer of
uncertificated shares from the date the demand for their payment
is received until the proposed corporate action is effected or
the restriction is released under RCW
23B.13.260.
(2) The person for whom dissenters rights are
asserted as to uncertificated shares retains all other rights of
a shareholder until the effective date of the proposed corporate
action.
C-3
23B.13.250
Payment.
(1) Except as provided in RCW
23B.13.270
, within
thirty days of the later of the effective date of the proposed
corporate action, or the date the payment demand is received,
the corporation shall pay each dissenter who complied with RCW
23B.13.230
the amount the corporation estimates to be the
fair value of the shareholders shares, plus accrued
interest.
(2) The payment must be accompanied by:
(a) The corporations balance sheet as of the end of a
fiscal year ending not more than sixteen months before the date
of payment, an income statement for that year, a statement of
changes in shareholders equity for that year, and the
latest available interim financial statements, if any;
(b) An explanation of how the corporation estimated the
fair value of the shares;
(c) An explanation of how the interest was calculated;
(d) A statement of the dissenters right to demand
payment under RCW
23B.13.280
; and
(e) A copy of this chapter.
23B.13.260
Failure to take action.
(1) If the corporation does not effect the proposed action
within sixty days after the date set for demanding payment and
depositing share certificates, the corporation shall return the
deposited certificates and release any transfer restrictions
imposed on uncertificated shares.
(2) If after returning deposited certificates and releasing
transfer restrictions, the corporation wishes to undertake the
proposed action, it must send a new dissenters notice
under RCW
23B.13.220
and repeat the payment demand
procedure.
23B.13.270
After-acquired shares.
(1) A corporation may elect to withhold payment required by
RCW
23B.13.250
from a dissenter unless the dissenter was
the beneficial owner of the shares before the date set forth in
the dissenters notice as the date of the first
announcement to news media or to shareholders of the terms of
the proposed corporate action.
(2) To the extent the corporation elects to withhold
payment under subsection (1) of this section, after taking
the proposed corporate action, it shall estimate the fair value
of the shares, plus accrued interest, and shall pay this amount
to each dissenter who agrees to accept it in full satisfaction
of the dissenters demand. The corporation shall send with
its offer an explanation of how it estimated the fair value of
the shares, an explanation of how the interest was calculated,
and a statement of the dissenters right to demand payment
under RCW
23B.13.280.
23B.13.280
Procedure if shareholder dissatisfied with payment or
offer.
(1) A dissenter may deliver a notice to the corporation
informing the corporation of the dissenters own estimate
of the fair value of the dissenters shares and amount of
interest due, and demand payment of the dissenters
estimate, less any payment under RCW
23B.13.250
, or
reject the corporations offer under RCW
23B.13.270
and demand payment of the dissenters estimate of the fair
value of the dissenters shares and interest due, if:
(a) The dissenter believes that the amount paid under RCW
23B.13.250
or offered under RCW
23B.13.270
is less
than the fair value of the dissenters shares or that the
interest due is incorrectly calculated;
C-4
(b) The corporation fails to make payment under RCW
23B.13.250
within sixty days after the date set for
demanding payment; or
(c) The corporation does not effect the proposed action and
does not return the deposited certificates or release the
transfer restrictions imposed on uncertificated shares within
sixty days after the date set for demanding payment.
(2) A dissenter waives the right to demand payment under
this section unless the dissenter notifies the corporation of
the dissenters demand under subsection (1) of this
section within thirty days after the corporation made or offered
payment for the dissenters shares.
23B.13.300
Court action.
(1) If a demand for payment under RCW
23B.13.280
remains unsettled, the corporation shall commence a proceeding
within sixty days after receiving the payment demand and
petition the court to determine the fair value of the shares and
accrued interest. If the corporation does not commence the
proceeding within the
sixty-day
period, it shall pay each dissenter whose demand remains
unsettled the amount demanded.
(2) The corporation shall commence the proceeding in the
superior court of the county where a corporations
principal office, or, if none in this state, its registered
office, is located. If the corporation is a foreign corporation
without a registered office in this state, it shall commence the
proceeding in the county in this state where the registered
office of the domestic corporation merged with or whose shares
were acquired by the foreign corporation was located.
(3) The corporation shall make all dissenters, whether or
not residents of this state, whose demands remain unsettled,
parties to the proceeding as in an action against their shares
and all parties must be served with a copy of the petition.
Nonresidents may be served by registered or certified mail or by
publication as provided by law.
(4) The corporation may join as a party to the proceeding
any shareholder who claims to be a dissenter but who has not, in
the opinion of the corporation, complied with the provisions of
this chapter. If the court determines that such shareholder has
not complied with the provisions of this chapter, the
shareholder shall be dismissed as a party.
(5) The jurisdiction of the court in which the proceeding
is commenced under subsection (2) of this section is
plenary and exclusive. The court may appoint one or more persons
as appraisers to receive evidence and recommend decision on the
question of fair value. The appraisers have the powers described
in the order appointing them, or in any amendment to it. The
dissenters are entitled to the same discovery rights as parties
in other civil proceedings.
(6) Each dissenter made a party to the proceeding is
entitled to judgment (a) for the amount, if any, by which
the court finds the fair value of the dissenters shares,
plus interest, exceeds the amount paid by the corporation, or
(b) for the fair value, plus accrued interest, of the
dissenters after-acquired shares for which the corporation
elected to withhold payment under RCW
23B.13.270.
23B.13.310
Court costs and counsel fees.
(1) The court in a proceeding commenced under RCW
23B.13.300
shall determine all costs of the proceeding,
including the reasonable compensation and expenses of appraisers
appointed by the court. The court shall assess the costs against
the corporation, except that the court may assess the costs
against all or some of the dissenters, in amounts the court
finds equitable, to the extent the court finds the dissenters
acted arbitrarily, vexatiously, or not in good faith in
demanding payment under RCW
23B.13.280.
C-5
(2) The court may also assess the fees and expenses of
counsel and experts for the respective parties, in amounts the
court finds equitable:
(a) Against the corporation and in favor of any or all
dissenters if the court finds the corporation did not
substantially comply with the requirements of RCW
23B.13.200
through
23B.13.280
; or
(b) Against either the corporation or a dissenter, in favor
of any other party, if the court finds that the party against
whom the fees and expenses are assessed acted arbitrarily,
vexatiously, or not in good faith with respect to the rights
provided by chapter 23B.13 RCW.
(3) If the court finds that the services of counsel for any
dissenter were of substantial benefit to other dissenters
similarly situated, and that the fees for those services should
not be assessed against the corporation, the court may award to
these counsel reasonable fees to be paid out of the amounts
awarded the dissenters who were benefited.
C-6